Financial Planning & Budgeting Flashcards

A restaurant's prime cost ratio is 62%. If total sales are $85,000, what is the prime cost?

Answer: $52,700

Prime cost = 62% × $85,000 = $52,700, which covers labor and cost of goods sold combined.

Which budgeting method builds each period's budget from zero, requiring justification for every expense?

Answer: Zero-based budgeting

Zero-based budgeting starts from scratch each cycle, forcing managers to justify all costs rather than simply adjusting prior-period figures.

A restaurant spends $4,200 on food to generate $14,700 in food sales. What is the food cost percentage?

Answer: 28.6%

Food cost % = ($4,200 ÷ $14,700) × 100 = 28.6%, which falls within the typical target range.

What does a cash flow statement primarily show restaurant operators?

Answer: The timing of cash inflows and outflows

A cash flow statement tracks when cash enters and leaves the business, which is critical for managing liquidity independent of profitability.

Which metric measures how many times a restaurant turns over its food inventory within a given period?

Answer: Inventory turnover ratio

Inventory turnover ratio = Cost of Goods Sold ÷ Average Inventory, indicating how efficiently perishable stock is being used.

A restaurant budgets $6,000 for marketing but spends $7,450. What is the variance and how is it classified?

Answer: $1,450 unfavorable

Spending more than budgeted on an expense is an unfavorable (adverse) variance of $1,450.

In restaurant finance, what is the purpose of a par level in inventory management?

Answer: To define the minimum stock quantity before reordering

Par level is the minimum inventory quantity that triggers a reorder, ensuring the restaurant never runs out of essential items.