Business and Operations Management
Reading the Numbers and Running the Operation
Operations questions test fluency with the income statement and the operating metrics that drive it. Know the flow: revenue minus cost of goods sold gives gross profit; subtract labor and operating expenses to reach operating income; then account for interest and taxes. Understand the P&L line items, the difference between fixed and variable costs, and how break-even is calculated. Contribution margin per unit, divided into fixed costs, gives break-even in units; divide by average check for break-even covers.
Beyond the P&L, expect purchasing and inventory topics: par levels, reorder points, lead time, and the cost of carrying inventory versus the cost of a stockout. Understand the difference between perpetual and periodic inventory, and why physical counts reconcile theoretical usage to actual. Labor metrics-sales per labor hour, labor cost percentage, and productivity-are frequent. So is the concept of the balanced scorecard or the four perspectives of a business: financial, customer, internal process, and learning and growth.
Traps to Watch
- Mixing fixed and variable costs when computing break-even.
- Using total sales instead of contribution margin in break-even math.
- Confusing par level with reorder point; par is the target, reorder triggers the order.
- Treating theoretical food cost as actual without a physical count.
- Forgetting that prime cost is the operator's primary lever.
Rule of Thumb
Break-even covers = fixed costs ÷ (average check × contribution margin ratio). Fixed costs $60,000, average check $25, contribution margin ratio 0.60: $60,000 ÷ ($25 × 0.60) = $60,000 ÷ $15 = 4,000 covers.