OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY

Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines

Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
Course Code FSM 7

Descriptive Title FOOD COSTING

Units 3

Pre-Requisite -

Academic Year A.Y. 2020-2021

Semester/Summer 1st Semester Class 2020

Course Description This course focuses on the principles and procedures involved in an
effective system of food, beverage and labour controls for the
hospitality industry. This course provides the fundamentals for
gathering information, developing forms and procedures, assessing
and evaluating the information and applying the results to maintain
efficient food, beverage and labour cost control. Topics include: the
basic control procedures used, food and beverage costing, labour cost
analysis, pricing methods and computer applications. A restaurant
management simulation program exercise is incorporated to enhance
the cost control theory.
Course Learning AT THE END OF THE COURSE THE STUDENTS SHOULD BE ABLE
TO:
Outcomes
 Define the importance of forecasting sales and how it can assist
in staffing.
 Develop a procedure to record current sales.
 Compute percentage increases or decreases in sales over time.
 Develop a procedure to predict future sales.
 Use sales histories and standardized recipes to determine the
amount of food products to buy in anticipation of forecasted
sales.
 Recognize the importance of standardized recipes in controlling
food costs.
 Purchase food and beverage products in a cost-effective manner.
 Implement proper procedures for receiving food and beverage
products.
 Discuss strategies for training employees to receive products.
 Define the importance of utilizing purchase orders.
 Accurately calculate food and beverage costs and their cost
percentages.
 Compare product costs achieved in an operation against the
product costs the operation planned to achieve.
 Apply strategies designed to reduce an operation’s cost of sales
and its cost of sales percentage.
 Explain calculation for estimating cost of sales.
 Calculate product yield % and discuss how this prepares
management to purchase food and beverages more accurately
 Define different types of menus.
 Choose the best menu format for a specific foodservice

FSM 7- FOOD COSTING Page 1 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
operation.
 Identify the variables to be considered when establishing menu
prices.
 Assign menu prices to menu items based on the items’ costs,
popularity, and profitability.

Instructor AL-ZHAMILL M. SAHIAL

Email Address alzhamillsahial@gmail.com

Facebook Al Sahial

Contact Number 09177733359

Module Topics Coverage

Module 1 1. COST AND SALES CONCEPTS 1st Preliminary Period
2. THE CONTROL PROCESS
August 2020

Grading System
Grade Equivalent Interpretation

1.0 95-100% Excellent

1.1 94%
1.2 93%
1.3 92% Very Good
1.4 91%
1.5 90%
1.6 89%
1.7 88%
1.8 87% Good
1.9 86%
2.0 85%
2.1 84%
2.2 83%
2.3 82%
2.4 81%
2.5 80%
2.6 79% Fair
2.7 78%
2.8 77%
2.9 76%
3.0 75% Passed
5.0 below 75% Failed
Dr Dropped Dropped

This course shall adopt this grade distribution guide as follows:

Quizzes, Assignment – 30%
Oral Recitation, Portfolio, – 30%
Examination/Major Quiz – 40%
100%

FSM 7- FOOD COSTING Page 2 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7

Lesson 1 COST AND SALES CONCEPTS

Introduction to Cost Control

• 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.

• LEARNING OBJECTIVES
• At the of this lesson the students should be able to understand:
• 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.
•

• 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)
• 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.

FSM 7- FOOD COSTING Page 3 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
• 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.
• 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.
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.
• Non-Controllable cost are those that cannot normally be changed in short-term such
as fixed cost like Rent, Interest on a mortgage, Real estate taxes, License fee and
Depreciation.
• 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.
• 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.

Industry-wide Variations in Cost

FSM 7- FOOD COSTING Page 4 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
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.

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.

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.
• 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.

