Pricing, Budgeting and Profitability Management

Introduction

Food and beverage operations convert perishable inputs, skilled labour, space, technology and managerial attention into an experience that customers value. Profitability therefore depends not simply on selling more meals or beverages, but on selling the right product, to the right customer, at an appropriate price, through an economically controlled operating system.

Pricing, budgeting and profitability management are closely connected. A price communicates value and generates revenue; a budget translates strategic intentions into expected operating and financial outcomes; profitability analysis tests whether those outcomes compensate the enterprise for its resources, risks and capital. In hotels, the complexity is intensified by fluctuating occupancy, seasonality, multiple outlets, shared services, perishability and the simultaneous sale of tangible products and intangible experiences.

A sophisticated food and beverage manager must consequently combine accounting information with market intelligence, operational judgement and ethical leadership. Cost data alone cannot determine a price, and revenue growth alone does not guarantee profit. The managerial task is to optimise contribution and long-term value while protecting quality, reputation and guest trust.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Explain cost-based, competition-based, value-based and dynamic pricing.
2. Construct prices using food-cost, gross-margin and contribution approaches.
3. Prepare operating budgets and rolling forecasts for food and beverage departments.
4. Calculate and interpret break-even sales, contribution margin and cost-volume-profit relationships.
5. Evaluate departmental profit, controllable costs, labour productivity and return on investment.
6. Diagnose deviations between budget and actual performance.
7. Integrate technology, governance and ethical considerations into pricing and profitability decisions.

1. The Economics of Food and Beverage Operations

1.1 Revenue, cost and profit

Food and beverage revenue is commonly analysed by outlet, meal period, product category, customer segment and sales channel. The basic operating relationship is:

Revenue includes food, beverage, service charges where recognised as revenue, and other operating receipts. Variable costs change approximately with activity; examples include ingredients, disposable packaging and transaction commissions. Fixed costs remain broadly stable within a relevant operating range; examples include rent, insurance and some salaried positions. Controllable costs are costs that a manager can influence within a specified period. A cost may be fixed yet controllable, such as overtime approval, or variable yet partly uncontrollable, such as a supplier price imposed by a contract.

The distinction between departmental profit and enterprise profit is essential. A restaurant manager may control purchasing, scheduling and wastage but not hotel depreciation, corporate marketing or interest expense. Performance reports should therefore distinguish:

• Departmental revenue: sales attributable to the outlet.
• Departmental direct costs: costs directly associated with producing the sales.
• Departmental profit: revenue less direct departmental costs.
• Undistributed operating expenses: shared expenses such as information technology or human resources.
• Gross operating profit: the amount remaining after operating departments and undistributed expenses, before fixed charges and financing effects.

1.2 Relevant costing and decision horizons

A cost is relevant to a decision when it differs between alternatives and occurs in the decision period. Historical or sunk costs are not relevant to a short-term choice because they cannot be changed. Opportunity cost is relevant: accepting a banquet may require refusing a more profitable event or regular restaurant business.

For example, a hotel considering a discounted conference lunch should include incremental food, labour, utilities and opportunity costs. It should not automatically include an allocation of annual corporate insurance if that cost will not change. However, a price below full cost cannot be accepted indefinitely; long-run pricing must recover all resources and provide an appropriate return.

2. Pricing Architecture

Pricing is a strategic design decision rather than a mechanical addition of a markup. It should reflect positioning, target market, capacity, customer willingness to pay, competitor behaviour, costs, legal requirements and the desired relationship between volume and margin.

2.1 Cost-based pricing

Cost-based pricing begins with an ascertainable cost and adds a markup. It is easy to administer and protects against prices that ignore resource consumption, but it may overlook demand and perceived value.

For a menu item, the food-cost percentage method is:

Here, standard food cost and selling price must use the same currency per portion, while the target food-cost percentage is expressed as a decimal. The method assumes that the target percentage is appropriate for the outlet and that standard recipe cost is accurate. It is particularly useful for initial menu engineering, but the resulting price must be tested against market and guest expectations.

Worked example. A plated dish has a standard ingredient cost of £4.80 and the outlet targets a food-cost percentage of 30%.

Selling price = £4.80 ÷ 0.30 = £16.00.

If a 10% service charge is added and retained by the business, the accounting treatment and legal disclosure must be clear. If the charge is a staff gratuity or tax, it should not be treated as ordinary operating revenue without appropriate accounting treatment.

