CRP Financial Planning & Budgeting 2 — Questions and Answers
Question 1: A restaurant's prime cost ratio is 62%. If total sales are $85,000, what is the prime cost?
- $52,700 (Correct answer)
- $47,300
- $55,250
- $49,600
Correct answer: $52,700
Prime cost = 62% × $85,000 = $52,700, which covers labor and cost of goods sold combined.
Question 2: Which budgeting method builds each period's budget from zero, requiring justification for every expense?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Rolling budget
- Flexible budgeting
Correct 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.
Question 3: A restaurant spends $4,200 on food to generate $14,700 in food sales. What is the food cost percentage?
- 31.2%
- 28.6% (Correct answer)
- 35.0%
- 25.9%
Correct answer: 28.6%
Food cost % = ($4,200 ÷ $14,700) × 100 = 28.6%, which falls within the typical target range.
Question 4: What does a cash flow statement primarily show restaurant operators?
- The restaurant's net profit after taxes
- The timing of cash inflows and outflows (Correct answer)
- The market value of restaurant assets
- The breakdown of fixed versus variable costs
Correct 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.
Question 5: Which metric measures how many times a restaurant turns over its food inventory within a given period?
- Contribution margin ratio
- Inventory turnover ratio (Correct answer)
- Current ratio
- Accounts payable days
Correct answer: Inventory turnover ratio
Inventory turnover ratio = Cost of Goods Sold ÷ Average Inventory, indicating how efficiently perishable stock is being used.
Question 6: A restaurant budgets $6,000 for marketing but spends $7,450. What is the variance and how is it classified?
- $1,450 favorable
- $1,450 unfavorable (Correct answer)
- $1,450 neutral
- $450 unfavorable
Correct answer: $1,450 unfavorable
Spending more than budgeted on an expense is an unfavorable (adverse) variance of $1,450.
Question 7: In restaurant finance, what is the purpose of a par level in inventory management?
- To set the maximum price paid per unit
- To define the minimum stock quantity before reordering (Correct answer)
- To calculate the ideal food cost percentage
- To determine the break-even sales volume
Correct 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.
CRP Financial Planning & Budgeting 2
A restaurant's prime cost ratio is 62%.
If total sales are $85,000, what is the prime cost?