Chapter 10: Control: Analysis, Corrective Action, And Evaluation

1.

The easiest to use source of information for standard (expected) food and beverage costs is:

A.

Industry averages
B.

Past financial statements
C.

Operating budget
D.

In-house standard costs

Correct Answer
A. Industry averages

Explanation
Industry averages are the easiest to use source of information for standard food and beverage costs because they provide a benchmark for comparison against other businesses in the same industry. By comparing the costs of food and beverages to industry averages, businesses can determine if their costs are in line with what is typically expected. This information can help businesses identify areas where they may be overspending or where they can make improvements to increase profitability. Additionally, industry averages are readily available and can be easily accessed through industry publications or online resources.

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2.

Which of the following sources of information is the least reliable basis for developing cost standards for a food and beverage operation?

A.

Industry averages
B.

Past financial statements
C.

Operating budgets
D.

In-house standard costs

Correct Answer
A. Industry averages

Explanation
Industry averages are the least reliable source of information for developing cost standards for a food and beverage operation. This is because industry averages represent a broad range of businesses and may not accurately reflect the specific circumstances and operations of a particular establishment. Past financial statements, operating budgets, and in-house standard costs are more reliable sources as they provide information specific to the business in question and can be used to analyze and make more accurate cost projections.

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3.

Year after year, the As-You-Like -It Bistro handles a large volume of business at lunch. The manager attributes the operation’s success to radical menu changes every three months. Many of the new menu items result from suggestions made by guests. Which of the following sources of information offers the manager the most reliable basis for developing cost standards?

A.

Industry averages
B.

Past financial statements
C.

Operating budgets
D.

In-house standard costs

Correct Answer
D. In-house standard costs

Explanation
The manager can develop cost standards based on in-house standard costs because these costs are specific to the bistro's operations and reflect the actual expenses incurred. This information is reliable as it takes into account the unique characteristics and requirements of the business, allowing the manager to accurately estimate costs and make informed decisions. Industry averages, past financial statements, and operating budgets may provide some insights, but they may not accurately reflect the specific needs and circumstances of the bistro.

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4.

The management team at the Four Corners restaurant has agreed that only variances in excess of $1,000 a month would be analyzed and corrected. Given the following information, which segment of the operation signals the need for analysis and corrective action? July revenue Cost variance Breakfast $12,000 7% Lunch $35,000 4% Dinner $85,000 1% Beverage operation $45,000 2%

A.

Breakfast
B.

Lunch
C.

Dinner
D.

Beverage operation

Correct Answer
B. Lunch

Explanation
The segment of the operation that signals the need for analysis and corrective action is lunch. This is because the cost variance for lunch is 4%, which exceeds the agreed-upon threshold of $1,000. The variances for breakfast, dinner, and the beverage operation are all below this threshold, indicating that they do not require further analysis and corrective action.

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5.

For the previous month, actual food costs exceeded standard food costs at Buddy’s Bar & Grill. Which of the following could have possibly caused the variance?

A.

A significant change in the sales mix, with guests ordering menu items having high contribution margins
B.

Smaller portion sizes prepared by food production staff
C.

Food production staff using higher quality ingredients than called for by standard recipes
D.

Price cuts by suppliers during the month that weren’t reflected in the selling prices of affected menu items

Correct Answer
C. Food production staff using higher quality ingredients than called for by standard recipes

Explanation
The variance in actual food costs exceeding standard food costs could have been caused by the food production staff using higher quality ingredients than called for by standard recipes. This would result in higher costs for the ingredients, leading to a higher overall food cost.

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6.

Last month at Emil’s Italian Restaurant, actual food costs fell below standard food costs. Which of the following could be the reason?

A.

Failure to collect all revenue
B.

Food production staff substituting lower quality ingredients than called for by standard recipes
C.

Larger portion sizes prepared by food production staff
D.

Higher prices charged by suppliers during the month that weren’t reflected in the selling prices of affected menu items

Correct Answer
B. Food production staff substituting lower quality ingredients than called for by standard recipes

Explanation
The reason why actual food costs fell below standard food costs could be because the food production staff substituted lower quality ingredients than called for by standard recipes. This means that they used cheaper ingredients which resulted in lower costs.

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7.

When actual costs vary from standard costs, corrective action:

A.

May be necessary
B.

Is always necessary
C.

Is necessary only if the variance exceeds five percent
D.

Is necessary only if the variance exceeds $3,000

Correct Answer
A. May be necessary

Explanation
When actual costs vary from standard costs, corrective action may be necessary. This is because any deviation from the standard costs could indicate a problem or inefficiency in the production process. However, the necessity of corrective action may vary depending on the magnitude of the variance. It is not always necessary to take corrective action for every variance, but it should be considered if the variance exceeds a certain threshold, such as five percent or $3,000. Therefore, the correct answer is that corrective action may be necessary.

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8.

Managers at the ABC Restaurant have uncovered a problem: food costs have been too high for two months in a row. The restaurant’s managers are trying to decide who should be given the responsibility for taking corrective action. One question the managers should ask themselves before assigning responsibility is:

A.

How important is the problem?
B.

How specialized is the problem?
C.

Who is responsible for the area of concern?
D.

All of the above

Correct Answer
D. All of the above

Explanation
The managers should ask themselves all of the above questions before assigning responsibility for taking corrective action. By considering how important the problem is, they can determine the urgency and priority of addressing it. Assessing how specialized the problem is can help them identify the specific skills and expertise required to tackle it effectively. Finally, determining who is responsible for the area of concern is crucial in ensuring accountability and assigning the task to the appropriate individual or team.

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9.

When evaluating the effectiveness of actions taken to correct a cost control problem, it is important that managers:

A.

Do not evaluate too soon after corrective action
B.

Choose an appropriate time frame for the evaluation
C.

Determine whether another part of control system has been negatively affected by the corrective action taken
D.

All of the above

Correct Answer
D. All of the above

Explanation
Managers should not evaluate too soon after corrective action because it takes time for the effects of the action to be fully realized and for any adjustments to be made. Choosing an appropriate time frame for evaluation is important because different actions may have different time frames for their effects to be seen. Additionally, managers should determine whether another part of the control system has been negatively affected by the corrective action taken to ensure that overall cost control is maintained. Therefore, all of the above options are important considerations when evaluating the effectiveness of actions taken to correct a cost control problem.

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10.

Computer technology helps managers in their control efforts by:

A.

Enabling them to produce timely computer-generated reports
B.

Taking over decision-making responsibilities from them
C.

Helping them “crunch the numbers”
D.

A and C

Correct Answer
D. A and C

Explanation
Computer technology helps managers in their control efforts by enabling them to produce timely computer-generated reports and helping them "crunch the numbers." This means that computer technology allows managers to generate reports quickly and efficiently, providing them with the necessary information to make informed decisions. Additionally, computer technology helps managers analyze and interpret data through data analysis tools, allowing them to make more accurate and effective decisions. Therefore, options A and C are both correct as they highlight the ways in which computer technology supports managers in their control efforts.

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