INTRODUCTION TO FOOD COST CONTROL

Food Cost Control

It can be defined as guidance and regulation of cost of operations. It undertakes to guide and regulate
cost needs to ensure that they are in accordance with the predetermined objectives of the business.
Hence the guidance and regulations of cost are set as per expressed in the policy statements and budget
of undertakings:

Food cost control means that:

1. You have a stick to your predetermined standards. You exercise restrains or directions over the
price you pay, buy, prepare and sell goods.

2. You have your market as each food operation caters to a specific market. Standards vary from
different markets. You set standards appropriate to your market before you buy, prepare and
sell food.

3. You prepare cost control procedures.

Special Problems of F &B Control:-

Food and Beverage control tends to be more difficult than the control of materials in many other
industries. The main reasons are:

The perishability of the product-Food, whether raw or cooked, is a perishable commodity and has a
certain life. The caterer, therefore, has to ensure that he buys the product in correct quality and
quantity in relation to the estimated demand and that it is correctly stored and processed.

The unpredictability of the volume of business-Sales stability is typical of most catering establishments.
There is often a change in the volume of business from day to day and in many establishments from
hour to hour. This causes a basic problem with regard to the quantities of commodities to be purchased
and prepared as well as to the staffing required.

The unpredictability of the menu mix-To add to the caterer’s problem is the fact that in order to be
competitive and satisfy a particular market, it is often necessary to offer a wide choice of menu items to
the customers. Therefore it is necessary to be able to predict not only the number of customers but also
the customer’s selection from the alternatives offered on the menu but it is seldom 100% accurate.

The short cycle of catering operation-The speed at which the catering operation takes place is very slow
and only allows a little time for many control tasks to be performed. Items ordered one day are
received, processed and sold the same day or the next day. It is for this reason, in larger catering
establishments; cost reporting is done either daily or at least weekly.
Departmentalization-Many catering establishments have several production and service departments,
offering different products and operating under different policies. It is, therefore, necessary to be able to
produce separate trading results for each of the production and selling activities.

COST CONTROL
Cost control is the practice of identifying and reducing business expenses to increase profits, and it starts
with the budgeting process. A business owner compares actual results to the budget expectations, and if
actual costs are higher than planned, management takes action.

Phases of Control Procedure: -

The control procedure consists of 3 broad phases:

1. Planning

2. Operational

3. Control after the event

Planning

Policies are nothing but predetermined guidelines laid down by the management of the organization. It
outlines such matters as the market that is being aimed at, how it is to be catered at the level of
profitability, which is to be achieved. The policy should be clearly defined before the business is
commenced. It can be charged but whenever a major change takes place a new policy should be written
down. Three basic policies, which need to be considered, are:

1. Financial:- It will determine profitability and the contribution to the total profit. Setting of the
target that has to be achieved, the financial policy is prepared for every single unit as well as for
the whole organization. A budget is prepared at the beginning of the year for the whole
organization. The budget contains the target of sales and total expenditure required to achieve
the target sales and it will also contain all source of income and the total expenditure of
organization/ units.

2. Marketing policy:- It will identify the broad market that has to be served. It will also identify the
immediate and future consumer requirement in order to maintain the broad market. A large city
hotel could be broken down into a segment of the various types of users i.e. in a coffee shop,
Chinese restaurant, Indian restaurant, etc. each unit having a specific customer. Marketing
policy also defines customer, market share, turnover, profitability, the average spending power
of customer, product and customer satisfaction.

3. Catering policy:- It is normally evolved from the marketing and financial policy. It will also define
the many objectives of operating f & b facilities and will also describe the method by which the
objectives are to be achieved. It will usually include the following:
  The type of customer

 The type of menu

 Beverage provision necessary for operation

 Food quality standard

 Method of pricing

 Type and quality of service

 Degree and décor and comfort

 Type and style of table and chairs

Operational

After defining the policies it is important to outline that how they are to be interpreted onto the day
control activities of the catering operation. The operational control consists of:

 Purchasing

 Receiving

 Storing

 Issuing

 Production control

 Sales control

Management control after the event

It consists of three main stages:

1. F & B cost reporting:- The cycle of production is often perishable so it is compulsory to update

your f & b cost reporting weekly or monthly.

2. Assessment:- In case of a large unit it is necessary that someone from the f & b department
analyses the f & b reports and confirm them with the budget & with potential food cost.