A gross-margin approach uses:

A target gross margin of 70% gives the same result as a 30% cost percentage. Confusion arises when managers call a markup a margin. Markup is calculated on cost; margin is calculated on selling price.

For a £4.80 cost and £16.00 selling price, markup is 233.3%, while gross margin is 70%. Both calculations are correct but answer different questions.

2.2 Contribution-based pricing

Contribution is the amount available to cover fixed costs and profit after variable costs:

Contribution pricing is valuable for temporary decisions involving spare capacity, such as a weekday promotion or a group booking. A price may be acceptable in the short run if it covers incremental variable cost and makes a positive contribution, provided it does not damage regular demand or brand positioning.

It is unsafe to use contribution pricing as a permanent strategy without testing whether total contribution covers fixed costs and required return. A banquet priced at £18 with variable cost of £11 generates £7 contribution, but it may still be unprofitable if the event consumes capacity that could generate £12 contribution elsewhere.

2.3 Competition-based pricing

Competition-based pricing uses comparable prices, inclusions, service levels and positioning as reference points. The relevant competitor is not necessarily the nearest outlet; it may be another hotel, delivery platform, premium casual restaurant or entertainment alternative.

Competitor analysis should compare:

Following competitors mechanically can produce a price war. A hotel with superior location or service may rationally charge more; an outlet with lower perceived value may need a lower price or a redesigned proposition. Competitive information must also be collected lawfully. Agreements with competitors to fix prices or divide markets can violate competition law.

2.4 Value-based pricing

Value-based pricing starts with the customer’s perceived benefits rather than the seller’s cost. Benefits may include taste, health, convenience, prestige, authenticity, reliability, time saved or risk reduced. Costs establish a floor for long-run viability, while perceived value and alternatives help establish the ceiling.

A value proposition should answer three questions:

1. Which customer problem or desire is being addressed?
2. What evidence supports the claimed benefit?
3. Why is the offer worth more or less than available alternatives?

Value is heterogeneous. A business traveller may value speed and predictability; a celebration group may value theatre and personalisation. Menu descriptions, visual presentation, service choreography and digital ordering can increase perceived value without proportionally increasing ingredient cost. Such actions must remain truthful: claims about provenance, sustainability, allergens or health require evidence and appropriate disclosure.

2.5 Dynamic and differential pricing

Dynamic pricing changes prices or offers in response to time, demand, capacity, booking lead time, customer segment or inventory risk. In food and beverage, examples include:

• early-booking banquet packages;
• premium pricing for peak dates;
• happy-hour prices during low-demand periods;
• minimum spends for exclusive areas;
• differentiated delivery or takeaway fees;
• personalised but transparent loyalty offers.

A simplified demand model may be written as:

where Q is quantity demanded, P is price, a is the intercept and b is the change in quantity associated with a one-unit price change. This linear model is an approximation and should not be treated as a universal law. It assumes other important influences are held constant over the analysed range.

Price elasticity of demand is:

Using a midpoint method reduces dependence on the direction of comparison:

Demand is usually called elastic when the absolute value of E_d exceeds 1 and inelastic when it is below 1. The interpretation is valid only for the observed market, time period and price range. Capacity limits, competitor reactions and changes in product perception can make elasticity unstable.

Dynamic pricing should be governed by published rules, audit trails and fairness controls. A price that changes because demand is high may be commercially rational; a price that discriminates unlawfully or misleads guests about scarcity is not acceptable.

3. Menu Engineering and Product Profitability

Menu engineering combines popularity and contribution margin. For item i:

Average contribution margin can be calculated as total contribution divided by units sold, provided the period and product set are clearly defined. Items can then be classified as:

The framework is diagnostic, not automatic. A low-margin item may attract profitable beverage sales, satisfy a dietary requirement or support the brand. Managers should also consider preparation complexity, kitchen bottlenecks, waste, allergens and guest satisfaction.

4. Operating Budgets and Forecasts

4.1 Purpose and principles

A budget is a quantified plan for a defined period. It coordinates resources, communicates expectations, authorises spending and provides a benchmark for control. A forecast is the best current estimate of likely results; it should change when evidence changes. Treating a budget as an immutable prediction encourages concealment and poor decisions.

