Financial Management and Business Operations
Core concepts
Know the components of an operating statement: revenue, food and labor cost, other controllable expenses, and profit. Understand food cost percentage (cost of food sold divided by food sales), labor cost percentage, prime cost, contribution margin, break-even analysis, and the difference between fixed and variable costs. Be able to read a balance sheet (assets, liabilities, equity) versus an income statement (revenue and expenses over a period). Understand budgeting, variance analysis, inventory valuation methods (FIFO, LIFO, weighted average), and pricing approaches.
Traps in questions
Stems often give beginning and ending inventory and expect cost of food used, not purchases. Another trap is asking for markup when the question is margin, or mixing a percentage of sales with a percentage of cost. Watch for labor cost that includes benefits and payroll taxes. Read carefully whether the question asks for a dollar amount or a percentage.
Worked example
Food sales are 40,000 dollars and cost of food sold is 12,000 dollars. Food cost percentage = 12,000 / 40,000 = 30 percent. If labor is 14,000 dollars, prime cost = 26,000 dollars, or 65 percent of sales. Rule of thumb: prime cost is food plus labor; keep percentages on a common sales base before comparing.