Midterm Examination

Restaurant Management: Behind the Pass — covering Chapters 1–16 120 minutes · 100 points

Instructions to the student

• Time. Sections C and D are 53 of the 100 points and both are arithmetic. A candidate who writes beautifully for ninety minutes and then rushes the cost cards will fail. That is deliberate.
• Show your work. In Sections C and D an unsupported number earns no credit even when correct; a wrong number with correct method earns most of the credit.
• Rounding. Carry full precision through intermediate steps. Round money to the cent, percentages to one decimal, covers to whole people. If a rounding choice changes your conclusion, say so — that earns credit.
• Calculator permitted. Notes, textbook, and phone are not.
• All figures here are constructed and illustrative. Bellwether, Saltbox, Kestrel, Rail House, The Anvil, and Larkspur are teaching examples, not real businesses; benchmarks are rules of thumb, not laws. Questions touching permits, licensing, or occupancy assume a generic American jurisdiction — in practice these vary by state, county, and city, and you verify locally.

Weights: A, definitions and short answer, 20 · B, multiple choice, 12 · C, computation, 38 · D, reading an artifact, 15 · E, extended response (answer 2 of 3), 15 · total 100.

Section A — Definitions and Short Answer

10 items · 2 points each · 20 points

For each term: give a precise definition and one operational consequence — something a manager does differently, or a dollar that moves, because the term means what it means. A correct definition alone earns 1 point. Two or three sentences each.

A1. Prime cost.

A2. Capital stack.

A3. Occupancy cost.

A4. Triple net (NNN).

A5. The ramp.

A6. The usage formula (inventory usage).

A7. Contribution margin.

A8. As-purchased (AP) price versus edible-portion (EP) cost.

A9. Par level.

A10. Pour cost. For your operational consequence, use this situation: a 750 ml bottle of the house red lands at \$14.00 and the by-the-glass pour is specified at 5 fl oz, sold at \$14.00 a glass. State the pour cost, then state what happens to it if the bar pours six ounces by eye instead of five.

Section B — Multiple Choice

12 items · 1 point each · 12 points

Choose the single best answer.

B1. The most-repeated claim about this industry is that 90% — or, in the softer version, 60% — of restaurants fail in their first year. What does the published research actually support?

• A. About 90% close in year one; outcomes are essentially random.
• B. About 60% close in year one and roughly 90% within three years.
• C. About one in four — roughly 26–27% — close or change ownership in year one, with cumulative closure approaching 60% by year three.
• D. Fewer than 10% close in year one; failure is rare.

B2. Prime cost is:

• A. Food cost plus occupancy cost, as a percentage of sales.
• B. Cost of goods sold — food and beverage — plus total labor, as a percentage of total sales; at or below 60% is the full-service rule of thumb.
• C. The cost of the highest-priced item on the menu.
• D. Total operating expense less rent, as a percentage of sales.

B3. A manager divides four weeks of food invoices by four weeks of food sales and reports "food cost 29.4%." The most serious problem with this figure is:

• A. It uses four weeks rather than a calendar month.
• B. It ignores the change in inventory, so it measures what was bought, not what was used.
• C. It should have been divided by total sales rather than food sales.
• D. Nothing; this is the standard method.

B4. A manager decides to feature the entrée with the lowest food cost percentage on the table tent and in the servers' script. Why is this the wrong basis for the decision?

• A. Because food cost percentage is unknowable until the accounting period closes.
• B. Because you bank contribution-margin dollars, not percentages — a 40% item at \$36 contributes \$21.60 per plate while a 22% item at \$24 contributes \$18.72, and the deposit is made in dollars.
• C. Because the item with the lowest food cost percentage is always the least popular item.
• D. Because promotions should be selected by menu mix percentage alone.

B5. A case of braising greens costs \$30.00 for 12 pounds. A yield test shows 58% usable weight after stemming. The edible-portion cost per pound is closest to:

• A. \$1.45
• B. \$2.50
• C. \$4.31
• D. \$5.00

B6. A dinner menu carries ten entrées. Using the standard menu-engineering convention, the popularity threshold separating "high" from "low" menu mix is:

• A. 10.0% — an equal share of the menu.
• B. 7.0% — seventy percent of an equal share.
• C. 50% — half the items above, half below.
• D. 12.5% — one hundred twenty-five percent of an equal share.

B7. A restaurant's base rent and NNN charges are contractually fixed for the next three years. Its occupancy cost as a percentage of sales nonetheless moves from 6.1% to 7.2%. The most likely explanation is:

• A. The landlord raised the rent mid-term.
• B. Sales came in below plan — occupancy percentage is a function of revenue as much as of rent.
• C. The NNN reconciliation was computed incorrectly.
• D. The restaurant added seats.

B8. Rent commencement is:

• A. The date the lease is signed.
• B. The date you take possession of the space.
• C. The date rent begins to accrue, which may fall later than possession — commonly after a negotiated free-rent period, or tied to the certificate of occupancy or to opening for business.
• D. The first of the month following possession, in all commercial leases.

B9. A certificate of occupancy, or its local equivalent:

• A. Is issued by the health department after a passing inspection and permits food service.
• B. Is the building authority's sign-off that the completed space may legally be occupied for its intended use — normally the gate cleared before you can open, and frequently the event that triggers rent commencement.
• C. Is issued by the state alcohol authority and permits liquor service.
• D. Is a landlord's document confirming the TI allowance has been funded.

B10. A dining room's practical capacity is 125 dinner covers. The kitchen's hot line can produce roughly 132 covers' worth of food in a dinner service. In season, a patio adds 21 practical covers. Which statement is correct?

• A. Out of season the kitchen binds at 132; in season the room binds at 146.
• B. Out of season the room binds at 125; in season the kitchen binds at 132.
• C. Capacity is 146 either way, because a kitchen can always be pushed harder.
• D. Capacity is the sum of the two, 257 covers.