A food and beverage budgeting process normally includes:

1. Strategic assumptions: occupancy, covers, average spend, outlet hours, events and market conditions.
2. Revenue budget: covers or transactions multiplied by realistic average spend.
3. Cost budget: recipe costs, beverages, labour, utilities, commissions and controllable expenses.
4. Capital and maintenance requirements.
5. Cash-flow timing and purchasing requirements.
6. Review, approval and responsibility assignment.

4.2 Revenue budgeting

A basic outlet revenue estimate is:

For multiple periods or segments:

where j identifies a meal period, outlet or customer segment. The estimate should reflect occupancy, conversion rate, no-shows, cancellations, seasonality and capacity. A hotel may have 200 rooms but not 200 restaurant covers every day; occupied rooms, resident guests, local demand and outlet capacity must be modelled separately.

4.3 Flexible budgets

A static budget is prepared for one activity level. A flexible budget adjusts variable costs to actual activity while retaining appropriate fixed-cost assumptions. This distinction improves performance evaluation.

The formula assumes a stable variable cost per unit within the relevant range. Step-fixed costs, volume discounts and overtime thresholds require a more detailed model.

Worked example. A bar budgets 2,000 covers, beverage revenue of £18 per cover and variable beverage cost of £5.40 per cover. Actual covers are 2,200.

Budgeted revenue at 2,000 covers = 2,000 × £18 = £36,000.

Flexible-budget revenue at actual activity = 2,200 × £18 = £39,600.

Flexible-budget variable cost = 2,200 × £5.40 = £11,880.

If actual revenue is £40,700 and actual variable cost is £12,540, the manager should compare actual results with the flexible budget, not only the original static budget. Revenue is £1,100 favourable against the flexible budget; variable cost is £660 unfavourable.

4.4 Rolling forecasts and scenario planning

A rolling forecast continually extends the planning horizon, for example by replacing the completed month with a new month twelve months ahead. Scenario planning tests assumptions rather than pretending to know the future. Useful scenarios include:

• base case: expected occupancy and demand;
• downside case: lower covers, higher food inflation and labour shortages;
• upside case: stronger demand with capacity and service constraints.

Forecasts should document assumptions, data sources, confidence levels and accountable owners. Machine-learning forecasts may identify patterns in reservations, weather or events, but managers must test data quality, avoid automation bias and retain human oversight.

5. Cost–Volume–Profit and Break-Even Analysis

Cost–volume–profit (CVP) analysis examines how selling price, volume, variable cost and fixed cost affect profit. Its central measure is contribution margin.

These formulas assume constant selling price and variable cost per unit, a clear separation between fixed and variable costs, a relevant operating range, and either one product or a constant sales mix. They are less reliable when prices change frequently, products have very different margins, or capacity constraints dominate.

Target profit can be incorporated as follows:

Worked example. A café sells an average meal at £24. Variable cost is £9 per meal and monthly fixed costs are £45,000.

Contribution per meal = £24 − £9 = £15.

Contribution margin ratio = £15 ÷ £24 = 0.625, or 62.5%.

Break-even meals = £45,000 ÷ £15 = 3,000 meals.

Break-even sales = £45,000 ÷ 0.625 = £72,000.

For a target operating profit of £15,000:

Required meals = (£45,000 + £15,000) ÷ £15 = 4,000 meals.

At 4,000 meals, revenue is £96,000, variable cost is £36,000 and operating profit is £15,000.

The margin of safety indicates how far expected sales can fall before break-even:

It may be expressed as a percentage of expected sales:

If expected sales are £96,000, margin of safety is £24,000, or 25%.

For a multi-product outlet, weighted-average contribution is required. If product mix proportions remain stable:

Break-even total units then equal fixed costs divided by weighted-average contribution. Managers must state the mix assumption because a shift toward low-contribution items changes the result.

6. Departmental Profitability and Performance Control

6.1 Profit statements

A departmental income statement should show operational drivers rather than only totals. A useful format is:

Percentages should be calculated against the appropriate revenue base. Beverage cost percentage should not be judged against total food revenue, and a restaurant with a different product mix should not be compared without normalisation.

6.2 Variance analysis

Variance analysis compares actual, budgeted and flexible-budget results. Important variances include:

• sales-volume variance: effect of selling a different quantity than planned;
• selling-price variance: effect of a different average selling price;
• price variance: effect of paying a different input price;
• usage or yield variance: effect of using more or less input than standard;
• labour-rate variance: effect of a different wage rate;
• labour-efficiency variance: effect of using more or fewer labour hours.

