Lesson 3.5.2.1
3.5.2.1 Budgets, cash flow forecasts and break-even analysis Quiz: AQA Business, Unit 5
20 questions
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Lesson 3.5.2.1, Budgets, cash flow forecasts and break-even analysis: 20 multiple choice questions for the AQA Business (7132), Unit 5: Financial management, written with Revision Ninja.
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The 20 questions
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Break-even output is:
- The output at which fixed costs equal variable costs
- The output at which total costs are at their lowest level
- The level of output at which total revenue equals total costs, so profit is zero
- The output at which revenue is at its maximum
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Contribution per unit is:
- Selling price per unit minus variable cost per unit
- Variable cost per unit minus price per unit
- Total revenue minus total fixed costs
- Selling price per unit minus fixed cost per unit
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Margin of safety is:
- The amount by which actual or budgeted output exceeds break-even output
- The amount by which break-even output exceeds actual output
- The fixed costs that must be covered before any sales are made
- The total profit made before fixed costs are deducted
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An adverse variance occurs when:
- Actual performance is worse than budgeted, for example costs above budget or revenue below budget
- Actual output equals the budgeted level exactly
- Actual costs are below budget, saving money for the business
- Actual revenue is higher than budgeted revenue
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The main value of budgeting is:
- It guarantees that all costs will be met without any changes
- It removes the need for a business to forecast sales
- It eliminates the need to track actual spending
- It sets financial targets and allows managers to monitor performance against plans
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Total contribution is calculated as:
- Fixed costs divided by contribution per unit
- Price per unit multiplied by fixed costs
- Revenue minus fixed costs only
- Contribution per unit multiplied by the number of units sold
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A cash flow forecast shows:
- Predicted cash inflows and outflows over future periods, with the resulting opening and closing cash balances
- Market shares of competitors in the next year
- Past profits recorded in the income statement at year end
- The value of assets and liabilities at a single point in time
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A product has a price of 20 and variable cost of 8, with fixed costs of 60,000. What is the break-even output?
- 5,000 units
- 3,000 units
- 7,500 units
- 12,000 units
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Using the same product, what is the break-even revenue?
- 60,000
- 100,000
- 40,000
- 160,000
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A business sells 7,500 units and its break-even output is 5,000 units. What is its margin of safety in units?
- 12,500 units
- 5,000 units
- 7,500 units
- 2,500 units
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Using the same product and 7,500 units sold, what is the profit?
- 150,000
- 60,000
- 30,000
- 90,000
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The selling price rises from 20 to 22, with all else unchanged. What happens to break-even output?
- It is unchanged because fixed costs are unchanged
- It falls to 3,000 units as variable costs double
- It falls to about 4,286 units, because contribution per unit rises to 14
- It rises to 6,000 units because revenue rises
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Budgeted revenue is 50,000 and actual revenue is 46,000. What is the revenue variance?
- 46,000 adverse
- 96,000 favourable
- 4,000 favourable
- 4,000 adverse
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Budgeted costs are 80,000 and actual costs are 84,500. What is the cost variance?
- 80,000 favourable
- 4,500 adverse
- 164,500 adverse
- 4,500 favourable
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A cash flow forecast predicts a negative net cash flow in month three. What is the most appropriate response?
- Stop all sales to reduce cash outflows
- Arrange an overdraft or delay some payments before the shortfall occurs
- Increase fixed costs to balance cash flow
- Ignore it because profit is positive
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Evaluate: what is the strongest criticism of break-even analysis?
- It calculates profit exactly and is never based on estimates
- It is required by law for all sole traders
- It is only relevant to businesses that make a loss
- It assumes constant selling prices and cost behaviour, which may not hold in practice, so results are approximate
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Fixed costs rise from 60,000 to 75,000, with price 20 and variable cost 8. What is the new break-even output?
- 5,000 units
- 6,250 units
- 9,375 units
- 3,750 units
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A business budgets 10,000 units with break-even of 6,000 units. Sales then fall 20% from the budget. What is the margin of safety now?
- 6,000 units
- 4,000 units
- 8,000 units
- 2,000 units
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A business's costs are favourable against budget, but its revenue is adverse. What is the best interpretation?
- Favourable cost variances always mean the budget was too high
- Adverse revenue variances are impossible when costs fall
- Cost savings may not compensate if lower sales reduce profit, so the overall position must be analysed
- The business has performed excellently overall
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A business cuts its price from 20 to 18, and sales rise from 7,500 to 9,000 units. Variable cost is 8 and fixed costs are 60,000. What is the new profit?
- 42,000
- 24,000
- 36,000
- 30,000, the same as before
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