COST CONTROL • Maximize Food and Beverage Sale

• Control Expenses
INTRODUCTION • Manage Employee
- Successful restaurant personnel, • Maximize Profit
including chefs, restaurant managers,
food and beverage controllers, dining CONTROL VS. COST CONTROL
room managers, and stewards have CONTROL - is to exercise authority over,
the ability to keep costs at regulate, verify or check some functions
predetermined levels. They through a method, device or system.
understand that successful operations COST CONTROL - in the food service
require that costs be carefully industry is defined as the process of
established and monitored so that regulating, checking
profit will result.
- Food, beverage, and labor COSTS COST CONCEPTS
generally represent between 60% and ACCOUNTANTS - define a cost as a
70% of the total costs of a restaurant reduction in the value of an asset for the
operation. If these costs are not purpose of securing benefits or gains.
carefully established and monitored, In F&B BUSINESS cost is defined as the
they can gradually increase until expense to a hotel or restaurant of goods or
profit is eliminated and losses are services when the goods are consumed or the
sustained service rendered.

- Food and beverages are “Consumed”

THE FOODSERVICE ENVIRONMENT when they are used, wastefully or
otherwise, and are no longer available
INTERNAL FOODSERVICE for the purpose for which they were
ENVIRONMENT acquired. (Units: weight, volume, or
• Front-of-House Functions total value)
• Back-of-House Functions - The cost of labor is incurred when
• Management Functions people are on duty, whether or not
• Planning they are working, and whether they
• Organizing and Influencing are paid at the end of the shift or at
Controlling some later date. (Hourly weekly or
monthly)
EXTERNAL FOODSERVICE
ENVIRONMENT USES OF COST DATA
• Government Regulations PLANNING
• Local market Conditions • Planning Profit
• Economic Conditions • By means of Budget
• Supplier Relations • BUDGET - is the forecast of the
• New Technology effects on profits of varying volumes
• Media of activity.