A variance is a signal for investigation, not proof of good or bad management. A favourable food-cost percentage may result from under-portioning, poor quality or delayed invoice recording. An unfavourable labour variance may reflect training investment that improves future service.

6.3 Labour productivity

Labour productivity must be measured with both efficiency and quality indicators. Common measures include:

These measures require consistent definitions of paid hours, overtime, agency labour, supervisory time and revenue. Productivity should be interpreted alongside guest satisfaction, errors, employee turnover, safety and service standards. Cutting hours below the level required for safe and hospitable service is not genuine productivity management.

Scheduling should match expected demand by daypart, skill and station. Cross-training improves flexibility, but excessive multi-skilling without adequate competence can increase risk. Managers should comply with wage, working-time, break, equality and health-and-safety requirements.

7. Return on Investment and Capital Decisions

A new bar, kitchen system or service technology should be evaluated as an investment rather than solely as an expense reduction. A simple accounting return on investment is:

The numerator should be an incremental, sustainable benefit after incremental operating costs and taxes where relevant. The denominator should be defined consistently, usually initial cash investment for a simple appraisal. This measure does not account fully for timing or risk.

Payback period is:

This is a simple approximation and assumes even annual cash inflows. For uneven cash flows, cumulative cash flow should be calculated period by period.

Discounted cash-flow analysis recognises the time value of money:

I₀ is the initial investment, CF_t is net cash flow in period t, r is the required discount rate and t is the period number. A positive NPV indicates value creation relative to the assumed discount rate, subject to the quality of cash-flow estimates. Managers should test occupancy, labour, maintenance, residual value and demand assumptions through sensitivity analysis.

8. Applied Case: The Harbour View Hotel Rooftop Restaurant

The following is an illustrative case designed for educational analysis.

Background

The Harbour View Hotel operates a 90-seat rooftop restaurant. Management reports strong weekend demand but weak Monday-to-Thursday trade. Average dinner selling price is £42, variable cost is £15, and monthly fixed departmental costs are £81,000. The restaurant averages 3,000 covers per month. Management is considering a weekday prix-fixe menu at £34, with variable cost of £13, and a targeted digital campaign.

Problem

The general manager wants to know whether the offer will improve profit, whether it will cannibalise existing sales, and whether the restaurant has sufficient capacity and labour to serve additional covers.

Analysis

Current contribution per cover is £42 − £15 = £27. Current monthly contribution is 3,000 × £27 = £81,000, exactly equal to fixed costs. The current operation is therefore at departmental break-even before any incremental profit.

The prix-fixe menu contribution is £34 − £13 = £21. If it generates 800 genuinely additional covers and requires no additional fixed cost, incremental contribution is 800 × £21 = £16,800. If 300 of those covers replace existing £42 covers, the lost contribution is 300 × £27 = £8,100. Net improvement is £16,800 − £8,100 = £8,700 before campaign costs and additional labour.

Suppose the campaign costs £2,000 and additional labour costs £4,000. Net departmental improvement is £8,700 − £2,000 − £4,000 = £2,700. The proposal is financially positive under these assumptions, but its success depends on whether the 500 net additional covers can be served without service deterioration.

Approach and solution

Management should pilot the offer for six weeks, using a control comparison between similar weekdays where feasible. It should record covers, average spend, beverage attachment, cancellations, labour hours, guest ratings, food waste and cannibalisation. The offer should be restricted to low-demand periods rather than peak weekends. A contribution-based price is defensible during the pilot because spare capacity exists, but the menu should not become a permanent low-price anchor without reviewing the full cost and brand effect.

A dashboard should compare actual results with a flexible budget based on actual covers. If labour hours rise disproportionately, the menu may require simplified preparation or reservation pacing. If beverage attachment is lower than expected, the apparent revenue success may not translate into adequate contribution.

Outcome

The case does not prescribe a guaranteed result; it demonstrates a decision process. The proposal is attractive only if additional demand is real, capacity is available, quality is protected and the incremental contribution exceeds campaign and labour costs.

Learning points

1. A lower price can increase profit when it uses spare capacity and creates positive incremental contribution.
2. Cannibalisation must be separated from genuinely additional demand.
3. Flexible budgets provide a fairer basis for evaluating actual activity.
4. Financial metrics must be read with service, labour and brand indicators.
5. A pilot with a clear control design is superior to an unsupported permanent rollout.

