Food and Beverage

Cost Analysis and Control

Ma. Klarence G. Masing-Muñoz

 Cost Control in the
Foodservice Industry
COSTS
• It is a reduction in the value of an asset for the purpose of securing
benefit or gain.
• In the food and beverage business, it means the price to the hotel
or restaurant of goods and services when the goods are consumed
or services are rendered.
 Cost Control in the
Foodservice Industry
CONTROL
• Is a process by which managers attempt to direct, regulate and
restrain the actions of people in order to achieve desired goals.
• It is a management function used in determining what is being
done and evaluating the performance of the operation to apply
the necessary corrective measures.
 Cost Control in the
Foodservice Industry
COST CONTROL
• It is the process by which managers attempt to regulate costs and
guard against excessive costs in every step of the operation.
• It refers to the control over all items of income and expenses of a
foodservice operation.
• Cost control is intended to carry out operations at a reasonable
costs without sacrificing quality of service and production.
 Cost Control System
The cost control system is designed to:
1. Establish standards and consumption limits.
2. Point out and measure variances from the standards.
3. Localize trouble spots.
4. Provide feedback to end-users and management about
variances.
 The Need for Control
• Good management is concerned with the effective and
reasonable utilization of material and human resources. These
resources serve as input to generate the desired output
• When the use of resources is not properly regulated, then the
company becomes vulnerable to various forms of irregularities and
abuses such as thefts, pilferages and anomalous transactions.
 Control Problems
Faced by the Industry
1. We have a very unpredictable business – sales and demands vary
from day to day.
2. We deal with perishable raw materials – quality is diminished as
time passes.
3. We deal with raw materials which are basic to man – pilferage and
theft is high.
4. Service rendered is immediate – the cycle of operation is fast
therefore speed is important.
 Control Problems
Faced by the Industry
5. We deal with multiple low value transactions – records must be
kept.
6. There is a high degree of departmentalization – jobs performed
varies even with a few personnel.
7. Unpredictability of menu mix and sales mix
8. Short-Cycle of Catering Operation
9. Daily variation in food production
 Persons Responsible for the
Implementation of Control
1. Cost Controller
• Ensures that staff are instructed and assisted in the completion
of documents.
• Ensures that all forms and procedures are used and maintained.
• Ensures that the system is simple and adapted and ensures the
cooperation of all.
 Persons Responsible for the
Implementation of Control
2. Managers and Assistant Managers – account for the profitability
and effectiveness of their areas.
3. Department Heads – responsible for the actions of staff and their
department.
4. Control Clerks – responsible for bookkeeping procedures and
completion of accounting forms.
 Persons Responsible for the
Implementation of Control
5. Storekeepers and Stock Controllers – responsible for all goods
received and maintains records of all stocks.
6. Accounts Personnel and Cash Handlers – accounts for all money
involved in the transactions and records these in the appropriate
document.
7. All members of the staff should be cost and control conscious.
 The Goals and Advantages
Of Cost Control
1. A simple cost control system will provide data to disclose the
profitability of each revenue-producing department.
2. An efficient system of cost control will reveal possible sources of
economy and result in a rational utilization of materials and labor.
3. Cost control data will provide the information necessary for
making sound policy decisions, avoiding hit or miss operation.
4. It will facilitate comparisons to expose unfavorable trends.
 Limitations of Control System
1. The Control System by itself will not cure all or prevent problems
from occurring. It will only serve as fever-charts that would identify
the problems’ weaknesses and trends requiring curative measures.
2. The system will require constant management supervision to
ensure its efficient operation.
3. It will need management action and vigilance.
Cost Control Techniques
 Establishing Standards
• Standards may be defined as rules or measures established for
making comparison, and judgments. In food and beverage
business, standards are used for successful control over operations.
• Quality Standards are used for the degree of excellence of raw
materials and finished products.
• Quantity Standards refers to measures of weight or count or
volume.
• Standard Cost is the agreed upon cost of goods and services used
to measure other costs.
• Standard Procedures are those that have been established as the
correct methods, routines and techniques for the day-to-day
operation of the business.
 Establishing Procedures
• Ordering and Purchase Procedures – are standardized to ensure that the
raw food and beverages are acquired in needed quantities and
qualities at favorable prices at the appropriate time.
• Receiving Procedures – are standardized so that all goods received
conform as to quality, quantity and cost to those ordered.
• Storing Procedures – are standardized to ensure that received items are
stored properly and in the correct manner to be guarded against
spoilage and theft.
• Issuing Procedures – are standardized to ensure that food and beverage
items are issued with the proper use of documents to prevent theft or
misuse.
• Production Procedures – are standardized to help satisfy customers on a
given item, so that the said items are produced by the same method,
and with the same ingredients and portion size every time it is served.
 Other Cost Control Techniques
• Training Employees – teach employees how a particular work is to
be done given the standards and the procedures.
• Setting Examples – behavior of individual employees in a food and
beverage operation tends to be influence by the actions,
statements and attitudes of their leader.
• Observing and Correcting Employee Actions – The manager must
continually observe employee actions, as they go about their daily
jobs, to judge to actions and correct them at the appropriate
time.
 Other Cost Control Techniques
• Requiring Records and Reports – Since in some large operations,
the manager’s observations cannot be direct, he must abstract
information from records and reports. These records will be the
basis for corrective measures.
• Preparing and Following Budgets – A budget is a realistic
expression of business goals and objectives expressed in financial
terms. It is therefore a forecast of sales activity and an estimate of
costs. By comparing the actual financial performance to the
forecasted budget, significant differences, if any, are noted for
purpose of corrective action.
 Other Cost Control Techniques
• Censuring and Disciplining Employees – The main objective of
censuring and disciplining employees is to change or modify their
job performance in order to control performance in such a way
that job activity of each employee is consistent with the standards
and procedures.
 The Food
Cost Control
System
 Areas of Control Control Measures

