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F%B Cost Control
F%B Cost Control
F%B Cost Control
COST CONTROL
CHAPTER 1
COST AND SALES CONCEPTS
DHM
Santiago Velasquez
INTRODUCTION
•Successful restaurant personnel, including chefs, restaurant managers,
food and beverage controllers, dining room managers, and stewards have
the ability to keep costs at predetermined levels. They understand that
successful operations require that costs be carefully established and
monitored so that profit will result.
•Food, beverage, and labor costs generally represent between 60% and
70% of the total costs of a restaurant operation. If these costs are not
carefully established and monitored, they can gradually increase until
profit is eliminated and losses are sustained.
Santiago Velasquez
Learning Objectives
1. Define the terms cost and sales .
2. Define and provide an example of the following types of costs: fixed,
directly variable, semi variable, controllable, non controllable, unit,
total, prime, historical, and planned.
3. Provide several examples illustrating monetary and nonmonetary sales
concepts.
4. Describe the significance of cost - to - sales relationships and identify
several cost - to - sales ratios important in food and beverage
management.
5. Identify the formulas used to compute cost percent and sales price.
6. Describe factors that cause industry wide variations in cost
percentages.
7. Explain the value of comparing current cost - to - sales ratios with
those for previous periods.
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Cost Concepts
•Accountants define a cost as a reduction in the value of an
asset for the purpose of securing benefit or gains.
•In F&B Business cost is defined as the expense to a hotel or
restaurant of goods or service when the goods are consumed
or the service rendered.
•Food and beverage are “Consumed” when they are used,
wastefully or otherwise, and are no longer available for the
purpose which they were acquired.(Units: weight, volume or
total value)
•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 the shift or at some later date. (Hourly or weekly or
monthly)
Santiago Velasquez
Cost Concept
•Fixed Cost (FC) and Variable Cost (VC) are used to
distinguished between those cost that have no direct
relationship to business and those that do.
•Fixed Cost are those that are normally unaffected by changes
in sales volume. Such as = real estate taxes, insurance
premiums, depreciation, repairs and maintenance, rent or
occupancy cost, most utility cost, advertisement, professional
services.
The term fixed should never taken to mean static or unchanging
but merely to indicate that any changes that may occur in such
cost are related only indirectly or distantly to changes in
business volume.
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Cost Concept
•Variable Cost are those that are clearly related to business
volume. As business volume increase, variable cost will increase
and vice versa.
•Food & Beverage cost are considered directly variable cost.
Direct Variable Cost are those that are directly linked to
volume of business increase and decrease of volume
correspondingly.
•Payroll Cost includes salaries and wages and employee
benefits and often referred as Labor Cost.
Because labor cost consist of fixed and variable element it is
known as semi-variable cost, meaning a portion should change
in short-term and the other portion remains unchanged.
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Cost Concept
CONTROLLABLE AND NON-CONTROLLABLE COST
•Controllable cost are those that can be change in the
short term such as Direct Variable Cost, Wages,
Advertising & Promotion, Utilities, Repairs &
Maintenance and Administration and General
Expenses.
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Cost Concept
•Unit Cost may be food & beverage portion as in the cost of
one item or hourly unit of work. In F&B business unit cost
are commonly in average unit cost rather then actual
unit cost.
•Total Cost are the total of food & beverage portions served
in one period such as a week or a month or total cost of
labor for one period.
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Cost Concept
•Prime Cost is a term used in the Hotel Industry refer to the cost
of materials and labor. (Food, Beverage and Payroll)
•Historical and Planned Costs
•Historical cost are all cost are historical - that is, that they can
be found in business records, book of account, financial
statements, invoices, employees’ time card and other similar
records. It is used for establishing unit cost, determining menu
prices and comparing present with past labor cost.
•It will be used for planning and determining the future to develop
planned costs - projections of what cost will be or should be for
a future period. It is often called as Budgeting.
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Industry-wide Variations in Cost
Cost percentage vary considerably from one foodservice operation to
other. This is due to many possible reasons.
Basically there are two types of foodservice operation.
• Those that operate at low profit margin and depends on relatively
high business volume.
• Those that operate at relatively high profit margin thus does not
require high business volume.
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Sales Concept
Sales Defined
In general, the term sales is defined as revenue resulting
from the exchange for a products (Food & Beverage) and
service (Waiter) for value ($$).
The sales concept in F&B operation usually can be express
as: monetary and non-monetary.
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Monetary Terms
•Total Sales is a term that refers to the total volume of
expressed in dollar term for instant any given period , such as a
week, a month or a year.
By Category. Total dollar volume of sales by category are
total food sales or total beverage sales. Or total steak sales or
seafood sales.
By Server. This is total dollar volume of sales for which a
given server has been responsible in a given period. This is to
help the management to make judgment on employees
performance.
By Seat. Usually for a year period. Total Dollar sales divided
by the number of seats in the restaurant.
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Monetary Terms
•Sales Price refers to the amount charged each customer
purchasing one unit of a particular item. It can be a single meal or
entire meal.
•Average Sale in business is determine by adding individual sales
to determine a total and then dividing that total by the number of
individual sales. Two types of commonly calculated averages are:
average sale per customer and average sale per server.
Per Customer is the result of dividing total dollar sales by the
number of sales or customer.
Per Server is total dollar sales for an individual server divided
by number of customer served by that individual.
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Average Sale
• This average is determined as follows:
Average check = Total dollar sales ÷ Total number of covers
Total sales of $3,902.30 and 140 covers. Thus,
Average sale = $3,902.30 ÷ 140
= $27.87
• Yasser, one of the servers, had 30 customers and total dollar
sale of $565 on the Saturday night of February 13, average sale
per server for Jim would be calculated as follows:
Average sale = Total sales for Yasser ÷ No. of customers for
Yasser
= $565 ÷ 30
= $18.83
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Non-Monetary Terms
•Total Number Sold refers to the total number of menu item sold
in a given time period.
•Cover is the term used to describe one diner regardless of the
quantity of good the person consumes.
•Total Cover refer to the total number of customer served in a
given period. Help to make judgment & comparisons
•Average Covers is determined y dividing the total number of cover
for a given period by some other number such as hour of operation,
day of operation or numbers of server.
