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Chapter 10 The Financial Plan: True/False Questions
Chapter 10 The Financial Plan: True/False Questions
True/False Questions
1. When developing operating and capital budgets, the entrepreneur can seek advice
from experts, but should retain the final say so.
2. An entrepreneur focuses on the operating costs only on completion of the sales budget.
4. The first step in preparing a pro forma income statement is to separate fixed and
variable costs.
6. Costs of goods sold should be calculated using actual cost figures; using industry
standard figures is too inaccurate.
7. To satisfy outside investors, the financial plan will need three years of projected
financial data.
8. Selling expense is an expense that can be expected to remain stable over time.
9. In projecting the operating expenses for the send and third year, it is helpful to first
look at those expenses that will likely change over time.
10. When estimating expenses for the pro format income statement, it is best to be
conservative.
11. A reasonable profit that is earned with conservative estimates is not considered to be
an initial success for a new venture.
15. The indirect method of projecting cash flow uses a simple determination of cash in
less cash out.
16. Large positive cash flows usually occur in the first months of a new venture.
17. When projecting cash flows for the pro forma cash flow statement, it is important to
avoid being conservative in the estimates.
18. The pro forma balance sheet depicts the condition of the business at one point in time.
21. Profit from the business will be included on the balance sheet in the assets section.
22. Owner equity is the excess of all assets over all liabilities.
23. Break-even analysis is a technique to determine the total liabilities of the firm.
24. Break-even is that volume of sales at which there are neither profits nor losses.
25. As long as the selling price is greater than the variable cost per unit, some contribution
will be made to cover fixed costs.
26. Sales in excess of the break-even point will result in a profit, as long as the selling
price remains above the cost to produce each unit.
28. The purpose of the pro forma sources and applications of funds statement is to show
the relationship between revenue and expenses.
29. Depreciation is considered a source of funds because it does not represent an out-of-
pocket expense.
30. Using a spreadsheet software package is helpful when developing budgets as it helps
to gauge the impact of different financial scenarios.
31. Microsoft Excel is a software package that includes manufacturing, order entry, and
billing functions it is usually too expensive for start-up firms.
33. The _____ budget is used to project cash flows for the cost of goods produced.
A) production
B) operating
C) capital
D) depreciation
36. The _____ budget is used to evaluate expenditures that will impact the business for
more than one year.
A) production
B) operating
C) depreciation
D) capital
40. Selling expenses, advertising, salaries and wages, and taxes may be represented as a
percentage of the__________.
A) net profit
B) total operating expenses
C) gross profit
D) projected net sales
42. Using the ________ method of projecting cash flow, adjustments are made to net
income based on the fact that cash may not actually be received or disbursed.
A) direct
B) breakeven
C) indirect
D) pro forma
44. The pro forma cash flow, like the __________, is based on best estimates.
A) business cash flow at a certain point of time
B) expense statement
C) income statement
D) actual cash flow statement
51. Profit from the business would be included on the balance sheet in which section?
A) Assets
B) Liabilities
C) Owners equity
D) Assets or liabilities
53. ______ is the volume of sales needed to cover total variable and fixed costs.
A) Cash flow
B) Breakeven
C) Revenue
D) Depreciation
54. As long as the selling price is greater than the _______________cost per unit, some
contribution can be made to cover _________________.
A) fixed, variable costs
B) variable, fixed costs
C) total, expenses
D) fixed, negative cash flow
56. If the total fixed costs are $850,000, the sale price is $110 and the variable cost per
unit is 25, what is the breakeven volume?
A) 17,000
B) 10,000
C) 7,000
D) 1,000
58. Financial projections to assess the impact of different scenarios are calculated using:
A) a spreadsheet program.
B) an inventory management program.
C) the Internet.
D) a graphics program.
59. Which of the following software programs could be used for inventory, order entry,
and billing?
A) Quickbooks
B) Peachtree
C) Vision Point
D) all of the above.