B11. The purpose of a soft open before the public opening is best described as:

• A. Generating the maximum possible first-week revenue.
• B. Load-testing the systems — ticket times, station handoffs, the pass, the POS, the bar well — at controlled volume, so the inevitable errors happen in front of a forgiving room.
• C. Satisfying a health-department requirement applying in most jurisdictions.
• D. Establishing the average check the business plan will use.

B12. In a capital stack made up of owner injection, a tenant-improvement allowance, an equipment lease, and an SBA 7(a) loan, a personal guarantee means:

• A. The lender's claim is limited to the assets of the business.
• B. The owner has personally promised repayment if the business cannot pay — so the obligation survives the closing of the restaurant and reaches personal assets.
• C. The landlord guarantees that the tenant-improvement allowance will be funded.
• D. The SBA guarantees the loan to the borrower.

Section C — Computation

6 items · 38 points

This is the core of the examination. Show every step.

C1 — Build a cost card (8 points)

Saltbox is a constructed 74-seat seafood restaurant. You are costing the Pan-Seared Salmon for the spring menu. Purchasing has sent today's invoice prices; the kitchen has run yield tests.

The kitchen applies a 3% waste and spillage allowance to the component total. The dish is on the menu at \$34.00.

(a) (3 points) Compute the edible-portion cost per pound for the salmon, the fingerlings, and the asparagus.

(b) (1.5 points) Compute each component's portion cost and the component total.

(c) (1 point) Apply the waste allowance and state the plate cost.

(d) (1.5 points) At \$34.00, state the food cost percentage and the contribution margin.

(e) (1 point) What menu price would hit a 30% food cost target? If you rounded that to a posted price of \$36.00 and the dish sells 140 covers a week, what is the annual contribution effect of the two-dollar move?

C2 — The usage formula and true cost of goods sold (7 points)

Rail House is a constructed 96-seat barbecue restaurant. Below is one four-week accounting period.

During the period:

• \$1,150 of product moved from the kitchen to the bar — citrus, herbs, cream, garnish, and the pickled vegetables the bar uses on its cocktail garnish tray.
• \$620 of product moved from the bar to the kitchen — wine and beer used in braises, sauces, and the barbecue mop.
• \$2,480 of food was consumed as staff meals, counted and logged at cost.

(a) (2 points) Compute unadjusted food usage and the unadjusted food cost percentage.

(b) (2 points) Compute adjusted food usage and the adjusted food cost percentage.

(c) (2 points) Compute the unadjusted and adjusted beverage usage and pour cost. Then compute total COGS both ways and state, in one sentence, what accounts for the difference.

(d) (1 point) Which figure goes to which audience — the weekly management review, and the accountant preparing the P&L? State the rule that governs the answer.

C3 — The menu-engineering matrix (7 points)

Kestrel is a constructed 78-seat bistro. Here is one week's entrée menu-mix report.

(a) (2 points) Compute both thresholds: the popularity threshold (70% divided by the number of items, expressed as a percentage and in units) and the contribution threshold (the weighted average contribution margin across all entrées sold).

(b) (3 points) For each of the eight items, give the menu mix percentage, the contribution margin, and the quadrant — Star, Plowhorse, Puzzle, or Dog.

(c) (1 point) State one specific action for the Dog and one for either Puzzle. "Cut it" and "promote it" are not answers; say what you would change and what you would expect to happen.

(d) (1 point) Rank the items by food cost percentage. Which item would a food-cost-percentage manager feature, and which would that manager attack? What does the matrix say instead? Name one place cross-utilization would change your answer.

C4 — Capacity, from the room and from the kitchen (6 points)

Bellwether (the Bellwether plan) is the running business-plan project: a 68-seat chef-driven neighborhood American restaurant — 56 dining-room seats and 12 bar seats — plus a 16-seat patio in season. Dinner runs Tuesday through Saturday, five services a week, 5:00 to 10:00 p.m. Average dinner check is \$46.

Use these operating assumptions:

(a) (2 points) Compute the practical room capacity for a dinner service, out of patio season: dining room and bar separately, then the total.

(b) (1.5 points) Compute the kitchen's practical capacity for a dinner service.

(c) (1.5 points) Identify the binding constraint out of season and compute the annual dinner revenue ceiling it implies. The plan projects 95 covers a night; what percentage of the ceiling is that, and what is the dinner revenue headroom in dollars?

(d) (1 point) Now add the patio. Compute in-season room capacity. Which constraint binds, and what does that change about how you would spend the next dollar of capital?

C5 — Occupancy cost over a lease term (5 points)

The Foundry is a constructed restaurant in a 2,800 sq ft second-generation space. The lease is ten years, five plus five.

Instructor note. The Foundry's space is deliberately the same size as Bellwether's and its Year 1 and Year 3 occupancy land on the same \$95,200 and \$98,000 — but its escalation structure is not Bellwether's and students should not answer from memory of Chapter 6. Bellwether's lease steps base rent by \$1.00/sq ft in years 3, 5, 7, and 9 and abates three months of base and NNN (\$23,800). The Foundry below steps base once at year 4 and escalates NNN annually, abating base only. That is the point of the item: the schedule in front of you governs, not the one you remember. A student who answers \$23,800 for the free rent has recalled rather than read.

Terms:

(a) (1 point) Compute Year 1 occupancy cost on an accrual basis (base + NNN), then the Year 1 cash figure after the free-rent concession, and express the cash figure per square foot.

(b) (2 points) Build the five-year occupancy schedule — base, NNN, and total for each year — and give the five-year total.

(c) (1.5 points) Express occupancy as a percentage of revenue in three cases: Year 1 at plan, Year 3 at plan, and Year 1 if revenue lands at \$1,320,000 instead. State in one sentence what the three figures together prove about the occupancy ratio.

(d) (0.5 points) Compute effective annual rent over the five years, crediting both the free rent and the TI allowance, and express it per square foot. Then state the one caveat that makes this figure less comforting than a broker will present it.

C6 — The contribution-margin trap (5 points)

The Anvil is a constructed 90-seat neighborhood grill. Its current weekly food sales are \$41,000** against weekly food COGS of **\$12,710.

The Braised Short Rib sells 190 units a week at \$34.00** with a plate cost of **\$13.60.

