Intro to Cost Control
Cost control
• Every business needs to obey one basic principle in order to
survive: it must make more money than it spends. In other
words: it’s sales or revenue must be higher than its costs.
• Revenue – the income from sales before expenses (or costs) are
subtracted.
• Mama Maria’s restaurant brings in $6000 per week in sales.
The expenses of the restaurant are $4,500 per week. What is
Mama Maria’s revenue per week?
Cost control
• Cost is the price an operation pays out in the purchasing and
preparation of its products or the providing of its service.
• Mama Maria’s restaurant’s revenue is $6000 per week. The
expenses of the restaurant are $4,500 per week. What is Mama
Maria’s cost per week?
• If, at any point a business’s costs are higher than its sales, that
business is losing money. If this happens for a long period of
time, what will happen?
Cost control
• Cost control is a business’s efforts to manage how much it
spends.
Types of Costs
• In the restaurant and foodservice industry the four main
categories of costs are:
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Food costs
Beverage costs
Labor costs
Overhead costs
Variable or Controllable Costs
• Food costs, beverage costs, and labor costs can change based
on sales. Therefore they are called variable or controllable
costs. The operation has a certain amount of control in how it
spends on these aspects of the operation.
• For instance, if the price of chicken rises, and no action is
taken by management, the restaurant’s food cost will increase.
• What can management do to stop the food cost from
increasing if the price of chicken rises?
• Raise the selling price of all the chicken entrees
• Reduce portion size
• Eliminate chicken from the menu all together
Fixed or Non-controllable costs
• Overhead costs is a fixed or non-controllable cost. These costs
need to be paid regardless of whether the operation is making
or losing money.
• These include insurance, mortgage, and utilities.
Operating Budgets
• An operating budget is a financial plan for a specific period of
time.
• It is an essential tool for managing an operation’s many costs.
Operating Budgets
• An operating budget lists:
• Anticipated sales revenue
• Projected costs
• Gives and estimate of the profit or loss expected for the period.
• Management often prepares operating budgets monthly, but
they can prepare them for shorter or longer periods of time.
Forecasts
• An operating budget is a financial plan for a specific period of
time.
• Most operating budgets are based on forecasts.
• A forecast is a prediction of sales levels or costs that will occur
during a specific time period.
Forecasts
• But to plan for the future a manager must look at what has
occurred in the past. Therefore a manager must have reliable
historical data.
• The most common foodservice revenue forecasting
techniques are based on the number of customers and
average sales per customer.
• The get the average sales per customer you take the total
dollar sales and divide it by the total number of customers.
Forecasting Food Items
Forecasts
• A sales history is a record of the number of portions of every
item sold on a menu.
• How do you think they keep track of this??
• Point-of-sale (POS) systems is a software system that records
everything that is sold.
• This is where managers can get the information they need to
make their forecasts.