Small business e-School

Identifying and Managing Operating Costs (Expenses)

Answers to Exercises - all correct responses are highlighted in RED.

Exercises

1.  For each of the following cost items, indicate with an (X) which cost category it belongs to: -

C O S T   C A T E G O R Y

Direct Cost of Goods

Fixed Expense

Non-fixed Expense

Superannuation

X

Brochures

X

Electricity

X

Industry subscriptions

X

Laminate board 2400 X 1200

X

Accounting fees

X

C

Router operator labor

X

O

Hire purchase for glue table

X

S

Travel expenses

X

T

Fork lift hire

X

Bank charges

X

I

Rates

X

T

Staff training

X

E

Protective clothing

X

M

Waste disposal

X

Fringe Benefit Tax

X

Workers Comp. Insurance

X

Depreciation

X

Subcontractors

X

Computer Consumables

X

Repairs and Maintenance

X

2.

Variable costs are costs which have a direct bearing on the outcome of sales results.

3.

COGS are costs which usually occur above the gross margin line in a profit and loss statement.

4.

Accurately identifying and forecasting costs is an essential management role for developing both  budgets  and cash-flow forecasts for the business.

5.

Freight costs should be placed in same cost category as travel expenses. False

6.

Direct factory labour should be placed in same cost category as sales wages. False

7.

Gross Profit less Expenses equals Operating Profit.

8.

Gross Profit is considered “real income” because: -

(a)  It is the largest profit number

(b)  It is the same as cash in the bank

(c)  It is the amount of money available to run business operations

(d)  It is always much higher than Operating Profit

9.

Advertising is a fixed cost because we have to advertise to make sales. False

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