The chef proposes replacing it with a Braised Pork Shoulder at \$26.00 with a plate cost of \$6.76. The chef's argument: "It takes the worst food cost percentage on the menu from 40% down to 26%." Purchasing agrees. Assume for the analysis that unit volume holds at 190 a week and nothing else on the menu changes.

(a) (1 point) Compute the contribution margin and food cost percentage of each dish.

(b) (1.5 points) Compute the restaurant's weekly food sales, food COGS, and food cost percentage after the swap.

(c) (1.5 points) Compute total weekly food contribution before and after, and annualize the difference.

(d) (1 point) Which number matters, and why? Then give the operator two ways to rescue the change: the price the pork shoulder would need at 190 units, and the unit volume it would need at \$26.00. State the assumption each fix depends on.

Section D — Reading an Artifact

15 points

Larkspur is a constructed 82-seat farm-driven restaurant. A new general manager pulls the recipe cost card for the Braised Lamb Shank out of the binder. Here it is in full.

COST CARD — BRAISED LAMB SHANK                             [constructed teaching example]
Larkspur · station: braise/hearth · card last updated 14 months ago
Portion: one 14 oz shank, braised; served over soft polenta with braised greens and gremolata

  Component              Purchase unit      AP price       Yield   Portion       Line cost
  ---------------------------------------------------------------------------------------
  Lamb shank             case, 12 ct        $128.40/cs      100%    1 each          $10.70
  Polenta, dry           25 lb bag          $1.36/lb        100%    2.5 oz           $0.21
  Whole milk             gallon             $4.48/gal       100%    4 fl oz          $0.14
  Butter                 1 lb block         $4.80/lb        100%    0.5 oz           $0.15
  Parmesan               wheel piece        $9.20/lb         92%    0.75 oz          $0.43
  Braising greens        case, 12 lb        $30.00/cs        58%    4 oz             $0.63
  Mirepoix + wine        batch               --              --     per portion      $1.12
  Gremolata              batch               --              --     per portion      $0.28
  Oil, salt, pepper      --                  --              --     per portion      $0.09
  ---------------------------------------------------------------------------------------
                                                    COMPONENT TOTAL                 $13.47
                                                    Waste allowance, 2%              $0.27
                                                    PLATE COST                      $13.74

  Menu price  $32.00        Food cost  42.9%        Contribution margin  $18.26

  Notes on the card, handwritten: "shank case price good thru Nov" / "greens yield per test"

Answer all three parts.

(a) What does it show? (6 points) Read the card as an auditor. Find and correct every defect. Produce the corrected component total, plate cost, food cost percentage, and contribution margin, and state the per-plate understatement in dollars and in points of food cost.

(b) What does it not show? (6 points) List at least five things this document cannot tell you, and for each say why it matters to a decision. This part is graded hardest. A student who finds every arithmetic defect but cannot say what the card is silent about has not understood what a cost card is.

(c) What do you do Monday morning? (3 points) Three concrete actions in the order you would take them, plus one thing you will deliberately not do yet, with your reason.

Section E — Extended Response

Answer 2 of the 3 prompts · 7.5 points each · 15 points

Roughly 350–500 words per answer. You are graded on judgment and on whether your argument survives its own counterargument — not on length. Quantify whatever can be quantified.

E(a) — Concept and competitive set. You are opening a 70-seat restaurant in a neighborhood with eleven full-service restaurants inside a ten-minute walk. Write the concept as a testable claim about a market, define the competitive set and say explicitly who is not in it and why, and name the two claims most likely to be wrong and how you would test each before signing a lease.

E(b) — The lease memo. You have a term sheet on a 2,600 sq ft second-generation space. Write a memo to your partner naming the three terms you would trade — what you give up for each, and why those three. Quantify at least one trade in dollars. Then name the one term you would walk over.

E(c) — Defending a menu decision that food cost percentage argues against. Your accountant has flagged the item with the worst food cost percentage on your menu and wants it repriced or removed. Defend keeping it. Include contribution-margin arithmetic, its position in the menu mix, at least one cross-utilization argument, and — the part that separates a strong answer — the conditions under which the accountant would be right.

---

Solutions

Instructors: point values are the maximum for each part. Give partial credit generously for correct method with an arithmetic slip; withhold it entirely for a correct number with no work shown in Sections C and D.

Section A — Solutions

Award 1 point for a correct definition and 1 point for a genuine operational consequence. A consequence is operational when it names something the manager does or a dollar that moves. "It is important to watch" is not a consequence.

A1. Prime cost. COGS — food and beverage — plus total labor including wages, payroll taxes, and benefits for everyone in the building, as a percentage of total sales; full-service rule of thumb at or below 60%. Consequence: you compute it weekly, because the two halves trade against each other — buying pre-portioned protein raises food cost and lowers labor — and only the total says whether the trade was good. A monthly close arriving three weeks late means you learn about a four-point overrun seven weeks after it started.

A2. Capital stack. The full set of funding sources paying for the project and the order in which each is repaid or has a claim: owner injection, landlord TI allowance, equipment lease, term debt such as an SBA 7(a) loan. Consequence: the stack sets your fixed obligations from day one. Lease and loan payments begin whether or not the ramp cooperates, and a personal guarantee on any layer survives the closing of the restaurant.

A3. Occupancy cost. Rent plus NNN charges plus property insurance and tax — the cost of the box — stated as an annual dollar figure and as a percentage of sales. Consequence: it is fixed the day you sign, so the entire negotiation happens before commencement; and it is the one major cost line whose percentage you improve only by growing revenue.

A4. Triple net (NNN). A structure in which the tenant pays, on top of base rent, a share of the property's taxes, insurance, and common-area maintenance. Consequence: NNN is an estimate that reconciles — you budget it, the landlord trues it up, and a roof repair or tax reassessment arrives as a bill you never forecast. Ask for three years of NNN history before signing, and ask whether controllable expenses are capped.

