OH 2-1 Agenda Classify the cost activity Key Term review Chapter 2.
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Transcript of OH 2-1 Agenda Classify the cost activity Key Term review Chapter 2.
OH 2-1
Agenda
•Classify the cost activity
•Key Term review
•Chapter 2
OH 2-2
Classify The Cost
Controllable
Non-Controllable
Variable
Fixed
Semi-Variable
OH 2-3
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 2-4
Key Term Review continued
Noncontrollable cost
Prime cost
Profit
Sales
Semivariable cost
Standard
Total expense
Variable cost
OH 2-5
A Closer Look at Food Cost
Controlling Foodservice Costs
2OH 2-5
OH 2-6
Chapter Learning Objectives
Calculate food cost.
Calculate food cost percentage.
Explain the effect that changes in food cost and sales have on food cost percentage.
OH 2-7
Food Cost
The actual dollar value of the food used in a foodservice operation
Often referred to as “cost of food sold”
OH 2-8
Food Cost continued
Includes the cost of food sold to customers
Also includes the value of food that is given away, wasted, or even stolen
OH 2-9
Theft Increases Food Cost
Employee theft can be difficult to prevent, but its control is vitally important to ensuring profitability.
OH 2-10
Reductions from Cost of Food
Employee meals The actual cost of the food served to
employees is subtracted from cost of food.
Complimentary (“Comp”) meals The actual cost of the food that is given away
(not its selling price) is subtracted from cost of food.
OH 2-11
Reductions from Cost of Food continued
Grease sales Payments from sales of used oil or grease, bones,
and fat scraps are subtracted from food cost.
Transfers to other units If an operation has more than one unit, transfers TO
another unit are subtracted from food cost.
Transfers INTO a unit are added to its food cost.
OH 2-12
Bar Transfers
Food to Bar Transfers The value of items transferred to the bar for making
drinks is subtracted from food cost.
Typical products transferred to the bar include nonalcoholic beverages, fruits, vegetables, spices, juices, and dairy products.
OH 2-13
Bar Transfers continued
In a busy bar, the amount of food that is transferred from the kitchen to the bar can be significant.
OH 2-14
The Food Cost Formula
Opening inventory
+ Purchases
Total food available
– Closing inventory
Cost of food sold
OH 2-15
The Food Cost Formula in Use
Opening inventory $5,000
+ Purchases + $30,000
Total food available $35,000
– Closing inventory – $4,000
Cost of food sold $31,000
OH 2-16
Physical Inventory
To accurately calculate cost of food sold, managers must take a physical inventory.
OH 2-17
Food Cost Formula Definitions
Opening inventory Dollar value of the physical inventory at the beginning of an
accounting period
Purchases Dollar value of all food purchased (less any appropriate
subtractions) during the accounting period
Closing inventory Dollar value of the physical inventory counted at end of the
accounting period
OH 2-18
The Food Cost Percentage Formula
Food cost ÷ Sales = Food cost percentage
OH 2-19
The Food Cost Percentage Formula in Use
Food cost ÷ Sales = Food cost percentage
$7,000 ÷ $25,000 = 0.28 or 28.0%
OH 2-20
Two Ways to Make a Decimal Conversion
Method One
Move the decimal two places to the right.
.35 = 35%
Method Two
Multiply by 100.
0.35 x 100 = 35%
OH 2-21
Food Cost Percentage
Allows managers in one restaurant to compare their food usage efficiency to that of previous time periods
Can be used to compare the food usage efficiency of one restaurant to another
Allows comparison to the restaurant’s budgeted food cost percentage or other standard
OH 2-22
Industry Standards Restaurants typically run in the low to mid 30%
Italian - ~ 28% Multi Unit - ~ 32% American/Regional - ~35% Steak - ~ 40%
Fine Dining Labor Food Cost
Vs.
Fast Food Food Cost Labor
OH 2-23
Food Cost Percentage continued
Is the proportion of the restaurant’s sales that is used to pay for food
Means “out of each dollar” A 35% food cost percentage means that “out of
each dollar” of sales, the restaurant pays $0.35 for food.
Must be controlled by management
OH 2-24
Costs and Sales Affect Food Cost Percentage
Food cost is a variable cost, so it should increase when sales increase and decrease when sales decrease.
If controls and standards are in place, food cost will go up and down in direct proportion to sales.
If controls and standards are not in place, it will not!
OH 2-25
How Costs and Sales Affect Food Cost Percentage
A food cost percentage is computed using both a food cost (the numerator) and sales (the denominator).
An equal percentage increase (or decrease) in each of these will result in an unchanged food cost percentage.
OH 2-26
Ten Percent Increase in Sales andCost of Food
Original cost of food $1,000
Original sales $3,000
Food cost percentage 33%
With 10% increase in sales and food cost
New cost of food $1,100
New sales $3,300
Food cost percentage 33%
Realigned numbers
Realigned numbers
OH 2-27
Ten Percent Decrease in Sales and Cost of Food
Original cost of food $1,000
Original sales $3,000
Food cost percentage 33%
With a 10% decrease in sales and food cost
New cost of food $ 900
New sales $2,700
Food cost percentage 33%
Realigned numbers
Realigned numbers
OH 2-28
The ABCs of Food Cost Percentage (A/B = C)
Where: A = Food Cost
B = Sales
C = Food Cost Percentage
1. If A stays the same, and B increases, C decreases.
2. If A stays the same and B decreases, C increases.
OH 2-29
ABCs of Food Cost Percentage (A/B = C) continued
3. If A decreases, and B stays the same, C decreases.
4. If A increases, and B stays the same, C increases.
5. If A increases at the same proportional rate that B increases, C stays the same.
OH 2-30
Food Cost Percentage
Should be controlled
Should not be allowed to fall far below the restaurant’s standard
OH 2-31
Food Cost Percentage continued
If food cost percentages are allowed to drop too far below the restaurant’s standards, the guests’ perceptions of value may be negatively affected.
OH 2-32
Finding Cost , Sales, or Percentage
OH 2-33
Examples
1. Your Cost for a catered event is $610 and the Sales were $2,000…………what is your Food Cost Percentage?
2. Sales for the day at the deli counter was $4,100 and your Food Cost % is 21%.......what was your Food Cost?
3. Cost for the rib eye for the event is $1,115 and you run a 35% Food Cost……what should your selling price (sales) be?
OH 2-34
How Would You Answer the Following Questions?
1. The cost of employee meals should be (subtracted/added) to the cost of food before computing a food cost percentage.
2. A restaurant’s food cost percentage should increase when sales increase and decrease when sales decrease. (True/False)
3. Which best describes food cost as an expense?A. It is fixedB. It is semivariableC. It is variableD. It is noncontrollable
4. A manager’s job is to reduce the food cost percentage as much a possible. (True/False)
OH 2-35
Key Term Review
Closing inventory
Food cost
Food cost percentage
Inventory
Opening inventory
Purchases
Total food available
OH 2-36
Chapter Learning Objectives—What Did You Learn?
Calculate food cost
Calculate food cost percentage
Explain the effect that cost and sales have on food cost percentage
OH 2-37
Next Week
Read Chapter 3