COST CONTROL IN FOOD SERVICE OPERATIONS

Contents
01 Nature of Cost Control

02 Purpose of Cost Control

03 Objectives of Food and Beverage Control

04 Steps in Cost Control

05 Sequence/ Flow of Control in Food Service

Nature of Cost Control
Introduction to Cost Control

Any businessman would

always be looking to have a
good return on their
investment and that can
only be
reached through
profitable operations.
Nature of Cost Control
Introduction to Cost Control

A restaurant operations may

experience a good patronage
but with
little or no profit because
cost of operations is
not controlled.

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Nature of Cost Control
Introduction to Cost Control

Business loss is not only due

to low income but also due
to uncontrolled expenses.

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Cost Concept

Cost
is defined as the expenses to
a foodservice
establishment for goods
and services when the
goods are consumed or
the services are rendered.

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 Fixed costs are
normally unaffected by
Fixed Cost
changes in sales
Volume.
These costs do not
change with any
business activity
change.
Variable costs are clearly
Variable Cost related to business volume.
As business volume
increases, variable costs
will increase; as volume
decreases, variable costs
should decrease as well.
 Non-
Controllable
controllable
Cost
Cost
Controllable costs Non-controllable
can be changed in the costs cannot
short term. Variable normally be changed
costs are normally in the short term
controllable.
 Other Types
Actual Cost
costs or expense which is
actually spent.

For example, the amount of buying

raw ingredients for the
preparation of a certain dish.
 Other Types
Budgeted Cost
the cost which is expected for a
particular period of time.
 Other Types
Direct Cost
A direct cost is a price that can be
directly tied to the production of
specific goods or services. A direct
cost can be traced to the cost object,
which can be a service, product,
or department.
 Other Types
Indirect Cost
Indirect costs extend beyond the
expenses you incur creating a
product to include the costs involved
with maintaining and running a
company or in this case your
restaurant.
 Other Types
Joint Cost
Outlay Cost
Opportunity Cost
Sunk Cost
Standard Cost
Prime Cost
Sales
Sales is defined as revenue resulting from the
exchange of products and services for value.
For F&B industry, food and beverage sales are
exchanges of the products and services of a
restaurant or any related business for value.

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Monetary Terms
1. Total Sales
2. Total Sales by category
3. Total sales per server
4. Total sales per seat
5. Average sale
6. Average check
7. Average sale per server
Nonmonetary Terms

1. Total number sold

2. Cover
3. Total covers
4. Average covers
5. Seat Turnover
6. Sales Mix
is defined as the process of regulating
costs and guard against excessive costs.
A cost control
system is
designed for
the following
reasons:

1. Establishing
standards or
goals.

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A cost control
system is
designed for
the following
reasons:
2. Measurement
of performance.

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A cost control
system is
designed for
the following
reasons:
3. Comparison
and analysis.

Actual performance
versus
standards/budget

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A cost control
system is
designed for
the following
reasons:
4. Corrective
action.

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 Objectives of Food and Beverage Cost
Control
1.Analysis of income and expenditure
2.Establishment and maintenance of standards
3.Pricing
4.Prevention of waste
5.Prevention of fraud

?
6.Management information
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5.Take corrective action.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
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expected.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5.Take corrective action.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
Example:
3.Compare actual cost versus budget
Cost of sales - - -- - - - 35-40%
4. Analyze
Beverage Costvariance.
- - - - - - 18-25%
5.Take corrective
Labor Cost - - - - - - - action.
- - - 15-24%
Fixed costs (rental, amortization
etc. ) - -

10-15%
Supplies - - - - - -- - -- - - -- 2-5%
Administrative Expense - - - - - 5-
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5.Take corrective action.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5A budget variance report must be prepared
.Take corrective action.
indicating the differences in expenses vs
the budget.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5.Take corrective action.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5.Take corrective action.
Any variance between the actual cost
and the budgeted cost is a signal that
there is an excessive consumption. Any
excess will eat up allocation for profit
or even other expenses.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5.Take corrective action.
 Steps in Cost Control
1.Determine the expected income.
2.Establish budget, expressed as cost ratio over

?
sales
3.Compare actual cost versus budget
4. Analyze variance.
5.Take corrective action.

Variances can be corrected by identifying and

working on possible causes. Otherwise excess
in cost budget will accumulate and the desired
profit will not be attained.
Problems in Food and Beverage Control

Perishability of the Product

Business volume unpredictability
Menu mix unpredictability

Food and beverage operation short cycle

Departmentalization
Sequence/Flow of Control in Food Service

Sales Requisition Food

forecasting and Issuance Preparation
and Budgeting

Sales and
Menu Planning Storekeeping
Service

Ordering and Receiving of Accounting

Purchasing Stocks and Audit
 Sequence/Flow of Control in Food Service

Activities Control Measures and Tools Person(s) Responsible

Sales • Sales history as • Operations
Forecasting and basis for forecast Manager and
ing Budget Finance
Budgeting works heets Manager
based on e
stablish cost rati
o over sales.
 Sequence/Flow of Control in Food Service
Control Measures and Tool
Activities s Person(s) Responsible
• Menu Planning • Standardize and c • Chef or product
ycle menus, development
• Recipe tests
• Costing and pricin
team
g of menus • Cost clerk
based on
established foo d
cost percentage
Sequence/Flow of Control in Food Service
Control Measures and Tool
Activities s Person(s) Responsible
Ordering and • Daily Allocation • Outlet
Purchasing Matrix Managers
• Market List/ Pur
chase Request
Form
 Sequence/Flow of Control in Food Service

Activities Control Measures and Tools Person(s) Responsible

Receiving of • Purchase Speci • End-user
Stocks fications • Purchaser
• Competitive Bid
ding
• Purchase
Order
 Sequence/Flow of Control in Food Service
Control Measures and Tool
Activities s Person(s) Responsible
• Storekeeping • Inspection for quality • Receiving clerk
and quantity
• Receiving reports
and
records • Supplier
• Supplier’s invoice
• Use of meat tags, bin • Stock clerk
cards
• Limitation of access
• Periodic inventory
 Sequence/Flow of Control in Food Service
Control Measures and Tool
Activities s Person(s) Responsible
• Requisition and • Requisition forms • End-user
issuance • Balancing requisition
slips with inventory
• Stock clerk
• FIFO system
• Forced issuance for
non-moving stocks
 Sequence/Flow of Control in Food Service
Control Measures and Tool
Activities s Person(s) Responsible
Food preparation • Use of standard • Cooks
recipe
• chefs
• Inter-kitchen transfer
memo
 Sequence/Flow of Control in Food Service
Control Measures and Tool
Activities s Person(s) Responsible
Sales and Service • Order slips • Waiter
• Issuance of
receipts
• cashier
• Reconciliation receip
ts vs order slip
 Sequence/Flow of Control in Food Service
Control Measures and Tool
Activities s Person(s) Responsible
• Accounting and • Cashier’s report • Auditor
audit • Documentation of pu
rchases, receipts,
• Cashier
ca sh transactions • accountant
• Financial statement
 Essential Elements in Controlling Food Cost
s
• Standardized Recipes
• Standard Purchase Specifications
• Standard Yield
• Standard Portion Size
References:
• Borja, M. & Samson J.(2007). Food Production
Management. Mindshapers Co., Inc.
• Egan B. Introduction to Food Production and Ser
vice. Pressbooks. https://psu.pb.unizin.org/
• Samson-Roldan, A. (2007). Operating & Managi
ng a Hotel Restaurant Business.
Thanks.

End.