Business Management Unit 3

Working capital is

• Fixed assets less current assets

• Current assets less long-term liabilities

• Current assets less current liabilities

• Equity

A balance sheet is said to balance when:

• Net assets equal equity

• Assets minus current liabilities equal equity

• Fixed assets minus current assets equal long term liabilities

• Current assets minus current liabilities equal equity

The three parts of the Profit and Loss Statement are:

• Profit and Loss, Balance Sheet and Trading accounts

• Income, Expense and Profit accounts

• Sales, Revenue and Profit accounts

• Trading, Profit and Loss and Appropriation account

An important advantage of budgeting is _____________ because it allows employees that have met the targets or have been below the budgeted costs to be rewarded with higher budgets or provided with compensation.

• Communication

• Motivation

• Control

• Coordination

Sanna has found out through the use of ARR that purchasing a harvester gives a higher rate of return than employing two labourers. Should Sanna go ahead with the purchase?

• No, she should employ labourers and provide them with jobs.

• Yes, if ARR shows a higher return, it is the most reliable forecast.

• Yes, because a machine can do work more efficiently and ARR is higher.

• No, she should also perform a SWOT analysis of the purchase to support the quantitative analysis.

A project Shuttle costs a firm $750,000 in investment but will save the firm $150,000 every year for the next 7 years. A project Satellite will cost the firm $500,000 but will earn the firm an additional $200,000 every year for the next 5 years. Which project should the firm choose using payback period?

• Shuttle

• Satellite

• Both projects are equally good

• Neither of the projects are good

Given the following data, calculate the margin of safety.

Selling price = $60

Variable cost = $35

Fixed cost = $85000

Sales = 7000 units

• 3000 units

• 3400 units

• 3500 units

• 3600 units

Using a model such as break-even is useful because

• all the options.

• models can predict revenues and profit accurately

• It helps managers to predict safety margins and possible profit or loss with some certainty.

• models are often true to real life.

Which of the following is not likely to be a method for reducing cash outflows?

• Making cash payments only

• More effective control of stock

• Looking for a low-cost supplier overseas

• Reducing expenses

Which of the following is a cash inflow?

• Debtors

• Rent

• Utilities

• Wages