CHP Financial Management 3 — Questions and Answers
Question 1: A hotel's fixed costs total $200,000 per month and variable costs are $40 per occupied room. If ADR is $120, what is the break-even number of rooms per month?
- 1,250 rooms
- 2,500 rooms (Correct answer)
- 3,333 rooms
- 5,000 rooms
Correct answer: 2,500 rooms
Contribution margin = $120 – $40 = $80; break-even = $200,000 ÷ $80 = 2,500 rooms.
Question 2: On the Uniform System of Accounts for the Lodging Industry (USALI), the Rooms department schedule would NOT typically include:
- Room revenue
- Salaries and wages for housekeeping
- Depreciation on the building (Correct answer)
- Laundry and dry cleaning expenses
Correct answer: Depreciation on the building
Building depreciation is a non-operating expense found in the property and equipment section, not within the Rooms departmental schedule.
Question 3: Which internal control procedure best prevents employee theft at the front desk cash drawer?
- Daily bank reconciliation
- Assigning one cashier per shift per drawer (Correct answer)
- Monthly inventory counts
- Using petty cash for all transactions
Correct answer: Assigning one cashier per shift per drawer
Assigning a single cashier per drawer per shift establishes individual accountability and makes discrepancies easy to trace.
Question 4: A hotel's accounts receivable turnover ratio decreased significantly this quarter. This most likely indicates:
- Faster collection of guest bills
- Improved cash flow
- Slower collection or more lenient credit terms (Correct answer)
- Higher room rates
Correct answer: Slower collection or more lenient credit terms
A declining accounts receivable turnover means it is taking longer to collect outstanding balances, signaling collection issues or relaxed credit policies.
Question 5: When a restaurant uses the 'prime cost' metric, it combines which two cost categories?
- Food cost and beverage cost
- Labor cost and overhead cost
- Cost of goods sold and total labor cost (Correct answer)
- Fixed cost and variable cost
Correct answer: Cost of goods sold and total labor cost
Prime cost equals cost of goods sold (food + beverage) plus total labor cost, typically the two largest controllable expenses in a restaurant.
Question 6: A manager notices that actual food costs are 5% above the standard cost percentage. The FIRST step in analyzing this variance should be:
- Immediately raise menu prices
- Investigate potential causes such as theft, waste, or portioning errors (Correct answer)
- Cut all staff hours
- Change food suppliers
Correct answer: Investigate potential causes such as theft, waste, or portioning errors
Before taking corrective action, a manager should investigate root causes—waste, spoilage, theft, or improper portioning—to address the actual problem.
Question 7: In capital budgeting, the 'payback period' method calculates:
- The total profit over a project's life
- How long it takes to recover the initial investment (Correct answer)
- Net present value of future cash flows
- Internal rate of return
Correct answer: How long it takes to recover the initial investment
The payback period is the time required for cumulative cash inflows from a project to equal the initial capital outlay.
CHP Financial Management 3
A hotel's fixed costs total $200,000 per month and variable costs are $40 per occupied room.
If ADR is $120, what is the break-even number of rooms per month?