CEC Financial Management and Cost Control 1 — Questions and Answers
Question 1: A restaurant's food cost percentage is calculated as:
- Net Sales ÷ Cost of Goods Sold × 100
- Cost of Goods Sold ÷ Net Sales × 100 (Correct answer)
- Gross Profit ÷ Net Sales × 100
- Labor Cost ÷ Cost of Goods Sold × 100
Correct answer: Cost of Goods Sold ÷ Net Sales × 100
Food cost percentage equals Cost of Goods Sold divided by Net Sales multiplied by 100, expressing the portion of revenue consumed by food costs.
Question 2: A restaurant achieves $40,000 in food sales with a $14,000 cost of goods sold. What is the food cost percentage?
- 28.6%
- 35% (Correct answer)
- 40%
- 22.5%
Correct answer: 35%
$14,000 ÷ $40,000 × 100 = 35% food cost percentage.
Question 3: Which of the following is a fixed cost in restaurant operations?
- Food purchases
- Hourly labor wages
- Monthly rent (Correct answer)
- Utility bills that vary with production volume
Correct answer: Monthly rent
Fixed costs such as rent remain constant regardless of sales volume, unlike variable costs (food, hourly labor) that fluctuate with business levels.
Question 4: What is prime cost in foodservice financial management?
- The cost of the highest-priced menu items only
- The combined total of food cost and beverage cost
- The sum of cost of goods sold and total labor costs (Correct answer)
- Overhead costs plus depreciation
Correct answer: The sum of cost of goods sold and total labor costs
Prime cost equals cost of goods sold (food + beverages) plus total labor costs (wages, benefits, payroll taxes), representing the two largest controllable expense categories.
Question 5: A well-managed full-service restaurant typically targets a prime cost percentage of:
- 25%–35% of total sales
- 55%–65% of total sales (Correct answer)
- 70%–80% of total sales
- 45%–50% of total sales
Correct answer: 55%–65% of total sales
Industry benchmarks place prime cost for full-service restaurants at 55%–65% of total sales, leaving sufficient margin to cover overhead and generate profit.
Question 6: An executive chef increases a menu price to offset rising ingredient costs. What is the potential downside of this strategy?
- Higher menu prices always increase profitability
- Guests may perceive reduced value and choose competitors, lowering overall revenue (Correct answer)
- It automatically reduces labor cost percentage
- It eliminates the need for portion control
Correct answer: Guests may perceive reduced value and choose competitors, lowering overall revenue
Price increases risk guest price sensitivity and competitive disadvantage; if covers decline significantly, total revenue and profit may fall despite higher per-item prices.
CEC Financial Management and Cost Control 1
A restaurant's food cost percentage is calculated as: