Chapter 2 Cost Control - Full

Chapter 2
Cost Control
“the purpose of cost control is to

establish accounting control over the
steps of production and to curb waste in
the materials and labor”
-Garner, 1947
© Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF)

and published by Pearson Education, Inc. All rights reserved.
Foodservice cost control
 is the process whereby managers attempt to
regulate costs and guard against excessive
costs in order to keep costs within acceptable
bounds, to account for revenues properly and
thus make profits by focusing on the particular
methods and procedures(Ahmed, 2005, Arduser,
2003).
Control
 is defined as a process used by business operators to
direct, regulate and restrain the actions of people in
order to achieve the established goals of a business
(Mohsin, 2006).
 It is a continuous process that involves every step in the
chain of purchasing, receiving, storing, issuing and
preparing foodservices for sale, as well as scheduling
the personnel involved (Dopson, Hayes & Miller, 2008).
Cost
 is defined as the expense to a foodservice
establishments for goods or services when the goods
are consumed or the services are rendered (Dittmer &
Keefe, 2006).
 In the foodservice industry, control means controlling
people rather than things as the hospitality industry
depends heavily on human resources, since employees
represent a costly and often uncontrollable resource
(Cheng-Hua, et al., 2009).
objective of cost control
 is to eliminate excessive costs for food, beverage and
labor to ensure that the establishment will operate at a
profit hence each stage of the foodservice operation
should institute control.
 Among the advantages of imposing control measures
are having low labor turnover, more effective and
efficient operation system which ultimately lead to
financial success in the long run.
Control techniques
 establishing standards
 establishing procedures
 training employees on the proper ways to institute
control measures
 observing and correcting employee actions
 requiring records and reports
 disciplining employees and;
 preparing and following budgets
4 steps in Control Process
1. establishing standards and standard procedures for
operations
2. train all individuals to follow established standards and
standard procedures
3. monitor performance and compare actual performance
with established standards
4. take appropriate action to correct deviations from
standards.
Cost Control Terms
Revenue is the income from sales before expenses, or

costs, are subtracted.
 Cost is the price an operation pays out in the purchasing

and preparation of its products or the providing of its
service.
3.1 Chapter 3 | Cost Control 8

Types of Costs
 Variable or semi-variable costs can change based on
sales.
 These are controllable costs because the operation
has a certain amount of control in how it spends on
these aspects of the operation.
 directly linked to volume of the business so that every
increase or decrease to the volume, brings a
corresponding increase or decrease in cost
 examples: Food costs, beverage costs, and labor
costs

Types of Costs
 Overhead cost is a fixed or non-controllable cost,
meaning it needs to be paid regardless of whether the
operation is making or losing money.
 Fixed costs do not change based on the operation’s sales.

 example: insurance premiums, real estate taxes and
depreciation on equipment

Cost Control Terms
 A forecast is a prediction of sales levels or

costs that will occur during a specific time
period.
 Most forecasting techniques rely on having
accurate historical data for the operation.
 forecasting sales/ sales projection -

provides figures regarding the number of
covers, average check, amount of revenue and
profit that the business wants to generate

Cost Control Terms
 The most common foodservice revenue forecasting techniques are

based on the number of customers and average sales per customer.
 A sales history is a record of the number of portions of every item

sold on a menu.
 Most operations can run historical sales and production reports from
their point-of-sale (POS) system
 cover - refers to servings consumed per customer

 average check - total sales
total covers
 sales – number of covers x average check

Cost-Control Tools
 Advances in technology have drastically increased the

number of options available to operations in controlling
costs.
 Software programs can be used to complete the

calculations required in cost planning, controlling sales,
controlling inventory, and focusing on the menu.

Cost-Control Tools
 Computer software can easily provide better access to

information, more accurate and convenient collection of
information, and improved analysis of that information.
 If used effectively, technology can help in running an

operation more efficiently and helping to reduce and
effectively control costs.

Cost Control Terms
An operating budget is a financial plan for a

specific period of time.
 It lists the anticipated sales revenue and projected costs and gives
an estimate of the profit or loss expected for the period.
 serve many purposes in the management of a restaurant or
foodservice operation. They can be used to :
1.analyze controllable costs, such as labor, food and beverage, and
supplies;
2.to outline operating goals and managers' performance
responsibilities; and;
3. to measure actual performance against anticipated performance.

