HM PE 3 FOOD AND BEVERAGE COST CONTROL 2.

Controlling
3. Measuring
CHAPTER 1 – INTRODUCTION TO COST CONTROL 4. Assisting
5. Furnishing
Cost – is defined as the expenses to a hotel or
restaurant. It is a reduction in the value of a asset for COST CLASSIFICATIONS
the purpose of security benefit or gains. 1. Fixed cost – costs that cannot be changed or
Control – a process used by managers to direct, regulate unaffected (rent, labor, tax, Wi-Fi, depreciation)
and restrain the actions of people. 2. Variable cost – costs that can be changed
Cost Control – the process used by managers to regulate (electricity, water, raw materials, repair &
cost and guard against excessive cost. maintenance).
Accountants – they defined cost in the value of an asset. 3. Salaries/labor cost – consists of fixed and
variable element. A.k.a semi-variable cost
BUSINESS FLOWCHART because of OT, Bonuses, & Tips.
4. Payroll cost – includes salaries and wages and
Cash Raw employee benefits, often referred as Labor cost.
reserves Purchases materials & 5. Controllable cost – are variable; costs that can
/Capital Labor be changed in the short term.
6. Non-Controllable cost – are fixed; cannot
Profit

normally be changed in a short term, but, in a

Produces
Supplies

long term.
7. Unit cost – it may be food and beverage portion
as in the cost of one item or hourly unit of work.
Accounts Finished 8. Total cost – are the total of food and beverage
Receivables Generate Products
portions served in one period. The totality of
/ Cash
units.
Unit cost Total cost
Sales – defined as the revenue resulting from the Fixed cost Changes Do not change
exchange for a product. It is anything you take in Variable Do not Changes
without deducting your expenses. cost change
Prime Cost – refer to the cost of materials and labor. 9. Prime Cost – Food, Beverage, Labor
• 3 Major prime cost: 10. Historical cost – costs that can be found in
a. Food business records, book of accounts, etc.
b. Beverage 11. Planned cost – projections of what cost will be
c. Labor or should be for a future period. Often called
THE FOOD SERVICE ENVIRONMENT “Budgeting”.
1. Internal
2. External 2 TYPES OF FOODSERVICE OPERATION
REASONS TO EMPLOY COST CONTROL 1. Those that operate at low profit margin and
1. To maximize food and beverage sales depends on relatively high business volume.
2. To control expenses 2. Those that operate at high profit margin, thus,
3. To Manage employees does not require high business volume.
4. To Maximize Profit
SALES CONCEPT
Food and beverage are consumed when they are used, Sales – can be expressed as: Monetary and Non-
wastefully, and are no longer available. monetary.

