CRP Financial Planning & Budgeting 3 — Questions and Answers
Question 1: A restaurant's contribution margin per cover is $18 and fixed costs are $27,000 per month. How many covers are needed to break even?
- 1,200 covers
- 1,500 covers (Correct answer)
- 1,350 covers
- 1,800 covers
Correct answer: 1,500 covers
Break-even covers = $27,000 ÷ $18 = 1,500 covers, the point at which contribution margin exactly covers fixed costs.
Question 2: Which financial document provides a snapshot of a restaurant's assets, liabilities, and owner's equity at a specific point in time?
- Income statement
- Cash flow statement
- Balance sheet (Correct answer)
- Budget variance report
Correct answer: Balance sheet
The balance sheet (statement of financial position) captures what the business owns, owes, and the owner's stake on a single date.
Question 3: A restaurant owner wants to evaluate whether a new $50,000 piece of kitchen equipment is worthwhile. Which analysis compares the cost against projected savings or revenue gains?
- Ratio analysis
- Cost-benefit analysis (Correct answer)
- Variance analysis
- Sensitivity analysis
Correct answer: Cost-benefit analysis
Cost-benefit analysis weighs the total expected benefits of an investment against its total costs to determine if it is financially justified.
Question 4: If a restaurant has $45,000 in current assets and $18,000 in current liabilities, what is the current ratio?
- 0.4
- 2.0
- 2.5 (Correct answer)
- 1.5
Correct answer: 2.5
Current ratio = $45,000 ÷ $18,000 = 2.5, meaning the restaurant has $2.50 in current assets for every $1.00 of current liabilities.
Question 5: What is the primary difference between a fixed budget and a flexible budget in restaurant management?
- Fixed budgets cover only labor; flexible budgets cover all costs
- Flexible budgets adjust expense targets based on actual sales volume (Correct answer)
- Fixed budgets are prepared monthly; flexible budgets are prepared weekly
- Flexible budgets apply only to fine dining operations
Correct answer: Flexible budgets adjust expense targets based on actual sales volume
A flexible budget recalculates cost targets to reflect actual sales volume, making variances more meaningful than a static fixed budget.
Question 6: A server upsells a $12 dessert with a food cost of $3. What is the contribution margin of that dessert sale?
- $3.00
- $9.00 (Correct answer)
- $15.00
- $12.00
Correct answer: $9.00
Contribution margin = Selling price − Variable cost = $12 − $3 = $9, which contributes toward covering fixed costs and profit.
Question 7: Which practice involves negotiating extended payment terms with food suppliers to improve a restaurant's short-term cash position?
- Factoring receivables
- Stretching accounts payable (Correct answer)
- Accelerating inventory turnover
- Capital budgeting
Correct answer: Stretching accounts payable
Stretching accounts payable means delaying supplier payments within agreed terms to retain cash in the business longer.
CRP Financial Planning & Budgeting 3
A restaurant's contribution margin per cover is $18 and fixed costs are $27,000 per month.
How many covers are needed to break even?