What is Budget?
 Is a financial plan that will indicate how much
revenue will be generated and how it should be
spent in order to meet the required financial
goals
 Tells the manager what must be done to attain
desired profit and cost objectives
 The key to achieving desired departmental
goals, without it, problems may arise before
management is aware of them and could lead to
financial downfall
Cost Control in Budget
Preparation
 Losses even in good patronage if:
1.There is no budget that sets limits to consumption and purchases;
2. There is no way of checking actual consumption against budget (no

budget monitoring)
3. Excess in consumption remain unnoticed and continue to

accumulate
4. No one is made accountable for variances in consumption
5. No corrective measures are taken to correct variances

Budgetary Control System
 Shall be enforced to:
1. Set limit to consumption and purchases

2. Monitor consumption against budget
3. Establish accountabilities for variances/excesses in
consumption
4. Enforce corrective measures to correct variances
Steps in Budget Preparation
1.Establish
monthly sales 2. After
forecast calculating 4. Allocate
covering food the actual a certain
and drinks. Total cost
sales income for or
each month is projected percentage
based from
sales 3. Determine (ratio of
which one will the cost over
derive the profit income,
as well as the operating sales) of
calculate or budget
expenses
establish every
needed to
generate the the profit expense
sales income, required item form
referred as the the total
“Sales from the
Operating sales sales
Budget
Advantages of Budgetary Control
 Coordination is fostered by budgetary control; all-inclusive since
they bring all various activities together under one device
 It provides management with framework in visualizing all the various

activities within the organizational structure, promoting harmony in
the operations
 It helps in fixing responsibility
 Promotes waste reduction; unnecessary spending is minimized if not

avoided
Cost Control Terms
A profit-and-loss report (P&L) is a compilation of

sales and cost information for a specific period of time.
 shows whether an operation has made or lost money

during the time period covered by the report.
 Also known as income statement, helps managers gauge
an operation’s profitability as well as compare actual
results to expected goals.
 helps management determine areas where adjustments
must be made to bring business operations in line with
established financial goals.
 For an operation to be profitable, sales must exceed costs.

Cost Control in Menu Planning
Steps:
1. Analysis of the Market
 Guidelines
 Market segmentation
a.By income:
Market A- elite, high income group
Market B – middle income group (professionals, etc)
Market C – lower middle and low income groups
b. By occupational status :
executives/managers
middle class employees
factory workers
students
Cost Control in Menu Planning
Steps:
2.Know the potential market
Consider the location
Who are the most probable patrons?
Where will they come from?
3.Identify the target from the various segments mentioned
4. Make study of the consumption patterns and budget of the target

market
How much is usually spent for foods?
What are their food preferences?
Do they personally go to the restaurant or prefer delivery service?
Menu Planning and Development
1. Target market- menu analysis starts with a careful
analysis of the target market
2. Capacity of the kitchen
3. Location
4. Availability of raw materials

Types of Menu
o Static: all patrons are offered same foods each day; may
change every 6 months
o Cycle: developed for a set period and then repeated

(usually 21 days & 28 days)
o Market menu: based on the availability of local products-

produce/ fishes, etc; may change daily
o Hybrid: static menu with daily special

Another Classification of Types
of Menu
o A la carte: menu prices each item separately
o Du jour menu: “Du jour” is a French term that means “of

the day”, so it simply lists the menu items that are
available on a particular day
o Cyclical menu: chefs/managers change menu items after

a certain period of time
o limited: There are typically only a few items offered on a

limited menu
Controls in Purchasing
 losses are often incurred when a food establishment is unable to

control or regulate purchases, resulting to overstocking, voluminous
leftovers and spoilage
 losses can be avoided if ordering and purchasing transactions are

carried out using a system that can accurately determine stock
requirements and tap reliable suppliers who can deliver quality
merchandise with the best terms at reasonable cost
Controls in Purchasing are
designed to ensure that:
1. Purchases are done in compliance with

