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HRM 16 F & B COST CONTROL SYSTEM

Module 1 - INTRODUCTION TO FOOD, BEVERAGE, AND LABOR COSTS

COST CONCEPTS

COST

- defined as the expense to a foodservice establishment for goods or services when the goods are

consumed or the services are rendered.

- maybe express in a variety of units weight, volume or total value

TYPES OF COSTS

FIXED COSTS and VARIABLE COSTS

Used to distinguish between those costs that have no direct relationship to business volume and

those that do

FIXED COSTS

- costs that are normally unaffected by changes in sales volume

- whether sales volume increase or decrease, fixed costs do not change dramatically

- example: insurance premium, real estate taxes, depreciation on equipment, rent, repairs and

maintenance, utilities, professional services, etc.

VARIABLE COSTS

- costs that are clearly related to business volume

- as sales volume increase, variable costs increase

- example: food cost, beverage cost, labor cost

CONTROLLABLE AND NONCONTROLLABLE COSTS

CONTROLLABLE COSTS

- those costs that can be changed in the short term

- variable costs are normally controllable

- example:

o food and beverage cost can be changed in several ways: by changing portion sizes, by changing

ingredients in a recipe, or by changing the quality of the products purchased

o labor cost: by hiring additional employees, or by laying some off, by increasing or decreasing the

hours of work, by increasing or decreasing wages

- certain fixed costs are controllable

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- example: advertising and promotion, utilities, repairs and maintenance, administrative and general

expenses

NONCONTROLLABLE COSTS

- those costs that cannot be normally changed in the short term

- these are usually fixed costs

- example: rent, real estate taxes, license fees, depreciation

UNIT AND TOTAL COSTS

UNIT COSTS

- cost per single unit

- example: cost of one steak, cost of one martini, or the hourly rate of an employee

TOTAL COSTS

- sum of all unit costs for a certain period of time

- example: the costs that are reflected in the income statement are total costs

PRIME COSTS

- use to refer to the costs of materials and labor: food, beverages, and payroll.

- Represent the largest portion of total costs for virtually all foodservice operations

HISTORICAL AND PLANNED COSTS

HISTORICAL COSTS

- all costs are historical because they can be found in business records, books of account, financial

statements, invoices, employees timecards and other similar records

- used in establishing unit costs, determining menu prices, and comparing present and with past labor

costs

- necessary for effective planning budgeting

PLANNED COSTS

- projections of what costs will be or should be for a future period

- based on historical costs

SALES CONCEPTS

SALES

- defined as revenue resulting from the exchange of products and services for value

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- can be expressed in monetary and non-monetary terms

MONETARY TERMS

TOTAL SALES

- refers to the total volume of sales expressed in peso terms

TOTAL SALES BY CATEGORY

- refers to the total peso volume of sales for all items in one category

- example: total food sales, total beverage sales, or total steak sales, total seafood sales

TOTAL SALES PER SERVER

- total peso volume of sales for which a given server has been responsible in a given time period

- figures are used to make judgments about comparative performance of two or more employees

TOTAL SALES PER SEAT

- total peso sales for a given time period divided by the number of seats in the restaurant

- the normal time period used is one year

- this figure is most frequently used by chain operations for comparing sales results of one unit with

those of another

SALES PRICE

- the amount charged to each customer purchasing one unit of a particular item

- this unit may be a single item or an entire meal

AVERAGE SALE

- determined by adding individual sales to determine a total and then dividing that total by the number

of individual sales

- there are 2 averages commonly calculated in f & b operations: average sale per customer and

average sale per server

AVERAGE SALE PER CUSTOMER

- expressed as:

Average sale = Total peso sales/Total number of covers

- also referred to as average check or average cover

AVERAGE SALE PER SERVER

- expressed as:

Average sale of server A = Total sales for server A/Number of customers for A

- used for comparative purposes and is usually considered a better indicator of the sales ability of a

particular individual

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NON-MONETARY TERMS

TOTAL NUMBER SOLD

- refers to the total number of menu items sold in a given time period

- used to identify unpopular menu items

- historical records are used to forecast sales and also helpful in making decisions about purchasing

and production

COVER

- used in the industry to describe one diner, regardless of the quantity of food he or she consumes

TOTAL COVERS

- refers to the total number of customers served in a given period

AVERAGE COVERS

- determined by dividing the total number of covers for a given time period by some other number

- the following are the most common:

o Average Cover per hour = Total covers/Number of hours of operation

o Average Cover per day = Total covers/Number of days of operation

o Average Cover per server = Total covers/Number of servers

SEAT TURNOVER

- most often called simply turnover or turns

- refers to the number of seats occupied during a given period divided by the number of seats available

- usually calculated per meal period

SALES MIX

- a term used to describe the relative quantity sold of any menu item as compared with other items in

the same category

- the relative quantities are normally percentages of total unit sales and always total 100 percent

- significant in menu engineering

- example: Number Sold Sales Mix

o Nicoise Salad 16 31.37%

o Tuna Salad 10 19.61%

o Ceasars Salad 20 39.22%

o Fruit Salad 5 9.8%

51 100%

COST-TO-SALES RATIO

- the relationship between costs and sales

- formula:

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Cost/Sales = Cost per peso of sale

- expressed as a percentage will give you the formula for calculating cost percents:

Cost/Sales = Cost %

- this formula can be extended to show the following relationships:

o Food cost/Food sales = Food cost %

o Beverage cost/Beverage sales = Beverage cost %

o Labor cost/Total sales = Labor cost %

- the cost % formula are sometimes rearranged algebraically to facilitate other calculations. It can be

written and used in any of three possible forms:

o Cost/Sales = Cost %

o Cost/Cost % = Sales

o Sales x Cost % = Cost