1. Cover per Hour = Total Covers / No. of Hours of Op.
2. Covers per Day = Total Covers / No. of Days of Op.
3. Covers per Server = Total Covers / No. of Servers
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Non-Monetary Terms
Seat Turnover or simply turnover refer to the number of seats
occupied during a given period (or number of cover) divided by the
number of seats available.
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Non-Monetary Terms
Sales Mix is a term used to describe the relative quantity sold
of any menu item compared to other items in the same
category.
Sales Mix For the Sugar & Spice Restaurant
August 20xx
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The Cost-to-Sales Ratio
Foodservice establishment calculate cost in dollars and compare
those cost to sales in dollars. This enable them to discuss the
relationship between cost and sales or the cost per dollar of sale.
Cost ÷ Sales = Cost per dollar of sale
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The Cost-to-Sales Ratio
The formula also can be use to determine the Sales price if the
cost% is known.
Cost ÷ cost% = Sales(or Sales Price)
If the given cost percentage were 30.0 percent and the food cost
for the item were $3.60, the appropriate sales price would be
$12.00, illustrated here
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The Cost-to-Sales Ratio
The formula also can be use to determine the cost if the spending
power and cost% is known.
Suppose this banquet manager is dealing with a group willing to
spend $15.00 per person for a banquet, and the same given 30.0
percent cost percent is to apply. Calculation of the maximum
permissible cost per person is facilitated by rearranging the
formula once again:
Sales x Cost % ( expressed as a decimal ) = Cost
Sales X Cost % = Cost
Santiago Velasquez
Santiago Velasquez
TUTORIAL
1. Given the following information, calculate cost percentages. Round
your answers to the nearest tenth of a percent.
a. Cost, $200.00; Sales, $500.00
b. Cost, $150.00; Sales, $500.00
c. Cost, $178.50; Sales, $700.00
d. Cost, $216.80; Sales, $800.00
2. Calculate cost, given the following figures for cost percent and sales:
a. Cost percent, 28.0%; Sales, $500.00
b. Cost percent, 34.5%; Sales, $2,400.00
c. Cost percent, 24.8%; Sales, $225.00
d. Cost percent, 31.6%; Sales, $1,065.00
3. Calculate sales, given the following figures for cost percent and cost:
a. Cost percent, 30.0%; Cost, $90.00
b. Cost percent, 25.0%; Cost, $500.00
c. Cost percent, 33.3%; Cost, $1,000.00
d. Cost percent, 27.3%; Cost, $1,300.40
Santiago Velasquez
TUTORIAL
4. Sales records for a luncheon in the Zalika’s Restaurant for a recent week
were: Given this information, calculate the sales mix.
Item A, 196
Item B, 72
Item C, 142
Item D, 24
Item E, 112
Item F, 224
Item G, 162
Santiago Velasquez
TUTORIAL
6. The following table indicates the number of covers served and the gross
sales per server for one three - hour period in Asyikin’s Restaurant.
Determine: (a) the average number of covers served per hour per
server
(b) the average sale per server for the three - hour period.
Server Covers Served Gross Sales Per Server
Fadhli 71 $237.40
Azuan 66 $263.95
Nadia 58 $188.25
Santiago Velasquez
FOOD AND BEVERAGE
COST CONTROL
CHAPTER 2
THE CONTROL PROCESS
DHM
Santiago Velasquez
The Control Process
Introduction
The control in the F&B industry really means controlling people
action. These are the factors:-
•Food does not disappear by itself, without help
•Excess quantity of food and beverage into the plate and glass.
•Employees’ wages calculation are not base on the wrong
numbers of hours unless someone gives the wrong
information.
•Food are not consumed by pest unless made available by
human
•Customer seldom leave without paying unless make possible.
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Managing Income & Expenses
Food Service Management
It is important that the foodservice manager must be a
talented individual. These criteria are true:
The person must be able to grab opportunities & profit
oriented
A unique sales person
Good personality with the guest
Hard working person and most important
The person is the controller or regulator of the operation to
achieved maximized profits and minimize costs.
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Managing Income & Expenses
INCOME
Income can be managed in may ways thus to insure profit.
Increasing income can be done by increasing the number of guest
and the amount of money they spent.
This goal can be achieved by suggestive selling, creative menu
pricing and discount.
Our main goal in this course is not to sale but controlling expenses.
EXPENSES
There are four major expense categories that must be controlled by
management. They are…
FOOD COST, BEVERAGE COST, LABOR COST & OTHER
EXPENSES
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The Control Process
1.Definition of Control
Control is a process used by managers to direct, regulate and
restrain the actions of people so that the established goals of
an enterprise may be achieved.
2.Cost Control Defined
Cost Control defined as the process used by managers to
regulate cost and guard against excessive costs.
It is an ongoing process throughout the operation.
Two principle of the principal causes of excessive cost are
inefficiency and waste.
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The Control Process
3. Sales Control
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The Control Process
5. Instituting Control
Food & beverage establishment usually involves process of
raw material purchased, received, stored and issued for the
purpose of manufacturing products for sale and services.
At each stage of operation, it is necessary to institute control
in order to stop pilferage or problems.
Each control must be suitable to each of the operation,
depends on the nature of material and service requiring
control and on the degree of difficulty inherent
(fundamentals) in instituting the control.
Santiago Velasquez
The Control Techniques
1. Establishing Standard
•Standard are defined as rules or measures established for
making comparisons and judgments.
•Quality Standards are used to define the degree of excellence of
raw materials, finished products and by extensions, work
performed.
•Quantity Standard are defined as measures of weight, count or
volume used to make comparisons and judgment.
•Standard Cost is defined as the cost of goods or services
identified, approved and accepted by management in order to
make judgment and comparisons of the effectiveness of the
operation. Thus standard cost must be calculated as accurately as
possible.
Santiago Velasquez
The Control Techniques
2. Establishing Procedures
Procedures are the method employed to prepare products or
perform jobs.
Standard Procedures are those that have be established as the
correct methods, routines and techniques for day-to-day
operations.
Example:
Production procedures must be standardized for several reasons.