described procedures, using prescribed control
forms;
2. Orders are calculated on the basis of stock
requirements;
3. Order quantity is accurately estimated based on
reliable forecast or average usage;
Controls in Purchasing are
designed to ensure that:
4.Purchases are regulated within the limits of the budget;
5.Purchase specifications of end users are followed;
6.The best quality merchandise is procured on the lowest

possible cost; and
7.Items are procured from suppliers who meet quality

standards and offer the lowest possible price and most
advantageous terms
Organizing the Purchasing Unit
 For effective control, the processing of all purchases
must be centralized through a “Purchasing
Unit/Department”, under the command responsibility of
the “Purchasing Manager”
 In small establishments, it might be advisable for the

owner to control purchasing transactions; assisted by a
purchaser who scouts for suppliers and canvassers for
quotations, the awarding of bids must be under his
control to ensure that the interest of the company is
protected
Flow of Control in Ordering & Purchasing
1 Conducting
Sales/
2 Forecasting 3 Determining
Allocation
Menu Covers
Analysis
-weekly sales
and menu - Referring to
analysis the sales -one week
report is report, the allocation is
generated by supervisor prepared by the
the makes a supervisor,
supervisor projection on indicating the
the quantity quantity of
of covers or servings per dish
servings to be from day 1 to 7.
sold The allocation is
computed based
on the forecast
Flow of Control in Ordering & Purchasing
4 5 Approval of 6 Ordering 7 Delivery or

Generating market list direct
a market & Sourcing -purchaser procurement
of Suppliers submits
list quotations
-referring to - The then prepares
the allocation, designated a Purchase Items are
the cost clerk stock order to the procured either by
determines controller selected supplier who
the volume of shall review supplier, with
and sign the delivers the items
ingredients a copy or by open market
needed for market list forwarded to
and endorses the stock clerk
buying (in the
each dish,
following the it to the as reference absence of
standard purchaser for for checking supplier)
portion size canvassing of deliveries
indicated in quotations or
the recipe sourcing of
suppliers
Requirements For Groceries &
Consumables
 Ideally done on an interval of 7-15 days
 Establish a par stock which shall be a basis for
reordering
 The consuming unit has the options to establish a
minimum or maximum par
 Minimum par – the least quantity of stocks to be
maintained in the storeroom to meet minimum
requirement
 Maximum par – the maximum quantity of stocks to be
made available in the warehouse to avoid storage
Calculation for Minimum Par
Minimum par = average usage per day x no. of days of ordering period
Average daily usage = total consumption for 1 month

30 days
Ex: consumption of evaporated milk for 30 days in 65 cans.

The average daily usage will be computed as:
65 cans/ 30days= 2 cans
Calculation for Maximum Par
Maximum par = minimum par + safety stock + LTU
Safety stock can range from 5-20%

With the average daily usage of 2 cans of evaporated milk, and a lead
time of 2 days, the LTU will be computed as:
2 cans x 2 days = 4 cans
Ex: if a 10% safety stock will be used, with LTU(lead time usage) of 4
cans, the maximum par for evaporated milk will be:
14 cans + 1.4 (10%) + 4 cans (LTU)
= 19.4 or rounded to 20 cans
Food cost
 the actual value of the food used by an operation during
a certain period.
 It includes the cost incurred when food is consumed for
any reason.
 includes the cost of food sold, given away, wasted,
spoiled, incorrectly prepped, over-portioned,
overproduced, or pilfered.
Food cost
 Opening and closing inventory data is needed to
determine the value of the food cost.
 Inventory represents the value of a food product in
storage and can be expressed in terms of units, values,
or both.
 Opening inventory is the physical inventory at the
beginning of a given period (such as the month of April).
 The closing inventory is the inventory at the end of a
given period.
The following method is the only accurate way
to obtain an actual food cost:
(Opening inventory + Purchases = Total food

available) - Closing inventory = Total food cost.
Problems Encountered in Food Cost Control
 reluctance to practice internal control as such practice

