Financial Management and Budgeting
Financial Management and Budgeting
This domain tests operating and capital budgets, cost control, variance analysis, inventory, and break-even reasoning. Expect calculations and interpretation of favorable versus unfavorable results.
Core rules and concepts
- Operating budgets cover recurring revenue and expenses; capital budgets cover long-lived assets above a defined dollar threshold.
- Variance = actual − budget. For expenses, actual below budget is favorable; actual above budget is unfavorable. For revenue, the reverse applies.
- Food cost percentage = food cost ÷ revenue × 100. Labor cost percentage is calculated the same way.
- Inventory turnover = cost of goods sold ÷ average inventory. Days' inventory = 365 ÷ turnover.
- Prime cost = food cost + labor cost. Track it because these are the largest controllable costs.
- Break-even volume = fixed costs ÷ contribution margin per unit, where contribution margin = price − variable cost per unit.
Worked example
Budgeted food cost is 30% of $200,000 revenue = $60,000. Actual food cost is $66,000 on $210,000 revenue = 31.4%. The dollar variance is $6,000 unfavorable, and the percentage is 1.4 points unfavorable. Revenue rose, so do not blame only volume. Investigate price increases, overproduction, waste, and portion drift. A favorable total expense variance can still hide an unfavorable food-cost line.
Traps
Calling a below-budget expense "unfavorable"; mixing capital purchases into the operating budget; assuming a lower food-cost percentage always means lower dollars; and using AP weight when costing EP portions.