Financial Planning & Budgeting Flashcards

A restaurant's net sales are $120,000, cost of goods sold is $36,000, and labor costs are $42,000. What is the prime cost as a percentage of sales?

Answer: 65%

Prime cost = COGS + Labor = $36,000 + $42,000 = $78,000; as a % = $78,000 ÷ $120,000 = 65%.

What term describes costs that remain constant regardless of sales volume, such as rent and insurance?

Answer: Fixed costs

Fixed costs do not change with volume fluctuations, making them predictable expenses that must be covered even during slow periods.

In menu engineering, which category describes menu items with HIGH profitability but LOW popularity?

Answer: Puzzles

Puzzles have high contribution margins but are ordered infrequently, suggesting they may benefit from repositioning, promotion, or recipe re-evaluation.

A restaurant owner reviews an 'aging report.' What financial information does this report provide?

Answer: How long outstanding invoices or receivables have remained unpaid

An aging report categorizes outstanding payables or receivables by how long they have been unpaid (e.g., 0–30, 31–60, 61–90 days).

Which financial ratio measures the percentage of each sales dollar remaining after all operating expenses are paid?

Answer: Net profit margin

Net profit margin = (Net Income ÷ Net Sales) × 100, showing what portion of revenue is actual bottom-line profit.

A restaurant is considering adding a private dining room that requires a $30,000 renovation. Expected additional annual profit is $8,000. What is the simple payback period?

Answer: 3.75 years

Payback period = $30,000 ÷ $8,000 = 3.75 years, representing the time needed to recoup the initial investment from added profits.

What is the purpose of a sales forecast in restaurant financial planning?

Answer: To project future revenue and guide staffing, purchasing, and budget decisions

A sales forecast estimates future revenue so managers can make informed decisions about labor scheduling, inventory purchasing, and overall budget allocation.