can impact the moral of staff in terms of trust.
 some operators are not able to design relevant policies,
procedures, and record keepings into their business
operation due to lack of knowledge on internal control
procedures and benefits.
 Lack of resources is another matter as effective internal
control requires investment in the computerization,
system and security camera.
Problems Encountered in Food Cost Control
 lack of time as effective internal control requires

employees to learn how to use the system and maintain
the internal control process diligently on regular basis
 Issues on lack of compliance also arises as most
establishments do not implement and follow the policies
and procedures for internal control despite having the
guidelines (Mohsin, 2006).
Food cost percentage
 is the relationship between sales and the cost of food

to achieve those sales.
 often the standard against which food cost is judged.
 Analyze food cost percentage by comparing it to
company standards, historical costs, or even industry
standards.
 in most cases, the standard food cost percentage is a
target determined by management.
Food cost percentage
 By expressing the cost of food sold in percentages, it

can be compared on a month-to-month or week-to-
week basis regardless of any fluctuation in sales.
 Controlling the food cost percentage becomes the
most important priority if the operation is to be
profitable. The food cost percentage formula is as
follows:
Food cost ÷ Sales = Food cost percentage.

Food Cost
 Computing percent food cost:
% food cost (%FC) = cost of food x100
sales (sale price)
Example: A. Cost:Php300.00; sales is Php 500.00

300 x 100 = 60%
500
 It means that for every Php 100.00 sales, Php 60.00 is
used to purchase food (ingredients)
Controlling Food Cost
4 Essential Elements
1.Standardized recipes- a written record of the ingredients

and preparation steps needed to make a particular dish-
usual
-For institutional use and must follow a format that is clear
to anyone who uses them
-Lists the ingredients first, in the order they are to be used,
followed by assembly directions of the method for putting
the ingredients together
“Mise en place”
 A French term for “to put in place”
 The preparation and assembly of ingredients and
equipment
 A standardized recipe includes:

 Name of recipe
 Ingredients
 Yield
 Portion size
 Temperature, time and equipment
 Step-by-step directions
 Nutrition information
Important Factors to Consider
 For every standardized recipe, an operation should

establish a standard portion cost, which is the exact
amount that one serving, or portion, of a food item
should cost when prepared according to the item's
standardized recipe.
 A key control in getting the proper relationship between
a menu item's cost and its selling price is through the
use of a recipe cost card.
recipe cost card
 is a tool used to calculate standard portion cost
for a menu item.
 It is a table of ingredient costs for each item in
the standardized recipe.
 If recipe cost cards are not used, the selling
price is nothing more than a guess.
 It is essential that operations understand and
use recipe cost cards since they are critical to
the accurate figuring of selling prices.
Sample Recipe Cost Card
Name of Recipe: Yield: 10 serving size or portion: 120 gms
Chicken Pastel servings/
portions
Ingredients: Unit of Cost Portion Buffer Cost
Measure size Margin
quantity (10%)
Chicken, breast kilo 180.00/kl 1 kg 100gm 198.00
Chorizo de bilbao gm 70.00/kl 100 gm 10 gm 7.70
Hotdog, chicken gm 185.00/kl 100 gm 10 gm 20.35
Potato gm 60.00/kl 100 gm 25 gm 7.50
Cooking oil ml 50.00/kl 15 ml 1.5 ml 1.00
Cost 234.55
Cost per serving: 58.60/ Markup (586/10svgs)
Php59 factor:40%
2.Standardized Purchase Specifications –

3.Standard Yield
The yield of a recipe is the number of portions it will produce.
Net weight volume of cooked/prepared dishes are expressed in
“servings or portions”
Calculated as:
yield (no. servings)=cooked weight /weight per serving
Example: Menudo weighs 500gms after cooking, If the serving size is

100gms per order, the yield will be computed as:
Yield= 500/100 = 5 servings or portion

Recipe Yields
A recipe yield is the process of determining the number of portions that
a recipe produces.
 To determine how many portions a recipe yields, calculate

the total volume of the recipe either by weight or by volume,
depending on how the portion size is calculated.
 Understanding recipe yields is one of the keys to
successful food preparation and controlling food costs. The
measurements given in recipes must be followed exactly.
 Once a yield is known and properly followed, it’s easier to
increase or decrease the size of the recipe based upon the
operation’s changing needs.