One of the most important of these is customer satisfaction. Any
given item should be produced by the same method and with the
same ingredients every time it is served. It should also be served
in the same quantity each time, partly so that regular customers
will be given the same quantity each time they order the item, and
partly to maintain cost standards.
Santiago Velasquez
The Control Techniques
3. Training
Training is a process by which managers teach
employees how work is to be done, given the standards
and standards procedures established.
Example;
if management has established a standard 4 - ounce portion
size for hamburgers, then all employees responsible for
producing portions of hamburgers must be made aware that
4 ounces is the correct portion size.
Santiago Velasquez
The Control Techniques
4. Setting Example
Employees in an operation follow the examples set by the
manager — the manager ’ s behavior, manner, responses to
questions, and even a failure to speak or take action in some
situations.
The behavior of individuals in a group tends to be influenced by
the actions, statements and attitudes of their leaders.
Work Habits, attitudes, behavior, spirit of a manager are the
evident.
If the manager who has occasion to help employees plate food for
the dining room serves incorrect portion sizes, employees will be
more likely to do the same when the manager is not there.
Similarly, if a manager is inclined to wrap parcels of food to take
home for personal use, employees will be more likely to do so.
Santiago Velasquez
The Control Techniques
5. Observing and Correcting Employee Actions
One of a manager ’ s important tasks is to observe the actions of
all employees continually as they go about their daily jobs,
judging those actions in the light of the standards and standard
procedures established for their work.
If any employees are failing to follow the standards, it is a
manager’s responsibility to correct their performance to the extent
necessary at the appropriate time.
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The Control Techniques
6. Requiring Records and Reports
Recording and reports is an important element in control as these
information helps in decision making, judgment & comparisons of
the operations. One such report is the statement of income.
Example;
it is important to recognize that managers need timely
information to determine whether primary goals and sub goals
are being met. If timely records and reports are not available,
opportunities for taking corrective action may be lost.
Santiago Velasquez
The Control Techniques
7. Discipline Employees
Discipline is defined as action taken to give a warning, punish or
telling off an employee for work performance or personal
behavior incompatible with established standards
It is seldom practice but only used as a deterrent or if corrective
action failed.
By selecting the right people for the various jobs — those with
the experience, skill, and personal characteristics that match the
job requirements the number of individuals requiring some level
of discipline can be reduced to a bare minimum. However, every
manager must face the fact that, at times, an individual staff
member must be disciplined.
Santiago Velasquez
The Control Techniques
8. Preparing and Following Budgets
Preparing and following budgets may be the most common
technique for controlling business operations
Budget is defined as a financial plan and may be describe as a
realistic expression of management’s goals and objectives
expressed in financial terms. (Cash flow budget, capital
equipment budget and advertising budget.)
Operation Budget is the most important budget for F&B
manager. It is a forecast of sales activity and an estimate of
cost that will be incurred in the process of generating those
sales.
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PREPARING AN OPERATING BUDGET
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Golden Dragon Restaurant Statement of Income for the year Ended December 20XX
SALES RM % of Sales
Food 786,250 85.0%
Beverage 138,750 15.0%
Total Sales 925,000 100.0%
COST OF SALES
Food 275,187 35.0%
Beverage 34,688 25.0%
Total Cost of Sales 309,875 33.5%
GROSS PROFIT 615,125 66.5%
CONTROLLABLE EXPENSES
Salaries and Wages 185,000 20.0%
Employee Benefits 46,250 5.0%
Other Controllable Expenses 138,750 15.0%
Total Controllable Expenses 370,000 40.0%
INCOME BEFORE FIXED EXPENSES 245,125 26.5%
OCCUPANCY COST 78,625 8.5%
INTEREST EXPENSES 13,875 1.5%
DEPRECIATION 46,250 5.0%
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RESTAURANT PROFIT/LOSS 106,375 11.5%
The Control Process
Consist of the following four steps:
1. Establish standard and standard procedures for operation.
2. Train all individual to follow established standards and standard
procedures.
3. Monitor performance and compare actual performance with established
standards.
4. Take appropriate actions to correct deviations from standards.
Santiago Velasquez
TUTORIALS
1. What is the purpose of cost control? Of sales control?
2. Define:
Flexible budget
Standard cost
Operating budget
Standard procedures
Procedures
Standards
Quality standards
Quantity standards
Training
Sales control
Budget
Control system
Control
Cost control
Control process
Santiago Velasquez
3. The following information has been prepared by the manager of the
Market Restaurant. Using this information, prepare an operating budget
for the Market Restaurant for the coming year, following the illustration
provided in this chapter.
Food sales: $820,000
Beverage sales: $290,000
Cost of food: 36 percent of food sales
Cost of beverages: 24 percent of beverage sales
Salaries and wages: $102,000
Employee benefit: 25 percent of total salaries and wages
Other controllable expenses: $95,000
Depreciation: $65,500
Interest: $55,000
Occupancy costs: $56,000
Santiago Velasquez
FOOD AND BEVERAGE
COST CONTROL
CHAPTER 3
COST/ VOLUME/PROFIT
RELATIONSHIP
DHM
Santiago Velasquez
Cost/Volume/Profit Relationship
Introduction
The Key to understand cost/volume/profit relationship lies in
understanding that fixed costs exist in an operation regardless of
sale volume and that it is necessary to generate sufficient total
volume to cover both fixed and variable costs as well as desired
profit.
It should be apparent that relationship exist between and among
sales, cost of sales, cost of labor, cost of overhead and profit. In fact
these relationship can be expressed as follows:
Sales = Cost of sales + Cost of labor + cost of overhead +
profit.
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Cost/Volume/Profit Relationship
The relationship formula
Because cost of sale is variable, cost of labor includes fixed and
variable elements and cost of overhead is fixed, one should restate
this equation as follows:
S = VC + FC + P
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Cost/Volume/Profit Relationship
Three guideline of references to remember
1. Within the normal range of business operations, there is a
relationship between variable costs and sales that remains
relatively constant. That relationship is a ratio that is normally
expressed either as a percentage or as a decimal point.
2. By Contrast, fixed costs tend to remain constant in dollar terms,
regardless of changes in dollar sales volume. Consequently,
whether expressed as a percentage or as decimal, the relationship
between fixed costs and sales changes as sales volume increase or
decrease.