Establishment of sales forecast, budget for

Forecasting, Budgeting and
each cost item, desired profit and other
Standards Setting performance targets.

Preparation of Menus, Recipe

Menu Planning Standardization, Costing and Pricing, Test
of Quality and Yield.
Areas of Control Control Measures
Recognizing and Determining Needs, Use
of Purchase Specifications, Calculation of
Requirements based on accurate
Purchasing allocations and par stock, Searching the
Market, Conducting Negotiations and
Ordering

Inspection of Stocks against Quality

Receiving Standards and Purchase Specification;
Use of Receiving Reports
Areas of Control Control Measures
Limitation of Access, Classification of
Stocks, Use of Tags and Labels, Regular
Storing Inventory, Reconciliation of Actual vs.
Expected Stock Balance.

Establishment of Requisition Procedures,

Issuing Use of Requisition Forms, use of FIFO (First
In, First Out) System
Areas of Control Control Measures

Use of Standard Recipe, Recycling of

Production Left-Over, Adherence to Standard
Serving Portions

Use of Service/Order Slips, Issuance of

Receipts, Assurance of Guest
Sales and Service Acceptance and Comfort, Correct Selling
Price
 Areas of Control Control Measures

Documentation of Transactions, Revenue

Accounting and Audit Reporting and Preparation of Financial
Statement

Measurement of Departmental
Performance and Total Food and
Food Cost Analysis
Beverage Outlet, Compare Actual vs.
and Evaluation Standard Performance, Take Corrective
Action, Evaluate Corrective Action
 Understanding Revenue, Expenses and Profit
• Revenue or Sales is the amount of money you take in.
• Expenses or Costs are the costs of the items required to operate the
business.
• Profit or Income is the amount of money that remains after all
expenses have been paid.
 Revenue – Desired Profit = Ideal Expenses

Desired Profit is defined as the profit that the owner wants to achieve on that
predicted quantity of revenue.
Ideal Expense is defined as management’s view of the appropriate amount of
expense necessary to generate a given quantity of revenue.

Revenue varies with

• Number of guests
• Amount of money spent by each guest
In order to increase revenue, the business can
• Increase the number of guests served
• Increase the amount that each guest spends
• Or a combination of both
 Profit and Loss Statement
The Profit and loss statement (P&L) lists revenue, food and beverage
cost, labor cost, other expense, and profit. It is important because it
indicates the efficiency and profitability of an operation.

Factors Affecting Cost Control

1. Food Cost – is the material used in the production of meals to be sold. It is
expressed in terms of % of income spent for food.
2. Labor Cost – is the cost of employing staff, their meal, accommodation
and insurance.
3. Overhead Cost – are the expenses of running business such as rent, gas,
electricity, etc.
4. Net Profit – is the reward of the capital investment of the business.
 Simple Profit and Loss Statement
REVENUE
Food Sales Php 323,491.25 86.08%
Beverage Revenue 52,311.00 13.92%
Total Revenue Php 375,802.25 100.00%

EXPENSES
Food and Beverage
Cost Php 152,325.00 40.53%
Labor Cost 53,221.00 14.16%
Other Expenses 4,921.00 1.31%
Total Expenses Php 210,467.00 56.00%

NET PROFIT Php 165,335.25 44.00%