3. Correction:- Control system does not cure or prevent problems occurring when the analysis of a
performance of a department states that there is a problem. A corrective measure has to be
taken to set aside any problem.

Objectives of Cost Control

To analyze income and expenditure:- In financial accounts, stress is usually placed on the
ascertainments of total cost and profit i.e. cost of sales, gross profit. In food cost control, on the
other hand, much stress is placed on the various departments or a section of a business.
 Gross profit = sales – food cost

Net profit = sales – (food cost + labour cost + overheads)

Pricing of food:- Another major objective of food cost control is to provide a sound basis for
menu pricing. It will also help in costing price for various types of banquets and functions. It also
helps in giving quotations.

Sale = food cost + labour cost + overheads + profit

Prevention of inefficiencies:- We know that purpose of control is to ensure the current result
are in accordance with the predetermined objectives which were expressed in terms of targets,
costs, selling and profit margins. If such objectives are to be reached all possible forms of
wastage and inefficiency should be prevented. In order to be effective in preventing waste
inefficiencies, a system of food cost control must cover the whole field of catering operation
right from the purchase of foodstuff to the sale of a prepared meal.

Data for the management:- The system of food cost control has an important function to fulfil
in providing data for individual reports on food operations.

“Food costing” is understanding the ratio between the cost of raw materials that make up a
dish and the revenue generated by that dish. By calculating how much was spent, you’ll be able
to understand the amount of actual profit you make on your sales. If your food cost is too high,
you will struggle to make a profit and keep your business afloat, if it’s too low you may be
turning off customers with high prices. While other costs may be less flexible (like labour costs
and fixed costs – rent, utilities, etc.), food costing needs to be compatible with your actual sales.

Calculation of Food Cost:-

There are several basic terms, which are used in the calculation of the food cost.

1. Food cost– This refers to the cost of food incurred in preparing meal severed.

1. Gross profit- The excess of sales over the cost of the food expressed as a percentage.

1. Potential food cost– The food cost under perfect condition.

METHOD OF DETERMINING FOOD COST

 Weekly/monthly food cost report- This system is used by the small organization where
manager controls each activity as daily routine. It is a reconciliation report of daily activities. The
calculation procedure is

Opening stock + total purchase for the period – closing stock = Total food sale

 Daily food cost report- This method is used in the medium-sized operation.

Proof of inventory

O.S + Purchase – Requisition = Closing stock

Advantage

1. It is simple and easy to follow.

2. It gives the day to day information about business.

3. It records the daily stock level, daily purchase, daily requisition & food cost percentage.

Factors affecting the food cost

Factors affecting the percentage of food cost are:

1. Food Purchasing

2. Menu Planning

3. Method of pricing

4. Culinary Skills

5. Service Skills

6. Avoiding Wastage

Food purchasing

As a matter of fact, the control starts from this very activity. Skillful buying is quite an art and the
proper discharge from this function may result in considerable cost control. The following points
doing purchasing helps in reducing food cost:

1.

 Buy the right amount of stock

 Determine the realistic stock level

 Buy according to the standard purchase specification

Menu pricing

It is the most important step in controlling the food cost. This is recognized by the progressive
categories. A careless menu planning results in undue wastage of resources hence is responsible
for excessive. Most of caterers think that offering a variety of food and adding more items to the
list will increase their reputation in the market. But at the same time it increases food cost
which is not a healthier item.

 If the number of items is more, the customer gets confused.

 Sometimes the lack of skilled labour.

 Lack of proper equipment.

Method of pricing

A haphazard price of pricing will eventually result in a financial disaster. The price should be
realistic and must be based on facts. To keep the desired rates each item of the menu must be
carefully considered in terms of its cost and in relation to the selling cost. The market forces
must determine the selling price. Hence one of the responsibilities in any food service is an art
full working. To keep the desired weights each item of the menu.

Culinary Skills

Cooking skills affect the ultimate cost of food in any establishment. Badly cooked food is a
complete write-off. Food preparation loses due to unskilled labour, lack of proper equipment,
heat is not properly carried out, careless control of temperature. Normally high temperature
causes the shrinkage of food items and hence reduces the yield.

Service skills

 Portion control

 Careful order taker

Avoiding wastage

This particular activity starts with the receiving of food. All the procedures for avoiding wastage
is observed at each level i.e. in the store, during transportation, from the store to kitchen,
during the preparation of food item and during service.