Ch02 CostControl Final.ppt

7/28/2019 Ch02 CostControl Final.ppt

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OH 2-1

A Closer Look at Food Cost

Controlling Foodservice Costs

2

OH 2-1


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OH 2-2

Chapter Learning Objectives

Calculate food cost.

Calculate food cost percentage.

Explain the effect that changes in food cost andsales have on food cost percentage.


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OH 2-3

Food Cost

The actual dollar value of the food used in afoodservice operation

Often referred to as cost of food sold


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OH 2-4

Food Cost continued

Includes the cost of food sold to customers

Also includes the value of food that is givenaway, wasted, or even stolen


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Reductions from Cost of Food

Employee meals

The actual cost of the food served toemployees is subtractedfrom cost of food.

Complimentary (Comp) meals

The actual cost of the food that is given away(not its selling price) is subtractedfrom costof food.


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Reductions from Cost of Food continued

Grease sales

Payments from sales ofused oil or grease, bones,and fat scraps are subtractedfrom food cost.

Transfers to other units

If an operation has more than one unit, transfersTO another unit are subtractedfrom food cost.

Transfers INTO a unit are addedto its food cost.


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Bar Transfers

Food to Bar Transfers

The value of items transferred to the bar for makingdrinks is subtractedfrom food cost.

Typical products transferred to the bar includenonalcoholic beverages, fruits, vegetables, spices,juices, and dairy products.


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Bar Transfers continued

In a busy bar, theamount of food that istransferred from thekitchen to the bar canbe significant.


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The Food Cost Formula

Opening inventory

+ Purchases

Total food available

Closing inventory

Cost of food sold


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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


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Physical Inventory

To accurately calculate cost of food sold, managersmust take a physical inventory.


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Food Cost Formula Definitions

Opening inventory

Dollar value of the physical inventory at the beginning of anaccounting 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 theaccounting period


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OH 2-14

The Food Cost Percentage Formula

Food cost Sales = Food cost percentage


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The Food Cost Percentage Formula in Use

Food cost Sales =Food costpercentage

$7,000 $25,000 = 0.28 or 28.0%


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Two Ways to Make a Decimal Conversion

Method One

Move the decimaltwo places to theright.

.35 = 35%

Method Two

Multiply by 100.

0.35 x 100 = 35%


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Food Cost Percentage

Allows managers in one restaurant to comparetheir food usage efficiency to that of previoustime periods

Can be used to compare the food usageefficiency of one restaurant to another

Allows comparison to the restaurants budgetedfood cost percentage or other standard


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Food Cost Percentage continued

Is the proportion of the restaurants sales that isused to pay for food

Means out of each dollar

A 35% food cost percentage means that out ofeach dollar of sales, the restaurant pays $0.35for food.

Must be controlled by management


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Costs and Sales Affect Food Cost Percentage

Food cost is a variable cost, so it shouldincrease when sales increase and decreasewhen sales decrease.

If controls and standards are in place, food costwillgo up and down in direct proportion to sales.

If controls and standards are not in place, itwillnot!


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How Costs and Sales AffectFood Cost Percentage

A food cost percentage is computed usingboth a food cost (the numerator) and sales(the denominator).

An equal percentage increase (or decrease) ineach of these will result in an unchanged foodcost percentage.


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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



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Ten Percent Decrease in Sales andCost of Food

Original cost of food $1,000

Original sales $3,000


With a 10% decrease in sales and food cost

New cost of food $ 900

New sales $2,700



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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.


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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 thatB increases, C stays the same.


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Food Cost Percentage

Should be controlled

Should notbe allowed to fall far below therestaurants standard


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Food Cost Percentage continued

If food costpercentages areallowed to drop belowthe restaurants

standards, theguests perceptions ofvalue may benegatively affected.


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How Would You Answerthe Following Questions?

1. The cost of employee meals should be(subtracted/added) to the cost of food beforecomputing a food cost percentage.

2. A restaurants food cost percentage should increasewhen sales increase and decrease when salesdecrease. (True/False)

3. Which best describes food cost as an expense?A. It is fixedB. It is semivariable

C. It is variableD. It is noncontrollable

4. A managers job is to reduce the food costpercentage as much a possible. (True/False)


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Key Term Review

Closing inventory

Food cost

Food cost percentage

Inventory

Opening inventory

Purchases

Total food available


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OH 2 29

Chapter Learning ObjectivesWhat Did You Learn?

Calculate food cost

Calculate food cost percentage

Explain the effect that cost and sales have onfood cost percentage

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Ch02 CostControl Final.ppt