Chapter – 1

Food Cost Control

Introduction to Cost Control

Cost

Cost is generally defined as reduction in the value of assets for the purpose of securing
benefits or gains in the food beverage business.

Or

Cost means the price to the hotel or restaurants of good and services when the goods are
consumed or the services rendered.

Costing

Costing may be defined as the technique and process of ascertaining costs.

The cost of any item may be expressed in a variety of ways such as:

● Units of weight
● Units of volume
● Total per individual portion

For example, the cost of liquor can be expressed in terms of the cost per bottle, per drink, or
per ounce.

The following are the methods of costing:

1. Batch costing: The identification and assignment of costs related to producing a set of
goods. This includes all fixed and variable cost for producing the batch.

2. Job costing: It involves the calculation of costs involved in a construction “job” or the
manufacturing of goods done in discrete batches.

3. Contract costing: Contract costing is a special type of job costing where the unit of cost is a
single contract.

4. Operation costing and process costing: Process costing is an accounting methodology that
traces and accumulates direct costs and allocates indirect cost of a manufacturing process.
Costs are assigned to produce usually in a large batch, which might include an entire month’s
production.
5. Unit, output and operating costing: In finance, unit cost is the cost of a single no. product
and output cost is the cost required to produce a good output and operating cost is the cost to
carry on the operations well.

6. Marginal costing: In finance, marginal cost is the change in the total cost that arises when
the quantity produced has an increment by unit .That is, it is the cost of producing one more
unit of a good. In general terms, marginal cost at each level of production includes any
additional costs required to produce the next unit.

7.Food and beverage sales: Food & beverage cost are an important activity in the hotel
industry. It deals with the techniques to setup and maintain total cost control systems which
can help have to earn profits in the business.

Concept of Costing

1. To know cost
2. To fix the selling price
3. Cost controlling
4. Preparation of profit and loss account and balance sheet
5. Operating policies of the organization

Advantages of Costing

1. Helps in proper planning of the food & beverage operations.

2. Keeps a check over the accuracy of financial accounts.
3. Helps in establishing the prices of menu, dishes & beverages.
4. Helps in comparing cost per unit of a specific period or two or more periods of time.
5. Somewhat specifies how the hotel is into profit or loss.
6. Helps in proper understanding of the quality and packaging of materials or goods.
7. Develops an effective costing system and controls system and controls the cost too.
8. Helps in making closing stock value sheet.

Cost control

It can be defined as keeping of various costs by the management in line with standards
according to the control policy of the hotel. Cost control starts with the setting up of business,
profit and financial objectives.

Cost control is achieved by financial as well as international control over budgeting which is
generally concerned with the points given below:

1. Setting up of proper standards.

 2. Monitoring input and output i.e actual performance
3. Identifying of actual variance by preparing cost group graphs
4. Take corrective measures and actions in order to have a control over cost and
achieve maximum profits.

Approach to cost control

1. Pre-Operational Control- Such control is exercised in various areas before the actual
operation and is more useful in those areas where volume & sales both can be forecasted with
a high degree of certainty.

2. Post- operational Control- In this type of control, standards and objectives are presented
before the employee of the organisation and operations are then performed according to their
standards and S.O.P’s.

Objectives & Advantages of Cost Control

1. To establish S.O.P’s
2. Fixing menu price and quotations of special events
3. To prevent wastage of raw material, time and labour etc.
4. To avoid frauds by staff or clients
5. To prepare and submit accurate management report sheets
6. To take corrective remedial measures and actions for improvement and welfare.
7. Proper analysis of point of sales
8. Cost analysis of food and beverage material being purchased
9. Calculation of gross profit
10. Calculation of net profit
11. Establishing procedures
12. Establishing standard
13. Setting examples
14. Correcting and observing employees action
15. Records and reports
16. Preparing and following budgets
17. Censoring and disciplining employees
18. Preparation of profit and Loss account and balance sheet
19. Helps to know the market value of closing stock
20. Helps in proper fixing up of the selling prices of the F&B material.
Cost Control in Food & beverage Operations and Department

Food & Beverage Cost control is an important activity in the hotel industry. It deals with the
technique to setup and maintain total cost control systems which can help have to earn profits
in the business.

All items handled in the hotel and restaurants are portable and consumable by the staff. The
costing of the product is very important in order to ascertain that what should be the selling
price so that hoteliers can make a reasonable profit after meeting the cost of the product.

Sales

A sale is referred as the restaurants exchange of products or services for value, in the
industry. The value may be in cash or a promise to pay in cash.

Sales expressed in terms of the quantity of units sold are very useful for purpose of control.
Sales of a restaurant could be expressed in terms of rupee or in numbers of persons served.
All the food and beverage outlets try to increase sales in order that the profits may be
maintained or increased. Management sets the selling price of the product or services to be
provided.

Control Techniques

1. Establishing Standards
2. Establishing procedures
3. Setting examples
4. Correcting and observing employees actions
5. Records and reports
6. Preparing and following budgets
7. Censuring and disciplining employees

1. Establishing Standards

Standards can be defined as rules or measures established for making comparison and
judgement.

Quantity standards are used for the degree of excellence of raw material and finished
products.
For example, meat is available in a number of grades and it is important to establish which
grade will be used in preparation of menu items.

Quantity standards refer to measures of weight or count or volume. For example, an order of
soup should be identified as to size of bowl or cup to be used.

In beverages, a standard for liquors to be used is established by management in the

preparation of particular drink.

