CFESA Business Operation 4

Question 1

What is the MAIN advantage of offering preventive maintenance contracts to commercial food service customers?

Accepted Answer

They provide predictable recurring revenue and help retain customers long-term

Answer

Preventive maintenance contracts create stable, recurring revenue streams while building long-term customer relationships.

Question 2

Which document establishes the agreed-upon price BEFORE work begins and protects both parties from billing disputes?

Accepted Answer

A work order or written estimate with customer signature

Answer

A signed work order or estimate documents the agreed scope and price before work begins, preventing misunderstandings.

Question 3

When a technician must condemn a piece of commercial cooking equipment as beyond economical repair, what should the written report include?

Accepted Answer

Specific failure findings, estimated repair cost vs. replacement cost, and safety concerns

Answer

A complete condemnation report with cost comparisons and safety findings helps the customer make an informed replacement decision.

Question 4

What does 'deferred revenue' mean in the context of service contract accounting?

Accepted Answer

Payment received for services not yet performed, recorded as a liability until earned

Answer

Deferred revenue is a liability representing the obligation to perform future services for which payment has already been received.

Question 5

A service company's gross profit margin is declining despite growing revenue. Which is the MOST likely cause?

Accepted Answer

Labor and parts costs are rising faster than service prices

Answer

When direct costs (labor and parts) grow faster than revenue, gross margin compresses even as total revenue increases.

CFESA - Commercial Food Equipment Service Association Practice Test