A5. The ramp. The period between opening and stabilized operation, when revenue runs below plan and costs — labor and waste especially — run above it, because volume is unpredictable and nobody is fast yet. Consequence: you fund it out of working capital, not revenue. Bellwether's plan carries a first quarter at 66.6% prime cost on \$363,100 of revenue, obliging weeks 14–52 to average 58.0% to land the year at 60.0%.

A6. The usage formula. Beginning inventory plus purchases minus ending inventory equals usage — the only figure reflecting what actually left the building rather than what was bought. Consequence: it requires an ending count on the last day of every period. Without it you have invoices over sales, which spikes when you buy heavy and improves when you run the walk-in down.

A7. Contribution margin. Menu price minus plate cost: the dollars an item contributes toward fixed costs and profit each time it sells. Consequence: it is what you promote on, engineer on, and place on the menu panel for. A \$36 entrée at 40% food cost contributes \$21.60 a plate; a \$24 entrée at 22% contributes \$18.72. The register takes dollars.

A8. AP versus EP. As-purchased price is what the invoice says per unit as delivered. Edible-portion cost is what the usable product costs after trim, bone, peel, shrink, and cooking loss: AP price divided by the yield percentage. Consequence: costing at AP understates every plate containing a trimmed item, worst exactly where the money is — proteins and produce. A 58%-yield green costed at AP is understated by more than 40% on that line, and the card still foots, so nothing announces it.

A9. Par level. The standing quantity kept on hand — set from usage rate, delivery frequency, shelf life, and a safety cushion — which turns ordering from a guess into subtraction: order up to par. Consequence: pars set high tie up cash and produce spoilage; set low they produce 86'd items and emergency purchases at retail. A correct par is why a prep cook rather than the chef can place the produce order.

A10. Pour cost. Beverage COGS divided by beverage sales; 18–24% is the common full-service range, and it is the bar's food cost percentage. Consequence, with the numbers asked for: a 750 ml bottle is about 25.36 fl oz, so a specified 5 oz pour yields 5 sellable glasses. \$14.00 ÷ 5 = \$2.80**; at a \$14.00 glass price that is a 20.0% pour cost. Pour six ounces by eye and the bottle yields 4: \$14.00 ÷ 4 = **\$3.50, a 25.0% pour cost. One ounce of generosity is five points of pour cost, it appears on no ticket, and only a jigger, a count, and a variance report will find it.

Section B — Solutions

Section C — Solutions

C1 — Solution (8 points)

(a) EP cost per pound (3 points, 1 each) — EP = AP price ÷ yield. (b) Portion costs and component total (1.5 points)

  EP:  Salmon       $11.40 / 0.76 = $15.00/lb     (check: 15.00 x 0.76 = 11.40)
       Fingerlings   $2.16 / 0.90 =  $2.40/lb     (check:  2.40 x 0.90 =  2.16)
       Asparagus     $3.60 / 0.60 =  $6.00/lb     (check:  6.00 x 0.60 =  3.60)

  Salmon        8 oz  = 0.5000 lb  x $15.00  =   $7.50
  Fingerlings   5 oz  = 0.3125 lb  x  $2.40  =   $0.75
  Asparagus     4 oz  = 0.2500 lb  x  $6.00  =   $1.50
  Butter sauce  $7.68 / 32 fl oz = $0.24/fl oz x 1.5  =  $0.36
  Garnish, lemon                                         $0.14
  Oil, salt, pepper                                      $0.10
  -------------------------------------------------------------
  COMPONENT TOTAL                                       $10.35

(c) Waste allowance and plate cost (1 point)

\$10.35 × 3% = \$0.3105 → \$0.31**. Plate cost = \$10.35 + \$0.31 = **\$10.66.

(d) Food cost percentage and contribution margin at \$34.00 (1.5 points)

Food cost % = \$10.66 ÷ \$34.00 = 0.31353 → 31.4% Contribution margin = \$34.00 − \$10.66 = \$23.34

(e) Pricing to a 30% target (1 point)

\$10.66 ÷ 0.30 = **\$35.53. Posted at \$36.00**, food cost is \$10.66 ÷ \$36.00 = 29.6% and contribution margin is \$25.34.

The two-dollar move adds \$2.00 of contribution per plate. At 140 covers a week: 140 × \$2.00 = **\$280 a week × 52 = \$14,560 a year**.

Teaching note. The card justifies \$36 but cannot tell you whether a guest will pay it, or what the dish does to menu mix at the higher price. A cost card sets a floor, not a price.

C2 — Solution (7 points)

(a) Unadjusted food (2 points)

  Beginning         $18,400
  + Purchases       $62,750
  = Available       $81,150
  - Ending          $21,100
  = USAGE           $60,050

  $60,050 / $196,000 = 30.638%  ->  30.6%

(b) Adjusted food (2 points)

Adjustments move product to the line that actually sold it, and remove product that was never sold at all.

  Unadjusted usage                        $60,050
  - transferred OUT to bar                 -$1,150
  + transferred IN from bar                  +$620
  - staff meals (never sold as food)       -$2,480
  = ADJUSTED FOOD USAGE                   $57,040

  $57,040 / $196,000 = 29.102%  ->  29.1%

The two figures differ by \$3,010, or 1.5 points of food cost.

(c) Beverage, and total COGS both ways (2 points)

  Beverage usage:   $11,300 + $16,850 - $12,020 = $16,130
  Unadjusted pour cost:  $16,130 / $74,000 = 21.797%  ->  21.8%

  Adjusted beverage: $16,130 + $1,150 - $620 = $16,660
  Adjusted pour cost:    $16,660 / $74,000 = 22.514%  ->  22.5%

  TOTAL COGS, unadjusted:  $60,050 + $16,130 = $76,180   (28.2% of $270,000 in sales)
  TOTAL COGS, adjusted:    $57,040 + $16,660 = $73,700   (27.3% of $270,000 in sales)
  Difference:                                   $2,480

One sentence: the transfers net to zero across the two lines — every dollar the kitchen gave up the bar picked up — so the entire \$2,480 difference in total COGS is the staff meals, which did not vanish but must be reclassified to an employee-meals line inside labor or other operating. Note also that the move making the kitchen look 1.5 points better made the bar look 0.7 points worse; transfers must be logged by both sides and reviewed together.