3. Once acceptable levels are determined for costs, they must be
controlled if the operation is to be profitable.
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FIXED AND VARIABLE COST
COST OF SALES
Food 96,678.00
Beverage 12,188.00
PAYROLL 81259.00
DEPRECIATION 16,250.00
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S=VC+FC+P
Step (1). Determine total variable cost
Total variable cost consists of food cost, beverage cost,
and the variable portion of labor cost. We will assume
that labor cost is $81259.00 40% variable and 60%
fixed.
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S=VC+FC+P
Step (2) Determine total fixed cost
Fixed labor Cost (60%) $48,755.40
Other Controllable Exp. 46,750.00
Occupancy Cost 29,500.00
Interest 5,000.00
Depreciation 16,250.00
Total Fixed Cost 146,255.40
Profit desired is $37,375.00
The basic cost/volume/profit equation at the level of sales
is:
S=VC(141,369.60)+FC(146,255.40)+P(37,375)
S=$325,000.00
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Variable Rate & Contribution Rate
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Variable Rate & Contribution Rate
If 43.5% of dollar sales is needed to cover VC, then
the remainder 56.5% is available for other purpose:
1. Meeting Fixed Costs
2. Providing Profit
Thus, $0.565 of each dollar of sales is available to
contribute to covering fixed costs and providing profit.
This percentage (or ratio, or rate) is known as the
Contributing rate or CR.
# The contributing rate is determined by subtracting
the variable rate from 1.
CR = 1 - VR
= 1 - .435
= .565
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Breakeven Point
No business can be termed profitable until all of the fixed
cost have been met.
• if sales cannot cover both variable cost & fixed cost it is
operating at a loss
• if sales can cover both variable cost & fixed cost exactly
but insufficient to provide any profit.
(I.e, profit = 0) the business is said to be operating at the
breakeven point (BE)
Changing the Breakeven Point
Two ways to change Breakeven point is by
1. Increase menu price
2. Reduce Variable cost
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Calculate CVP
Gather all the information that have been calculated
Sales = 325,000.00
VC = 141,375.00
FC = 146,250.00
Profit = 37,375.00
VR = .435
CR = .565
Sales = or
This formula can be used to determine the level of dollar sales
required to earn any profit that one might choose to put into the
equation. FC + P
Fixed Cost + Profit S=
Sales = CR
Contribution Rate
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Calculate Breakeven Point
By using the same formula, we can actually can determine the Breakeven
point, a which profit would be equal to zero dollar
FC + P Sales = $146,250 + 0
S=
CR .565
Sales = $258,849.55
rounded as = $258,850.00
At this level
VC is 43.5% of sales = 112,599.75 or 112,600.00
(S)$258,850 = Santiago
(VC)$112,600
Velasquez + (FC)$146,250 +(P)$0.00
Breakeven Analysis
The Graduate Restaurant achieved sales level of $325,000, which
was $66,150 beyond BE. At this level, beyond BE, there are no
more fixed cost to be cover for each dollar of sales but have
variable cost. Variable Cost can be determined by multiplying S
(Sales) by VR (Variable Rate) = .435
VC = S X VR
(VC) $28,775 = (S) $66,150 X (VR) .435
If $28,775 in VC is subtracted from sales of $66,150 the result
$37,375 is equal to profit (P). It consist of $0.565 of each dollar
sales beyond BE.
(P) $37,375 = (S) $66,160 x (CR) .565
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Contribution Margin
Each dollar of sales, may also be divided in two portions.
1. That which must be used to cover variable cost associated with
the item sold.
2. That which remains to cover fixed costs and to provide profit.
The dollar amount remaining after VC have been subtracted from
the sales dollar is defined as the Contribution Margin (CM).
Contribution Margin must go to cover all fixed and variable cost
until breakeven is reached, after breakeven is reached,
contribution margin becomes profit.
Sales - Variable Cost = Contribution Margin
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Cost/Volume/Profit Analysis
Certain assumptions that need to be understand in C.V.P analysis are:
1. Cost is a particular establishment can be classified as fixed and
variable with reasonable accuracy.
2. Variable cost are directly variable
3. Fixed cost are relatively stable and will remain so within the relevant
range of business operations
4. Sales prices will remain constant for the period covered by the
analysis
5. The sales mix in the restaurant will also remain relatively constant for
the period.
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CVP Analysis
The questions that we want to answer through CVP analysis are
likely to be:
•What profit will be established earn at a given sales level?
•What level of sale will be required to earn in given profit?
•How many sales (or cover) will be required in order to reach the
breakeven point?
The question that con be sort into the different categories:
1. Those requiring answer stated in term of money
2. Those requiring answer stated in term of number of sales.
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Dollar Formulas & Calculation
Formula # 1
Formula to determining the dollar sales level required to
earn any planned or targeted profit, given a dollar total of
fixed cost and an expected variable rate (VR)
FC + P
S=
1 - VR (or CR)
This formula can also be use to determine BE by P = 0
Formula # 2 CR = FC + P/S
Formula # 3 P = (S X CR) – FC
Formula # 4 FC = (S X CR) – P
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NUMBER OF CUSTOMER TO BREAK
• EVEN
the total of the contribution margins for all sales is used to cover fixed
costs and provide a profit. If one knows the average contribution
margin per sale and the dollar figure for fixed costs, it is then possible
to calculate the number of sales, or customers, needed to cover fixed
costs and the desired profit.
• For example, if the financial records of a small restaurant indicated
• sales of $48,000 and variable costs of $18,000 in a period when 3,000
customers were served, then:
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• determine average contribution margin
Average S $16.00 - Average VC 6.00
= Average CM $10.00
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3. Given the following information, find variable rate:
a. Sales price per unit, $19.25; variable cost per unit, $6.70
b. Total sales, $164,328; total variable cost, $72,304.32
c. Sales price per unit, $18.80; contribution margin, $10.72
d. Sales price per unit, $16.37; total fixed costs, $142,408; total unit
sales, 19,364; total profit, $22,952.80
4. Given the following information, find contribution rate:
a. Sales price per unit, $18.50; contribution margin, $10.08
b. Sales price per unit, $17.50; variable cost per unit, $6.95
c. Total sales, $64,726; total variable cost, $40,130.12
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5. Given the following information, find break - even point
in Number of Customers:
a. Fixed costs, $113,231.64; contribution margin, $2.28
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Food Costs RM188,625
Interest RM20,025
Depreciation RM33,750
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 4
FOOD PURCHASING AND RECEIVING CONTROL
DHM
Santiago Velasquez
Food Purchasing Control
Responsibility for Purchasing
The responsibility of purchasing can be delegate to any
one in the foodservice operation depending on
organizational structure and management policies.
