ARE PcM 5.0: Practice Management
Test Questions and All Solved
Solutions 2025-2026 Updated.
Tort - Answer A civil wrong resulting from negligence, rather than a criminal act.
Occurrence Insurance Policy (select the two that apply):
A) Must be in effect at the time the claim is made.
B) Typically applies to general liability policies.
C) Covers claims if the policy was in effect at the time the incident occurred.
D) Typically applies to professional liability policies.
E) Coverage terminates when policy terminates. - Answer B&C
Claims-Made Insurance Policy (select the three that apply):
A) Must be in effect at the time the claim is made.
B) Typically applies to general liability policies.
C) Covers claims if the policy was in effect at the time the incident occurred.
D) Typically applies to professional liability policies.
E) Only covers claims for incidents that occurred after a retroactive date. - Answer A, D, & E
Firmwide Profit Margin Equation - Answer = Profit / Net Revenue
Most architecture firms have a profit margin of 6%, but some report up to 15%.
Indirect Expense Factor Equation - Answer Indirect Expense Factor = Total Indirect Expense /
Direct Salary Expense
Overhead includes what types of expenses? - Answer Expenses to keep a business operating
regardless of revenue-generating projects, i.e. rent, software leases, telephone service, power,
etc.
Accrual Accounting vs. Cash Accounting (T/F):
A) AA is more often used by small businesses.
B) AA gives a better picture of long-term financial status.
C) CA is required by the IRS for businesses above a certain size or that maintain inventory.
,D) CA is better at tracking actual cash flow. - Answer A) F
B) T
C) F
D) T
What does Modified Accrual Basis Accounting Method include?
A) Records fees that have been earned but not yet billed to the client.
B) Records fee revenue and expenses billed to the client.
C) Records invoices to the firm by outside consultants. - Answer B&C
Current assets are resources of a business that are converted into cash within:
A) One month
B) One week
C) One year
D) One pay period - Answer C) One Year
Fixed Assets - Answer Resources used/retained for a long time, i.e. equipment or property.
What is true about an Aged Accounts Receivable Report?
A) It shows the status of invoices for all projects.
B) If an invoice is older than 30 days, it means the firm is essentially "lending" money to a client
without charging interest.
C) If an invoice is older than 60 days, it needs the attention of the principal or person
responsible for collections.
D) The average collection period runs between 50 to 90 days. - Answer A) True
B) False; this is true if the invoice is older than 90 days.
C) True
D) False; the average collection period runs between 60 to 75 days.
A Time Analysis Report (select the two that apply):
A) Shows only the indirect labor hours for administrative employees.
B) Shows the chargeable/utilization rate for each employee.
C) Lists all current and past employees' vacation time, sick leave, and holidays.
D) Lists employees and their direct and indirect labor hours. - Answer B&D
,What are typical target chargeable ratios / utilization rates? - Answer Typical break-even
point/minimum for the whole firm: 65%
For professional/technical staff, the CR/UR should be 75% to 85%.
CR/UR = % of time or money spent on direct labor, divided by the total time or money spent on
labor, vacation, holidays, and sick leave.
Current Ratio Equation - Answer Current Ratio = Total Assets / Total Current Liabilities
What does the Current Ratio measure? - Answer A firm's ability to meet current obligations.
What is an optimal Current Ratio?
A) 1.00
B) 1.25
C) 1.50
D) 2.00 - Answer C) 1.50 indicates a healthy business.
(1.0 is the minimum acceptable CR.)
Is the Quick Ratio more or less conservative than the Current Ratio? - Answer More
conservative, because it doesn't include current assets that are difficult to convert to cash.
Quick Ratio Equation - Answer Quick Ratio = (Cash + AR + Revenue Earned But Not Billed) /
(Total Current Liabilities)
What is the typical Net Multiplier?
A) 1.50 to 1.75
B) 1.7 to 2.0
C) 2.5 to 2.9
D) 2.7 to 3.0 - Answer D) This is usually calculated based on salary, benefits, overhead, and
target profit.
The Net Multiplier = (Net Revenue, excluding Consultants' Fees & Reimbursables) / (Cost of
Direct Labor)
Direct Personnel Expense Includes (Select the three that apply):
A) Employee Salaries
, B) Overhead Costs
C) Payroll Taxes
D) Health Insurance Costs
E) Rent Costs
F) Shareholder Taxes - Answer A, C, & D
Overhead Rate Equation - Answer Overhead Rate = Total Office Overhead Costs / Total Direct
Labor Costs
What is a typical Overhead Rate?
A) 1.30 to 1.50
B) 1.50 to 2.00
C) 2.00 to 2.30
D) 2.50 to 3.00 - Answer A) 1.30 to 1.50
What types of insurance does AIA Document B101 require architects to maintain (select the five
that apply)?
A) Professional Liability Insurance
B) Property Insurance
C) Automobile Liability Insurance
D) General Liability Insurance
E) Worker's Compensation Insurance
F) Life Insurance
G) Rental Insurance
H) Employer's Liability Insurance - Answer A, C, D, E, H
Break-Even Rate Equation - Answer Break-Even Rate = Total Cost of Operations / Total Cost
Spent on Labor
How does one use the Break-Even Rate? - Answer An employee's base salary can be
multiplied by the break-even rate to determine the minimum hourly fee to charge a client.
What is a typical Break-Even Rate?