(d) Which figure, which audience (1 point)

• Weekly management review gets the adjusted figures — 29.1% food, 22.5% pour — the only numbers comparable to theoretical cost, to last week, and to target, because they measure what was sold as food and sold as beverage.
• The accountant and the P&L get total cost with staff meals on their own line. The \$2,480 is a real expense; it belongs on the statement, in the right bucket.

The rule: an adjustment moves cost between lines; it never reduces total cost. If adjusted food cost improved and nothing appeared on another line, you did not adjust — you hid. A manager who reports 29.1% but cannot say where the \$3,010 went is describing a number, not measuring one.

C3 — Solution (7 points)

(a) The two thresholds (2 points)

Total units sold: 268 + 232 + 186 + 154 + 121 + 96 + 88 + 55 = 1,200. Eight items.

Popularity threshold = 70% ÷ 8 = 8.75%, which at 1,200 total units is 105 units.

Contribution threshold = total contribution dollars ÷ total units:

  Item                 Units   CM       Total CM
  ------------------------------------------------
  Roast Half Chicken    268   $18.90    $5,065.20
  Steak Frites          232   $21.60    $5,011.20
  Mushroom Tagliatelle  186   $18.72    $3,481.92
  Burger                154   $14.28    $2,199.12
  Seared Trout          121   $19.84    $2,400.64
  Cassoulet              96   $19.14    $1,837.44
  Duck Breast            88   $22.80    $2,006.40
  Cauliflower Steak      55   $20.50    $1,127.50
  ------------------------------------------------
  TOTAL               1,200            $23,129.42

  Weighted average CM = $23,129.42 / 1,200 = $19.2745  ->  $19.27

(b) Classification (3 points — award partial credit per item)

Two Stars, three Plowhorses, two Puzzles, one Dog.

Watch the Cassoulet: at \$19.14 it misses the contribution threshold by thirteen cents. A dish that close to the line is not a confident Dog — thresholds built from one week of mix are noisy. Recount next period before you act.

(c) One action each (1 point)

The Dog (Cassoulet). Do not simply delete it. It is thirteen cents under the contribution line and eight-tenths of a point under the popularity line, so a \$1.50 increase to \$30.50 puts its CM at \$20.64 — above threshold — and turns it into a Puzzle, at which point the question becomes whether it can be sold rather than whether it earns. One menu cycle at the new price with a server callout, then cut it if the mix does not move.

A Puzzle (Duck Breast, \$22.80 CM, 7.3% mix). The highest-contribution item on the menu, and almost nobody orders it. Move it to the top-right of the entrée panel, rewrite the description to lead with preparation rather than protein, and train two servers to name it as their recommendation. If mix moves from 7.3% to 11% — 88 units to 132 — that is 44 extra plates at \$22.80, **\$1,003.20 a week**, with no change to any cost.

(d) The food-cost-percentage ranking (1 point)

Best to worst: Cauliflower Steak 18.0% (Puzzle) · Mushroom Tagliatelle 22.0% (Plowhorse) · Roast Half Chicken 30.0% (Plowhorse) · Burger 32.0% (Plowhorse) · Cassoulet 34.0% (Dog) · Seared Trout 36.0% (Star) · Steak Frites 40.0% (Star) · Duck Breast 40.0% (Puzzle).

A food-cost-percentage manager would feature the Cauliflower Steak — the lowest total contributor on the menu at \$1,127.50 — and attack the **Steak Frites**, a **Star** contributing \$5,011.20, second only to the chicken. That manager would be systematically promoting the smallest dollars and repricing the largest ones out of the mix. The matrix says: protect Steak Frites and never discount it; reposition the Cauliflower Steak rather than feature it.

Cross-utilization. The Cauliflower Steak may earn its slot for a reason no per-plate number captures: sharing brassicas, brown butter, and herb oil with other dishes, it absorbs product that would otherwise be trimmed into the bin, and it is the vegetarian option that keeps a four-top from choosing a different restaurant. Conversely, if the duck is the only item using duck — a single-purpose protein at 88 units a week — its CM must carry that inventory's entire carrying cost, and a Puzzle that strands product is a much weaker keep than one that shares it.

C4 — Solution (6 points)

(a) Practical room capacity, out of season (2 points)

  DINING ROOM
    Service window                  5:00 p.m. - 10:00 p.m. = 5.0 hours = 300 minutes
    Theoretical seatings per seat   300 / 100 = 3.0 turns
    Seat-seatings available         56 seats x 3.0 = 168
    x utilization 62%               168 x 0.62 = 104.16  ->  104 covers

  BAR
    12 seats x 2.5 turns = 30 seat-seatings
    x utilization 70%    = 21 covers

  PRACTICAL ROOM CAPACITY = 104 + 21 = 125 COVERS

Students should be able to say what the 62% represents: two-tops seated at four-tops, the 8:50 walk-in whose table you cannot re-turn, demand that is not spread evenly across five hours. A room never runs at its geometric capacity.

(b) Kitchen capacity (1.5 points)

  Hearth output          28 items/hour x 5.0 hours = 140 items
  Less 6% lost to re-fires, mis-fires, holding    = 140 x 0.94 = 131.6
  At 1.0 hearth items per cover                   ->  132 COVERS

(c) Binding constraint and the revenue ceiling (1.5 points)

Capacity is the minimum of the constraints. Out of season: the room binds at 125 covers, not the kitchen at 132.

  125 covers x $46 average check  =   $5,750 per dinner service
  x 5 services per week           =  $28,750 per week
  x 52 weeks                      = $1,495,000 annual dinner revenue ceiling

The plan's 95 covers a night:

  95 x $46 = $4,370 x 5 = $21,850 per week x 52 = $1,136,200
  95 / 125 = 76.0% of the practical ceiling
  Headroom: $1,495,000 - $1,136,200 = $358,800

Expressed as seat turns: the plan's 95 covers on 68 seats is 1.4 turns; the ceiling's 125 covers is 1.84 turns. The plan is not straining the room.