Control Process and Purchasing
Four steps in the control process apply here:
1. Requiring that standards and standard procedures
be established
2. That employees be trained to follow those standards
and standard procedures
3.That employee out-put be monitored and compared
to established standards
4. Remedial action be taken as needed
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Food Purchasing Control
Perishable and Non-perishable
Perishable are those items, typically fresh foods, that
have a comparatively short useful life after they have
been received. Should be purchased for immediate use
only as they deteriorate quickly.
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Developing Standards & Standard
Procedures
Establishing control over purchasing ensure a continuing
supply of sufficient quantities of the necessary foods,
with each of quality appropriate to its intended use and
purchase at the most favorable price.
Standard must be develop for:
1. The quality of food purchased
2. The quantity of food purchased
3. The price at which food is purchased
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Establishing Quality Standards
•It is important first to determine which perishable &
non-perishable food is required in order to produce
products of consistent quality.
•Thus it is important to draw up the list of all food
items to be purchased, including those specific and
distinctive characteristic that best describe the desired
quality of each in written description also known as
standard purchase specifications.
•It is usually base on federal grading or common
market grading.
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Establishing Quality Standards
Through Standard Purchasing Specification :
1. To determine exact requirement in advance for any
products
2. To purchased according to specification to prepare
several different items on the menu.
3. They eliminate misunderstanding
4. To have standard competitive bidding
5. They eliminate for detail verbal description
6. To facilitate checking food as it is received.
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Establishing Quantity Standard
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Establishing Quantity Standard
Non-perishable items does not present the problem of
rapid deterioration, the do represent considerable amount
of money invested in material in storage. The goal here is
to avoid excessive quantities on hand. Through proper
planning.
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Periodic • A method for ordering food or
order beverages based on fixed order
dates and variable order
method quantities. The calculation of the
amount of each item to order is
comparatively
simple:
Amount required for the
upcoming period
-Amount presently on hand
+ Amount wanted on hand at the
end of the period to last until the
next delivery
=Amount to order
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Periodic order method
orders for non perishables are placed every two weeks, one of the
items ordered is crushed tomatoes, purchased in cans, packed 6
cans to a case. The item is used at the rate of 7 cans per week,
and delivery normally takes five days from the date an order is
placed. If the steward in this establishment found 9 cans on the
shelf, anticipated a use of 14 cans during the upcoming period
of approximately two weeks, and wanted 10 cans on hand at
the end of that period, the calculation would be:
14 cans required
- 9 cans on hand
+10 cans to be left at the end of the period
(desired ending inventory)
= 15Santiago
cans to be ordered on this date
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• Both delivery time and daily usage for the period must be used to
determine the DEI. Furthermore, it is advisable to include some
additional quantity to serve as a safety factor, just in case the normal
delivery is delayed or business volume is higher than expected in the
coming period. For the example given, the calculations for DEI would
be as follows:
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Establishing Quantity Standard
Perpetual Inventory Method
1. To ensure that quantity purchase are sufficient not excessive
2. To provide effective control on stored item for the future.
The reorder point is quite simply the number of units to which
the supply on hand should decrease before additional orders are
placed.
The Par Stock means simply the maximum quantity of a given
item that should be on hand. This helps to
1. Storage space
2. Limits on total value of inventory
3. Desired frequency of ordering
4. Usage
5. Purveyors’ minimum order requirements
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Establishing Quantity Standard
• Reorder point is calculated in the following manner. If normal usage is 14
cans per week and it takes five days from date of order to get delivery,
then the basic number of cans needed is 10. However, because delivery
may be delayed, because usage may increase for unforeseen reasons, or
because both of those possibilities may occur at once, it is advisable to
increase that amount somewhat.
• The amount of the increase is a matter for management to decide. For our
purposes, we will use 50 percent for all calculations. If that were so in this
case, the reorder point would be set at 15 cans. Under the periodic method,
the DEI would similarly be calculated as 15 cans.
Par stock
20
-Reorder point
15
=Subtotal
5
+Normal usage until delivery 10
=Reorder quantity
15
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Establishing standard for Price
The availability of sources of supply varies considerably from one location to another.
It depends on ownership policy, availability of supplies and general market condition,
supplies can be choose from:
•Wholesalers
•Local producers
•Manufactures
•Packers
•Local farms
•Retailers
•Cooperative association
Perishable because prices for perishable often fluctuate daily it is necessary to find the
price from different supplier through telephones.
Non-Perishable normally with fewer suppliers with lowest price and consistent quality,
small quantity & delivery wise.
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Centralized Purchasing
This is usually used in chain operations and occasionally established by small groups
of independent operator with similar needs/
Advantage.
•Purchased at lowest price because of volume
•Desired quality as agent has greater choice
•Obtain exact specification
•Larger inventory ensuring reliable supply
•Dishonest greatly reduced.
Disadvantage
•Little freedom for its particular needs
•No advantage on local specials at reduce price
•Limiting changes of menu.
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Food Receiving Control
INTRODUCTION
The primary objective of receiving control is to verify that quantities, qualities
and price of food delivered conform to orders placed.
The person that usually responsible for this job is given the job title as
“receiving clerk’.
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Establishing standard for receiving
THE INVOICE
A bill from a vendor for good or services, often presented as the goods are
delivered or the services performed.
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Establishing Standard Procedures for receiving
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Establishing Standard Procedures for receiving
INVOICE STAMP
rubber stamp used by a receiver to overprint a small form on an
invoice for the purpose of recording the data on which goods
were received, as well as the signature of the several
individuals verifying the accuracy of data on the invoice.
1. Verification of the date on which food was received
2. The signature of the clerk receiving the food who vouches for
the accuracy of quantity, quality and price.