4.Standard portion size

Represents the size or weight of ingredients used in food preparation
Example:
200gms chicken meat, 100ml milk, etc
Standard measurement is indicated in the standardized recipe
Tools & Aids in Recipe Costing
 Price/inventory list – list of raw items and their
corresponding acquisition cost, specification, count or
measure.
 The primary source of cost & must be continuously
updated
 Conversion table – list of equivalent measurements that

are available in the nearest bookstore and even found in
some cookbooks
 Kitchen test
a.Raw food test -test to determine the count, weight or yield
per unit of perishable items.
Ex: 1 kilo of rice yields 10 cups of cooked rice
b.Canned/bottle test –these are made to check the yield

and actual count of the different varieties of canned/
bottled food items. In this test, the drained weight, count
and uniformity of the product are taken into consideration
 Kitchen test
c. butcher’s test – cutting test of meat, fish and poultry.
They are intended to determine the actual portion cost
after waste, after trimmings and buy products have been
considered.
 Items are trimmed and cut as it would be for regular use
d.Cost factor – to cope with changes in the market price,

re-costing is a must
 Kitchen test
e. Buffer margin – certain percentage of the total recipe
cost is added to answer the increase in the acquisition
cost of ingredients
Remember:
 In determining portion size of ingredients in a recipe, one must always
consider the expected yield and the serving size.
 Example:
A chicken pastel indicates a yield of 5 servings and the serving size is
120gms/order, the “portion distribution” of ingredients may appear like this:
expected edible weight = 120 gms x 5 = 600 gms
Chicken:70% of the serving size (.7 x 120gms) = 84 gms/svg x 5svg = 420gms
Extenders: 30% of the serving size (.3 x 120gms)= 36gms x 5 svgs = 180gms
 Assuming a 10% cooking loss, the adjusted portions of the ingredients will
be:
chicken=420gms + 42gms=462gms
extenders=180gms+18gms= 198gms
total wt = 660 gms
 The 10% is also called “buffer” or allowance for shrinkage or cooking loss
Procedures in Preparing & Costing Standard Recipe
1.Determine the number of portions (yield) you wish to

produce. Example: 5 servings
2.Determine the desired serving size or portion
3. Indicate the list of ingredients in column 1
4. Column 2 indicates the unit of measure or actual kitchen

test
5.In column 3, write the unit cost of each ingredient

Procedures in Preparing & Costing Standard Recipe
6.The portion size required for each ingredient shall be indicated in

Column 4
7.Multiply the unit cost with the portion size (better expressed in fraction
or decimal) the result will be the cost of all ingredients
8.Get the total cost of all ingredients.
9. Add the buffer margin at least 10%.
10. Get the cost per serving by dividing the gross food cost by the
number of servings (yield)
Controlling Portion Sizes
 Controlling portions is very important for a restaurant to
meet its standard food cost.
 Tools that are essential for accurate portion control include:
 Scoops
 Ladles
 Serving spoons
 Serving dishes
 Ramekins, bowls, cups, and so on
 Portion scales
 Another mechanism for ensuring that portions are the right
size is to proportion any item that can be preportioned
before serving.

Terms
 As Purchased -represents the actual price paid for food
at the market, weight of item prior to cooking
 Edible weight – weight of food once cooked and

undergone shrinkage
 Cooking loss can come from:
 Trimmings, waste and shrinkage; vegetables, seafoods
and meat shrinks by 5-20%
 Cooking loss= shrinkage +waste+ trimmings
 Total loss = AP – Edible weight
Monitoring Production
Volume and Cost
 When restaurants produce too much, food cost goes up;

produce too little, and sales are lost.
 A food production chart shows how much product
should be produced by the kitchen during a given meal
period.
 A well-structured chart can ensure product quality, avoid
product shortages, and minimize waste, spoilage, theft,
energy costs, and administrative costs.
 Sales history is critical in helping management forecast
how many portions of each menu item to produce on a
given day.
Cost Control Terms
 Price defined as an amount of money for anything that is
bought, sold, or offered for sale.
 To consumers, price is an expense that incurred in