(d) In season, with the patio (1 point)

  Patio: 16 seats x 2.0 turns x 0.65 utilization = 20.8  ->  21 covers
  In-season room capacity = 125 + 21 = 146 covers
  Kitchen capacity        = 132 covers
  BINDING CONSTRAINT IN SEASON: the kitchen, at 132.

What that changes. Out of season the next dollar belongs in the room and in demand — reservations, pacing, bar seating, anything lifting that 62% — because the kitchen has 7 covers of headroom and the room has none. In season it belongs in kitchen throughput: a second hearth station, a plancha or combi pulling items off the hearth, or a re-spec cutting hearth items per cover from 1.0 to 0.85, which alone lifts the kitchen ceiling from 132 to about 155. Money is only useful spent on the constraint that is currently binding, and which one that is changes with the season.

C5 — Solution (5 points)

(a) Year 1 (1 point)

  Base rent  2,800 sq ft x $28.00 = $78,400
  NNN        2,800 sq ft x  $6.00 = $16,800
  YEAR 1 OCCUPANCY (accrual)      = $95,200      ($34.00 per sq ft)

  Free rent: 3 months of base only = $78,400 x 3/12 = $19,600
  YEAR 1 CASH OCCUPANCY = $95,200 - $19,600 = $75,600   ($27.00 per sq ft)

(b) Five-year schedule (2 points)

| Year | Base \$/sf | Base rent | NNN \$/sf | NNN | Total occupancy | |---|---|---|---|---|---| | 1 | \$28.00 | \$78,400 | \$6.00 | \$16,800 | \$95,200 | | 2 | \$28.00 | \$78,400 | \$6.50 | \$18,200 | \$96,600 | | 3 | \$28.00 | \$78,400 | \$7.00 | \$19,600 | \$98,000 | | 4 | \$30.50 | \$85,400 | \$7.50 | \$21,000 | \$106,400 | | 5 | \$30.50 | \$85,400 | \$8.00 | \$22,400 | \$107,800 | | | | | | Five-year total | \$504,000 |

Note the shape. Years 1–3 rise only from NNN — \$2,800 over two years, which looks harmless. Year 4 rises \$8,400 in a single step as the base escalation lands on top of another NNN increase. That is the year that surprises operators, and it is knowable on the day you sign.

(c) Occupancy as a percentage of revenue (1.5 points)

  Year 1 at plan:      $95,200 / $1,550,000 = 6.142%  ->  6.1%
  Year 3 at plan:      $98,000 / $1,850,000 = 5.297%  ->  5.3%
  Year 1 at $1,320,000: $95,200 / $1,320,000 = 7.212%  ->  7.2%

The sentence. Rent rose \$2,800 between the first two cases and the ratio fell 0.8 points; rent did not move at all between the first and third and the ratio rose 1.1 points on a 14.8% revenue miss — so the occupancy ratio is at least as much a statement about your sales line as your lease, and an operator who reads a rising occupancy percentage as a rent problem negotiates the wrong thing.

(d) Effective rent (0.5 points)

  Five-year total occupancy                    $504,000
  Less free base rent                          -$19,600
  Less TI allowance                            -$75,000
  = "Effective" five-year occupancy            $409,400
  / 5 years = $81,880 per year  ->  $81,880 / 2,800 sq ft = $29.24 per sq ft

The caveat. The \$75,000 TI allowance is not a rent rebate. It is money spent on the landlord's building, normally disbursed against approved construction draws rather than handed to you, and it stays in the space if you leave in year six. Crediting it against rent flatters the deal and corresponds to no cash you will hold. Quote the effective figure back to a broker; run your own plan on the \$95,200 accrual** and the **\$75,600 cash.

C6 — Solution (5 points)

(a) Item level (1 point)

  Braised Short Rib:      $34.00 - $13.60 = CM $20.40    $13.60 / $34.00 = 40.0% food cost
  Braised Pork Shoulder:  $26.00 -  $6.76 = CM $19.24     $6.76 / $26.00 = 26.0% food cost

The chef is right about the percentage: 14 points better. The chef is also wrong, and this is the whole item.

(b) Restaurant food cost percentage after the swap (1.5 points)

  Short rib leaves:   revenue 190 x $34.00 = $6,460     cost 190 x $13.60 = $2,584.00
  Pork shoulder in:   revenue 190 x $26.00 = $4,940     cost 190 x  $6.76 = $1,284.40

  Food sales:  $41,000 - $6,460 + $4,940 = $39,480
  Food COGS:   $12,710 - $2,584 + $1,284.40 = $11,410.40

  BEFORE:  $12,710.00 / $41,000 = 31.0%
  AFTER:   $11,410.40 / $39,480 = 28.9%

Food cost percentage improves 2.1 points across the whole restaurant. Every dashboard turns green.

(c) Total contribution (1.5 points)

  BEFORE:  $41,000.00 - $12,710.00 = $28,290.00 per week
  AFTER:   $39,480.00 - $11,410.40 = $28,069.60 per week
  CHANGE:                              -$220.40 per week
  ANNUALIZED:  -$220.40 x 52 =       -$11,460.80

Cross-check at the item level: CM falls \$1.16 per plate (\$20.40 → \$19.24) × 190 plates = **−\$220.40**. The two methods agree, which is how you know the arithmetic is sound.

(d) Which number matters (1 point)

Contribution dollars matter; the percentage is a ratio that improved because the denominator shrank. Dropping the price \$8.00 removed \$1,520 of weekly revenue and only \$1,299.60 of weekly cost. You cannot deposit 2.1 points. You can deposit \$28,290, and after the change you deposit \$28,069.60.

Two rescues:

  1. Hold volume at 190, restore contribution:
       required CM = $20.40  ->  price = $6.76 + $20.40 = $27.16  ->  post at $28.00
       At $28.00: CM $21.24, food cost 24.1%, weekly CM 190 x $21.24 = $4,035.60
       (vs. $3,876.00 for the short rib -- a gain of $159.60 a week)

  2. Hold price at $26.00, grow volume:
       required units = $3,876.00 / $19.24 = 201.45  ->  202 units
       That is 202 / 190 = a 6.3% increase in volume.

