Chapter 10

Planning for Profit

Multiple Choice Exam Questions

1. The purpose of menu analysis is to determine the
2. number of different items to offer on a menu.
3. selling prices of the individual items offered on a menu.
4. profitability of the individual items offered on a menu.
5. order of placement of the individual items offered on a menu.
6. The primary purpose of Cost/Volume/Profit (CVP) analysis is to
7. forecast future sales more accurately.
8. find out which menu items are most profitable.
9. estimate an operation’s income before income taxes.
10. identify the amount of sales revenue needed to avoid an operating loss.
11. How many different menu item classifications will result if managers evaluate their menu items’ popularity and food cost percentages by using a two factor matrix analysis?
12. 2
13. 4
14. 6
15. 8
16. What is the goal of managers who use matrix analysis to evaluate menu items based on each item’s popularity and food cost percentage?
17. Increase sales
18. Maximize contribution margin
19. Minimize food cost percentage
20. Decrease controllable other expenses
21. What type of menu item should be featured prominently on the menu if managers use matrix analysis to evaluate their menus based on item popularity and contribution margin?
22. An item with low contribution margin and low popularity
23. An item with high contribution margin and low popularity
24. An item with low contribution margin and high popularity
25. An item with high contribution margin and high popularity
26. Which type of menu item should be removed from the menu if managers use matrix analysis to evaluate their menus based on item popularity and contribution margin?
27. An item with low contribution margin and low popularity
28. An item with high contribution margin and low popularity
29. An item with low contribution margin and high popularity
30. An item with high contribution margin and high popularity
31. A manager utilizes contribution margin matrix analysis to evaluate a menu. What would be a good marketing strategy to use on an item the manger finds is very popular but has a low contribution margin?
32. Promote the item well
33. Reduce the item’s price
34. Remove the item from the menu
35. Reduce the item’s prominence on the menu
36. A menu item sells for $8.00, has a food cost of 25%, and it is sold to 100 guests. What is the item’s total contribution margin?
37. $200
38. $300
39. $600
40. $700
41. The tendency to favor high-priced menu items over low-priced ones during menu evaluation is a legitimate criticism of
42. goal value analysis.
43. Cost/Volume/Profit (CVP) analysis.
44. contribution margin matrix analysis.
45. food cost percentage matrix analysis.
46. A menu item sells for $11.95 and has a 40 percent food cost. Variable costs for the item are 25 percent and 250 servings are sold. What is the item’s goal value?
47. 435.98
48. 543.23
49. 590.34
50. 627.38
51. A loss leader is a menu item that is priced very low, and sometimes even below its total cost, for the purpose of
52. increasing total revenue.
53. increasing contribution margin.
54. decreasing food cost percentage.
55. decreasing variable costs percentage.
56. When an operation reaches its break-even point the operation’s revenue will equal its
57. fixed expenses.
58. variable expenses.
59. controllable expenses.
60. fixed plus variable expenses.
61. What is the formula managers use to calculate their break-even point in sales?
62. Fixed costs ÷ Contribution margin % = Break-even point in sales
63. Fixed costs x Contribution margin % = Break-even point in sales
64. Contribution margin % ÷ Fixed costs = Break-even point in sales
65. Contribution margin % - Fixed costs = Break-even point in sales
66. A restaurant has a check average of $12 and variable costs per cover of $4.80. If its fixed costs are $36,000 each month, what is the number of covers that must be sold to reach its monthly break-even point?
67. 1500
68. 3750
69. 4500
70. 5000
71. What is the formula managers use to calculate their contribution margin for overall operation?
72. Total sales + Variable costs = Contribution margin for overall operation
73. Total sales x Variable costs = Contribution margin for overall operation
74. Total sales ÷ Variable costs = Contribution margin for overall operation
75. Total sales – Variable costs = Contribution margin for overall operation
76. Experienced food service managers know that their budgets
77. cannot be modified.
78. are static documents.
79. should not be modified.
80. are not static documents.
81. What is the type of budget that would include the least amount of detail about an operation’s revenue and operating expenses?
82. Annual budget
83. Long-range budget
84. Comparison budget
85. Achievement budget
86. Last year a health care facility served 36,500 dinners. The manager of the facility estimates an increase of 5 percent in the number of dinners to be served this year. What will be the manager’s estimate of the number of dinners the facility will serve this year?
87. 37,325
88. 38,325
89. 39,325
90. 40,325
91. Last year an operation achieved a 35 percent food cost on sales of $800,000. For this year, the operation’s manager anticipates a 5 percent increase in the prices the operation will pay for food. What should the manager estimate next year’s food cost percentage to be if the operation does not raise its menu prices?
92. 36.00%
93. 36.75%
94. 40.00%
95. 40.75%
96. Last year an operation achieved a 28 percent labor cost on sales of $1,500,000. For next year, the manager predicts an 8 percent increase in the prices the operation will pay for labor. The manager will also increase the operation’s menu prices by 5 percent. What should be the manager’s best estimate for next year’s labor cost percentage?
97. 28.8%
98. 29.8%
99. 30.8%
100. 31.8%
101. A manager budgeted $6,000 for kitchen equipment repairs this year. So far this year, the manager has spent $1,830 on these repairs. What percentage of the kitchen equipment repair budget has now been spent by the manager?
102. 30.5%
103. 32%
104. 34.5%
105. 36%
106. An owner is building a new operation and calculates that it can achieve $400 in sales per square foot built. The own feels that to achieve a desired 18 percent ROI the operation must generate $1,100,000 in annual revenue. How large should the owner’s new facility be to generate the desired level of annual revenue?
107. 2,000 square feet
108. 2,750 square feet
109. 3,250 square feet
110. 4,000 square feet
111. An operation had sales of $39,000 in an accounting period. The operation’s food cost for the period was 38 percent. The operation spent $6,000 on meat in the period. What was the operation’s meat cost percentage for the period?
112. 12.74%
113. 14.7%
114. 16.7%
115. 18.7%
116. In most food service operations, when actual revenue is lower than budgeted revenue, the operations’ fixed cost percentages
117. will not change.
118. will be lower than budgeted.
119. will be exactly as budgeted.
120. will be higher than budgeted.
121. What is the area of least concern for managers who are carefully monitoring their budgets?
122. Profits
123. Revenue
124. Fixed costs
125. Variable costs

True/False Exam Questions

1. A primary purpose of budgets is to help managers estimate future operating results.
   1. True
   2. False
2. A criticism of using the contribution margin method of menu analysis is that it tends to favor higher-priced menu items over lower-priced menu items.
   1. True
   2. False
3. Popularity is a factor utilized when performing both food cost percentage and contribution margin matrix analysis.
   1. True
   2. False
4. Goal value menu analysis is performed using a 2x2 matrix to indicate menu item characteristics that are above and below the overall menu’s average values.
   1. True
   2. False
5. Cost/Volume/Profit (CVP) analysis is also referred to as break-even analysis.
   1. True
   2. False
6. The formula used to calculate a break-even point in sales is: Fixed costs (÷) Contribution margin % = Break-even point in sales.
   1. True
   2. False
7. One primary goal of a long-range budget is to communicate to its owners and investors a realistic picture of a business’s future financial performance.
   1. True
   2. False
8. Achievement budgets are typically prepared for a period of two to five years into the future and provide a long-term view about the direction of a business.
   1. True
   2. False
9. Managers who forecast increases in revenue should also forecast increases in their variable cost percentages.
   1. True
   2. False
10. Managers who forecast decreases in revenue should also forecast decreases in their fixed cost percentages.
    1. True
    2. False