CONTROLLING
FOUR (4) AREAS IF CONTROL IN THE
FOODSERVICE INDUSTRY
 • Controlling costs via responsibility - Because labor cost consist of fixed
accounting. and variable element it is known as
MEASURING semi-variable cost, meaning a portion
• Measuring annual or periodic profit. should change in short-term and the
ASSISTING other portion remains unchanged.
• Assisting in establishing selling
prices and a pricing Policy CONTROLLABLE AND NON-
• Pricing Policy-methods and CONTROLLABLE COST
directions in which companies, the CONTROLLABLE COST - are those that
government and other agencies seek can be change in the short term such as Direct
to influence the price of goods and Variable Cost, Wages, Advertising &
services. Promotion, Utilities, Repairs & Maintenance
FURNISHING and Administration and General Expenses.
• • Furnishing relevant cost data for NON-CONTROLLABLE COST - are
analytical processes for decision those that cannot normally be changed in
making. short-term such as fixed cost like Rent,
Interest on a mortgage, Real estate taxes,
COST CLASSIFICATION License fee and Depreciation
FIXED COST (FC) AND VARIABLE UNIT COST - may be food & beverage
COST (VC) are used to distinguish between portion as in the cost of one item or hourly
those cost that have no direct relationship to unit of work. In F&B business unit cost are
business and those that do. commonly in average unit cost rather then
FIXED COSTS - are those that are normally actual unit cost.
unaffected by changes in sales volume. Such TOTAL COST - are the total of food &
as = real estate taxes, insurance premiums, beverage portions served in one period such
depreciation, repairs and maintenance, rent or as a week or a month or total cost of labor for
occupancy costs, most utility costs, one period.
advertisement, and professional services. PRIME COST - is a term used in the Hotel
- The term fixed should never taken to Industry refer to the cost of materials and
mean static or unchanging but merely labor. (Food, Beverage and Payroll)
to indicate that any changes that may
occur in such cost are related only HISTORICAL AND PLANNED COSTS
indirectly or distantly to changes in HISTORICAL COST - are all cost are
business volume. historical - that is, that they can be found in
VARIABLE COSTS - are those that are business records, book of account, financial
clearly related to business volume. As statements, invoices, employees’ time card
business volume increase, variable cost will and other similar records. It is used for
increase and vice versa. establishing unit cost, determining menu
- Food & Beverage cost are considered prices and comparing present with past labor
directly variable cost. Direct Variable cost.
Cost are those that are directly linked - It will be used for planning and determining
to volume of business increase and the future to develop planned costs -
decrease of volume correspondingly. projections of what cost will be or should be
PAYROLL COST - includes salaries and for a future period. It is often called as
wages and employee benefits and often Budgeting.
referred as Labor Cost. Industry-wide Variations in Cost
Cost percentage vary considerably from one sale per customer and average sale per
foodservice operation to other. This is due to server.
many possible reasons. Basically there are PER CUSTOMER - is the result of dividing
two types of foodservice operation. total dollar sales by the number of sales or
• Those that operate at low profit customer.
margin and depends on relatively PER SERVER - is total dollar sales for an
high business volume. individual server divided by number of
• Those that operate at relatively high customer served by that individual
profit margin thus does not require Average Sale
high business volume This average is determined as follows:
Average check = Total dollar sales ÷ Total
SALES CONCEPT number of covers
SALES - In general, the term sales is defined Total sales of $3,902.30 and 140 covers.
as revenue resulting from the exchange for a Thus, Average sale = $3,902.30 ÷ 140 = $27.8
products (Food & Beverage) and service
(Waiter) for value ($$). Yasser, one of the servers, had 30 customers
- The sales concept in F&B operation usually and total dollar sale of $565 on the Saturday
can be express as: monetary and non- night of February 13, average sale per server
