Podcast
Questions and Answers
What must an entrepreneur do if disbursements are greater than receipts?
What must an entrepreneur do if disbursements are greater than receipts?
- Reduce production costs
- Borrow funds or have cash in a bank (correct)
- Increase marketing efforts
- Hire more employees
Where should large positive cash flows be directed?
Where should large positive cash flows be directed?
- Used to offer staff bonuses
- Spent on marketing
- Used to expand operations
- Invested or deposited in a bank (correct)
What is one challenge in creating a pro forma cash flow?
What is one challenge in creating a pro forma cash flow?
- Forecasting employee turnover
- Predicting consumer behavior
- Identifying future competitors
- Determining exact monthly receipts and disbursements (correct)
On what basis is pro forma cash flow created?
On what basis is pro forma cash flow created?
What should entrepreneurs do monthly regarding cash flow?
What should entrepreneurs do monthly regarding cash flow?
What does the financial plan provide an entrepreneur with?
What does the financial plan provide an entrepreneur with?
Before developing the pro forma income statement, which budget should be developed?
Before developing the pro forma income statement, which budget should be developed?
In manufacturing ventures, what is compared to determine costs?
In manufacturing ventures, what is compared to determine costs?
The financial plan explains how the entrepreneur intends to:
The financial plan explains how the entrepreneur intends to:
What is included in the sales budget?
What is included in the sales budget?
Which statement is true regarding the financial plan?
Which statement is true regarding the financial plan?
Which expense category has the same amount each month for the three months shown?
Which expense category has the same amount each month for the three months shown?
What is the total expense for February?
What is the total expense for February?
Which expense increases from January to March?
Which expense increases from January to March?
Which of the following is considered a fixed expense?
Which of the following is considered a fixed expense?
What type of budget evaluates expenditures that impact the business for more than one year?
What type of budget evaluates expenditures that impact the business for more than one year?
What is the first step in calculating pro forma income?
What is the first step in calculating pro forma income?
Which of the following is used as a basis for figures in calculating pro forma income?
Which of the following is used as a basis for figures in calculating pro forma income?
What should be taken into account when calculating selling expenses for later years?
What should be taken into account when calculating selling expenses for later years?
Why might month-by-month illustrations be necessary during the first year?
Why might month-by-month illustrations be necessary during the first year?
For which years should projections be made when preparing pro forma income statements?
For which years should projections be made when preparing pro forma income statements?
What is the total amount of current assets for MPP Plastics Inc. at the end of the first year?
What is the total amount of current assets for MPP Plastics Inc. at the end of the first year?
What is the value of equipment before depreciation for MPP Plastics Inc.?
What is the value of equipment before depreciation for MPP Plastics Inc.?
What is the total amount of liabilities at the end of the first year for MPP Plastics Inc.?
What is the total amount of liabilities at the end of the first year for MPP Plastics Inc.?
How much has K. Peters invested in MPP Plastics Inc.?
How much has K. Peters invested in MPP Plastics Inc.?
What is the total amount of owners' equity at the end of the first year?
What is the total amount of owners' equity at the end of the first year?
What are the retained earnings for MPP Plastics Inc. at the end of the first year?
What are the retained earnings for MPP Plastics Inc. at the end of the first year?
Which of the following is a source of funds in a pro forma statement?
Which of the following is a source of funds in a pro forma statement?
Which of these is an application of funds?
Which of these is an application of funds?
What is the most suitable software for completing pro forma statements?
What is the most suitable software for completing pro forma statements?
Why is a spreadsheet program useful for pro forma statements?
Why is a spreadsheet program useful for pro forma statements?
Which of the following statements about software packages is correct?
Which of the following statements about software packages is correct?
What is projected cash available calculated from?
What is projected cash available calculated from?
Why can the use of profit as a measure of success be deceiving?
Why can the use of profit as a measure of success be deceiving?
Which of the following is not considered cash in the context of pro forma cash flow?
Which of the following is not considered cash in the context of pro forma cash flow?
Which method cannot be used to project cash flow?
Which method cannot be used to project cash flow?
Which of these is included in the adjustments to net income in the indirect method?
Which of these is included in the adjustments to net income in the indirect method?
Which item would be subtracted from net income in the Cash Flow from Other Activities section?
Which item would be subtracted from net income in the Cash Flow from Other Activities section?
In terms of cash flow, how would an increase in accounts receivable be accounted for?
In terms of cash flow, how would an increase in accounts receivable be accounted for?
What does the net cash provided by operating activities exclude?
What does the net cash provided by operating activities exclude?
What does the break-even point represent?
What does the break-even point represent?
Which of the following is a major weakness in calculating the break-even point?
Which of the following is a major weakness in calculating the break-even point?
In the break-even formula $B/E(Q) = \frac{TFC}{SP-VC/unit}$, what does SP represent?
In the break-even formula $B/E(Q) = \frac{TFC}{SP-VC/unit}$, what does SP represent?
What is indicated by the y-intercept of the Total Cost (TC) line in Figure 10.1?
What is indicated by the y-intercept of the Total Cost (TC) line in Figure 10.1?
At what point is a business operating at a loss according to Figure 10.1?
At what point is a business operating at a loss according to Figure 10.1?
What does the slope of the Total Revenue (TR) line represent in Figure 10.1?
What does the slope of the Total Revenue (TR) line represent in Figure 10.1?
Study Notes
Operating and Capital Budgets
- Operating budgets include fixed expenses and variable expenses linked to sales volume and business strategy
- Capital budgets evaluate expenditures that impact the business for more than one year
Sample Operating Budget
- Example budget outline: salaries, rent, utilities, advertising, selling expenses, insurance, payroll taxes, depreciation, office expenses
- Total expenses for each month: January, February, March
Pro Forma Income Statement
- Provides a complete picture of: funds coming in, where funds are going, and projected financial position
- Explains how to meet financial obligations and maintain liquidity
- Calculated by subtracting projected costs and expenses from projected revenue
Budgeting and Cash Flow
- Sales budget: estimate of expected sales volume by month
- Cost of sales can be determined from sales forecasts
- Pro forma cash flow: projected cash receipts and disbursements, not the same as profit
- Cash flow can be projected using indirect or direct method
Pro Forma Balance Sheet
- Summarizes projected assets, liabilities, and net worth of a new venture
- Assets: items owned or available for venture operations (current or fixed)
- Liabilities: money owed to creditors (current or long-term debt)
- Owner's equity: amount invested or retained from venture operations
Pro Forma Sources and Applications of Funds
- Sources: operations, new investments, long-term borrowing, sale of assets
- Uses/Applications: increasing assets, retiring long-term liabilities, reducing owner/shareholder equity, paying dividends
Break-Even Analysis
- Break-even point: volume of sales where the venture neither makes a profit nor incurs a loss
- Break-even formula: B/E(Q) = TFC / (SP-VC/unit)
- Major weakness: determining if a cost is fixed or variable
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Description
This quiz covers the basics of operating costs, including fixed and variable expenses, and capital budgets, which evaluate expenditures that impact the business for more than one year. Learn how to create an effective operating budget for your business.