USES OF COST DATA

1. Planning A. MONETARY
• Budget – financial plan as a realistic expression Total Sales – refers to the total volume of
of management’s goals and objectives. expressed in dollar in any given period.
• Planned cost – the estimated cost of a particular
product.
 • By Category – total dollar volume of SALES MIX = ITEM PORTION SALES / TOTAL
sales or total food sales or total SALES X 100
beverage sales.
• By Server – total dollar volume of sales COST TO SALES RATIO:
for which a given server has been FORMULA:
responsible in given period. A. COST PERCENTAGE = COST / SALES X 100
• By Seat – total dollar sales divided by B. SALES = COST / COST PERCENTAGE (IN DECIMAL)
the number of seats in the restaurant. C. COST = SALES X COST PERCENTAGE (IN
Sales Price – refers to the amount charged each DECIMAL)
customer purchasing one unit of a particular D. NET INCOME = SALES – COST
item. It can be single meal or entire meal. E. PROFIT PERCENTAGE = NET INCOME / TOTAL
Average Sales/Average check – determine by SALES
adding individual sales to determine a total.
(how much is the average expenditure of CHAPTER 2 – THE CONTROL PROCESS
customers)
FORMULA: Control – means controlling people in action.
AVERAGE CHECK = TOTAL DOLLAR SALE / TOTAL • Factors in control:
NO. OF COVERS 1. Food does not disappear by itself, without
2 types of commonly calculated help.
averages: 2. Excess quantity of food and beverage into
a. Average Sale per Customer the plate and glass.
FORMULA: 3. Employees’ wages calculation are not based
AVERAGE SALES PER CUSTOMER = TOTAL on the wrong numbers of hours unless
DOLLAR SALES / NO. OF CUSTOMERS someone gives the wrong information.
b. Average Sale per Server 4. Food are not consumed by pest unless
FORMULA: made available by human.
AVERAGE SALES PER SERVER = TOTAL DOLLAR 5. Customer seldom leave without paying
SALES / NO. OF CUSTOMERS SERVED PER SERVER unless make possible.
Criteria for a Food Service Managers
B. NON-MONETARY • The person must be able to grab opportunities
Total number sold – refers to the total number & profit oriented.
of products or items sold in given period. • A unique salesperson
Cover – used to describe one diner regardless of • Good personality with the guest
the quantity of goods the person consumes. • Hard working person
Total Cover – refers to the total number of • The person is the controller or regulator of the
customers served in a given period. operation to achieved maximized profits and
Average Covers – is determined by dividing the maximize costs.
total number of cover per hour, day, or server.
a. COVER PER HOUR = TOTAL COVERS / NO. MANAGING INCOME AND EXPENSES
OF HOURS OF OPERATION • Income
b. COVER PER DAY = TOTAL COVERS / NO. OF - Revenue that arises from producing and
DAYS OF OPERATION selling products and services.
c. COVER PER SERVER = TOTAL COVERS / NO. - It can be increased by increasing the
OF SERVER number of customers and the amount of
Seat turnover – refers to the number of seats money they spent through suggestive
occupied during a given period. selling, creative menu pricing, and discount.
FORMULA: - The goal for cost control is not sale but
SEAT TURNOVER = NO. OF CUSTOMERS SERVED controlling expenses.
/ NUMBER OF SEATS • Expenses
Sales Mix – term used to describe the relative - The cost of the items required to operate
quantity sold of any menu item compared to the business.
other items in the same category. - The outflows of assets of an establishment.
FORMULA:
 - Includes food cost, beverage cost, labor cost ✓ Large establishment – responsibility is
and operating cost. delegated to the assistant manager or
- Operating cost – includes all expenses controller.
referring to general or administrative 5. INSTITUTING CONTROL – is needed at each
expenses, marketing or selling expenses. stage of operation in order to stop pilferage or
(rent, utilities, franchise fees, etc.) problems.

