OH 1-1 What Is Cost Control? Controlling Foodservice Costs 1 OH 1-1.
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OH 1-1 What Is Cost Control? Controlling Foodservice Costs 1 OH 1-1
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Transcript of OH 1-1 What Is Cost Control? Controlling Foodservice Costs 1 OH 1-1.
OH 1-1
What Is Cost Control?
Controlling Foodservice Costs
1OH 1-1
OH 1-2
Chapter Learning Objectives
Describe the relationship between standards and controlling costs.
Identify the types of costs incurred by a restaurant or foodservice organization.
Classify foodservice costs as controllable or noncontrollable.
Describe and give examples of controllable and noncontrollable costs.
OH 1-3
Chapter Learning Objectives continued
Classify foodservice costs as variable, semivariable, or fixed.
Describe and give examples of variable, semivariable, and fixed costs.
Explain the basic foodservice cost control process.
OH 1-4
Characteristics of Controls
Contribute to profit making
Start with the menu
Affect all areas of the operation
Are formalized through a restaurant’s policies and procedures
OH 1-5
Cost Standards
Are used to compare actual results to planned results
Are established by management
Standards may be designed to Ensure a profit
Stay within the budget
Achieve planned quality levels
OH 1-6
Costs Impact Profit
Excessive costs reduce restaurant profitability.
OH 1-7
Types of Costs
Controllable Costs Food Labor Cleaning supplies
Noncontrollable Costs Insurance
Mortgage payments
Cost of licenses
OH 1-8
Types of Costs continued
Fixed Costs Do not vary with sales volume Do not change from one accounting period to the
next Variable Costs
Increases and decreases are directly related to sales volume
Semivariable Costs Increase or decrease with changes in sales volume,
but not in direct proportion Contain both fixed and variable components
OH 1-9
Variable Costs
Directly affect profitability
Can be controlled by management
Are compared to an established standard
OH 1-10
Prime Costs
Include those expenses classified as Food
Labor
Are directly controlled by management
Make up the majority of a restaurant’s total costs
Are directly related to profitability
OH 1-11
Prime Costs continued
The costs of food and labor are a restaurant’s greatest expenses.
OH 1-12
The Cost Control Process Steps
Step 1 – Collect sales and cost data.
Step 2 – Monitor and analyze sales and costs.
Step 3 – Take corrective action as appropriate.
OH 1-13
The Cost Control Process
Step 1 – Collect sales and cost data.
Yearly and monthly data are used for budgets and income statements.
Weekly and monthly data are used for purchasing and scheduling.
Meal period data are used for production planning.
OH 1-14
The Cost Control Process continued
Step 2 – Monitor and analyze sales and costs.
Evaluate The line item’s name
Budgeted cost
Actual cost
Cost difference
Percentage difference
OH 1-15
The Cost Control Process continued
Step 2 – Monitor and analyze sales and costs.
Compare actual sales and costs to Budget (line item review)
Operational standards
Historical information
Identify variances
OH 1-16
Computation of Percent Difference
Actual cost of $48,000
Budgeted cost of $45,000
Actual cost – Budgeted cost = Cost difference
$48,000 – $45,000 = $3,000
OH 1-17
Computation of Percent Difference continued
Cost difference ÷
Cost budgeted = Percent
difference
$3,000 ÷ $45,000 = 0.067, or 6.7%
OH 1-18
Cost Variations
Can be preventable
May be unpreventable
Take corrective action on preventable cost variations
OH 1-19
The Cost Control Process continued
Step 3 – Take corrective action as appropriate.
Variations from anticipated results may be Large and significant
Small, but still significant
Small and insignificant
OH 1-20
Corrective Actions for Cost Control
To reduce food cost
Reduce portion size.
Replace the item with a lower cost alternative.
Feature menu items with higher profit margins (lower costs).
Raise menu prices.
OH 1-21
Corrective Actions for Cost Control continued
To reduce food waste
Monitor portion control.
Monitor food storage and rotation.
Monitor food purchasing (buy appropriate amounts).
Minimize production errors.
OH 1-22
Corrective Actions for Cost Control continued
To reduce labor cost
Reduce the number of employees on the schedule.
Ask employees to end their shift early if they are not needed.
Cross-train staff.
OH 1-23
Corrective Actions for Cost Control continued
Do you think food or labor costs are higher in this restaurant?
Why?
OH 1-24
How Would You Answer the Following Questions?
1. Who is responsible for the size of a restaurant’s fixed expense?
2. Which of the following vary with sales volume?A. Fixed expenseB. Semivariable expenseC. Variable expenseD. Both B and C
3. Who is responsible for monitoring controllable costs?
4. What two components make up “prime cost?”
OH 1-25
Key Term Review
Control
Controllable cost
Corrective action
Cost of food sold
Fixed cost
Gross profit
Income statement
Labor expense
Line item review
Loss
OH 1-26
Key Term Review continued
Noncontrollable cost
Prime cost
Profit
Sales
Semivariable cost
Standard
Total expense
Variable cost
OH 1-27
Chapter Learning Objectives—What Did You Learn?
Describe the relationship between standards and controlling costs.
Identify the types of costs incurred by a restaurant or foodservice organization.
Classify foodservice costs as controllable or noncontrollable.
Describe and give examples of controllable and noncontrollable costs.
OH 1-28
Chapter Learning Objectives—What Did You Learn? continued
Classify foodservice costs as variable, semivariable, or fixed.
Describe and give examples of variable, semivariable, and fixed costs.
Explain the basic foodservice cost control process.
