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© Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF)
and published by Pearson Education, Inc. All rights reserved.
Chapter 3: Cost Control
Cost control is a business’s efforts to manage how much it spends.
2 3.1 Chapter 3 | Cost Control
Every business needs to make more money than it
spends in order to survive. That is, its sales, or revenue,
have to be higher than its costs.
Cost is the price an operation pays out in
the purchasing and preparation of its
products or the providing of its service.
3 3.1 Chapter 3 | Cost Control
Revenue is the income from sales
before expenses, or costs, are
subtracted.
A successful restaurant or foodservice operation needs to
manage and control many costs:
Food costs
Beverage costs
Labor costs
Overhead costs
All of which can fall under the categories of:
Variable costs
Semi-variable costs
Controllable costs
Fixed or non-controllable costs
4 3.1 Chapter 3 | Cost Control
Variable or semi-variable costs can
change based on sales.
These are controllable costs because the
operation has a certain amount of control in
how it spends on these aspects of the
operation.
▪ Food costs, beverage costs, and labor costs
each have components that are related to sales
levels.
5 3.1 Chapter 3 | Cost Control
Overhead cost is a fixed or non-controllable
cost, meaning it needs to be paid regardless of
whether the operation is making or losing
money.
Fixed costs do not change based on the operation’s
sales.
List some fixed costs a restaurant will always be
responsible for
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An operating budget is a financial plan for a
specific period of time.
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A forecast is a prediction of sales levels or costs that will occur during a specific time period.
Most forecasting techniques rely on having accurate
historical data for the operation. The most common foodservice revenue forecasting
techniques are based on the number of customers and average sales per customer.
8 3.1 Chapter 3 | Cost Control
Average sales per customer ▪ If an establishment has a yearly sales of $224,640 with
an estimated 80 diners each day, open 6 days a week and 52 weeks each year, what is the average sale per customer? ▪ How many diners are we working with?
80 * 6 * 52 =
24,960 patrons
▪ Divide yearly sales by total # of customers
$224,640 / 24,960 =
$9
9
3.1 Chapter 3 | Cost Control
A sales history is a record of the number of portions of every item sold on a menu.
Most operations can run historical sales and production reports from their point-of-sale (POS) systems.
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Moving Average Technique: ▪ “Smoothing Technique”
▪ Uses sales information for 2 or 3 similar periods averaged together
▪ More likely to be accurate since it isn’t solely based on one time period
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A profit-and-loss
report (P&L) is a
compilation of sales
and cost
information for a
specific period of
time.
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A P&L shows whether an operation has made or lost money during the time period covered by the report.
Helps managers gauge an operation’s profitability as well as compare actual results to expected goals.
Helps determine areas where adjustments must be made to
bring business operations in line with established financial goals.
For an operation to be profitable, sales must exceed costs.
13 3.1 Chapter 3 | Cost Control
Net income - also referred to as the
bottom line
14 3.1 Chapter 3 | Cost Control
© Copyright 2014 by the National Restaurant Association Educational
Foundation (NRAEF) All rights reserved. 15
A pro forma is
what you
estimate income
and expenses to
be over a period
of time.
A profit and
loss report shows actual income and
expenses over a
period of time.
3.12
© Copyright 2014 by the National Restaurant Association Educational
Foundation (NRAEF) All rights reserved. 16
Net Sales Total food, beverage sales,
merchandise, & catering less sales
tax
- Cost of goods sold Cost of all the food products sold
less any free food
= Gross Profit Net sales minus the cost of selling
the goods and services
- Controllable Costs Operating costs such as labor,
uniforms, shrinkage, utilities, etc.
- Uncontrollable Costs Operating costs such as rent,
insurance, licenses, overhead, etc.
= Profit/Loss Profit/loss after total operating costs
have been deducted from gross
profit and before taxes
+
-
3.10
Advances in technology have drastically increased the number of options available to operations in controlling costs.
17 3.1 Chapter 3 | Cost Control
Software programs can be used to complete the calculations required in cost planning, controlling sales, controlling inventory, and focusing on the menu.
Provide better access to information, more accurate and convenient collection of information, and improved analysis of that information.
If used effectively, technology can help in running an operation more efficiently and helping to reduce and effectively control costs.
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Full-Line Suppliers:
One Stop Shops
Offers equipment, food, and supplies
Helps control costs and maintains consistency
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Every business needs to obey one basic principle to
survive: it must make more money than it spends.
Food costs, beverage costs, and labor costs each have
components that are related to sales levels.
An operating budget is a financial plan for a specific period
of time. It lists the anticipated sales revenue and projected
costs and gives an estimate of the profit or loss expected
for the period.
A profit-and-loss report is a compilation of sales and cost
information for a specific period of time that shows whether
an operation has made or lost money.
20 3.1 Chapter 3 | Cost Control
Profit & Loss Statement Information Worksheet
Individually
Pg 163 #1:
Working with 1 or 2 others, think of a quick-service restaurant of which you are familiar. Begin to create an operating budget for that establishment.
Highlight the top 5 factors you would need to consider and explain your rationale for using them.
Refer to pg 154-155
10/29/2014 21
