OVERVIEW OF COST CONTROL

Operators of food establishments

invest a lot of money, time and
efforts into their business.
Certainly they want their
investment to give them a good
return in terms of PROFIT.
Profit is dependent on two factors:
⚫ Revenue
⚫ Expenses

⚫ Formula for Profit:

⚫ Profit = Revenue – Costs/Expenses
Definition of Related Terms
Revenue- money that is made by or paid to a
business
Costs – the prices paid for or the fair value of the
considerations given to acquire resources or
services. It is an economic sacrifice measured by
monetary value of an exchange transaction.
Elements of costs:
1. Raw Materials
2. Labor/ Manpower
3. Overhead
Expenses – expired, consumed and/or utilized
costs.
To maximize profit, the foodservice
operator has the option to:

⚫ Increase revenue
⚫ Decrease cost
⚫ Keep cost within the budget
⚫ Combination of the three
Definition of Cost Control
⚫ Cost control is intended to carry out
operations at reasonable cost without
sacrificing quality of service and
productions.
⚫ It is not synonymous with cost reduction.
⚫ Cost reduction entails reduction of cost at
the expense of quality.
⚫ Cost control requires a standard that could
produce the desired quality with measures to
insure that the actual cost is in keeping with
such standard.
Objectives of a Cost Control System
⚫ This Control System is designed to:
⚫ 1. Determine the critical point of sales that
will enable the business to survive and to
make profit.
⚫ 2. Set up a budget or cost ratios which will
serve as ceiling for expenditures so that
expenses can be regulated to conform to the
budget.
⚫ 3. Install systems, policies, tools and
procedures for keeping costs within the
budget and to protect the business from
Objectives of a Cost Control System
⚫ 4. Executive check and balance in the
operations such that losses, anomalies,
pilferages and discrepancies in transactions
can be avoided.
⚫ 5. Monitor business performance against
targeted sales and cost and to track down
variances so that corrective measures can be
undertaken.
⚫ 6. Provide tools for analysis of variance and
for trouble shooting cost variances so as to
protect the business from incurring cost.
Steps in Control
⚫ There four basic steps in cost control:
⚫ 1. Establish standards or goals.
⚫ This is usually in the form of a fixed ratio over
gross sales like : food cost……….. 35-40%
⚫ labor cost………..18-25%
⚫ Overhead cost……20-30%
⚫ Profit…………….20%
⚫ 2. Measure actual performance- compare actual cost
vs. budget
⚫ 3. Analyze variance
⚫ 4. Take corrective action
 FLOW OF COST CONTROL
AREAS OF CONTROL