Controlling Costs;

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


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Food Cost % o Ratio of product cost compared to selling price

Food Cost % = Portion CostSelling Price

o Cost Markup – also known as the cost factor

Cost Markup = Selling PricePortion Cost

or 100Cost %


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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%


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Potential ProfitabilityMore 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.


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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.)


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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

Item Food Cost

SellingPrice F.C. % C.M.


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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!!!


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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 the

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


Food Cost Controls

1. Standard Product Specifications2. Standard Recipes3. 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!!!


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)


Effective Standards:

PROBLEM: FOOD COST IS TOO HIGH!?

Reduce dollar value of food in each saleIncrease revenue from each saleReduce inefficiency in handling foodChange (review) the menu


POSSIBLE SOLUTIONS:

Cost ControlsUse of Leftovers

Normal waste is costed and soldAbnormal waste is used but not soldProper planning is essential


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?


THE FORMULA FOR FOOD COST CALCULATION


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


January February March

Opening inventory $5,779.97 $5,897.13 $5,247.91Purchases + $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 $14,838.86Staff 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


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

Documents

Controlling Costs;