9. Governance, Ethics and Contemporary Practice

Profitability management has ethical boundaries. Managers should disclose mandatory charges, present prices clearly, protect allergen information and avoid deceptive scarcity claims. Pricing should not exploit emergencies or target vulnerable consumers unfairly. Revenue-management systems require access controls, audit logs and periodic testing for discriminatory outcomes.

Food-cost control must not compromise food safety, legal standards or nutritional integrity. Reducing waste through accurate forecasting, smaller batches, safe storage and donation partnerships is preferable to serving unsafe or misleading products. Supplier selection should consider quality, labour practices, provenance and resilience rather than price alone.

Integrated property-management, point-of-sale, inventory and labour systems can provide near-real-time information. Artificial intelligence can support demand forecasting, menu recommendations, anomaly detection and schedule optimisation. However, automated recommendations may reproduce historical bias, misclassify unusual events or encourage excessive discounting. Human managers remain responsible for data governance, explainability, privacy, cybersecurity and final decisions.

Best practice is to establish a pricing and profitability governance cycle:

1. Define commercial objectives and customer value proposition.
2. Verify recipes, yields, portions and supplier costs.
3. Analyse demand, competition, capacity and contribution.
4. Approve prices and promotions with documented assumptions.
5. Monitor actual results through flexible budgets and operational dashboards.
6. Investigate material variances and correct root causes.
7. Review guest, employee, safety and sustainability outcomes.
8. Update forecasts and discontinue initiatives that destroy long-term value.

Challenges and Limitations

Financial models simplify reality. Costs may be semi-variable, demand may be nonlinear, product mix may change and competitor responses may be unpredictable. Allocated overhead can distort outlet comparisons. Average spend can conceal large differences between guests. Historical data may be unreliable during renovations, crises or changes in service concept. Forecasts also fail when managers treat uncertain assumptions as facts.

The answer is not to abandon quantitative analysis, but to use it critically. Managers should show assumptions, use ranges rather than false precision, perform sensitivity analysis and combine financial evidence with operational and qualitative information. The most credible decision is often conditional: proceed if demand exceeds a threshold, labour remains below a limit and quality indicators do not deteriorate.

Chapter Summary

Pricing in food and beverage operations should integrate cost, competition, perceived value, demand and capacity. Cost-based methods provide a useful starting point, while competition-based and value-based approaches prevent prices from becoming detached from the market. Dynamic pricing can improve revenue from perishable capacity but requires transparency, fairness and governance.

Budgets quantify plans; forecasts update expectations. Revenue budgets are built from activity and average spend, while flexible budgets adjust variable costs to actual activity. CVP analysis uses contribution margin to calculate break-even sales, target-profit requirements and margin of safety, subject to assumptions concerning price, cost, activity range and sales mix.

Departmental profitability requires clear separation of revenue, variable cost, controllable cost and allocated cost. Variance analysis identifies signals for investigation, and labour productivity must be evaluated alongside quality and employee welfare. ROI and NPV support capital decisions, but their usefulness depends on realistic cash-flow, risk and capacity assumptions. Effective managers combine financial discipline with ethical pricing, legal compliance, service quality, sustainability and responsible use of technology.

Key Terms

Break-even point: Activity or sales level at which total revenue equals total relevant cost.

Budget: A quantified plan for a defined future period.

Contribution margin: Selling price less variable cost.

Controllable cost: A cost that a specified manager can influence within a specified period.

Cost-volume-profit analysis: Analysis of relationships among price, volume, variable cost, fixed cost and profit.

Dynamic pricing: Adjustment of price or offer in response to demand, capacity, timing or customer conditions.

Elasticity of demand: Responsiveness of quantity demanded to a change in price.

Flexible budget: Budget adjusted to the actual level of activity.

Gross margin: Selling price less cost, expressed as a percentage of selling price.

Markup: Amount added to cost, expressed as a percentage of cost.

Margin of safety: Excess of expected sales over break-even sales.

Menu engineering: Analysis of menu-item popularity and contribution to guide commercial decisions.

Net present value: Present value of future cash flows less initial investment.

Opportunity cost: Benefit sacrificed by selecting one alternative instead of the next best alternative.

Price variance: Difference caused by paying a different input price from the standard or budgeted price.

Relevant cost: Future cost that differs between decision alternatives.

