CFSP Financial Management 5 — Questions and Answers
Question 1: What does 'working capital' measure in a foodservice business?
- Current assets minus current liabilities, reflecting short-term financial health (Correct answer)
- Total assets minus total liabilities, reflecting net worth
- Monthly labor costs minus monthly food costs
- Annual revenue minus annual operating expenses
Correct answer: Current assets minus current liabilities, reflecting short-term financial health
Working capital (current assets minus current liabilities) indicates whether a business has enough short-term assets to cover its immediate obligations.
Question 2: In foodservice menu engineering, what characterizes a 'plow horse' menu item?
- High popularity but low profit margin (Correct answer)
- High popularity and high profit margin
- Low popularity but high profit margin
- Low popularity and low profit margin
Correct answer: High popularity but low profit margin
Plow horses are menu bestsellers that generate high sales volume but offer below-average contribution margins, making them candidates for price increases or cost reduction.
Question 3: What is the 'quick ratio' and what does it indicate about a restaurant's liquidity?
- (Current assets minus inventory) divided by current liabilities; measures ability to meet short-term obligations without selling inventory (Correct answer)
- Total assets divided by total liabilities; measures overall solvency
- Cash divided by total revenue; measures cash efficiency
- Current liabilities divided by current assets; measures leverage
Correct answer: (Current assets minus inventory) divided by current liabilities; measures ability to meet short-term obligations without selling inventory
The quick ratio excludes inventory from current assets because inventory may not be quickly convertible to cash, providing a more conservative view of short-term liquidity.
Question 4: What is 'cost of goods sold' (COGS) in a foodservice context?
- The direct cost of food and beverage products used to generate sales revenue (Correct answer)
- All operating expenses including labor, utilities, and rent
- The purchase price of kitchen equipment and smallwares
- The total cost of employee meals and staff benefits
Correct answer: The direct cost of food and beverage products used to generate sales revenue
COGS in foodservice represents the actual cost of food and beverage ingredients consumed in producing the menu items sold during a period.
Question 5: When conducting a cost-benefit analysis for a new POS system, which factor represents an 'intangible benefit'?
- Improved customer satisfaction from faster order processing (Correct answer)
- Reduction in annual paper receipt costs of $2,400
- Elimination of two cashier positions saving $60,000 annually
- Decrease in food cost percentage by 1.5 points
Correct answer: Improved customer satisfaction from faster order processing
Intangible benefits like improved customer satisfaction are real but difficult to quantify in dollar terms, unlike concrete savings in labor or supply costs.
Question 6: What is 'occupancy cost' in foodservice financial reporting?
- Expenses related to the physical space, including rent, property taxes, and insurance (Correct answer)
- The cost of seating capacity relative to customer volume
- Labor costs associated with hosting and seating staff
- Utilities consumed per square foot of restaurant space
Correct answer: Expenses related to the physical space, including rent, property taxes, and insurance
Occupancy costs encompass all expenses tied to securing and maintaining the physical location, such as rent, property taxes, insurance, and common area maintenance fees.
Question 7: A restaurant reports net income of $18,000 on total revenues of $150,000. What is the net profit margin?
- 12% (Correct answer)
- 8%
- 18%
- 15%
Correct answer: 12%
Net profit margin = Net Income ÷ Total Revenue × 100 = $18,000 ÷ $150,000 × 100 = 12%.
CFSP Financial Management 5
What does 'working capital' measure in a foodservice business?