Domain III, Topic C, Financial Management

Question 1

______ development gives manager a basis for control estimate of future needs

1) Must be a flexible and adjustable according to changes
2) Usually reviewed monthly

Answer 1

Budget

Question 2

An _________ budget includes:

a) Forecast of revenues, expenses, and profit fro a specific period of time
b) First step - forecast sales or revenue (income) portion
c) Then budget expenditures (labor, food, operating expenses) related to the projected level of revenue

Answer 2

Operating

Question 3

A ____ budget includes

a) Projects revenues and expenses, showing inflow and output of cash
b) Purpose is to determine if funds will be available when needed

Answer 3

Cash

Question 4

A _______ budget includes

• Plant facilities, equipment, cost of improvements and repairs (service, maintenance contracts), expansions, replacements
  a) Includes expenditures whose returns are expected to last beyond one year

Answer 4

Capital

Question 5

___________ budget (Incremental, baseline)

• Uses existing budget as a base and projects changes for the ensuing year in relation to the current budget
  a) Usually begins with this year’s expenses plus an inflation factor
  b) control oriented
  c) Prepared at one level of sales or revenue

Answer 5

Traditional

Question 6

____ - _____ budget (ZBB)

• NOT this year’s expenses plus an inflation factor
  a) begin at 0. Must justify each expense
  b) example: PPBS - Planning, Programming Budgeting System
  1) Past dollar allocations are NOT the basis of projections
  c) Planning oriented

Answer 6

Zero - Based

Question 7

_____ budget

- Prepared at one level of sales or revenue (no expected major change in patient or customer count during the year)

Answer 7

Fixed

Question 8

________ budget

• Adjusted to various levels of operation with varying levels of sales or revenues throughout the year (changes in patient or customer count)
  a) closing a floor for renovation
  b) gives dollar range for low to high levels of predicted activity

Answer 8

Flexible

Question 9

__________ budget

- Details what it costs to perform an activity (how much to supervise the cafeteria)

Answer 9

Performance

Question 10

________ (fixed) costs

• Not affected by sales volume (number of people served), not directly evident in day to day activities, required for business to exist even if it produces nothing, cannot be readily changed
  a) Rent, taxes, interest on debt, insurance, depreciation
  b) Stay fixed within a range of sales volume

Answer 10

Indirect

Question 11

______, ________, ________ costs

• Varies directly with changes in sales (revenue); directly involved in service to customer
  a) china, silver, food, uniforms, laundry, repairs, benefits

Answer 11

Direct, variable, flexible

Question 12

____ - ________ costs

• Both a fixed and variable component;
  a) A portion of the cost will remain fixed regardless of changes in sales volume
  b) Labor, maintenance, utilities
  c) These are divided into fixed and variable components before doing break even analysis

Answer 12

Semi - variable costs

Question 13

____ costs - already incurred and cannot be recouped by a new decision or alternative; cost involved in studying merits of a new computer

Answer 13

Sunk

Question 14

____________ costs
-Amount of increase or decrease in cost when you compare alternative choices; difference in costs between two delivery systems

Answer 14

Differential

Question 15

________ __________: Efficient allocation of people, materials, and equipment to meet the needs of the operating system (can lead to cost savings).

Answer 15

Resource Allocation

Question 16

The _______ ____ ______ (CPM) of resource allocation helps plan and control an operation. It identifies the most critical activities to allocate limited resources

Answer 16

Critical Path Method

Question 17

____ costs are the most readily controlled item, subject to the greatest fluctuation

1) menu planning - most important
2) type of service - selective menu reduces waste and cost
3) Purchasing methods - group buying reduces costs
4) Receiving control - weigh in and check items against invoice
5) Storage and production control
6) Standardize portions to control costs; keep records of employee meals

Answer 17

Food

Question 18

To determine ______ _______ (EP) cost per pound, divide the purchase cost by the edible weight.

