Business Operations and Financial Management
Budgets and cost control
Operating budgets cover recurring revenue and expenses; capital budgets cover major equipment and long-lived assets, often depreciated over time. Forecasting uses census, meal counts, and historical trends. Standard costs and variances compare budgeted with actual results; investigate significant variances rather than every small difference. Trap: food cost percentage equals food cost divided by food sales, not total revenue. Prime cost equals food cost plus labor cost; it is a key controllability measure.
Pricing and break-even
Break-even analysis: fixed costs divided by (price per unit minus variable cost per unit) equals break-even units. Contribution margin is price minus variable cost. Cash flow differs from profit; a profitable operation can still fail if cash is tied up in inventory or receivables.
Inventory and internal controls
FIFO reduces spoilage; physical counts should reconcile with records. Separation of duties among purchasing, receiving, and payment reduces fraud. Requisitions and transfer records control issues from storeroom to production.
Worked example
Food cost is $12,000 and food sales are $40,000. Food cost percentage = 12,000 / 40,000 = 0.30, or 30%. If the target is 28%, the manager is 2 percentage points over; at $40,000 sales, that is 0.02 x 40,000 = $800 of excess food cost. For break-even: fixed costs $20,000, price $10, variable cost $6, contribution margin $4; break-even = 20,000 / 4 = 5,000 units.
Traps
Confusing markup with margin, treating depreciation as a cash expense, ignoring labor cost per meal, and mixing capital with operating purchases.