purchase transaction (Raab & Mayer, 2009).
 Setting up food and beverage prices will affect operation
cost as it depends on different external factors such as
competition, service levels, product quality, portion sizes,
etc.
Pricing
 It is an important responsibility of foodservice managers
to determine a sound basis for establishing the selling
price for food
 Managers must establish menu prices that reflect a good
price/value relationship in the minds of customers while
also achieving a profit for the operation
Common Factors Influencing Menu Pricing
 Local competition (an important consideration when

setting menu prices)
 Level of service (as service increases, cost increases,
therefore price must increase)
 Type of customer (who are the customer? What do they
value, price or quality?
 Portion sizes ( size of portions served)
 Ambiance (prices may be higher if supported by product

quality and ambiance)
 Meal period (diners expect to pay higher prices in certain
meal periods)
 Location ( a good location will support higher prices than
a poor one)
 Sale mix (the frequency with which menu items are

selected by customers and may have the most influence
on setting realistic menu prices)
 Food and labor cost (may vary from area to area)
 Desired profit margin ( a nonprofit operation will set

prices to break even, whereas a for-profit business will
determine its desired profit margin)
2 Basic Approaches in Menu Pricing
1.Marketing approach – seeks to align pricing with

customer expectations
Ex: A fine-dining restaurant, when setting entrée prices,

knows that customers will pay for top quality; whereas a
fast-food operation sets prices based on customer’s
perceives value for each peso spent
2 Basic Approaches in Menu Pricing
2.Cost approach – take into consideration the operation’s

cost and profit goals.
Most common methods:

a.Food cost percentage method
b. Item contribution margin
a.Food Cost Percentage Method
 Based on the raw-food cost of menu items plus a pricing factor to
give a selling price appropriate for the the type of organization and
the desired food cost percentage level that foodservice wishes to
maintain.
Selling price = item food cost x pricing factor
 Raw food cost is found in the standardized recipe for each menu
item
 Pricing factor is determined by dividing the desired food cost
percentage that the foodservice wishes to maintain into 100
(representing total sales or 100%), the resulting figure is called the
pricing or markup factor
Sample of costed recipe
Name of Recipe: Yield: 10 serving size or portion: 120 gms
Chicken Pastel servings/
portions
Ingredients: Unit of Cost Portion Buffer Cost
Measure size Margin
quantity (10%)
Chicken, breast kilo 180.00/kl 1 kg 100gm 198.00
Chorizo de bilbao gm 70.00/kl 100 gm 10 gm 7.70
Hotdog, chicken gm 185.00/kl 100 gm 10 gm 20.35
Potato gm 60.00/kl 100 gm 25 gm 7.50
Cooking oil ml 50.00/kl 15 ml 1.5 ml 1.00
Cost 234.55
Portion cost Php 23.45
Selling Price-Food Cost % Method
 Computing cost factor
Example: the foodservice wishes to maintain a 40% (of
income) food cost:
100 (represents total sales) = 2.5.- pricing factor
40 (% of income for food)
So, if your item food cost is Php23.45 (previous slide), the

cost of a portion is 23.45 x 2.5= 58.62 or Php 59.00
Pricing Factor
 Pricing factor cannot be used alone, to calculate selling
price, because there are many “free items” given with a
meal that must be factored in, like the salt and pepper,
condiments, sugar and cream, jams and jellies and
sauces; which are not accounted for in the recipe costing
 Also there are hidden losses in preparation, cooking and

serving, which if not controlled may add appreciably to
the total food cost
Selling Price with Hidden Cost
 To compensate for the “unproductive and hidden costs”,
many foodservice managers add 10% (or some
standardized amount) to the recipe before the markup.
Example: raw food cost is Php 23.45 x.10 (10%)= 2.345

=23.45 + 2.345= 25.79 x 2.5(pricing factor)
= 64.48 or Php 64.50
b.Item contribution margin
 Sometimes called item gross profit margin, is the amount that remains after
the food cost of a menu item is subtracted from the selling price of that item
 This margin is the amount that contributes to paying for labor cost and other
expenses and to a profit
 Formula: selling price =item food cost +desired item contribution margin/ 100- other
cost expenses
Example: food cost = Php 23.45, labor cost = Php 24.00, Operating expenses= 10%,
Fixed expenses = 7% and Profit = 5%
Selling price= food cost + direct labor /100 – operating expenses (% of sales) + fixed
expenses (% of sales) + profit (%)
Selling price = 23.45 + 24.00/ 100%- 32%)

