A contractor's startup budget includes: trucks $85,000, tools $22,000, office equipment $12,000, initial marketing $8,000, legal fees $4,500, bonding costs $6,000, and 6 months operating expenses $45,000. What percentage of the total budget is allocated to fixed assets?
Correct Answer
C) 65.4%
Fixed assets = trucks + tools + office equipment = $85,000 + $22,000 + $12,000 = $119,000. Total budget = $119,000 + $8,000 + $4,500 + $6,000 + $45,000 = $182,500. Percentage = ($119,000 ÷ $182,500) × 100 = 65.4%.
Why This Is the Correct Answer
Option C is correct because fixed assets are tangible, long-term assets used in business operations that have a useful life exceeding one year. In this startup budget, the fixed assets are trucks ($85,000), tools ($22,000), and office equipment ($12,000), totaling $119,000. When divided by the total budget of $182,500 and multiplied by 100, this equals 65.4%.
Why the Other Options Are Wrong
Option A: 58.5%
Option B (62.1%) is incorrect because it appears to be based on a miscalculation of either the fixed assets total or the overall budget total, resulting in a percentage that's too low.
Option B: 62.1%
Option A (58.5%) is incorrect because it represents an incomplete calculation that likely excluded one of the fixed asset categories or used an incorrect total budget amount.
Option D: 68.7%
Option D (68.7%) is incorrect because it overestimates the percentage, possibly by including non-fixed asset items like marketing or operating expenses in the fixed assets calculation.
Memory Technique
Use the acronym 'TTO' for fixed assets: Trucks, Tools, Office equipment - these are tangible items you can touch that last more than a year, unlike fees and expenses that are consumed quickly.
Reference Hint
Business and Finance chapter covering asset classification and financial statement preparation, specifically the section on distinguishing between fixed assets and operating expenses.
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