monetary for Jim would be calculated as follows:
Average sale = Total sales for Yasser ÷ No.
MONETARY TERMS of customers for Yasser
TOTAL SALES - is a term that refers to the = $565 ÷ 30
total volume of expressed in dollar term for = $18.8
instant any given period, such as a week, a
month or a year. NON-MONETARY TERMS
BY CATEGORY. Total dollar volume of TOTAL NUMBER SOLD - refers to the
sales by category are total food sales or total total number of menu item sold in a given
beverage sales. Or total steak sales or seafood time period. •Cover is the term used to
sales. describe one diner regardless of the quantity
BY SERVER. This is total dollar volume of of good the person consumes.
sales for which a given server has been TOTAL COVER REFER - to the total
responsible in a given period. This is to help number of customer served in a given period.
the management to make judgment on Help to make judgment & comparisons
employees performance. AVERAGE COVERS - is determined by
BY SEAT. Usually for a year period. Total dividing the total number of cover for a given
Dollar sales divided by the number of seats in period by some other number such as hour of
the restaurant operation, day of operation or numbers of
SALES PRICE - refers to the amount server.
charged each customer purchasing one unit of 1. Cover per Hour = Total Covers / No. of
a particular item. It can be a single meal or Hours of Op.
entire meal 2. Covers per Day = Total Covers / No. of
AVERAGE SALE - in business is determine Days of Op.
by adding individual sales to determine a 3. Covers per Server = Total Covers / No. of
total and then dividing that total by the Servers
number of individual sales. Two types of
commonly calculated averages are: average
SEAT TURNOVER or simply turnover - • The control in the F&B industry
refer to the number of seats occupied during really means controlling people
a given period (or number of cover) divided action. These are the factors:-
by the number of seats available. • Food does not disappear by itself,
140 customers served during that one without help
Saturday meal. The restaurant has 75 seats, so • Excess quantity of food and beverage
seat turnover would be calculated as follows: into the plate and glass.
Seat turnover = Number of customers served • Employees’ wages calculation are not
÷ Number of seat base on the wrong numbers of hours
= 140 ÷ 75 unless someone gives the wrong
= 1.87 turns information.
SALES MIX is a term used to describe the • Food are not consumed by pest unless
relative quantity sold of any menu item made available by human
compared to other items in the same category. • Customer seldom leave without
THE COST-TO-SALES RATIO paying unless make possible.
Foodservice establishment calculate cost in
dollars and compare those cost to sales in
dollars. This enable them to discuss the CRITERIA FOR FOOD SERVICE
relationship between cost and sales or the MANAGERS
cost per dollar of sale • The person must be able to grab
Cost ÷ Sales = Cost per dollar of sale opportunities & profit oriented
decimal answer, and any decimal can be
• A unique sales person
converted to a percentage if one multiplies it
by 100 and adds a percent sign (%). • Good personality with the guest
Cost ÷ Sales x 100 = Cost% • Hard working person and most
$ 312,090 ÷ $ 891,687 = .35 and .35 x 100 = important The person is the controller
35.0 % or regulator of the operation to
Food cost ÷ Food sales x 100 =Food cost% achieved maximized profits and
Beverage cost ÷ Beverage sales x 100 = minimize cost
Beverage cost%
Labor cost ÷ Total sales x 100 = Labor cost% MANAGING INCOME & EXPENSES
INCOME
The formula also can be use to determine the • Same as revenue that arises from
Sales price if the cost% is known producing and selling products and
services.
Cost ÷ cost% = Sales(or Sales Price) • It can be increase by increasing the
Sales x Cost % ( expressed as a decimal ) = number of customers and the amount
Cost Sales X Cost % = Cost of money they spent through
suggestive selling, creative menu
Chapter 2 pricing and discount. It is the cost of
FOOD AND BEVERAGE COST the items required to operate the
CONTROL business. The outflows of assets of an
establishment
THE CONTROL PROCESS • The goal for cost control is not sale
INTRODUCTION but controlling expenses.

