Food Cost

Control and
Engineering
LEARNING OUTCOME
1. To explore the various types of cost incurred during
food and beverage operations.

2. To identify various cost control tools and techniques.

3. To understand the concept of menu engineering.

4. To analyse a menu for profitability by menu

engineering worksheet.
 ▪Cost control is a business’s efforts
to manage how much it spends.
▪ Every business needs to make more
money than it spends in order to
Cost Control
Overview 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
providing of its service.

▪Revenue is the income from sales

before expenses, or costs, are
subtracted.
Types of Costs

▪ Fixed Cost: Those cost which are not affected by change

in sales or volume in a restaurant. Examples are rent,
taxes, insurance etc.
▪ Variable Cost: It is directly in link with the sales and
revenue generation. For example, if the sale turnover of
an outlet will increase, the cost of raw material will also
increase and on the other hand if the sales decrease the
cost needs to minimized .
▪ Actual Cost: The amount which is
spent in actual for carrying out the
activities related to food and beverage
production. Example buying of
commodities for an outlet.

▪ Budgeted Cost: The cost which is

expected to be incurred during a
particular period of time.
▪ Infrastructure Cost: The cost spent by the
organization on the development of infrastructure.
It includes the cost of construction/renovation of
the kitchen or restaurant.

▪ Joint Cost: It is considered to be joint cost between

two departments. For example, cost incurred on
an activity which is jointly taken by production
and service department.
 ▪ Food costs must be controlled during all
seven stages of the food flow process:

1. Purchasing
2. Receiving
Steps in 3. Storage
Controlling 4. Issuing
Cost 5. Preparation
6. Cooking (production)
7. Service (sale)
Purchasing: The purchase indent should be raised
considering the best seasonal availability of the
ingredients, their usage, cost and portion size in the
menu item to ensure minimization of cost.

Receiving: During receiving each and every item

should be checked with product specification to
serve the purpose in the menu.
Storage: All the commodities procured needs to be
stored as per their storage requirements.

Issuing: Items from the stores should be issued to

concerned sections exactly as per the specification
and following the concept of LIFO or FIFO which
implies as per the nature of the product.
Preparation: The stage of Mise-en-place
or preparation is very important as the
product is moulded towards a finishing
touch.

Production: All the food items after

preparation needs should be used for
the final delivery of the menu item. The
proper control of portion of the dish
along with the ingredients will reflect a
better cost control.
Service: During service the food
and beverages should always be
served at the correct temperature
with proper portion size.
 Food Cost

Food cost refers to the cost of food sold, wasted, consumed,

pilfered, rotten, expired, overcooked, undercooked or not
properly prepared on the other hand inventory can be defined as
actual amount of food stock available in storage and it can be
referred in units or values or both combined together.
(Opening inventory + Purchases = Total food available) – Closing
inventory = Total food cost
Food Cost Percentage
Total food cost percentage studies the
relationship between sales and the cost of
food to achieve those sales. It is
considered as an important tool to
analyze the company targets, costs in the
recent past, or even recent trends in
hospitality industry. To calculate the food
cost percentage, divide the total food cost
by the sales.
(Total food cost ÷ Sales) X 100 = Food cost
percentage
 ▪ Accurate Portion Size: Tools that enable a food
and beverage service or production team
includes scooper, ladles, spoons of various
Cost Control shapes and sizes, entree dishes, ramekin bowls,
Tools and cups, portion scales.
Techniques
▪ Yield: It is the process of calculating the
approximate number of portions taken out of a
recipe.
▪ Physical Inventory: The process of
checking, monitoring or recording the
inventories time to time physically
can be termed as physical inventory.

▪ Effective Labour Cost: Labour is

considered as a variable cost to a food
and beverage outlet. Most of the food
and beverage producing outlets have
both full time and part time
employees.
▪ Purchase Cost versus Final Product Cost: In
purchase cost, the actual cost of an ingredient is
taken into account before cutting, peeling, trimming
or waste on the other side the final product cost
includes the amount spend after cutting, trimming
and removing waste in order to ensure that only the
usable amount is reflected in the standardized
recipe.
▪ Finalizing Portion Cost: To get a standard
operation cost the concept of standardized recipe
needs to be followed every time a particular item is
prepared.
▪ Operational Budget: Operational
budget is a financial plan or
projection of sales and cost during
a specific period of time.