PERSPECTIVE OF CONTROL THE CONTROL TECHNIQUES

• Traditional Perspective 1. Establishing Standard
PROFIT = REVENUE – EXPENSES STANDARD – are rules or measures established
Target Costing (Cost Control Perspective) for making comparisons and judgements.
IDEAL EXPENSES/TARGET COST = a. Quality Standards – used to define the
REVENUE – DESIRED PROFIT degree of excellence of raw materials,
finished products and by extensions, work
Target Costing – is the process of determining performed. (intangible)
the maximum allowable cost for a new product b. Quantity Standard – are defined as
or services. measures of weight, count or volume used
Ideal Expense/Target cost – is the to make comparisons and judgment.
management’s view of appropriate amount of (tangible)
expenses to generate a given quantity of STANDARD COST – the cost of goods or services
revenue. identified, approved and accepted by
Desired Profit – is defined as the profit that the management in order to make judgment and
owner wants to achieve on that predicted comparison of the effectiveness of the
quantity of revenue. operation. “determine what is supposed to
Profit – also known as net income, the positive happen”. The management must determine the
amount determined by deducting expenses 5Ws and 1H for all the aspects of the operation.
from revenues. 2. Establishing Procedures
PROCEDURES – are the method employed to
THE CONTROL PROCESS prepare products or perform jobs.
1. CONTROL – is a process used by managers to STANDARD PROCEDURES – are those that have
direct, regulate and restrain the actions of been established as the correct methods,
people so that the established goals of an routines and techniques for day-to-day
enterprise may be achieved. operations. Production procedures must be
2. COST CONTROL – the process used by managers standardized as one of the most important of
to regulate cost and guard against excessive these is customer satisfaction.
costs. It is an ongoing process throughout the 3. Training
operation. TRAINING – Is a process by which managers
• The principal causes of excessive cost: teach employees how work is to be done, given
a. Inefficiency the standards and standards procedures
b. Waste established.
c. Fraud 4. Setting Example
d. Errors BEHAVIOR – the behavior of individuals tends to
3. SALES CONTROL – is important to ensure that be influenced by the actions, statements, and
all sales results in appropriate income to the attitudes of their leaders. (work habits,
business. Employees must record sales attitudes, behavior, and spirit of a manager.)
accurately. 5. Observing and Correcting Employee Actions –
4. RESPONSIBILITY – clearly falls onto the one of a manager’s important task is to observe
management, but the task on controlling differs the actions of all employees as they go about
due to the nature of the establishment. their daily jobs, judging those actions in the light
✓ Small establishment – responsibility is of the standards and standard procedures
taken by the management established for their work.
6. Requiring Records and Reports – is an
important element in control as these
 information helps in decision making, judgment • TOTAL COST OF SALES/COST OF GOOD SOLD =
& comparisons of the operations, e.g. of report FOOD COST + BEVERAGE COST
is the statement of income. • GROSS PROFIT = TOTAL SALES – TOTAL COST
7. Discipline Employees • TOTAL CONTROLLABLE EXPENSES = ADD (+) ALL
DISCIPLINE – is defined as action taken to give a CONTROLLABLE EXPENSES
warning, punish or telling off an employee for • INCOME BEFORE FIXED EXPENSES = GROSS
work performance or personal behavior PROFIT – TOTAL CONTROLLABLE EXPENSES
incompatible with established standards. Used • PROFIT/LOSS(-) = TOTAL SALES – TOTAL COST OF
as a deterrent or if corrective action failed. SALES – TOTAL CONTROLLABLE EXPENSES –
“Selecting the right people for the right jobs” FIXED EXPENSES
8. Preparing and Following Budgets
BUDGET – is a financial plan and may be • % OF SALES (FOOD) = FOOD SALES / TOTAL
described as a realistic expression of SALES X 100
management’s goals and objectives expressed • % OF SALES (BEVERAGE) = BEVERAGE SALES /
in financial terms. (cash flow budget, capital TOTAL SALES X 100
equipment budget, and advertising budget) • COST: % OF SALE (FOOD) = FOOD COST / FOOD
OPERATION BUDGET – is the most important SALES X 100
budget for F&B manager. It is a forecast sales • COST: % OF SALE (BEVERAGE) = BEVERAGE COST
activity and an estimate of cost that will be / BEVERAGE SALES X 100
incurred in the process of generating those
• % OF SALES = GROSS PROFIT / TOTAL SALES X
sales.
100
• All other particulars like salaries and wages,
PREPARING AN OPERATING BUDGET
rent, depreciation, the denominator will be
1. An operating budget is normally prepared using
% OF SALES = TOTAL SALES X 100
historical information from previous budget and
other financial records.
CONTROL PROCESS SUMMARY
2. Calculate the percentage and analysis of the
Step 1: establish standard and standard procedures for
previous records.
operation.
3. Then making assumption or judgment based on
Step 2: train all individual to follow established
all the influencing factors that might affect the
standards and standard procedures.
business operation during the forecasted
step 3: monitor performance and compare actual
period, and computing into the new budget.
performance with established standards.
Step 4: take appropriate actions to correct deviations
FLEXIBLE BUDGET – normally prepared for levels of
from standards.
business volume above and below the expected level.

COMPUTATION:
• TOTAL SALES = FOOD SALES + BEVERAGE SALES