Entrepreneurship and Small Business (ESB) Certification Practice Exam

What does an operating budget typically include?

1. Only fixed costs

2. A breakdown of fixed and variable monthly costs

3. Projected sales revenue only

4. External financing information

The correct answer is: A breakdown of fixed and variable monthly costs

An operating budget typically includes a comprehensive breakdown of both fixed and variable monthly costs. This budget serves as a financial plan that outlines the expected revenues and expenses over a specific period, usually a fiscal year. By detailing fixed costs—such as rent, salaries, and utilities—alongside variable costs like materials and labor that fluctuate with production levels, a business can gain a clear understanding of its operating expenses. Including both cost types enables a business to manage and allocate resources effectively, set realistic financial goals, and identify potential areas for cost control. Understanding the interplay between fixed and variable costs is crucial for making informed decisions and maintaining profitability. The other choices fall short of representing what an operating budget encompasses. Focusing solely on fixed costs does not provide a full financial picture, while looking exclusively at projected sales revenue disregards the necessary expenses to achieve those sales. Similarly, external financing information, while important for overall financial strategy, does not belong in the operating budget since it pertains more to sources of funding than to operational costs.