III E Financial management ($$$) Flashcards
revenue = …?**
revenue = income = sales
a budget is used for what purpose?***
CONTROL
operating budget***
- FIRST STEP = FORECAST the SALES/REVENUE/INCOME
- then budget expenditures r/t the projected level of sales
(forecast of revenues, expenses, and profit)
cash budget***
- projects REVENUES and EXPENSES, shows INFLOW AND OUTPUT OF CASH
- PURPOSE: if funds will be AVAILABLE WHEN NEEDED (ex: if its May, cash budget will let you know if you can get something in October)
capital budget***
- EXPENSIVE, LONG-LASTING THINGS, >1 YEAR
- ex: EQUIPMENT, SERVICE, MAINTENANCE CONTRACTS
traditional (incremental) budget***
THIS YEAR’S EXPENSES + INFLATION FACTOR (uses existing budget as a base and projects changed in relation to the current budget)
zero-based budget (ZBB)***
NOT this year’s expenses; BEGIN AT 0, JUSTIFY EACH EXPENSE
a zero-based budget is ___ oriented***
planning
traditional vs. zero-based budget***
- traditional = this year’s expenses + inflation factor
- zero-based = start from 0, justify each expense
fixed budget***
prepared at ONE LEVEL OF SALES/REVENUE, NO EXPECTED MAJOR CHANGE IN CUSTOMER COUNT
flexible budget***
EXPECTED CHANGE/VARYING LEVELS IN customer COUNT (ex: closing a floor for renovation)
fixed vs. flexible budget***
- fixed = one level of sales, no major change in cust. count
- flexible = expected change in sales, varying customer count
performance budget***
details cost to PERFORM AN ACTIVITY (ex: supervising the cafeteria**)
AKA “mini-budget inside the big one”
indirect (fixed) costs***
NOT affected by sales volume (number of people served)……required for business to exist
examples of indirect/fixed costs
rent, taxes, interest on debt, insurance, depreciation
direct, variable, flexible costs***
VARIES DIRECTLY with CHANGES IN SALES/revenue; directly involved with service of customers
examples of direct, variable, flexible costs***
china, silver, FOOD, uniforms, laundry, repairs, benefits
semi-variable costs***
BOTH a fixed and a variable component; some component remains fixed, no matter the change in volume
example of semi-variable costs***
LABOR, maintenance, utilities (i.e. will always have to pay for people to staff, but how much is needed depends on the # of sales)
what type of a cost is food? labor?***
food = direct/variable/flexible labor = semi-variable
sunk costs
ALREADY INCURRED, cannot be recouped by a new decision or alternative (ex: cost of studying a new computer)
differential costs
amount of INCREASE or DECREASE in cost when you COMPARE ALTERNATIVE CHOICES
what is resource allocation?
placing people/materials/equipment where needed to meet the needs of the operating system
what is CPM?
(Connor :D) Critical Path Method- helps to identify the most critical activities, to best allocate limited resources
what is the most readily controlled item?**
FOOD COSTS!
what type of menu reduces waste and cost?
selective menu
what type of purchasing reduces costs?
group buying
EP vs AP***
EP = edible portion; AP = as purchased or RAW
EP cost/lb formula***
raw purchase cost (AP) / cooked edible weight
are labor costs easily controlled?**
less controllable than food costs
operating costs are..?***
utilities/ELECTRICITY, laundry, cleaning
cash basis (accounting method)
recognizes a transaction at the time the cash is taken in or released
accrual basis (accounting method)
recognizes revenues WHEN EARNED and expenses WHEN OCCURRED (regardless of when the cash is received or dispersed)
what is a general ledger?
records and reports transactions by ACCOUNT NUMBERS (summary of the month by category i.e. meat, fruit, dairy, etc.)
what is a profit and loss statement (income statement)?**
shows INCOME, EXPENSES, AND PROFIT (or loss) over A PERIOD OF TIME
what is a balance sheet?**
lists ASSETS (goods and products owned) and LIABILITIES
what are assets?***
goods and products owned- CASH, INVENTORY, ACCOUNTS RECEIVABLE (amounts OWED TO YOU)
what are liabilities?***
amounts OWED TO OTHERS
assets = ?
liabilities + capital (equity) (?????)
liquidity ratio vs. net worth ratios
- liquidity = ability to meet SHORT TERM debt
- net worth = ability to meet LONG TERM debt
asset management, turnover ratios- what are they?***
shows CURRENT EFFECTIVENESS OF INVENTORY CONTROL (are you efficiently using the assets to produce more income?)
inventory turnover rate formula***
= cost of sales (food cost) / average inventory cost
what does an inventory turnover rate measure?***
HOW OFTEN an INVENTORY IS CONSUMED & REPLENISHED
what is a desirable turnover rate?***
2-4 times per month
high inventory turnover rate means?
limited inventory is on hand
low inventory turnover rate means?
