Scenario 9-1

question 114

Multiple Choice

Scenario 9-1. Jim is interested in beginning his own small business dealing with the repair and maintenance of household appliances. He has a talent for fixing these types of appliances and has been doing so as a sideline business for several years. He has acquired some of the needed tools; however, a sizeable investment will need to be made in tools and equipment in order for him to repair the appliances that will be brought to his shop for service. He would like part of his competitive advantage to be the capability to fix all appliances, not just one type. Jim has just one small problem--a lack of funds. He comes to you for advice.
-In Scenario 9-1, the primary disadvantages of using equity financing are all but which of the following?

• A) it allows a voice in the management of the business
• B) it provides for a sharing of the profits
• C) it does not constrain cash flow
• D) it shares ownership in the business

Analyze the effects of changes in costs (fixed and variable) and sales price on the break-even point and overall financial performance.

Calculate target income levels and understand the process of achieving financial goals through CVP analysis.

Understand the role and computation of the contribution margin in multi-product companies.

Interpret and apply the concepts of margin of safety and operating leverage in business scenarios.

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Definitions:

Sales Promotion

A promotional strategy that uses temporary rewards to stimulate transactions of a product or service.

Breakfast Cereal

A processed food made from grains and intended to be eaten as a primary component of the morning meal.

Generate Demand

The process of creating interest or a need for a product or service among consumers through marketing strategies, promotions, and product innovation.

Social Media Outlets

Platforms and websites where users can create and share content or participate in social networking.