▪ P&L Account: A profit and loss

account reflects the figures of cost
and sales in a given period of time.
An operation to be considered as
successful, should always have
sales ahead of cost.
 Cost Control Overview
Cost control is a business’s efforts to manage how much it spends.

▪ 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.
▪ Revenue is the income from sales before expenses, or
costs, are subtracted.
▪ Cost is the price an operation pays out in the
purchasing and preparation of its products or
the providing of its service.

3.1
 Types of
▪ ACosts
successful restaurant or foodservice operation
needs to manage and control many costs.
▪ Food costs, beverage costs, and labor costs each
have components that are related to sales levels.
▪ 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.
▪ 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.

3.1
 Cost-Control Toolsin technology have drastically
▪ Advances
increased the number of options available to
operations in controlling costs.
▪ Software programs can be used to complete the
calculations required in cost planning, controlling
sales, controlling inventory, and focusing on the
menu.
▪ Computer software can easily 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.

3.1
 Determining Food
Cost Percentage
Total food cost percentage is the relationship between sales and
the cost of food to achieve those sales.

▪ Analyze food cost percentage by comparing it to company standards,

historical costs, or even industry standards.
▪ To determine the percentage, divide the total food cost by the sales:
Total food cost ÷ Sales = Food cost percentage
▪ Food cost is a variable cost: It should increase or decrease in direct proportion
to an increase or decrease in sales if all of the standards and food controls are
followed correctly.

3.2
 ▪ The menu is the primary sales tool in most
restaurant and foodservice operations.
▪ There are a number of methods for menu pricing:
▪ A contribution margin is the portion of dollars
that a particular menu item contributes to overall
Menu Pricing profits. To use the contribution margin method,
an operation must know the portion costs for each
item sold.
▪ In the straight markup pricing method, multiply
raw food costs by a predetermined fraction.
▪ With the average check method, the total revenue
is divided by the number of seats, average seat
turnover, and days open in one year.
▪ The food cost percentage is equal to the food cost
divided by food sales.

3.2
Matrix for menu
engineering
 Operating Budgets
An operating budget is a financial plan for a
specific period of time.

▪ 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.
▪ 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.
3.1
 Profit-and-Loss Report
A profit-and-loss report (P&L) is a compilation of sales
and cost information for a specific period of time.

▪ A P&L shows whether an operation has made or lost money during the time
period covered by the report.
▪ The P&L, or income statement, helps managers gauge an operation’s
profitability as well as compare actual results to expected goals.
▪ A P&L also helps management 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.
3.1
 Monitoring Production
Volume and Cost
▪ When restaurants produce too much, food cost goes up; produce too little, and sales are lost.
▪ A food production chart shows how much product should be produced by the kitchen during a given meal
period.

▪ A well-structured chart can ensure product quality, avoid product shortages, and minimize waste, spoilage,
theft, energy costs, and administrative costs.
▪ Sales history is critical in helping management forecast how many portions of each menu item to produce on
a given day.

3.2
 ▪ Labor is a semivariable, controllable cost. Labor
costs are tied to sales, but not directly.
▪ Most operations have both full-time and part-
time staff.
▪ Operations must be aware of the fluctuations in
their sales so as to have just the right amount of
staff on hand to handle customers efficiently,
Budgeting
▪ It is an important part of the management
Labor Costs function to make sure that payroll cost is in line
with the budgeted standard.
▪ Ideal labor cost is the standard the restaurant
uses to budget for staffing needs; it represents
what management predicts will happen.

3.3
 Labor Cost Factors
▪ Business volume, or the amount of sales an
operation is doing for a given time period,
impacts labor costs.
▪ Employee turnover is the number of employees
hired to fill one position in a year’s time.
▪ Quality standards also affect labor cost. Quality
standards are the specifications of the operation
with regard to products and service.
▪ A restaurant or foodservice operation must meet
operational standards. If an employee does not
prepare a product that meets the operation’s
standards, the item must be redone. This costs
money, in terms of wasted product and lost
productivity.

3.3
Thank You