3. The steward’s signature, indicating that the steward knows the
food has been delivered
4. The food controller’s verification of the arithmetical accuracy of
the bill.
5. Signatory approval of the bill for payment by an authorized
individual before a check
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Sample of a Invoice Stamp
Received by:
(Receiving Clerk)
Steward:
285.00 285.00
Jong’s Farm
10 kg Crocodile Meat √ 2.50 25.00 25.00 25.00
9.00 9.00
5. The Last Chance Restaurant uses the perpetual order method. One of
the items in the inventory is canned green beans. Determine reorder
point and reorder quantity, given the following:
a. Normal usage is two cans per day.
b. It takes five days to get delivery of the item.
c. Par stock is 29 cans.
d. Cans come packed six to a case.
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 5
FOOD STORING & ISSUING CONTROL
DHM
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Food Storing & Issuing Control
STORING CONTROL:
ESTABLISHING STANDARDS AND STANDARD
PROCEDURES FOR STORING
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Factor 1. Condition of facilities and equipment
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Factor 2: Arrangement of Foods
• Factors involved in maintaining appropriate internal
arrangement of food include:
1. Keeping the Most-Used item readily available. (Kept most
used item closest to the entrance tend to reduce the time
required to move needed foods from storage to
production and thus tends to reduce labor costs.)
2. Fixing definite location
(Each particular item should always be found in the same
location, and attention should be given to ensuring that
new deliveries of the item are stored in the same
location.)
3. Rotation of Stock (FIFO system)
(storing new deliveries of an item behind the quantities
already on hand, thus ensuring that older items will be
used first. This reduces the possibilities for spoilage.)
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Factor 3: Location of Storage Facilities
• the storage facilities for both perishable and
nonperishable foods should be located between receiving
areas and preparation areas, preferably close to both. A
properly located storage facility will have four effects:
2. Maximizing security
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Factor 4: Security
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Food Storing & Issuing Control
ISSUING CONTROL:
ESTABLISHING STANDARDS AND STANDARD
PROCEDURES FOR ISSUING
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Issuing Control: Establishing Standard and
Standard Procedure for Issuing
(2) The record keeping associated with determining the cost of
the food issued.
STORES
The food category known as stores was previously described as
consisting of staples. When purchased, these foods are
considered part of inventory until issued for use and are not
included in cost figures until they are issued. Therefore, it
follows that records of issues must be kept in order to determine
the cost of stores. For control purposes, a system must be
established to ensure that no stores are issued unless kitchen
personnel submit lists of the items and quantities needed.
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Issuing Control: Establishing Standard and
Standard Procedure for Issuing
(2) The record keeping associated with determining the cost of
the food issued.
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The Requisition Form
TOTAL $397.96
Charge to: FOOD Department
___________
Requested by
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Food & Beverage Transfer
• F&B Transfer means the transfer of item intended for a section to
another section that requires it.
• Intra-unit Transfer
are food and beverage transfers between departments of a food
and beverage operation. They include transfers of food and liquor
between the kitchen and bar, and between kitchen and kitchen in
those larger operations that have multiple feeding facilities.
Many kitchens use beverage items such as wine, cordials, brandy, and
even ale to produce sauces, parfaits, certain baked items, and rarebits.
Occasionally, these beverages are purchased by the food department for
use in the kitchen, kept in a storeroom until needed, and then issued on
requisitions directly to the kitchen
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Food & Beverage Transfer
• Inter-unit Transfer are transfers of food and beverage between
units in a chain. The two examples that follow illustrate inter unit
transfers and the effect of such transfers on food costs. In some
instances, small chains produce some items (e.g., baked goods) in
only one unit and then distribute those items to other units in the
chain. If the ingredients for the baked goods come from that
particular unit ’ s regular supplies, then some record must be
made of the cost of the ingredients used.
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 7
FOOD PRODUCTION CONTROL
I. PORTIONS
DHM
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Food Production Control I. Portions
• The standards and standard procedures for production control are
designed to ensure that all portions of any given item conform to
management ’ s plans for that item and that, as far as possible, each
portion of any given item is identical to all other portions of the same
item.
• Portion for any given menu should be identical in 4 respect.
1. Ingredients
2. Proportions of ingredients
3. Production methods
4. Quantity
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Standard Portion Size
• One of the most important standards that any foodservice operation
must establish is the standard portion size , defined as the quantity of
any item that is to be served each time that item is ordered. In effect,
the standard portion size for any item is the fixed quantity of a given
menu item that management intends to give each customer in return
for the fixed selling price identified in the menu. It is possible and
desirable for management to establish these fixed quantities in very
clear terms. Every item on a menu can be quantified in one of three
ways: by weight, by volume, or by count.
• Every item on a menu can be quantified in one of the three way:
• By Weight
Can be expresses in ounce or grams used to measure portion sizes for
a number of menu items.
• By Volume
Is used as the measure for portion of many menu items usually that of
liquid in nature, Milk, soup, juices of coffees
• By Count
Used to identify portion
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Standard Portion Size
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CALCULATING STANDARD PORTION COSTS
• There are several methods for calculating standard portion costs:
1. Formula
For many (perhaps even for a majority) of the menu items prepared in foodservice
establishments, determining standard portion cost can be very simple. For a large
number of items, one may determine portion cost by means of this formula:
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CALCULATING STANDARD PORTION COSTS
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CALCULATING STANDARD PORTION COSTS
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Using the Yield Percentage
• Or yield factor is defined as the percent of a whole purchase unit of
meat, poultry or fish that is available for portioning after any required
in-house processing has been completed.
• Quantity = Number of portions X portion size (as a decimal) /Yield
percentage
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 7
FOOD PRODUCTION CONTROL
II. QUANTITIES
DHM
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PROBLEMS
• Assume that control has been established over individual portions and
will shift our focus to the number of portions produced for each item on
a menu for a given day or meal. After all, if the cost of a portion of some
item is controlled at, say, $ 4.50 per serving, and the establishment
produces 100 portions but sells only 40, there will be 60 portions
unsold. These may or may not be salable on another day. Even if they
are salable, these portions are likely to be of lower quality than when
they were first produced. It is also possible that they cannot be sold in
their original form, but must be converted into some other item that
will be sold at a lower sales price. Sometimes, if none of these
possibilities are feasible, it may be necessary to throw the food away. In
any case, there is excessive cost — either the cost of the food or the
cost of additional labor that would not have been required if the
establishment had produced 40 portions rather than 100. Such
excessive costs can be reduced or eliminated by applying the four - step
control process to the problem of quantity production.
