Catering Menu Pricing and Control

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Questions and Answers

What are direct costs primarily associated with?

Overall operational expenses

Production of goods or services (correct)

Indirect costs incurred in all departments

General administrative expenses

Which of the following does NOT fall under direct costs?

Direct expenses

Direct material

Direct labor

Indirect labor (correct)

What are indirect costs also commonly referred to as?

Direct expenditures

Overheads (correct)

Supplementary costs

Variable expenses

Which of the following is an example of indirect material?

Fuel for machinery Signup and view all the answers

What does indirect labor include?

Wages of general supervisors Signup and view all the answers

Factory overheads encompass which of the following?

Rent for the production facility Signup and view all the answers

Which of the following is considered a direct expense?

Materials purchased for production Signup and view all the answers

What is a common characteristic of indirect costs?

Incurred for the overall operation Signup and view all the answers

What is classified as prime cost?

Costs of direct materials and direct labor Signup and view all the answers

Which of the following best describes fixed costs?

They remain constant regardless of output levels Signup and view all the answers

What do selling and distribution overheads include?

Advertising expenses and salaries of salesmen Signup and view all the answers

How is cost of production defined?

Factory cost plus administrative expenses Signup and view all the answers

What is an example of semi-variable costs?

Utility bills with a fixed base charge plus usage cost Signup and view all the answers

What does total cost or cost of sales include?

Cost of production plus selling and distribution overheads Signup and view all the answers

Which of the following is a characteristic of variable costs?

They increase with production volume Signup and view all the answers

What classification does factory cost fall under?

Prime costs plus factory overhead Signup and view all the answers

Which of the following describes controllable costs?

Costs that can be controlled or influenced by a specific level of management. Signup and view all the answers

What distinguishes abnormal costs from normal costs?

Abnormal costs are unexpected and irregular outlays. Signup and view all the answers

Which statement accurately reflects avoidable costs?

These costs can be avoided if the related activity is discontinued. Signup and view all the answers

Which of the following best defines sunk costs?

Costs that have been spent and cannot be recovered. Signup and view all the answers

How do incremental costs differ from decremental costs?

Incremental costs involve an increase in total cost, while decremental costs decrease it. Signup and view all the answers

Which type of costs are incurred even during temporary shutdowns of operations?

Shut down costs Signup and view all the answers

Which of the following is an example of a period cost?

Administrative salaries Signup and view all the answers

Study Notes

Students should demonstrate a deep understanding of menu pricing and cost control in catering.
Students should demonstrate knowledge of recipe standardization.

Classification of Cost by Nature or Element

Direct Cost: Costs directly tied to goods/services production, easily assigned to specific products or jobs.
Indirect Cost: Costs not assignable to particular costs or items, incurred for the whole operation and divided among various cost units.

Direct Cost

Includes direct materials, directly purchased or requisitioned for specific cost units, including primary packaging materials.
Includes wages paid to workers directly involved in production, as well as supervisors and those maintaining the production process.
Also known as chargeable expenses, directly charged to the specific unit of cost.

Indirect Cost

Includes indirect materials, such as fuel, lubricating oil, small tools, and miscellaneous stores.
Includes wages paid to general supervisors, inspectors, workshop cleaners, storekeepers, and timekeepers.
Includes indirect expenses such as rent, lighting, insurance, canteen, hospital, and welfare expenses, etc.
Indirect costs are also called 'overheads'.

Overhead Classifications

Factory Overhead: Indirect expenses related to the manufacture of a product, such as lubricants, oil, consumable stores, works manager's salary, etc.
Office and Administration Overhead: Indirect expenses related to administration, such as office rent, office lighting, insurance, clerical and executive staff salaries.
Selling and Distribution Overhead: Indirect costs related to marketing and sales, such as advertising expenses, salesman salaries, and indirect packing material.

Functional Classification of Cost

Prime Cost: Direct materials, direct labor, and direct expenses involved in the product.
Factory Cost: Prime cost plus factory overhead (or works expenses). Also known as works cost, production cost, or manufacturing cost.
Cost of Production: Factory cost plus office and administrative expenses. Also known as office cost, administration cost, or gross cost of production.
Total Cost or Cost of Sales: Cost of production plus selling and distribution overhead.

Classification of Cost on the Basis of Behavior

Variable Costs: Costs that change in direct proportion to production volume. Production increases, variable costs rise; production decreases, variable costs fall. Examples are raw materials costs.
Fixed Costs: Costs that remain constant regardless of production volume. Examples are rent for kitchen space.
Semi-variable Costs: Costs that have both fixed and variable components. Examples are utility bills.

Classification of Costs for Managerial Decisions and Control

Controllable Costs: Costs that can be influenced or controlled by a person or management level in an undertaking.
Uncontrollable Costs: Costs not influenced by a specified individual but are part of the undertaking.
Normal Costs: Predictable and necessary costs of producing goods/services.
Abnormal Costs: Unexpected or irregular expenses outside normal business operations; examples include accidents, spoilage, disasters.
Avoidable Costs: Costs that can be eliminated if a specific business activity is discontinued.
Unavoidable Costs: Costs that cannot be avoided or eliminated.
Shut-Down Costs: Fixed costs that are incurred even if production/operations are temporarily discontinued due to reasons such as strikes or shortages.
Sunk Costs: Costs already incurred that are irrelevant for determining current decisions; cannot be recovered.
Product Costs: Costs associated with production that become part of the product cost (e.g., raw materials).
Period Costs: Costs not directly tied to production, but related to a time period (e.g., administration costs, rent, insurance).
Incremental Costs: Cost increases due to changes.
Decremental Costs: Cost decreases due to changes.
Opportunity Costs: Advantages foregone because of adopting a particular course of action.
Conversion Costs: The cost of converting raw materials into finished products.

Break-even and Food Costing

Break-even point: The sales level where costs equal revenue, neither loss nor gain. A business has covered all fixed and variable expenses but hasn't yet made any profit. It's the sales amount necessary for a business to start making profit.
Food Costing: A method of determining the overall ingredient expenditure to make a dish. It helps businesses price menu items, covering costs, and generating profit. This includes monitoring ingredient costs, portion sizes, and waste to maintain profitability.

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Description

This quiz covers essential concepts in catering menu pricing and cost control. Students will explore topics such as direct and indirect costs, as well as the importance of recipe standardization in the catering industry. Test your knowledge and understanding of these fundamental principles.