Controlling Costs; The processes…. Gilbert Noussitou 2006 L3-1.
Transcript of Controlling Costs; The processes…. Gilbert Noussitou 2006 L3-1.
Controlling Costs;The processes….
Gilbert Noussitou 2006 L3-1
Gilbert Noussitou 2006L3-
2
Food Cost %
Question:◦What Should the Food Cost % be?
Answer:◦The difference between the Contribution
Margin and the Selling Price
Selling Price – all costs – profit = Food Cost
Gilbert Noussitou 2006L3-
3
Food Cost %
o Ratio of product cost compared to selling price
Food Cost % = Portion Cost
Selling Price
o Cost Markup – also known as the cost factor
Cost Markup = Selling Price
Portion Costor
100
Cost %
Gilbert Noussitou 2006L3-
4
Food Cost %: What should it be?
Staff Costs 32%
Operating Expenses 18%
Occupancy Costs 11%
Desired Profits 12%
Total Contribution Margin 73%
Sales 100%
Food Cost 27%
Gilbert Noussitou 2006L3-
5
Potential Profitability
More important than food cost is profitability.
Every menu item must generate its share of
income to paid for all other costs and profit.
◦Referred to as: contribution margin or
gross profit
Contribution Margin is the difference between
the product cost & the selling price.
Gilbert Noussitou 2006L3-
6
ProfitabilityThe larger the contribution margin is, the larger
the amount of funds available to operate the business & the larger the net profit will be
Regardless of the food cost %, items with the largest contribution margin are the most profitable
Sales – Cost of Sales = Gross profit
Gross Profit = Contribution Margin (C.M.)
Gilbert Noussitou 2006L3-
7
Contribution Margin
ChickenSandwich $1.25 $4.65 27% $3.40
FishBurger $2.20 $6.50 34% $4.30
SteakSandwich $3.10 $7.75 40% $4.65
ItemFood Cost
SellingPrice F.C. % C.M.
Gilbert Noussitou 2006L3-
8
The Profit Myth
In other words, profits are what ever is left after expenses have been paid.
Profits should be treated as a must be paid item just like rent is.
Then the formula becomes:
In most peoples mind;
Revenue – Expenses = Profit
Revenue – Required Profits = Allowable Expenses
In this case, the only way to survive is to manage expenses properly!!!
Gilbert Noussitou 2006L3-
9
The BUDGETA budget is a plan for operating a
business expressed in financial terms or a plan to control expenses and profit in relation to sales.
A budget is a tool used with performance reports to coordinate, evaluate and control operations in accordance with the goals specified in the BUDGET plan.
Cont…
The Budget (cont.)
Budgeting provides and organized procedure for planning and for development of standards of performance in numerical terms.
Planning, coordination and control are the three primary objectives of Budgeting.
Budgets provide basis for control but they must be planned and implemented by all operational personnel within the organization.
Gilbert Noussitou 2006L3-11
Steps in Planning a Budget
1st Step: Budget Sales
2nd Step: Budget Expenditures
3rd Step: Budget Cash Flow
4th Step: Budget Capital Expenditures
5th Step: Compile Forecast Income Statement
Control Point Flow Chart
Menu Planning
Purchasing
Receiving
Storing
Issuing
Preparing
Cooking
Holding
Serving
☺ Guest Satisfaction & Profit Target☺Gilbert Noussitou 2006
L3-12
Control th
e
processes,
not the end
result!!!
COST CONTROL PROCESS
Establish standards: (Standards = expected level of performance)
Measure actual results of operation Compare actual results to standards Identify corrective action Select corrective action Review corrective action
Gilbert Noussitou 2006L3-13
Food Cost Controls
1. Standard Product Specifications
2. Standard Recipes
3. Standard Yields:◦ Ratio of useable product to total weight before
processing
4. Standard Portions◦ Count – ladle – scoop – bowl – weigh – etc.
5. Standard Portion Cost◦ Always resulting from the 4 previous standards!!!
Gilbert Noussitou 2006L3-14
There are five main standards related to cost control
Yield & Cost Calculations
are an accurate reflection of desired results based on market expectations
encouraging excellence
are reasonable & challenging
are specific & measurable
allow slight flexibility to encourage creativity & challenge
include feed back (in control system)
Gilbert Noussitou 2006L3-15
Effective Standards:
PROBLEM: FOOD COST IS TOO HIGH!?
Reduce dollar value of food in each sale
Increase revenue from each sale
Reduce inefficiency in handling food
Change (review) the menu
Gilbert Noussitou 2006L3-16
POSSIBLE SOLUTIONS:
Cost ControlsUse of Leftovers
Normal waste is costed and soldAbnormal waste is used but not soldProper planning is essential
Gilbert Noussitou 2006L3-17
What is the best way to use leftovers?
THE BEST WAY TO USE LEFT-OVERS IS……
NOT TO HAVE ANY!
EVERYTHING YOU BUY MUST BE SOLD
Taking Inventory;Is that a cost control measure?
Gilbert Noussitou 2006L3-18
THE FORMULA FOR FOOD COST CALCULATION
Gilbert Noussitou 2006L3-19
OPENING INVENTORY $11,000.00PLUSPURCHASES (less credits) + $40,000.00 MINUSCLOSING INVENTORY - $9,000.00EQUALSCOST OF FOOD SOLD (or used) = $42,000.00
Sales are $120,000
Food Cost % = (cost) $42,000.00 x 100 = 35% (Sales) $120,000.00
Gilbert Noussitou 2008L3-20
January February March
Opening inventory $5,779.97 $5,897.13 $5,247.91
Purchases + $9,749.31 $8,999.19 $8,191.18
TOTAL COST (available for sale) = $15,529.28 $14,896.32 $13,439.09
Closing Inventory - $5,897.13 $5,247.91 $4,697.98
FOOD COST (used) = $9,632.15 $9,648.41 $8,741.11
Cash sales $18,992.89 $16,707.84 $14,838.86
Staff meals (sold) + $1,997.99 $1,679.13 $1,571.99
Charges (sold to other departments) + $1,421.13 $1,213.97 $903.06
TOTAL SALES = $22,412.01 $19,600.94 $17,313.91
Food cost percentage 42.98%(43)
49.22%(49)
50.49%(50)
Example #1
Gilbert Noussitou 2008L3-21
January February March
Opening inventory $5,779.97 $5,897.13 $5,247.91
Purchases + $9,749.31 $8,999.19 $8,191.18
TOTAL COST (available for sale) = $15,529.28 $14,896.32 $13,439.09
Closing Inventory - $5,897.13 $5,247.91 $4,697.98
TOTAL COST OF FOOD (used) = $9,632.15 $9,648.41 $8,741.11
Staff meals (sold at cost) - $1,997.99 $1,679.13 $1,571.99
Charges (inter-departmental & Mgmt) - $1,421.13 $1,213.97 $903.06
TOTAL FOOD COST (actually sold) = $6,213.03 $6,755.31 $6,266.06
SALES $18,992.89 $16,707.84 $14,838.86
Food cost percentage 32.71%(33)
40.43%(40)
42.22%(42)
Example #2