Question Bank - Business Studies 2

Accounting and Finance: Test 2

Q1. A company buys 10 items at a price of £200 each, all on 14 days free credit. It then sells on the next day 5 units for £350 each. One item was sold for cash, the remainder on 21 days free credit. What effect do these transactions have on the firms cash flow on the day of the sale? (Select one answer) (a) Gains £750 (b) Gains £1,750 (c) Loses £2,000 (d) Gains £350.

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Q2. The following are all examples of possible causes of cash flow problems, except (Select one answer) (a) over-investment (b) overtrading (c) selling on credit (d) buying on credit

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Q3. In the context of break-even analysis, the Margin of Safety for a firm is (Select one answer) (a) The difference between the sales revenue achieved and the break-even revenue. (b) The difference between planned (or actual) output and the break-even quantity in a particular time period.. (c) The percentage difference between planned (or actual) output and the break-even quantity. (d) The difference between planned (or actual) output and the break-even quantity.

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Q4. A company buys 10 items at a price of £200 each, all on 14 days free credit. It then sells on the next day 5 units for £350 each. One item was sold for cash, the remainder on 21 days free credit. How much profit has the firm made? (Select one answer) (a) £1,000. (b) £150. (c) £750 (d) £1,750.

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Q5. In the business sense, and for a particular business, a debtor is (Select one answer) (a) Someone, firm or individual, that the business owes money to. (b) A current asset of a business. (c) A current liability of a business. (d) the Inland Revenue.

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Q6. A firm has fixed costs of £100,000 per month and variable costs of £25 for item. It sells them for £50 each. If it sells 5,000 units each month, what is the firms Margin of Safety? (Select one answer) (a) 1,000 units per month (b) £50,000 (c) 1,000 units (d) 25%.

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Q7. Variances in costs can be caused by changes in all of the following, except (Select one answer) (a) storage and waste of materials. (b) efficiency. (c) wages of staff. (d) price of the product.

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Q8. The liquidity of a firm is a measure of (Select one answer) (a) its ability to pay bills as they come due. (b) its ability to respond to changes in demand. (c) how flexible it is in its production planning. (d) how quickly and easily a firm could relocate to another site.

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Q9. A firm has fixed costs of £100,000 per month and variable costs of £25 for item. It proposes to sell these items for £50 each. What is the break-even output for this firm? (Select one answer) (a) 4,000 units (b) 4,000 units in a month. (c) cannot be worked out from the information. (d) 2,000 units per month.

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Q10. Profit can be defined as (Select one answer) (a) A firm's revenue less its costs for an accounting period. (b) An accounting concept, the difference between the revenue obtained form the sale of something less all the costs incurred in its manufacture and sale. (c) An accounting concept, the difference between the revenue obtained from the sale of something less all the costs incurred in its manufacture and sale, irrespective of any credits given or taken. (d) The difference between the money in the bank at the start and end of a trading period.

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