A standard cost is an agreed upon cost of goods and services used to measure other costs.

2. Establishing Procedures

Procedures are the methods or steps to be followed while preparing a product or performing
jobs.

Standard procedures are the instructional steps or the correct methods and techniques for day
to day operation of food and beverage business.

Ordering and purchase procedure are standardised to ensure that required quantity is
acquired.

Receiving procedures are standardised to ensure that quantity and quality goods are received.

Storing and issuing procedures are standardised to ensure the safety against spoilage and
theft.

3. Setting Examples

The behaviour, actions, statements and attitude of the manager or leader influence the
behaviour of individual employee.

A manager must be consistent in setting examples as well as directing, regulating and

restraining examples and their actions.

Manager should conduct proper briefing of staff/ employees.

4. Correcting and observing employees actions

Actions of the employees must be observed by manager actions of the employees should be
judged and corrected at appropriate time.
Suppose a manager observes a bartender mixing two drinks without measuring ingredients
and he fails to direct him to measure quantities as drinks are mixed.

The result of this would be that the bartender could assume that such behaviour is acceptable
and manager has missed an opportunity to control the behaviour.

5. Preparing and following budgets

Budget is a forecast of sales activity and an estimate of cost, stated normally in rupees.

In a well-established F&B operation these budgets are prepared with the help of historical
information, anticipated changes, business environment, state policy, weather conditions and
general economic etc.

6. Censuring and Disciplining Employee

This main objective of censuring and disciplining employees is to change or modify their job
performances in order to control performance in such a way job activity of each employee is
consistent with standards and procedures.

Aims and Objectives of Food & Beverage Department for controlling cost

1. The actions, statements and attitude of the leader influence the behaviour of
individual employees.
2. Manager should conduct proper briefing of staff/ employees.
3. Cost analysis of food and beverage material being purchased.
4. Proper analysis of point of sales.
5. To strictly follow the S.O.P’s

6. To prepare and submit accurate management report sheet.

7. To take corrective remedial measures and actions for improvement and welfare
8. To avoid frauds by staff/ employee
9. To research more and more F&B products in market.
10. To receive, handle & serve proper canned materials.

Food costing” is understanding the ratio between the cost of raw materials that make up a
dish and the revenue generated by that dish. By calculating how much was spent, you’ll be
able to understand the amount of actual profit you make on your sales. If your food cost is too
high, you will struggle to make a profit and keep your business afloat, if it’s too low you may
be turning off customers with high prices. While other costs may be less flexible (like labour
costs and fixed costs – rent, utilities, etc.), food costing needs to be compatible with your
actual sales.
Calculation of Food Cost:-
There are several basic terms, which are used in the calculation of the food cost.
1. Food cost– This refers to the cost of food incurred in preparing meal severed.
2. Gross profit- The excess of sales over the cost of the food expressed as a percentage.
3. Potential food cost– The food cost under perfect condition.
METHOD OF DETERMINING FOOD COST
• Weekly/monthly food cost report- This system is used by the small organization where
manager controls each activity as daily routine. It is a reconciliation report of daily activities.
The calculation procedure is
Opening stock + total purchase for the period – closing stock = Total food sale
• Daily food cost report- This method is used in the medium-sized operation.

1 2 3 4 5 6 7 8 9
Today Today Today Today Today Today To date
Date Day O.S Food Total Requis Sales Food Pur
Purchase food Cost %
Total

Proof of inventory
O.S + Purchase – Requisition = Closing stock
Advantage
1. It is simple and easy to follow.
2. It gives the day to day information about business.
3. It records the daily stock level, daily purchase, daily requisition & food cost percentage.

Factors affecting the food cost

Factors affecting the percentage of food cost are:
1. Food Purchasing
2. Menu Planning
3. Method of pricing
4. Culinary Skills
5. Service Skills
6. Avoiding Wastage
Food purchasing
As a matter of fact, the control starts from this very activity. Skillful buying is quite an art and
the proper discharge from this function may result in considerable cost control. The following
points doing purchasing helps in reducing food cost:
• Buy the right amount of stock
• Determine the realistic stock level
• Buy according to the standard purchase specification
Menu pricing
It is the most important step in controlling the food cost. This is recognized by the
progressive categories. A careless menu planning results in undue wastage of resources hence
is responsible for excessive. Most of caterers think that offering a variety of food and adding
more items to the list will increase their reputation in the market. But at the same time it
increases food cost which is not a healthier item.
• If the number of items is more, the customer gets confused.
• Sometimes the lack of skilled labour.
• Lack of proper equipment.
Method of pricing
A haphazard price of pricing will eventually result in a financial disaster. The price should be
realistic and must be based on facts. To keep the desired rates each item of the menu must be
carefully considered in terms of its cost and in relation to the selling cost. The market forces
must determine the selling price. Hence one of the responsibilities in any food service is an
art full working. To keep the desired weights each item of the menu.
Culinary Skills
Cooking skills affect the ultimate cost of food in any establishment. Badly cooked food is a
complete write-off. Food preparation loses due to unskilled labour, lack of proper equipment,
heat is not properly carried out, careless control of temperature. Normally high temperature
causes the shrinkage of food items and hence reduces the yield.
Service skills
• Portion control
• Careful order taker
Avoiding wastage
This particular activity starts with the receiving of food. All the procedures for avoiding
wastage is observed at each level i.e. in the store, during transportation, from the store to
kitchen, during the preparation of food item and during service.

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