Rolling forecast: Forecast continually extended as each period is completed.

Sunk cost: Past cost that cannot be changed by a current decision.

Value-based pricing: Pricing based primarily on customer-perceived benefits and willingness to pay.

Weighted-average contribution: Contribution calculated using contributions and proportions of a stable multi-product sales mix.

Review Questions

Short Answer Questions

1. Distinguish between markup percentage and gross-margin percentage.
2. What is the difference between a static budget and a flexible budget?
3. Define contribution margin and explain its managerial significance.
4. State two ethical risks associated with dynamic pricing.
5. Why should labour productivity not be assessed solely through labour cost percentage?

Long Answer Questions

1. Critically compare cost-based, competition-based and value-based pricing for a hotel restaurant.
2. Explain how a food and beverage manager should construct and monitor an operating budget.
3. Derive the break-even sales formula and discuss its assumptions and limitations.
4. Discuss the role of menu engineering in improving departmental profitability.
5. Explain how ROI and NPV can support a decision to invest in food and beverage technology.

Analytical / Application Questions

1. A restaurant sells a meal for £30, has variable cost of £12 and monthly fixed costs of £54,000. Calculate contribution per meal, break-even meals and break-even sales. If management requires a monthly operating profit of £9,000, calculate the required meals.
2. An outlet has 1,000 existing covers with contribution of £20 each. A promotion is expected to create 500 new covers with contribution of £14 each, but 150 existing covers will be cannibalised. The campaign costs £1,500 and additional labour costs £2,000. Determine the net change in monthly contribution and recommend whether the promotion should proceed, subject to operational constraints.
3. Design a six-week test for a weekday dynamic-pricing offer. Specify the assumptions, control measures, financial metrics, service-quality indicators, ethical safeguards and decision rule you would use.

Multiple Choice Questions with Answers

Question 1

A menu item has a standard food cost of £6 and the target food-cost percentage is 30%. What selling price follows from the food-cost pricing method?

A. £8.00

B. £18.00

C. £20.00

D. £30.00

Correct Answer: C. £20.00

Question 2

A dish sells for £25 and has a variable cost of £10. What is its contribution margin ratio?

A. 40%

B. 60%

C. 66.7%

D. 150%

Correct Answer: B. 60%

Question 3

An outlet has fixed costs of £60,000 and contribution per cover of £20. What is its break-even volume?

A. 1,200 covers

B. 2,000 covers

C. 3,000 covers

D. 4,000 covers

Correct Answer: C. 3,000 covers

Question 4

Which cost is most likely relevant to a short-term decision to accept an additional banquet when spare capacity exists?

A. Past building depreciation

B. Corporate insurance allocation that will not change

C. Incremental food and labour cost

D. Historical feasibility-study cost

Correct Answer: C. Incremental food and labour cost

Question 5

What is the principal purpose of a flexible budget?

A. To eliminate fixed costs

B. To compare actual results with budget at the actual activity level

C. To guarantee the forecast is accurate

D. To calculate competitor prices

Correct Answer: B. To compare actual results with budget at the actual activity level

Question 6

A price rises from £20 to £22 and quantity demanded falls from 1,000 to 900. Using the midpoint method, demand is approximately:

A. Inelastic, with elasticity about −0.50

B. Unit elastic, with elasticity about −1.00

C. Elastic, with elasticity about −1.11

D. Perfectly elastic, with elasticity about −2.00

Correct Answer: C. Elastic, with elasticity about −1.11

Question 7

Which menu-engineering category describes an item with high popularity and low contribution?

A. Star

B. Puzzle

C. Dog

D. Plough horse

Correct Answer: D. Plough horse

Question 8

A simple ROI calculation divides annual operating benefit by:

A. Total revenue

B. Initial investment

C. Variable cost per cover

D. Break-even sales

Correct Answer: B. Initial investment

Question 9

Which statement best describes value-based pricing?

A. It sets price only by adding a fixed markup to cost

B. It copies the nearest competitor’s price

C. It begins with customer-perceived benefits and willingness to pay

D. It always produces the lowest possible price

Correct Answer: C. It begins with customer-perceived benefits and willingness to pay

Question 10

A café has expected sales of £100,000 and break-even sales of £75,000. What is its margin of safety percentage?

A. 15%

B. 25%

C. 33.3%

D. 75%

Correct Answer: B. 25%