= 47.45/ .78
= 60.83 or Php 61.00
Budgeting Labor Costs
 Labor is a semivariable, controllable cost.
 Most operations have both full-time and part-time staff.
 Operations must be aware of the fluctuations in their sales
so as to have just the right amount of staff on hand to
handle customers efficiently,
 It is an important part of the management function to make
sure that payroll cost is in line with the budgeted standard.
 Ideal labor cost is the standard the restaurant uses to
budget for staffing needs; it represents what management
predicts will happen.

Labor Cost Factors
 Business volume, or the amount of sales an operation is
doing for a given time period, impacts labor costs.
 Employee turnover is the number of employees hired to
fill one position in a year’s time.
 Quality standards also affect labor cost. Quality standards
are the specifications of the operation with regard to
products and service.
 A restaurant or foodservice operation must meet
operational standards. If an employee does not prepare a
product that meets the operation’s standards, the item must
be redone. This costs money, in terms of wasted product
and lost productivity.

Scheduling
 A master schedule is a template that shows the number of
people needed in each position to run the restaurant or
foodservice operation for a given time period.
 To make the best estimates for a reasonable master
schedule, it also needs to consider current trends.
 After determining the anticipated sales, management
determines the payroll, for a scheduling period.
 A crew schedule is a chart that shows employees’ names
and the days and times they are to work.
 A contingency plan helps an operation remain efficient
and productive even during adverse conditions.

Quality Standards for
Purchasing and Receiving
 Purchasing: Prior to ordering, receiving, and storing
quality products, consider where the products were
grown or produced.
 Those with purchasing responsibility should seek
suppliers who are considered to be ethical, reliable, and
financially stable.
 Receiving: Once purchase orders have been made, the
next step is to receive the item in the most efficient, safe,
and effective way possible.
 Well-defined receiving procedures ensure that an
operation receives only the products that meet its
established standards for quality and quantity.

Quality Standards
for Storing
 Storing: It’s critical that operations create quality
standards for proper storage.
 Monitor perishable food daily to preserve its quality.
 Some food items have manufacturer’s recommendations
for storing the product.
 Store food with proper labels, and rotate all products in
storage following the FIFO (first in, first out) system.
 In addition to checking the food in the storage facilities,
the storage facilities themselves should be checked
regularly to make sure they are clean and functioning
properly and efficiently.

Quality Standards for Food
Production and Service
 Standard-portion sizes, standardized recipes, and
standard-portion costs are all food-production standards.
 It is important that managers ensure that standards are
met throughout the foodservice cycle.
 It is important that operations have quality assurance
measures in place right up to the service stage of the
food-flow process.
 The key to identifying deviations from standard recipes
and presentations is regular monitoring and the
understanding by the staff that it is the responsibility of
everyone in the establishment to ensure quality.

Quality Standards
for Inventory
 Taking physical inventory means counting and recording
the number of each item in the storeroom.
 Closely monitor inventory to ensure that products are
ordered as they are needed.
 Carefully monitoring inventory also helps ensure that no
product goes to waste. Minimizing waste keeps costs down
and sales up.
 Determine actual food costs by opening and closing
inventories for a given period.
 Use the latest purchase price (FIFO), actual purchase price,
weighted average purchase price, or last in, first out (LIFO)
method to determine the value of the closing inventory.