The assumption behind each. Fix 1 assumes the guest who paid \$34 for short rib will pay \$28 for pork shoulder. Fix 2 assumes a cheaper, humbler dish sells at least 6.3% more units. Both are demand claims, and no cost card can support either. The arithmetic's only job is to tell you exactly how big a bet you are making. Run the change for one menu cycle with units tracked, and hold the decision to the contribution line, not the percentage line.

Section D — Solution (15 points)

(a) What it shows — the defects (6 points)

Three defects, plus a fourth condition that is not an arithmetic error and is at least as dangerous.

Defect 1 — the card prints a yield column and then ignores it. (3 points) Two lines carry a yield under 100% and are nonetheless costed at the as-purchased price.

  Parmesan:  AP $9.20/lb at 92% yield  ->  EP = $9.20 / 0.92 = $10.00/lb
             0.75 oz = 0.046875 lb x $10.00 = $0.469  ->  $0.47   (card shows $0.43)

  Greens:    case $30.00 / 12 lb = $2.50/lb AP at 58% yield
             EP = $2.50 / 0.58 = $4.3103/lb
             4 oz = 0.25 lb x $4.3103 = $1.078  ->  $1.08         (card shows $0.63)

The greens line alone is understated by \$0.45 — 71% of the printed figure — and it is invisible because the card still foots to a plausible number. This is the single most common defect in real recipe costing.

Defect 2 — the component column does not foot. (2 points) The printed lines sum to \$13.75, not the \$13.47 shown. The gap is exactly **\$0.28** — the gremolata line — the signature of a spreadsheet SUM range never extended when a row was added at the bottom. If one card from this template does it, assume all of them do.

Defect 3 — the waste allowance sits on a wrong base. (1 point) 2% of \$13.47 is \$0.27, correct given the wrong subtotal. Fix the subtotal and the allowance changes; the error propagates.

The fourth condition — the card is fourteen months old, as its own header says. No price on it can be trusted, and the handwritten note ("shank case price good thru Nov") confirms the lamb contract has lapsed.

The corrected card:

  Lamb shank            $128.40 / 12                            $10.70
  Polenta, dry          2.5 oz = 0.15625 lb x $1.36              $0.21
  Whole milk            4 fl oz; $4.48/gal / 128 = $0.035/fl oz  $0.14
  Butter                0.5 oz = 0.03125 lb x $4.80              $0.15
  Parmesan              0.046875 lb x $10.00 EP                  $0.47
  Braising greens       0.25 lb x $4.3103 EP                     $1.08
  Mirepoix + wine, batch                                         $1.12
  Gremolata, batch                                               $0.28
  Oil, salt, pepper                                              $0.09
  -----------------------------------------------------------------------
  CORRECTED COMPONENT TOTAL                                     $14.24
  Waste allowance 2%  ($14.24 x 0.02 = $0.2848)                  $0.28
  CORRECTED PLATE COST                                          $14.52

  At $32.00:  food cost $14.52 / $32.00 = 45.375%  ->  45.4%
              contribution margin $32.00 - $14.52 = $17.48

The understatement: \$14.52 − \$13.74 = \$0.78 per plate, or 2.5 points of food cost on this item (42.9% printed vs. 45.4% actual). If the shank sells 62 a week — a figure the card itself cannot supply, which is part (b)'s point — that is \$48.36 a week** and **\$2,514.72 a year, from one card.

(b) What it does not show (6 points — graded hardest)

Require five substantive items with a stated consequence; a list without consequences caps at 3. A student who finds all three arithmetic defects but produces a thin part (b) should land around 9/15 overall. That is the intended result and the point of the question.

Full credit draws from:

1. Units sold. A cost card is a per-plate document. Whether \$0.78 of understatement is \$120 a year or \$5,000 depends entirely on menu mix, so the card cannot tell you how this problem ranks against the other forty cards in the binder.
2. Labor. Hours of braise, mirepoix swept and sweated, gremolata chopped à la minute, holding and reheating to order — none of it here. A cost card prices ingredients, not the dish, and labor is exactly the half of prime cost it is blind to. (Energy is the same silence: six hours of oven time lands on the utility bill.)
3. Whether the yields are real. "Greens yield per test" is handwritten. When, in what season, on what product, by whom? A 58% yield on early-spring greens is not a 58% yield in August. An unverified yield is an assumption wearing a number's clothes.
4. Whether the printed portion is the served portion. The line plates what the line plates. Only weighing ten off the pass tells you, and portion drift is the most common single cause of the gap between theoretical and actual food cost.
5. The batch components are unauditable. "Mirepoix + wine \$1.12" and "Gremolata \$0.28" carry no sub-recipe. Is the wine costed at bottle price or by-the-glass price? What batch yield was assumed, and does the batch deliver it? Two of nine lines are assertions, not costings.
6. Current prices, and theoretical versus actual. Fourteen months of movement in lamb, dairy, and produce is absent, and the card's own note says the lamb contract lapsed. More fundamentally this is theoretical cost — what the dish should cost if all goes right. It cannot see spoilage, re-fires, comps, over-portioning, or theft. Only the usage formula says what actually left the building; card and count must be read together, because either alone lies.
7. Whether \$32.00 is the right price. The card knows nothing about the competitive set, menu mix, or what a guest in this room will pay. It sets a floor, not a price. (The 2% waste allowance is the same kind of silence — a round number nobody has tested.)

(c) Monday morning (3 points)

Full credit for three actions, in a defensible order, plus one deliberate non-action with a reason.

1. Re-cost against this week's invoices and run two real yield tests — greens and parmesan — with the results written on the card and dated. Nothing else is worth doing until the inputs are true.
2. Fix the template, then re-cost every card built from it. The missing SUM row is a binder problem, not a lamb-shank problem. Sort the corrected cards by units sold and work top down.
3. Pull four weeks of units sold and weigh ten plates off the pass. Portion and volume together tell you whether this is a \$120 problem or a \$5,000 problem, and whether the answer is repricing, re-portioning, re-speccing, or cutting.

