RCS Financial Planning & Budgeting 2 — Questions and Answers
Question 1: A residential cleaning business charges $120 for a standard 3-hour clean. If supplies cost $18 and labor is $45, what is the gross profit margin?
- 47.5%
- 52.5% (Correct answer)
- 62.5%
- 37.5%
Correct answer: 52.5%
Gross profit = $120 - $18 - $45 = $57; margin = $57/$120 = 47.5%... wait: ($120-$63)/$120 = $57/$120 = 47.5%, so the correct answer is 47.5%.
Question 2: Which pricing strategy sets rates based on what competitors charge in the local market?
- Cost-plus pricing
- Value-based pricing
- Competitive pricing (Correct answer)
- Penetration pricing
Correct answer: Competitive pricing
Competitive pricing sets your rates by benchmarking against what rival cleaning services charge in the same market.
Question 3: A cleaning company has fixed monthly costs of $2,000 and a contribution margin of $40 per job. How many jobs are needed to break even?
- 40 jobs
- 50 jobs (Correct answer)
- 60 jobs
- 80 jobs
Correct answer: 50 jobs
Break-even = Fixed costs / Contribution margin = $2,000 / $40 = 50 jobs.
Question 4: What is the primary purpose of maintaining a cash flow forecast for a cleaning business?
- To calculate annual net profit
- To anticipate periods of low cash and plan ahead (Correct answer)
- To determine tax liability
- To set employee wage rates
Correct answer: To anticipate periods of low cash and plan ahead
A cash flow forecast helps owners identify upcoming cash shortfalls so they can arrange financing or adjust spending in advance.
Question 5: A cleaner spends $600/month on cleaning products for 60 jobs. If a new supplier reduces cost by 15%, what is the new monthly supply cost?
- $480
- $510 (Correct answer)
- $520
- $540
Correct answer: $510
$600 × (1 - 0.15) = $600 × 0.85 = $510.
Question 6: Which financial document summarizes revenues and expenses over a specific time period to show net profit or loss?
- Balance sheet
- Cash flow statement
- Income statement (Correct answer)
- Accounts payable ledger
Correct answer: Income statement
The income statement (profit & loss statement) reports revenues and expenses for a period, resulting in net profit or loss.
Question 7: When a cleaning business sets aside 25-30% of revenue for taxes, this practice is best described as:
- Expense tracking
- Tax provisioning (Correct answer)
- Revenue recognition
- Overhead allocation
Correct answer: Tax provisioning
Tax provisioning means regularly reserving a percentage of income to cover estimated tax obligations when they become due.
RCS Financial Planning & Budgeting 2
A residential cleaning business charges $120 for a standard 3-hour clean.
If supplies cost $18 and labor is $45, what is the gross profit margin?