Professional Chefs Association

F & B Cost Control

Introduction

Determining Standards

The Budget Process

The Menu

Design Effective Controls

Producing, Serving Controls

Talking About Food Cost

Taking Corrective Actions

Revenue Control

Module One

Introduction
The owners of most F&B operations are generally concerned with the level of profit of the operation. In order
to maximize profit, it is necessary to make sure that costs are kept in line with what they should have been
(expenses) and that appropriate marketing is done to get customers in the door (revenues). It is important to
recognize that in addition to profit centered enterprises, many F&B operations do not have profit as their
major objective. Many institutional operations are focused on breaking even or maintaining a particular
budget level. Whichever approach is followed, the primary job of the chef, as kitchen manager, is to make sure
that the quality of the product is as good as it can be and that the costs are kept under control.
When we speak about keeping costs under control, we generally mean that we optimize costs, not minimize
costs. Many F&B operations get into trouble because they think that the right approach is to have the lowest
costs possible. When this happens, the customer is often less than satisfied with the product and/or service
they receive. If this should happen, there will be serious marketing problems for the operation. If we choose to
have optimal costs, we are then saying that we will give the customer something that costs exactly what it
should cost. We are in fact giving them a standardized product.
Many of you may be familiar with the term standard as it is used extensively in the industry. The terms
standard purchase specifications, standard recipes, standard yields, standard portion size, and standard
portion cost have become everyday words in the modern kitchen managers vocabulary. Some chefs resist the
standardized approach as they see it undermining their creativity or flexibility; however, nothing could be
further from the truth. Any chef can still create whatever dish is appropriate for their customers. The only
conditions we are adding are that it must always be the same quality and the same cost. Can you think of a
time when you would want to serve a lower quality item to the customer than what you normally serve? If you
did, they would likely not return to your establishment. Of course, being able to do it exactly the same every
time depends on you being able to purchase the same quality of ingredients at the same price. If the quality of
the ingredients changes, then the dish is no longer the same and if our cost to purchase the ingredients
changes, then we have to account for that. There is little doubt that the restaurants which fail are the ones
which are unable to deliver a consistency of product and service and those which do not properly account for
their costs.
Should your customers order a particular dish, they will expect it to be just as good the next time they come to
your establishment or as the last time they were there. It is a well known fact that one of the key marketing
concepts in F&B operations is the idea of consistency. Customers want to know that what they will be receiving
will always be good. In terms of costs, you cannot effectively price your menu if you do not know what any
particular dish costs.

KEY DEFINITION
Standard = What it should be
Once you have a system of standards in place, you can easily calculate exactly where you are for any given
period in terms of costs and therefore, in terms of profitability as well.
BASIC TRUTH # 1

No system of cost controls can be effective

without a complete set of standards in place!
While there are many definitions of the term standard, I believe that the simplest and most effective one is
what it should be. If we are talking about the standard portion size, we are saying that the size of the portion
should consistently be the same. For example, we always serve a 12 oz striploin steak or the burger patty in our
cheeseburger is always 4 oz. raw weight. The fast food chains have known about standards for many years and,
perhaps, no one practices cost control better than them. No matter what you think about their product, you
can always be assured that it will be consistent. They have established a particular level of quality which they
wish to maintain and then everything they do is designed to ensure that it will always be that same level of
quality. Their success is based entirely on that fact. One of the key reasons why people go to MacDonalds is
because they know exactly what they are going to get. With the exception of minor regional differences, a Big
Mac is the same in Halifax, Helsinki, or Hawaii. In every location.
BASIC TRUTH # 2

