ESB Domain 4 Business Financials

Front

Which of the following is an example of a fixed expense? Sales commission, Raw materials, Utilities, Rent

Back

Rent

Answer explanation

Rent is a fixed expense because it remains constant over time, unlike sales commissions and raw materials, which vary with sales and production levels. Utilities can fluctuate, making them variable expenses.

Front

Which of the following is an example of a variable expense?

• Rent
• Insurance
• Utilities
• Raw materials

Back

Raw materials

Answer explanation

Raw materials are considered a variable expense because their costs fluctuate based on production levels, unlike fixed expenses like rent and insurance, which remain constant regardless of activity.

Front

Cost of manufacturing a phone case is $23 with a desired profit margin of 15%. What is the selling price?

Back

$26.45

Answer explanation

To find the selling price, calculate 15% of the manufacturing cost ($23). This is $3.45. Adding this to the cost gives $26.45, which is the correct selling price.

Front

Assets: $30,000; Liabilities: $6,800. Calculate owner's equity.

Back

$23,200

Answer explanation

Owner's equity is calculated as assets minus liabilities. Here, $30,000 (assets) - $6,800 (liabilities) equals $23,200. Therefore, the correct answer is $23,200.

Front

Variable costs _____ depending on production.

Back

fluctuate

Answer explanation

Variable costs fluctuate depending on production levels because they change with the amount of goods produced. As production increases, costs like materials and labor rise, and they decrease when production falls.

Front

What does the Burn Rate measure?

Back

The amount of cash a company is spending every month and measures cash flow

Answer explanation

The Burn Rate measures the amount of cash a company is spending every month, indicating its cash flow situation. This is crucial for understanding how long a company can sustain its operations before needing additional funding.

Front

What is the formula for calculating gross profit?

Back

Selling Price - Cost = Gross Profit

Answer explanation

The correct formula for calculating gross profit is Selling Price - Cost Price. This shows that gross profit is the difference between what you earn from sales and what you spent to acquire the product.

Front

What is the formula for calculating income tax expense?

Back

Gross Profit x Tax Rate = Income Tax Expense

Answer explanation

The correct formula for calculating income tax expense is based on net profit, not gross profit. Therefore, the correct choice is 'Net Profit x Tax Rate = Income Tax Expense', which accurately reflects taxable income.

Front

What is the formula for calculating return on investment?

Back

(Net profit / Investment) x 100

Answer explanation

The correct formula for calculating return on investment (ROI) is (Net profit / Investment) x 100. This measures the profitability of an investment by comparing net profit to the amount invested.

Front

What is the formula for calculating net profit?

Back

Gross profit - Expenses

Answer explanation

Net profit is calculated by subtracting expenses from gross profit. Therefore, the correct formula is Gross profit - Expenses, which reflects the actual earnings after all costs are deducted.