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

FSM 7- FOOD COSTING Page 5 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7

 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
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
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.
140 customers served during that one Saturday meal.
The restaurant has 75 seats, so seat turnover would be calculated as follows:
Seat turnover = Number of customers served ÷ Number of seats
=140 ÷ 75
=1.87 turns
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
Menu Item Portion Sales Sales Mix

Strip steak 1,000 12.5%

Ginger shrimp 1,200 15.0
Lamb chop 1,800 22.5
FSM 7- FOOD COSTING Page 6 of 13
 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
Vege buritto 2,400 30.0
Chicken chop 1,600 20.0
Totals 8,000 100.0%

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
decimal answer, and any decimal can be converted to a percentage if one multiplies it
by 100 and adds a percent
sign (%).
Cost ÷ Sales x 100 = Cost%
$ 312,090 ÷ $ 891,687 = .35 and .35 x 100 = 35.0 %
Food cost ÷ Food sales x 100 =Food cost%
Beverage cost ÷ Beverage sales x 100 = Beverage cost%
Labor cost ÷ Total sales x 100 = Labor cost%
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
30.0 % ÷ 100 = 0.3
$ 3.60 ÷ 0.3 = $12.00
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
So the cost per person can be calculated as $4.50:
30.0 % ÷ 100 = 0.3
$ 15.00 X 0.3 = $ 4.50

FSM 7- FOOD COSTING Page 7 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7

Lesson 2 THE CONTROL PROCESS

1. Describe the significance of cost - to - sales relationships and identify several cost - to -
sales ratios important in food and beverage management.

2.. Identify the formulas used to compute cost percent and sales price.

3. Describe factors that cause industry wide variations in cost percentages.

4. Explain the value of comparing current cost - to - sales ratios with those for
previous periods.
LEARNING OUTCOMES: At the of this lesson the students should be able to understand:
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.

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.

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.

FSM 7- FOOD COSTING Page 8 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
EXPENSES

There are four major expense categories that must be controlled by management. They
are…

FOOD COST, BEVERAGE COST, LABOR COST & OTHER EXPENSES

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.

1. 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.

3. Sales Control

Sales Control is important to ensure that all sales results in appropriate income to the
business. Therefore, it is important to require that each employees record each sales
accurately. (Checks, duplicates, bills or etc.)

4. Responsibility For Control

Responsibility is clearly falls onto the management, but the task on controlling differ due
to the nature of the establishment.

Small establishment the control responsibility usually taken by the management but for
larger establishment it is delegated to the assistant manager or controller.

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.

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.

FSM 7- FOOD COSTING Page 9 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
• 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.

• . 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.

• 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.

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.

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.

FSM 7- FOOD COSTING Page 10 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7
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.

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.

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.

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.

PREPARING AN OPERATING BUDGET

PREPARING AN OPERATING BUDGET

1. An operating budget is normally prepared using historical information from previous

budget and other financial records.

2. The second step is to calculated the percentage and analysis of the previous records.

3. Then making assumption or judgment base on all the influencing factors that might
effect the business operation during the forecasted period, and computing into the
new budget.

Flexible budget normally prepared for levels of business volume above and below the
expected level. (See Illustration)

FSM 7- FOOD COSTING Page 11 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7

Golden Dragon Restaurant Statement of Income for the year Ended December
20XX

% of
SALES RM
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
309,875 33.5%
Sales

GROSS PROFIT 615,125 66.5%

CONTROLLABLE EXPENSES

Salaries and Wages 185,000 20.0%

Employee Benefits 46,250 5.0%

Other Controllable
138,750 15.0%
Expenses

Total Controllable Expenses 370,000 40.0%

FSM 7- FOOD COSTING Page 12 of 13

 OUR LADY OF TRIUMPH INSTITUTE OF TECHNOLOGY
Tugas St. Balangasan Pagadian City Zamboanga Del Sur Philippines
Document Title:
ISO 9001:2015
COURSE MODULE IN
FOOD COSTING
FSM 7

INCOME BEFORE
245,125 26.5%
FIXED EXPENSES

OCCUPANCY COST 78,625 8.5%

INTEREST EXPENSES 13,875 1.5%

DEPRECIATION 46,250 5.0%

RESTAURANT
106,375 11.5%
PROFIT/LOSS

• 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.

FSM 7- FOOD COSTING Page 13 of 13