A) 2.30 to 2.50
B) 1.50 to 1.70
C) 3.00 to 3.20
Test Questions and All Solved
Solutions 2025-2026 Updated.
Tort - Answer A civil wrong resulting from negligence, rather than a criminal act.
Occurrence Insurance Policy (select the two that apply):
A) Must be in effect at the time the claim is made.
B) Typically applies to general liability policies.
C) Covers claims if the policy was in effect at the time the incident occurred.
D) Typically applies to professional liability policies.
E) Coverage terminates when policy terminates. - Answer B&C
Claims-Made Insurance Policy (select the three that apply):
A) Must be in effect at the time the claim is made.
B) Typically applies to general liability policies.
C) Covers claims if the policy was in effect at the time the incident occurred.
D) Typically applies to professional liability policies.
E) Only covers claims for incidents that occurred after a retroactive date. - Answer A, D, & E
Firmwide Profit Margin Equation - Answer = Profit / Net Revenue
Most architecture firms have a profit margin of 6%, but some report up to 15%.
Indirect Expense Factor Equation - Answer Indirect Expense Factor = Total Indirect Expense /
Direct Salary Expense
Overhead includes what types of expenses? - Answer Expenses to keep a business operating
regardless of revenue-generating projects, i.e. rent, software leases, telephone service, power,
etc.
Accrual Accounting vs. Cash Accounting (T/F):
A) AA is more often used by small businesses.
B) AA gives a better picture of long-term financial status.
C) CA is required by the IRS for businesses above a certain size or that maintain inventory.
,D) CA is better at tracking actual cash flow. - Answer A) F
B) T
C) F
D) T
What does Modified Accrual Basis Accounting Method include?
A) Records fees that have been earned but not yet billed to the client.
B) Records fee revenue and expenses billed to the client.
C) Records invoices to the firm by outside consultants. - Answer B&C
Current assets are resources of a business that are converted into cash within:
A) One month
B) One week
C) One year
D) One pay period - Answer C) One Year
Fixed Assets - Answer Resources used/retained for a long time, i.e. equipment or property.
What is true about an Aged Accounts Receivable Report?
A) It shows the status of invoices for all projects.
B) If an invoice is older than 30 days, it means the firm is essentially "lending" money to a client
without charging interest.
C) If an invoice is older than 60 days, it needs the attention of the principal or person
responsible for collections.
D) The average collection period runs between 50 to 90 days. - Answer A) True
B) False; this is true if the invoice is older than 90 days.
C) True
D) False; the average collection period runs between 60 to 75 days.
A Time Analysis Report (select the two that apply):
A) Shows only the indirect labor hours for administrative employees.
B) Shows the chargeable/utilization rate for each employee.
C) Lists all current and past employees' vacation time, sick leave, and holidays.
D) Lists employees and their direct and indirect labor hours. - Answer B&D
,What are typical target chargeable ratios / utilization rates? - Answer Typical break-even
point/minimum for the whole firm: 65%
For professional/technical staff, the CR/UR should be 75% to 85%.
CR/UR = % of time or money spent on direct labor, divided by the total time or money spent on
labor, vacation, holidays, and sick leave.
Current Ratio Equation - Answer Current Ratio = Total Assets / Total Current Liabilities
What does the Current Ratio measure? - Answer A firm's ability to meet current obligations.
What is an optimal Current Ratio?
A) 1.00
B) 1.25
C) 1.50
D) 2.00 - Answer C) 1.50 indicates a healthy business.
(1.0 is the minimum acceptable CR.)
Is the Quick Ratio more or less conservative than the Current Ratio? - Answer More
conservative, because it doesn't include current assets that are difficult to convert to cash.
Quick Ratio Equation - Answer Quick Ratio = (Cash + AR + Revenue Earned But Not Billed) /
(Total Current Liabilities)
What is the typical Net Multiplier?
A) 1.50 to 1.75
B) 1.7 to 2.0
C) 2.5 to 2.9
D) 2.7 to 3.0 - Answer D) This is usually calculated based on salary, benefits, overhead, and
target profit.
The Net Multiplier = (Net Revenue, excluding Consultants' Fees & Reimbursables) / (Cost of
Direct Labor)
Direct Personnel Expense Includes (Select the three that apply):
A) Employee Salaries
, B) Overhead Costs
C) Payroll Taxes
D) Health Insurance Costs
E) Rent Costs
F) Shareholder Taxes - Answer A, C, & D
Overhead Rate Equation - Answer Overhead Rate = Total Office Overhead Costs / Total Direct
Labor Costs
What is a typical Overhead Rate?
A) 1.30 to 1.50
B) 1.50 to 2.00
C) 2.00 to 2.30
D) 2.50 to 3.00 - Answer A) 1.30 to 1.50
What types of insurance does AIA Document B101 require architects to maintain (select the five
that apply)?
A) Professional Liability Insurance
B) Property Insurance
C) Automobile Liability Insurance
D) General Liability Insurance
E) Worker's Compensation Insurance
F) Life Insurance
G) Rental Insurance
H) Employer's Liability Insurance - Answer A, C, D, E, H
Break-Even Rate Equation - Answer Break-Even Rate = Total Cost of Operations / Total Cost
Spent on Labor
How does one use the Break-Even Rate? - Answer An employee's base salary can be
multiplied by the break-even rate to determine the minimum hourly fee to charge a client.
What is a typical Break-Even Rate?
A) 2.30 to 2.50
B) 1.50 to 1.70
C) 3.00 to 3.20