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Food Production Control II: Quantities
This topic will look into the planning of how many is enough when producing. The
quantity of each production will also need to be control as to help in reducing
excessive cost though wastage if overproduction or customer dissatisfaction if it is
underproduction.
Factor need to be considered are:
1. Maintaining sales history
2. Forecasting portion sales
3. Determining production quantities
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Maintaining Sales History
• A sales history is a written record of the number of
portions of each menu item sold every time that item
appears on the menu. It is a summary of portion sales.
• the best decisions on the nature of the sales history are
based on the need for information that can be used to
improve operations. Unless the information is useful in
leading to better control over costs, its maintenance
cannot be justified.
• the basic information is incorporated into the sales
history, it is necessary to understand the two methods
used for recording customers ’selections: manual and
electronic. Santiago Velasquez
Portion sales records
• Regardless of whether the portion sales records are stored
manually or electronically, they are likely to be arranged in
one of three ways:
1. By operating period, such as one week or month, so
that all sales records for an entire operating period can be
viewed together on one page, card or screen.
2. By day of the week , so that all sales records for a given
day (e.g. Tuesday) for a period of several weeks can be
compared.
• 3. By entrée item, so that the degree of popularity of a
given item can be seen over time.
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Popularity • Popularity index is defined as the ratio of portion sales
for a given menu item to total portion sales for all menu
Index
items
• The popularity index is calculated by dividing portion
sales for a given item by the total portion sales for all
menu items and then multiplying by 100 in order to
convert to a percentage. The index may be calculated
for any time period, even for a single meal. When
calculated for a single meal, the index is usually
referred to as the sales mix,
• Popularity index = portion sales
X 100
188
X100
1937
• 0.09706 and 0.09706 100 9.706%
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Other Information in Sales Histories
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Determining Production Quantities
• A production sheet is a form on which one lists the names and
quantities of all menu item that are to be prepared for a given date.
• It varies from one establishment to another.
• Usually submitted to the Chef as many days earlier as possible.
• Late adjustment can be made immediately before the forecasted date
or the night before. Usually minor adjustment.
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Production Sheet
PRODUCTION SHEET
DAY : Tuesday DATE : 7 Feb 20xx MEAL : Dinner
VOLUME FORECAST: 305
L 75 80 6 oz. Recipe#62 - 80 80 0
M 60 65 8 oz. Recipe#4 5 60 65 5
N 20 20 4 oz. Recipe#19 - 20 20 0
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Void Sheet
VOID SHEET
DAY : Tuesday DATE : 7 Feb 20XX
Check # Waiter # Item Reason for Return Authorization Sales value
Void Sheet is to record all the sale that are not being done because of the reasons stated. The
return on each of the item must be authorized by the supervisor or the manager in charge.
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Portion Inventory and Reconciliation
• This approach effectively requires that one follow a series of logical steps.
First, each menu item should be listed on the form before kitchen production
begins. Next, an inventory is taken of any portions left over from previous
meals that may be used again. Reusing leftovers in this way is common in
some establishments, but unacceptable in others.
• If leftovers are to be used, the number of portions on hand is deducted from
the quantity scheduled for production, and only the difference is prepared.
That number is written in the “ Portions Prepared ” column.
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Portion Inventory and Reconciliation
PORTION PRODUCTION DAY: Wednesday DATE: 8 Feb 20XX
Item Opening Portion Additional Total Available Closing Portions consumed
Inventory Prepared Preparation Inventory
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Introduction
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Valuing the Physical Inventory
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Monthly Food Cost Determination
Opening Inventory
+ Purchases
= Total Available
- Closing Inventory
= Cost of Food
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Adjustment of Cost of Food Issued
• Transfer
– Intra-Unit (Cooking Liquor/Food to Bar-Direct)
– Inter-Unit
• Grease Sales (Sales of Item Out to other buyers especially
item such as fats or oil. Usually will be debited as Other
Income – Salvage and Waste Sales)
• Steward Sales (Sales to employees may be done if permitted)
• Gratis To Bars (Light food to customer as gives away such as
hors d’ oeuvres)
• Promotion Expenses (Entertainment Purposes)
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Determining Cost of Food Consumed
Opening Inventory
+ Purchases Cost of Food Issued
- Steward Sales
- Gratis to Bars
- Promotion Expenses
= Cost of Food Consumed
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Additional Information to get proper Food Cost
• To get the proper Food Cost we also need to deduct the cost
of employees’ meals from the cost of food consumed
• Cost of meals can be calculated in four ways
1. Cost of separate issues
2. Prescribed amount per meal per employee
3. Prescribed amount per period
4. Sales value multiplied by cost percent
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Determining Cost of Food Sold
Opening Inventory
+ Purchases
=Total Available for Sale
-Closing Inventory
=Cost of Food Issued
+ Cooking Liquor Management Report
+ Transfers from Other Units
- Food to Bar (Directs) 1. Frequency
- Transfer to Other Units 2. Timelines
- Grease Sales
- Steward Sales
- Gratis to Bars
- Promotion Expenses
= Cost of Food Consumed
- Cost of Employees’ Meal
= Cost of FOOD SOLD
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Inventory Turnover
• Excessive Stock can brought about
1. Excessive Food Cost due to the spoilage of food stored too long
2. Excessive amount of cash tied up in inventory
3. Excessive labor cost to receive and store foods
4. Excessive space required for storage
5. Unwarranted opportunity for theft
Average Inventory =
Inventory Turnover =
Total Inventory
2
Food Cost
Average Inventory
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 8
MONITORING FOODSERVICE OPERATIONS II: DAILY INVENTORY AND
DAILY
FOOD COST
DHM
Santiago Velasquez
Daily Food Cost
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Determining Daily Food Cost
Cost of direct (from the receiving clerk’s daily report)
+ Cost of store (from requisition and meat tags, depending on the procedures
followed)
+ Adjustment that increase daily cost (transfers from bar to kitchen; transfers from
other units)
- Adjustments that decrease daily cost (transfer from the kitchen to the bar; food
to bar (directs); gratis to bar; Steward sales; grease sales; promotion
expenses)
= Cost of food consumed
- Cost of employees meals
= Daily cost of food sold
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Balance
Daily Cumulative Cost Record
Food Inventory
Issue
Purchases
Food Cost %
To Date
Today
To Date
Total Sales
Today
To Date
Total Cost
Today
Food to Beverage
Adjustment
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Beverage to Food
Store
Meat
Directs
Date
Daily Report
• The main purpose of daily report are
1. Shows food costs, food sales and food cost % for any one
specific day and for all the days to date in the period
2. Compares these figures to those for a similar period
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Report to Management
Description Today Same Day To Date
Last Week
This Week Last Week
Cost Breakdown
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Daily Food Cost Report
Day: Saturday Date: OCT 20 20xx REF:waq12
Description Today This Week To Date Same Week, Last Month
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 9
MENU ENGINEERING
DHM
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MENU ENGINEERING
AND ANALYSIS
• A very useful technique for analyzing menu sales and
providing helpful information for evaluating every item on
the menu relative to its present contribution to bottom -
line dollars
• It provides a means for monitoring the effectiveness of
efforts to maximize gross revenue in a menu.
