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Principles of Food, Beverage, and Labor Cost Controls, Ninth Edition

Sales mix will remain constant .Costs can be fixed or variable .VC are directly variable .Fixed costs are stable .` ` ` ` ` .Sales prices are constant .

Large $ Losses Small $ 0 $ Small $ Profits Large $ .Cost/Volume/Profit Analysis Each foodservice operator knows that some accounting periods are more profitable than others. is called the break-even point. indicated by the zero. At the break-even point. operational expenses are exactly equal to sales revenue. then. can be viewed as existing on a scale. The midpoint on the scale. Profitability.

. or on the basis of the number of units required. A cost/volume/profit (CVP) analysis helps predict the sales dollars and volume required to achieve desired profit (or break even) based on your known costs.CVP calculations can be done either on the dollar sales volume required to break even or achieve the desired profit.

Variable Costs = Contribution Margin . Contribution margin is calculated for as follows: Total Sales .Contribution margin for the overall operation is defined as the dollar amount that contributes to covering fixed costs and providing for a profit.

` ` ` 1.VR . Variable rate = VC/Sales 3. Sales = VC + FC + Profit 2. Contribution rate = 1 .

875 + $81.250 + Profit S ` + 97.375) .500 + $37.000 = $108.375 ` ` ` = VC + FC + P VC = Food & Beverage Cost + Variable LC (40% Total Labor) FC = Fixed LC ( 60% Total Labor) + Overhead S ($325.000) = VC ($141.375) + FC ($146.` Sales = Sales cost + Labor cost + OH $325.250) + Profit ($37.

565 ..` ` ` ` Ratio of variable cost to dollar sales Variable rate = VC/Sales VR = VC($141.VR 1 .375)/Sales($325.435 Contribution Rate ` ` ` CR = 1 .565 CR = .435 = .000) VR = .

565 = $37.375 .000 .150 Profit = Sales after BE x CR $66.150 x .` ` ` ` ` ` ` Point at which the sum of all costs equals sales.$258.849 $325. thus profit = 0 BE = Fixed Costs/CR BE = $146.565 BE = $258.250/.850 = $66.

compute the following: FC + 0 CR = Break-even point .To determine sales dollars to achieve the profit goal. use the following formula: Fixed Costs + Profit Contribution Rate = Sales Dollars to Achieve Desired Profit To determine break-even point.

use the following formula: Fixed Costs Contribution Rate = Break-Even Point in Sales In terms of the number of units that must be served in order to break even.To determine the dollar sales required to break even. Inc. 2009 . use the following formula: Fixed Costs Contribution Margin per Unit = Break-Even Point in Unit Sales © John Wiley & Sons.