Financial Management and Budgeting
Core concepts
Know the P&L structure: revenue, cost of goods sold, labor, prime cost (COGS + labor), operating expenses, and profit. Understand controllable vs. fixed costs, the difference between budget and forecast, and how to read variance (actual minus budget). Labor cost percentage = labor ÷ sales; prime cost percentage is the key health metric. Break-even analysis uses fixed costs ÷ (1 − variable cost ratio).
Traps
Questions mix up prime cost (COGS + labor) with total operating cost, or compute labor percentage against the wrong base. Watch for variance sign errors-favorable means actual below budget for a cost. Also distinguish sales growth from margin growth.
Worked example
Sales $100,000; COGS $30,000; labor $32,000 → prime cost = $62,000 (62%). If budget was 60%, you are 2 points over-investigate purchasing and scheduling. Rule of thumb: prime cost is the fastest read on operational health.