a lot of money is tied up in the stock
formula for food cost**
beginning + purchases - ending
formula for food cost per meal***
food cost per month / # meals per month
food cost percentage formula***
daily food cost / daily income
what does a food cost percentage measure?**
what % of the income was SPENT on THE FOOD SOLD
meals per labor hour equation**
number of meals produced / number of hours worked
what is the profit margin?***
reflects portion of sales volume remaining after paying ALL expenses
profit margin equation*****
net profit (profit after ALL expenses have been paid) / sales dollars or revenue
cost of sales is..?**
WHAT you are selling - cost of RAW FOOD AND BEVERAGE
gross profit is..?**
profit AFTER deducting RAW FOOD AND BEVERAGE (or cost of sales)
net profit is..?***
profit shown after ALL expenses have been deduced from sales
what is the payback period?
how long it will take for an investment to pay back the organization for the investment
how to calculate payback period**
costs of service / total dollars saved by using the new service = # of time to payback
how to calculate budget projections***
see III p.25 for an example (makes sense on paper not in writing)
what is value analysis?***
process of investigating all aspects of service with the goal of DISCOVERING AND ELIMINATING UNNECESSARY COSTS; “ARE YOU SPENDING MONEY WISELY?”
what is marketing analysis?
IDENTIFYING a need, RECOGNIZING that need, FILLING the need
marketing channel
exchange of ownership: producer, processor, distributor, supplier, customer
first step in the marketing process?***
IDENTIFY A NEED NOT BEING FILLED (market niche)
what is market segmentation?***
DIVIDE market into groups of people WITH SIMILAR PRODUCT NEEDS
demographic variables
age, gender, race, education, income
geographic variables
urban, suburban, climate, resources, cultural values
psychographic variables***
social class, lifestyle (WHAT IS IMPORTANT to them and their mode of living), motive (reason customer makes a purchase)
behavioristic variables
occasions, loyalty
market niche
need you are trying to fill
positioning statement
how you would like the marketplace to view your product
what is the target market?***
GROUP OF PEOPLE with SIMILAR WANTS or needs w/ potential of purchasing your product
what is the product mix?***
group of items you will offer
marketing mix?*****
4 Ps:
1) product
2) place (where)
3) price
4) promotion/publicity (short-term)
product mix vs. marketing mix***
- product mix = GROUP OF ITEMS you will offer
- marketing mix = product, place, price, promotion
what is a signature brand?***
UNIQUE items your business has developed (signature…unique)
what is strategic marketing?
LONG TERM OVERALL VIEW: selected target market and marketing mix (remember: product, place, price, promotion)
social marketing***
ADVANCE A SOCIAL CAUSE, IDEA, OR BEHAVIOR; CHANGE the customer (ex: Got Milk? with a famous person)
business marketing***
filling CUSTOMER’S NEEDS OR DESIRES- GIVE THE CUSTOMER WHAT THEY NEED/WANT (ex: McDonald’s adding salad to the menu)
business plan –>
see JI III p.27 (top) IDK
what is the breakeven point?***
point at which INCOME/SALES/REVENUE EXACTLY COVERS the FIXED/VARIABLE COSTS (not losing or making any money)
BE (units) formula***
fixed costs / (selling price - variable costs)
BE (sales/$) formula***
fixed costs / [1 - (variable costs / sales)]
BE point on a graph***
WHERE total cost line crosses REVENUE/SALES line
BE point _____ when costs increase***
INCREASES
factor pricing method is AKA***
traditional method, markup method
what is mark-up?
difference between the cost and the selling price
mark-up factor formula***
100 / FOOD COST PERCENTAGE (as a number, not decimal)
selling price formula***
mark-up factor X raw food cost
hidden cost for factor pricing method***
10% (added to raw food cost, then multiplied by the mark-up factor)
what is the prime cost method?***
RAW FOOD COST + DIRECT LABOR COST
how to calculate prime cost method?
1) add food cost and labor cost (=prime cost)
2) add food cost % and labor cost %, divide into 100 to get the markup factor
2) selling price = prime cost X markup factor
(III p.29 for example)
what is promotions pricing?***
done for a SHORT TIME (sales to increase sales during slow period)
what are loss leaders?***
items PRICED LOWER to DRAW PEOPLE in the hope that they will PURCHASE OTHER ITEMS AT NORMAL MARKUPS (ex: Payless $5 Dreams)
what is cost of profit pricing?***
PRICE product to ensure a PREDETERMINED PERCENTAGE OF PROFIT
why is cost of profit pricing beneficial?***
(remember: ensures a predetermined % of profit) used to GUARANTEE A CERTAIN PROFIT w/ each sale
method of cost of profit pricing
1) add up all costs as %
2) 100 - all other cost % = food cost
3) selling price = total food cost in $ / desired food cost percentage as a decimal
III p.29 - example
