Financial Management, Budgeting, and Cost Control
Core Concepts
Financial management ties the P&L to daily decisions: prime cost (food + labor), cost of goods sold (beginning inventory + purchases − ending inventory), contribution margin, and controllable versus fixed costs. Candidates must read a P&L, compute food and labor cost percentages, and understand how sales mix, waste, theft, and portioning affect margins. Know how to build and monitor a budget, forecast variance, and use break-even analysis. Labor cost includes burden (taxes, benefits), not just wages.
Traps in Questions
Common traps: confusing cost of goods sold with purchases, or forgetting to subtract ending inventory. Questions may test prime cost versus total cost, or whether a variance is favorable or unfavorable (higher cost than budget is unfavorable). Watch for labor-cost items that omit payroll burden. Break-even questions often require fixed costs divided by contribution margin.
Rule of Thumb
COGS = beginning inventory + purchases − ending inventory. Prime cost % = (food cost + labor cost) ÷ total sales. Break-even sales = fixed costs ÷ contribution margin ratio.
Worked Example
Beginning inventory $12,000, purchases $40,000, ending inventory $10,000 → COGS = $42,000. If sales are $120,000, food cost % = $42,000 ÷ $120,000 = 35%. If budget was 32%, the 3-point variance is unfavorable and warrants investigation of waste, portioning, or pricing.