No matter how much money you spend on advertising,

if you cannot deliver a consistent, quality F&B product you will fail!
MacDonalds marketing success is based on that consistency of product and service and their financial success
is directly a result of that consistency as well. Before the end of this module you will be able to develop a
costing system that will a) help the general management team market your facility more effectively and b)
provide accurate timely information on which you can base good decisions and thereby maximize the profit
potential of your F&B operation.
LEARNING OBJECTIVES
When you complete this module you will be able to:

a. have an understanding of management practices within the food and beverage industry
b. understand of the importance of the concept of cost control

c. identify and characterize costs using standard accounting principles

d. plan for F&B operations using break-even analysis, operating budgets, sales projections, and profit
planning tools

e. explain the relevance of the term contribution margin

f. understand how profit can actually be a cost to you
DIRECTIONS
Each of the learning objectives portions of this module has a separate section. Each section has an introduction
and contains required reading from the textbook. The most helpful review and discussion questions from the
textbook which deal with each section are identified. There is a self test at the end of each section to check your
understanding of the material contained in that section. Answers are provided at the end of the course notes.

Section 1
Basic Overview of the F&B Industry
Introduction
To begin, the student should read Chapters 1 and 2 in the textbook. These chapters provide a basic overview of
management within the food service industry and give the reader a valuable perspective on the views of the
author. This book is clearly written and directed at the food service professional. It describes the classic
approach to managing F&B operations but also looks at more comprehensive and more current approaches to
managing costs. It should be clear that no matter what type of food service establishment you work in, the
same basic principles of management apply. Success in every type of operation depends on only two things: a)
being able to attract customers and b) making sure that adequate controls are in place to maximize profits.
Organizations which are not designed to be profit making or which do not attract customers but have a
population to feed (such as institutional feeders like a prison, nursing home, or hospital) are perhaps even
more difficult to operate as they must meet particular budgets. They have to be very accurate in controlling
costs as they do not have revenue to make adjustments in to offset any increased costs.
Chapter 1 gives you an overview of the size and scope of the F&B industry. It also addresses some of the key
problems facing the food service industry. For Turnover, provides you with a brief overview of the problem of
employee turnover in the hospitality industry and provides simple solutions for the manager to implement.

Section 2
Understand the Importance of the Concept of Cost Control
Introduction
While Chapter 2 may be the shortest chapter, it provides the foundation for this whole course. It explains the
importance of developing an effective control system and describes the implementation of the control process.
The control process involves four key steps: determining a standard by which one can measure operational
effectiveness, analyze actual results, compare actual results to standards, and take corrective action if
necessary.
I once had a very knowledgeable F&B manager tell me that there are only three places where extra food costs
go in any F&B operation:

a. in the garbage
b. out the back door
c. on the customers plates
Waste, theft, and over-portioning account for virtually all the cost overruns one finds in F&B. Proper controls
will lower the probability of incurring many of these costs but, at the very least, it will allow the kitchen
manager to explain and/or account for any losses.

Section 3
Income Statements

Introduction
The textbook does not devote space to defining the types of costs and their use in understanding the income statement of
a typical food and beverage operation. Exhibit 1 illustrates the general format for an Income Statement (or Profit and Loss
statement). Supplementary Exercise #1 gives you some experience in recognizing fixed and variable costs.

Exhibit 1 Income Statement

There are a number of generic categorizations which are used to describe costs. First, we could look at costs as
controllable or uncontrollable. We could also talk about costs in terms of being fixed or variable. When we talk
about fixed costs we are basically talking about those costs which never change no matter what volume of
business your operation may achieve. An example of this would be your property tax. It is a set amount

whether you did $10 or $10 million. Another way to describe a fixed cost would be one which you know in
advance for a particular period to the penny, e.g.
My monthly rent is $1507.00.
Variable costs are those which vary directly with your level of sales. For example, my hourly labor cost will
generally go up and down as sales go up and down. Most times we express this as a percentage amount. We
may say our labor cost is 33% or that it is 33 cents for every dollar of sales. It is possible to have some costs
which have both a fixed and variable component. Your rent may be $1000 per month (fixed) plus 3% of your
gross sales (variable).
The term contribution margin (CM) is one which is very useful in analyzing F&B operations. This refers to
what is often called the Gross Profit (GP) calculated by subtracting only the food and beverage costs from the
revenues. What CM actually describes is the amount of money left over, after we subtract our food and
beverage costs, which can go to cover all our other expenses.

Exhibit 2 Recipe Costing Worksheet