EXPENSES
 • It is the cost of the items required to throughout the operation. Two principle of
operate the business. the principal causes of excessive cost are;
• The outflows of assets of an • INEFFICIENCY
establishment. • WASTE
• Operating cost- includes all expenses • FRAUD
referring to general or administrative • ERROR
expenses, marketing or selling 3. SALES CONTROL - is important to
expenses. Ex. Rent, utilities, franchise ensure that all sales results in appropriate
fees etc. income to the business. Therefore, it is
There are four major expense categories that important to require that each employees
must be controlled by management. record each sales accurately. (Checks,
They are… duplicates, bills or etc.)
1. FOOD COST, 4. RESPONSIBILITY FOR CONTROL
2. BEVERAGE COST, RESPONSIBILITY - is clearly falls onto
3. LABOR COST the management, but the task on controlling
4. OTHER EXPENSES differ due to the nature of the establishment.
- Small establishment the control
PERSPECTIVE OF CONTROL responsibility usually taken by the
TRADITIONAL PERSPECTIVE management but for larger establishment it is
Revenue - Expenses = Profit delegated to the assistant manager or
Target Costing ( Cost Control Perspective) controller.
Revenue - Desired Profit = Ideal Expenses/ 5. INSTITUTING CONTROL - Food &
Target Cost beverage establishment usually involves
TARGET COSTING- is the process of process of raw material purchased, received,
determining the maximum allowable cost for stored and issued for the purpose of
a new product or services. manufacturing products for sale and services.
IDEAL EXPENSE/ TARGET COST - is - At each stage of operation, it is
the management's view of appropriate necessary to institute control in order
amount of expenses to generate a given to stop pilferage or problems.
quantity of revenue. - Each control must be suitable to each
DESIRED PROFIT- is define as the profit of the operation, depends on the
that the owner wants to achieve on that nature of material and service
predicted quantity of revenue requiring control and on the degree of
Profit- also known as net income, the positive difficulty inherent (fundamentals) in
amount determined by deducting expenses instituting the control.
from revenues
THE CONTROL TECHNIQUES
THE CONTROL PROCESS 1. ESTABLISHING STANDARD -
1. CONTROL - is a process used by Standard are defined as rules or measures
managers to direct, regulate and restrain the established for making comparisons and
actions of people so that the established goals judgments.
of an enterprise may be achieved. •
2. COST CONTROL - the process used by a) QUALITY STANDARDS are used
managers to regulate cost and guard against to define the degree of excellence of
excessive costs. It is an ongoing process raw materials, finished products and
by extensions, work performed.
 b) QUANTITY STANDARD are judging those actions in the light of the
defined as measures of weight, count standards and standard procedures
or volume used to make comparisons established for their work.
and judgment. If any employees are failing to follow the
STANDARD COST - the cost of goods or standards, it is a manager’s responsibility to
services identified, approved and accepted by correct their performance to the extent
management in order to make judgment and necessary at the appropriate time.
comparisons of the effectiveness of the 6. REQUIRING RECORDS AND
operation. Thus standard cost must be REPORTS
calculated as accurately as possible. RECORDING AND REPORTS is an
2. ESTABLISHING PROCEDURES important element in control as these
PROCEDURES - are the method employed information helps in decision making,
to prepare products or perform jobs. judgment & comparisons of the operations.
STANDARD PROCEDURES - are those One such report is the statement of income.
that have be established as the correct 7. DISCIPLINE EMPLOYEES
methods, routines and techniques for day-to- DISCIPLINE - is defined as action taken to
day operations. give a warning, punish or telling off an
3. TRAINING employee for work performance or personal
TRAINING - is a process by which behavior incompatible with established
managers teach employees how work is to be standards
done, given the standards and standards It is seldom practice but only used as a
procedures established. deterrent or if corrective action failed.
4. SETTING EXAMPLE By selecting the right people for the various
Employees in an operation follow the jobs — those with the experience, skill, and
examples set by the manager — the personal characteristics that match the job
manager’s behavior, manner, responses to requirements the number of individuals
questions, and even a failure to speak or take requiring some level of discipline can be
action in some situations. reduced to a bare minimum. However, every
The behavior of individuals in a group tends manager must face the fact that, at times, an
to be influenced by the actions, statements individual staff member must be disciplined.
and attitudes of their leaders. 8. PREPARING AND FOLLOWING
Work Habits, attitudes, behavior, spirit of a BUDGETS
manager are the evident. Preparing and following budgets may be the
If the manager who has occasion to help most common technique for controlling
employees plate food for the dining room business operations
serves incorrect portion sizes, employees will BUDGET - is defined as a financial plan and
be more likely to do the same when the may be describe as a realistic expression of
manager is not there. Similarly, if a manager management’s goals and objectives
is inclined to wrap parcels of food to take expressed in financial terms. (Cash flow
home for personal use, employees will be budget, capital equipment budget and
more likely to do so. advertising budget.)
5. OBSERVING AND CORRECTING OPERATION BUDGET is the most
EMPLOYEE ACTIONS important budget for F&B manager. It is a
One of a manager ’ s important tasks is to forecast of sales activity and an estimate of
observe the actions of all employees cost that will be incurred in the process of
continually as they go about their daily jobs, generating those sales
PREPARING AN OPERATING
BUDGET
1. An operating budget is normally prepared
using historical information from previous
budget and other financial records.
2. The second step is to calculated the
percentage and analysis of the previous
records.
3. Then making assumption or judgment base
on all the influencing factors that might effect
the business operation during the forecasted
period, and computing into the new budget.

FLEXIBLE BUDGET - normally prepared

for levels of business volume above and
below the expected level.

Perspective of Control
Traditional Perspective
Revenue - Expenses = Profit
Target Costing ( Cost Control Perspective)
Revenue - Desired Profit = Ideal Expenses/
Target Cost
Target Costing- is the process of determining
the maximum allowable cost for a new
product or services.
Ideal Expense/ target cost- is the
management's view of appropriate amount of
expenses to generate a given quantity of
revenue.
Desired Profit- is define as the profit that the
owner wants to achieve on that predicted
quantity of revenue
Profit- also known as net income, the positive
amount determined by deducting expenses
from revenues