CFD Financial Management & Budgeting 2 — Questions and Answers
Question 1: A floral designer charges $450 for a wedding centerpiece order. The cost of goods (flowers, supplies) is $180. What is the gross profit margin?
- 40%
- 60% (Correct answer)
- 75%
- 25%
Correct answer: 60%
Gross profit margin = (Revenue - COGS) / Revenue = ($450 - $180) / $450 = 60%.
Question 2: Which pricing strategy sets prices based on what competitors charge for similar floral arrangements?
- Cost-plus pricing
- Value-based pricing
- Competitive pricing (Correct answer)
- Skimming pricing
Correct answer: Competitive pricing
Competitive pricing sets prices in line with or relative to what competitors charge for comparable products.
Question 3: A floral shop's monthly fixed costs are $3,000 and variable costs per arrangement are $25. If arrangements sell for $75 each, how many must be sold monthly to break even?
- 40 arrangements
- 60 arrangements (Correct answer)
- 80 arrangements
- 120 arrangements
Correct answer: 60 arrangements
Break-even units = Fixed costs / (Price - Variable cost) = $3,000 / ($75 - $25) = 60 arrangements.
Question 4: What does 'accounts receivable' represent on a floral business's balance sheet?
- Money owed to suppliers
- Money owed to the business by customers (Correct answer)
- Cash held in reserve
- Outstanding loan balances
Correct answer: Money owed to the business by customers
Accounts receivable represents money customers owe the business for goods or services already delivered.
Question 5: A florist wants to increase net profit without raising prices. Which action would most directly achieve this?
- Increase advertising spend
- Reduce overhead expenses (Correct answer)
- Hire additional staff
- Expand the product line
Correct answer: Reduce overhead expenses
Reducing overhead expenses directly lowers total costs, which increases net profit when revenue remains constant.
Question 6: Which financial document shows a business's revenues and expenses over a specific time period?
- Balance sheet
- Cash flow statement
- Income statement (Correct answer)
- Accounts payable ledger
Correct answer: Income statement
The income statement (profit and loss statement) summarizes revenues and expenses over a defined accounting period.
Question 7: When building a wedding floral budget for a client, which cost category is typically the largest for a florist?
- Labor and design time
- Delivery and setup fees
- Fresh flowers and foliage (Correct answer)
- Packaging and ribbon
Correct answer: Fresh flowers and foliage
Fresh flowers and foliage typically represent the highest cost component in wedding floral budgets, often 50-70% of material costs.
CFD Financial Management & Budgeting 2
A floral designer charges $450 for a wedding centerpiece order.
The cost of goods (flowers, supplies) is $180.
What is the gross profit margin?