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Controlling Food Sales
• Sales control merely means revenue control, a collection of
activities designed to ensure that each order placed by a
customer result in appropriate revenue for the enterprise. It is
the most important element in any enterprise but it is also one
part of the sales control.
• There are three principles goals of sales control:
1. Optimizing number sales(to increase the number of sales
volume)
2. Maximizing profit Pricing
3. Controlling revenue.(Proper control of the revenue received)
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 9
CONTROLLING FOOD SALES
DHM
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Controlling Food Sales
• Sales control merely means revenue control, a collection of
activities designed to ensure that each order placed by a
customer result in appropriate revenue for the enterprise. It is
the most important element in any enterprise but it is also one
part of the sales control.
• There are three principles goals of sales control:
1. Optimizing number sales(to increase the number of sales
volume)
2. Maximizing profit Pricing
3. Controlling revenue.(Proper control of the revenue received)
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Optimizing Number of Sales
• The most productive efforts are made by those who understand
the determinants of customer selection of restaurants. The
following eight factors are the most important for most people:
1. Location
2. Menu item differentiation
3. Price acceptability
4. Lighting and decor
5. Portion sizes
6. Product quality
7. Service standards
8. Menu diversity
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Maximizing Profit
• There are two principal means for maximizing profits:
1. Pricing products properly
• Cost
• Price Sensitivity Factors to consider
• Pricing Policies
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Maximizing Profit
2. Selling those products effectively.
• The menu
– Layout and design
– Variety
– Item arrangement and location
– Descriptive language
– Kitchen personnel and equipment
• Sales Techniques
– Up-selling
– Menu knowledge
– Costumer service
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Controlling Revenue
• Establishing standards and standard procedures for revenue control
• Documenting Food Sales
1. Help servers remember the specifics of guests’ orders
2. Give itemized bills to guest
3. Maintain written records of portion sales to add to a sales history
4. Proven the accuracy of cashier works
5. Verify the accuracy of prices changed
6. Provide the record required for tax purposes
• Using Numbered Checks
(Padded / unpadded)
• Checking and Verifying Food Sales
• Recording Revenue
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Menu Analysis
• Result definition
– Star is a menu item that produce both high contribution margin and high
volume. These are the item that foodservice operators prefers to sell
when they can
– Dog is a menu item that produces a comparatively low contribution
margin and accounts for relatively low volume. These are probably the
least desirable item to have on the menu.
– Plowhorse is a menu item that produces a low contribution margin but
accounts for relatively high volume. These items have broad appeal to
customer, but contribution comparatively little profit per unit sold.
– Puzzle is a menu item that produces a high contribution margin but
accounts for comparatively low sales volume.
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Menu Engineering & Analysis
A B C D E F G H L P R S
Menu No. sold Menu Item Item Item CM Menu Menu Menu CM CM MM Menu
item (MM) mix% food cost sales (E-D) Cost R’venu (F*B) CAT CAT item
name price (D*B) (E*B) Classifi
Broil
Steak
Shrimp
Scrod
Lobster
Veal
Roast
Chops
Salisbur
N I J M
COL 100%
TOTAL
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FOOD AND BEVERAGE
COST CONTROL
CHAPTER 10
BEVERAGE PRODUCTION CONTROL
DHM
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Beverage Production Control
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Establishing Standards and Standard procedures for
production
• Standard must be established for the:
Quantity of the ingredients used
Proportion of the ingredients used
Drink sizes
• To have some reasonable assurance that a drink will meet
expectations each time it is ordered.
• If drinks are served accordingly to the formula and in
standard portion, then the cost for each portion to sales
should be the same.
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Establishing Quantity Standard and Standard
Procedures
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Establishing Quantity Standard and Standard
Procedures
2. Glassware
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Establishing Quality Standards and Standard Procedures
• Standard Recipes
• Establishing Standard Portion Cost
• Straight Drinks (formula)
• Mixed Drinks and Cocktails (Detail Recipe)
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Controlling Revenue
Possible control of problems
• Working with the cash drawer open
• Under-ringing sales
• Overcharging customer
• Undercharging customer
• Over pouring
• Under pouring
• Diluting bottle contents
• Bringing one’s own bottle into the bar
• Charging for drinks not served
• Drinking on the job
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Beverage Sales Monitoring
• The Cost Approach
Cost Percentage Methods
Monthly Calculation
Daily Cost Calculation
Cost Calculation by Category
Standard Cost Method (Actual – Standard Cost)
• The Liquid Measure Approach
Ounce-Control Method (Quantity stock taking daily)
• The Sales Value Approach
Actual Sales Record (Recipe Detail Comparison)
Average Sales Value Method (Per-bottle value)
Standard Deviation Method (Statistical EDP)
• Inventory Turnover
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Monitoring Production Performance and Taking Corrective
Action
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