Raw purchase cost(AP) $12.24 / Cooked edible weight 9.9 = EP cost / lb $1.24

Answer 18

Edible portion

Question 19

_____ costs

- Less controllable than food costs

Answer 19

Labor

Question 20

_________ costs

• 12 - 18% of budget
• Utilities (electricity), laundry, cleaning

Answer 20

Operating

Question 21

____ Basis accounting method

- Recognizes a transaction at the tie the cash is taken in or released

Answer 21

Cash

Question 22

_______ basis accounting method
- Recognizes revenues when earned and expenses when incurred (regardless of when the actual cash is received or dispersed)

Answer 22

Accrual

Question 23

A _______ ______

• Records and reports transactions categorized by account numbers
  a) Summary of all expenses and revenues for the month by category (meat, fruit, dairy)

Answer 23

General Ledger

Question 24

A ______ and ____ statement (Income Statement) - shows operating results over a period of time

a) Presents the income (revenue), expenses and profit (or loss or break even) over the course of the budget period
b) Also known as the revenue and expense statement

Answer 24

Profit and loss Statement

Question 25

_______ _____

• Shows financial condition as a particular date
  a) Lists assets (goods and products owned) - cash, inventory, accounts receivable (amounts owed to you)
  b) Lists liabilities - amounts owed to others
  c) assets = liabilities + capital (equity)

Answer 25

Balance sheet

Question 26

________ ______

• Use formulas to analyze an organization’s financial position
  a) Formulas use data from financial statements
  1) Compares organization with similar ones
  2) Compares ratios with those projected or with preceding ratios

Answer 26

Financial ratios

Question 27

_________ ______

- Assess ability to meet short term debt

Answer 27

Liquidity Ratios

Question 28

\_\_\_\_\_\_\_\_ \_\_\_\_\_\_ (asset management)
- Shows current effectiveness of inventory control; are you efficiently using the assets to produce more inome

Answer 28

Turnover ratios

Question 29

_________ ________ rate

• Measures how often an inventory is consumed and replenished a ________ rate of 2 - 4 times per month is often desirable.
• High ratios indicate a limited inventory is being kept
• Low ratios indicate large amounts of money are tied up in stock

Cost of sales (food cost) / average inventory cost

Answer 29

Inventory turnover rate

Question 30

___ _____ ______

- Assess ability to meet long term debt

Answer 30

Net worth Ratios

Question 31

_____ ____ ____ Report (Food cost percentage)
1) Tells you what percent of the income was spent on the food sold

daily food cost / daily income = food cost percentage

Answer 31

Daily food cost

Question 32

____ ____ per meal

Food cost per month / # of meals per month

Answer 32

Food cost

Question 33

____ ____

- Food purchases plus foods removed from inventory OR beginning inventory minus ending inventory, plus food purchases

Answer 33

Food cost

Question 34

To determine ___ ____

• Need # of meals served
• Food purchases
• Foods removed from inventory

Answer 34

Food cost

Question 35

______ ______

• Most commonly used assessment of overall financial efficiency
  1) reflects the portion of sales volume remaining after paying all expenses

Net Profit (profit after all expenses have been paid) / Sales Dollars (revenue

Answer 35

Profit Margin

Question 36

_______ includes income from patients, cafeteria sales, and catering sales

Answer 36

Revenue

Question 37

Cost of _____

- Cost of the raw food and beverages sold

Answer 37

Sales

Question 38

___ profit

- Profit shown after ALL expenses have been deducted from sales

Answer 38

Net

Question 39

______ ______
1) Determines the length of time it will take for the cash inflows from a project to equal the initial cash outlay ( how much time it will take for an investment to pay back the organization for the investment)
2) add up the costs of the service
add up costs saved by using the new service
divide costs of service by dollars saved

Answer 39

Payback period

Question 40

_____ analysis is a process of investigating all aspects of a service to discover and eliminate unnecessary costs without interfering with the effectiveness of the service

• Consider the standards of quality vary and that the price is just one factor to be considered.
• In food service, it is the relationship between the price paid for an item and its usefulness.
• Value analysis lowers costs. Value added increases value to the consumer

Answer 40

Value analysis