Flow of Cost Control
Forecasting,
Budgeting Distributing
and Standard Responsibilities
Setting Planning
• Establishment of • Identifying and • Preparation of

sales forecast, budget distributing menus,
for each cost item, operational tasks and standardization,
desired profit and responsibilities; costing and pricing of
other performance defining recipes, test of
targets accountabilities for quality and yield;
results competitive bidding
Ordering
and Receiving
Purchasing Inventory
• Use of purchase • Inspection of stocks • Limitations of access,

specifications; against quality classification of stocks,
calculation standards and purchase use of tags and labels,
requirements based on specifications, use of regular inventory,
accurate allocations and receiving reports regulation of actual vs
par stock, test for expected stock balance
quality and yield;
competitive bidding
Requisition
Production Audit and Corrective
and
and Service Recording of Measures
Issuance
Transactions
• Establishment • Use of • Audit of sales • Monitoring

of par stock standard vs issued performance vs
requirements, recipe, portions, targets and
standards,
use of recycling of recording of analyzing
requisition left-overs, daily sales, variances ,taking
forms; use of adherence to receipts, corrective action
FIFO system; standard invoices,
serving purchases, etc
portions, use
of order slips
References
 Ahmed, M. n. (2005) Cost Management for Hospitality
Industry and Other Service Business Sectors, Anmol
Publications Pvt. Ltd., New Delhi
 DeFranco, A. L., Noriega, P. B. M. (2000) Cost Control in
the Hospitality Industry, Prentice Hall, Inc, pp. 91-113
 Dittmer, P. and Keefe, D. J. (2008) Principles of Food,
Beverage and Labor Cost Controls, 9th ed., pp. 282-291,
New Jersey: John Wiley & Sons Inc

Chapter 2 Cost Control - Full

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 2 Cost Control - Full

Uploaded by

Copyright:

Available Formats

Chapter 2

“the purpose of cost control is to

© Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF)

Revenue is the income from sales before expenses, or

 Cost is the price an operation pays out in the purchasing

3.1 Chapter 3 | Cost Control 8

3.1 Chapter 3 | Cost Control 9

 Fixed costs do not change based on the operation’s sales.

3.1 Chapter 3 | Cost Control 10

 A forecast is a prediction of sales levels or

 forecasting sales/ sales projection -

3.1 Chapter 3 | Cost Control 11

 The most common foodservice revenue forecasting techniques are

 A sales history is a record of the number of portions of every item

 cover - refers to servings consumed per customer

3.1 Chapter 3 | Cost Control 12

 Advances in technology have drastically increased the

 Software programs can be used to complete the

3.1 Chapter 3 | Cost Control 13

 Computer software can easily provide better access to

 If used effectively, technology can help in running an

3.1 Chapter 3 | Cost Control 14

An operating budget is a financial plan for a

3.1 Chapter 3 | Cost Control 15

2. There is no way of checking actual consumption against budget (no

3. Excess in consumption remain unnoticed and continue to

4. No one is made accountable for variances in consumption

5. No corrective measures are taken to correct variances

1. Set limit to consumption and purchases

 It provides management with framework in visualizing all the various

 It helps in fixing responsibility

 Promotes waste reduction; unnecessary spending is minimized if not

A profit-and-loss report (P&L) is a compilation of

 shows whether an operation has made or lost money

3.1 Chapter 3 | Cost Control 21

3.Identify the target from the various segments mentioned

4. Make study of the consumption patterns and budget of the target

2. Capacity of the kitchen

4. Availability of raw materials

o Cycle: developed for a set period and then repeated

o Market menu: based on the availability of local products-

o Hybrid: static menu with daily special

o Du jour menu: “Du jour” is a French term that means “of

o Cyclical menu: chefs/managers change menu items after

o limited: There are typically only a few items offered on a

 losses are often incurred when a food establishment is unable to

 losses can be avoided if ordering and purchasing transactions are

1. Purchases are done in compliance with

5.Purchase specifications of end users are followed;

6.The best quality merchandise is procured on the lowest

7.Items are procured from suppliers who meet quality

 In small establishments, it might be advisable for the

4 5 Approval of 6 Ordering 7 Delivery or

Average daily usage = total consumption for 1 month

Ex: consumption of evaporated milk for 30 days in 65 cans.

Maximum par = minimum par + safety stock + LTU

Safety stock can range from 5-20%

(Opening inventory + Purchases = Total food

 reluctance to practice internal control as such practice

 lack of time as effective internal control requires

 is the relationship between sales and the cost of food

 By expressing the cost of food sold in percentages, it

Food cost ÷ Sales = Food cost percentage.