UNIT-I

FOOD COST CONTROLS

Introduction to cost controls:
• Food & Beverage controls may be defined
as the guidance & regulation of the costs
and revenue for operating catering activity
in hotels, restaurants, hospitals, schools,
employee restaurants and other
establishments.
 Limitations of Control System:
• A control system in itself will not cure or prevents
problems occurring. An effective system is dependent
upon correct up-to-date policies and operational
procedures. But the system should identify problems
and trends in the business.

• A control system will require constant management

supervision to ensure that it functions efficiently.

• A control system will need management action to

evaluate the information produced and to act upon it.
 Cost Control:
• Definition: Cost control can be defined as a
process used by managers to regulate costs and
guard against excessive costs. It is an ongoing
process and involves every step in the chain of
purchasing, receiving, storing, issuing, ad
preparing food & beverages for sale, as well as
training and scheduling the personnel involved.
Methods involves for controlling the cost may
also very from operations to operations
depending upon the nature and scope of
operation, but the principles behind these
operations are constant.
 Objectives and advantages of
cost control:
• The objectives of a food and beverage
control system may be summarized as
follows:
– Analyses of Income and Expenditure.
– Establishment and maintenance of standards.
– Pricing
– Prevention of waste.
– Prevention of frauds.
– Management information.
 Analyses of Income and
Expenditure:
• The revenue of each food & Beverage outlets is
analyzed by considering the various aspects of
revenue such as: volume of food and beverage sales,
the sales mix, the average spending power of
customers at the various times of the day and the
number of customers served.
• The analyses of cost include departmental food and
beverage costs and labor costs. The performance of
each outlet can then be expressed in terms of the
gross profit and net margin (Gross Profit- Wages) and
the net profit
• (Net Profit= Gross Profit- wages+ all overhead
expenses such as rent, rates, insurance etc.)
 Establishment and maintenance
of standards:
1. Setting up of standards is very important for the
success of any establishment. Without doing so no
employee would know in details the standards to be
achieved nor could the employee’s performance be
effectively measured by the management. An
efficient unit should have laid down standards in
manuals often as S.O.P’S (Standard operating
Procedures) which should be readily available to all
staff for reference.
 Pricing:
An important objective of Food & Beverage
control in to provide sound basis for menu
pricing including quotations for special
functions. It is therefore important to determine
food & Beverage list prices in the light to
accurate food & beverage costs and other
main establishment costs; as well as general
market considerations, such as the average
customer spending power, the prices charged
by the competitors and the prices that the
market will accept.
 Prevention of waste:
In order to achieve the set standards it is
necessary to prevent the wastage of raw
material such as poor preparation, over
production, failure to use standard
recipes etc. Even the proper use of man
power is taken in to the consideration.
 Prevention of frauds:
It is necessary for a control system to present or at
least restrict the possible areas of fraud by customers
and staff. Typical areas of fraud by customers are such
things as deliberately walking out without paying;
unjustifiably claiming that the food or drink that they
had partly or totally consumed was not palatable and
indicating that they will not par for it; disputing the
number of drinks served; making payment by stolen
cheques or credit cards. Typical areas of fraud by staff
are overcharging or undercharging for items served
and stealing of food, drink or cash.
Management information:
An effective control system should provide
accurate up-to-date information for the
preparation of periodical reports for
management. This information should be
sufficient enough to provide complete analyses
of performance for each outlet of an
establishment for comparison with set
standards previously laid down (For Example:
Budget standards.)
 Basic Costing:

• Cost
• Definition: Accountants define a cost as a reduction in the value of
an asset for the purpose of securing profit or gain.
• In context of the hotel industry cost can be defined as the expense
to the hotel or restaurant for goods or services when the goods are
consumed or the services rendered.
• Food and beverages are considered consumed when they have
been used, wastefully or otherwise, and are no longer available for
the purpose for which they were acquired.
• Example: The cost of a piece of meat is incurred when the piece is
no longer available for the purpose for which it was purchased
because it has been cooked, served, or thrown away because it has
spoiled, or it has been stolen. The cost of labor is incurred when
people are on duty, whether or not they are working and whether
they are paid at the end of a shift or at some later date.
 Types of Costs:

1. Fixed and Variable Cost:

• Fixed Cost: These are the cost which are normally
unaffected by the change in sales volume. Items of Fixed
cost are as follows:
• Examples: Insurance premium, real estate taxes,
depreciation in equipments etc.
• Variable Costs: These are the cost which has direct
relationship with the sales volume. As business volume
increases, variable cost will increase; as volume
decreases, variable cost should decrease. Items of
variable cost are as follows:
• Examples: Labor cost, raw material cost, beverage cost
etc.
 2. Controllable and Non
controllable Cost:
• Controllable costs are those that can be changed in
the short term. All the variable costs are generally
controllable. The cost of food or beverage, for
Example, can be changed in several ways-by changing
portion sizes, by changing ingredients or by changing
both of these. The cost of labor can be increased or
decreased in the short term by hiring additional
employees or by laying some of them off.
• Non Controllable Cost: These are the cost which
normally does not change in the short time. These are
usually fixed costs, and the list of most common would
include rent, interest on mortgage, real estate taxes,
license fees and depreciation.
 3. Unit and Total Cost:

Unit Cost can be defined as the

expenses incurred in the preparation of
one individual portion of the dish or any
other item like beverage etc. Where as
total cost can be defined as the
expenses incurred in preparation of all
the food stuffs served in any meal
period.
 4. Prime Cost:
This term refers to the cost of material
and labor: food, beverages and pay roll.
 5. Historical and Planned Cost:

• Historical cost can be defined as the cost incurred in

past for operating the business entity. Such type of
cost can be found in business records, books of
accounts, financial statements, employees time cards
and similar other statements.
• These historical costs are very much helpful in
projecting the planned cost for any business entity.
Managers by comparing historical cost or data can
easily estimate or project the cost for future operations.
• Planned Cost can be defined as the cost estimated or
projected to operate any business entity in future.