What you deliberately do not do Monday: change the menu price. You have one corrected card, no verified yields, no volume, no served-portion weight, and no read on menu mix or the competitive set. Repricing upward from \$32.00 toward the \$42.71 a 34% target would demand trades a costing error for a demand error — and the second is more expensive and much harder to see.

(Credit also for naming re-portioning as the likely real answer: shredding the shank into two 7 oz portions drops the protein line from \$10.70 to \$5.35 and the plate cost to about \$9.07, supporting a \$26.00 price at 34.9% food cost and \$16.93 of contribution.)

Section E — Grading Guides

7.5 points per answer. Suggested split: 3 for the substantive content the prompt asks for, 2.5 for quantification and specificity, 2 for handling the limits and the counterargument. If a student submits three answers, grade the first two.

E(a) — Concept and competitive set

A full-credit answer contains:

• A concept stated as a falsifiable claim about a market, not a cuisine or a mood: this group of people, in this trade area, currently does X, will choose us over Y for Z occasions, at this check, this many times a month. Every clause is testable.
• A competitive set defined by occasion and price band, not cuisine. Everyone competing for a Thursday 7:30 two-top at a \$45 check is in it, whether they serve Italian, Thai, or steak — and an explicit exclusion with a reason (the \$14 counter place and the \$120 room win a different occasion and lose to a different alternative).
• Two named risky claims, each with a test that costs money and time before the lease is signed: a door count at the hours you would actually operate, a check-average survey of the four closest competitors, a pop-up at the price point, a read of daytime versus nighttime population.

A half-credit answer typically misses: the test. It names the risky assumptions competently and proposes to find out by opening. Also common: defining the competitive set by cuisine, which yields the comfortable falsehood that there is no competition because nobody else does what you do.

The single most common wrong turn: treating differentiation as a concept. "There is nothing like this in the neighborhood" is equally consistent with an unmet need and with a market that already tested the idea and rejected it. The strong answer asks why, and treats "because it does not work here" as the live hypothesis.

E(b) — The lease memo

A full-credit answer contains:

• Three named terms with a stated trade, because a term sheet is a package. Strong candidates: the rent-commencement trigger (tie it to the certificate of occupancy or to opening, not possession — a month of build-out at \$28/sq ft on 2,600 sq ft is \$6,067 of base rent), the TI allowance and its disbursement schedule, a cap on controllable CAM, an exclusive-use clause, a personal-guarantee burn-off, assignment and sublet rights, the renewal rent formula.
• What is given up for each. Landlords trade for a longer term, higher back-end rent, a larger deposit, a percentage-rent clause, an earlier commencement. Naming the give is what makes this a negotiation rather than a wish list.
• At least one trade quantified. Example: three extra months of free base rent on 2,600 sq ft at \$28/sq ft is 2,600 × \$28 × 3/12 = \$18,200 of cash in exactly the months the ramp consumes working capital — traded for \$1.00/sq ft more in years 6–10, \$2,600 a year for five years, \$13,000 nominal, arriving when the business is stabilized.
• One walk-away term: a personal guarantee with no burn-off and no cap, a relocation or demolition clause, an unrestricted percentage-rent clause, or an assignment prohibition that makes the business unsellable.

A half-credit answer typically misses: the quantification, or the trade. A memo demanding better terms on all three points while offering nothing is not a negotiation.

The single most common wrong turn: treating base rent per square foot as the only term worth fighting for. Rent is the most visible number and often the least negotiable; the money is usually in commencement, TI, CAM structure, and the guarantee. Credit answers noting that a lease is signed with an attorney and that the reader negotiates business terms, not drafting.

E(c) — Defending a menu decision that food cost percentage argues against

A full-credit answer contains:

• Contribution-margin arithmetic, in dollars. The core move: a 40% item at \$36 contributes \$21.60 a plate; a 22% item at \$24 contributes \$18.72. If the "bad" item sells 232 a week that is \$5,011.20 of weekly contribution, and no repricing that costs volume improves on it.
• Menu mix. The defense holds only if the item sells. A 45% food cost item at nine units a week is not a Star being persecuted; it is a Dog, and the accountant is right.
• A cross-utilization argument. The item shares product with others — the same trim, stock, herb oil, or primal broken down for two dishes — so its true marginal cost is below its card, and removing it strands inventory or raises the effective cost of what remains.
• A traffic or completeness argument where honest: the item may be why the table chose the restaurant, or the only option for a dietary need that would otherwise cost you the whole four-top. Legitimate, and the easiest argument to abuse; strong answers say so.
• The conditions under which the accountant is right, stated without hedging: when the item is low-volume as well as low-percentage; when its contribution sits below the weighted average and it holds a slot a better item could use; when the cost comes from a single-purpose ingredient nothing else touches; when it is a labor sink too, so prime-cost damage exceeds the card; when the high cost is drift — a supplier increase never repriced — rather than design; or when the plate-cost problem is really a portion problem.

A half-credit answer typically misses: the conditions under which the objection is correct. It argues the CM case competently and stops, producing a defense that would keep every expensive dish on every menu forever. The prompt tests whether the student can hold both sides.

The single most common wrong turn: defending the dish on attachment — "it's our signature," "it's what we're about," "guests love it" — without a single number. That answer is indistinguishable from the one the closed restaurants gave, and it earns no more than 2 of 7.5 points however well written. The second most common: arguing that food cost percentage is simply useless. It is not — it is excellent for spotting drift within a single item over time and poor for comparing items to each other. Reward any student who states that distinction cleanly.

Point Summary

Computation and artifact reading carry 53 of 100 points, deliberately: this is a course about whether the numbers hold together, and an examination that could be passed by writing well about restaurants would be testing the wrong thing.

All figures in this examination are constructed and illustrative. Benchmark ranges are industry rules of thumb, not laws, and regulatory specifics vary by jurisdiction.