Agenda
 Welcome
 Ground Rules
 Warm Up Activity
 Syllabus
 NRAEF ManageFirst
 What is Cost Control?
 Next week
OH 1-1
Ground Rules
 Be on time – start on time
 All cell phones, pagers and IPods should be
turned off during class
 No Internet use during class, unless part of
classroom activity
 Free to take a break if needed
 Appreciate other points of view
 Respect others’ desire to learn
 End on time
OH 1-2
Warm Up Activity
 Break into groups of 2-3 students
 Interview each other; as you will introduce each
other to the class
 Information you may wish to share:
 What is your degree path?
 Hospitality Experience
 Family, hobbies
OH 1-3
NRAEF ManageFirst Program
Competency Guide
IS REQUIRED FOR THIS COURSE
How can this book help me?
Part of a certificate program
Industry-driven
Resume builder
OH 1-4
NRAEF ManageFirst Program
Competency Guide
IS REQUIRED FOR THIS COURSE
Who is the NRAEF?
Educational arm of the National
Restaurant Association
Bridge between academia and
industry
Work with over 60,000 restaurant,
hospitality and foodservice members
companies
OH 1-5
NRAEF ManageFirst Program
Competency Guide
IS REQUIRED FOR THIS COURSE
Competency Guide Content
Management-focused
Application-based, not just theory
Professional Profiles give you a
“sneak peek” into the field
“Real world” activities help build
job skills
OH 1-6
NRAEF ManageFirst Program
Competency Guide
IS REQUIRED FOR THIS COURSE
How will this certificate help me?
Validated by over 200 restaurant,
foodservice and hospitality
organizations
Resume builder
Tangible accomplishment
Can give you a hiring advantage over
peers who didn’t use ManageFirst
OH 1-7
Academic Scholarship for NRAEF
ManageFirst Program® Students
Undergraduate students are eligible to apply for this
scholarship who have earned at least one ManageFirst
certificate (not including ServSafe® Food Safety and
ServSafe Alcohol®) and are studying culinary arts and/or
foodservice management.
Award amount: $2,000
Application and Instructions available at:
http://www.nraef.org/scholarships/managefirst/
OH 1-8
MCC & ICA
NRAEF ManageFirst Core Credential Topics
CHRM 2475 Leadership: Hospitality & Restaurant Management
CHRM 2460 Cost Management: Controlling Foodservice Costs
CHRM 2470 Supervision: Human Resources Management &
Supervision
CHRM 1020 Sanitation: ServSafe Food Safety
NRAEF ManageFirst Foundation Topics
CHRM 2480 Purchasing: Inventory and Purchasing
CHRM 1140 Food Production: Food Production
CHRM 2350 Nutrition: Nutition
OH 1-9
WIN WIN
STUDENTS WIN
MCC/ICA WINS
NRAEF WINS
THE INDUSTRY WINS
OH 1-10
Let’s Take a Break
Be back in 15 minutes
OH 1-11
What Is Cost Control?
1
OH 1-12
1-12
 Controlling Foodservice Costs
Chapter Learning Objectives
 Describe the relationship between standards
and controlling costs.
 Identify the types of costs incurred by a
restaurant or foodservice organization.
 Classify foodservice costs as controllable
or noncontrollable.
 Describe and give examples of controllable and
noncontrollable costs.
OH 1-13
Chapter Learning Objectives continued
 Classify foodservice costs as variable,
semivariable, or fixed.
 Describe and give examples of variable,
semivariable, and fixed costs.
 Explain the basic foodservice cost
control process.
OH 1-14
Characteristics of Controls
 Contribute to profit making
 Start with the menu
 Affect all areas of the operation
 Are formalized through a restaurant’s policies
and procedures
OH 1-15
Cost Standards
 Are used to compare actual results to
planned results
 Are established by management
 Standards may be designed to
 Ensure a profit
 Stay within the budget
 Achieve planned quality levels
OH 1-16
Costs Impact Profit
Excessive costs reduce restaurant profitability.
OH 1-17
Types of Costs
 Controllable Costs
 Food
 Insurance
 Labor
 Mortgage payments
 Cleaning supplies
OH 1-18
 Noncontrollable Costs
 Cost of licenses
Types of Costs continued
 Fixed Costs
 Do not vary with sales volume
 Do not change from one accounting period to the
next
 Variable Costs
 Increases and decreases are directly related to sales
volume
 Semivariable Costs
 Increase or decrease with changes in sales volume,
but not in direct proportion
 Contain both fixed and variable components
OH 1-19
Variable Costs
 Directly affect
profitability
 Can be controlled
by management
 Are compared to
an established
standard
OH 1-20
Prime Costs
 Include those expenses classified as
 Food
 Labor
 Are directly controlled by management
 Make up the majority of a restaurant’s total costs
 Are directly related to profitability
OH 1-21
Prime Costs continued
The costs of food and labor are a restaurant’s
greatest expenses.
OH 1-22
The Cost Control Process Steps
Step 1 – Collect sales and cost data.
Step 2 – Monitor and analyze sales and costs.
Step 3 – Take corrective action as appropriate.
OH 1-23
The Cost Control Process
Step 1 – Collect sales and cost data.
 Yearly and monthly data are used for
budgets and income statements.
 Weekly and monthly data are used
for purchasing and scheduling.
 Meal period data are used for
production planning.
OH 1-24
The Cost Control Process continued
Step 2 – Monitor and analyze sales and costs.
 Evaluate
 The line item’s name
 Budgeted cost
 Actual cost
 Cost difference
 Percentage difference
OH 1-25
The Cost Control Process continued
Step 2 – Monitor and analyze sales and costs.
 Compare actual sales and costs to
 Budget (line item review)
 Operational standards
 Historical information
 Identify variances
OH 1-26
Computation of Percent Difference
Actual cost of $48,000
Budgeted cost of $45,000
Actual cost – Budgeted cost
$48,000
OH 1-27
–
$45,000
= Cost difference
=
$3,000
Computation of Percent Difference continued
Cost difference ÷
Cost
budgeted
=
$3,000 ÷ $45,000 =
OH 1-28
Percent
difference
0.067, or 6.7%
Cost Variations
 Can be preventable
 May be unpreventable
 Take corrective action on preventable
cost variations
OH 1-29
The Cost Control Process continued
Step 3 – Take corrective action as appropriate.
 Variations from anticipated results
may be
 Large and significant
 Small, but still significant
 Small and insignificant
OH 1-30
Corrective Actions for Cost Control
To reduce food cost
 Reduce portion size.
 Replace the item with a lower cost alternative.
 Feature menu items with higher profit margins
(lower costs).
 Raise menu prices.
OH 1-31
Corrective Actions for Cost Control continued
To reduce food waste
 Monitor portion control.
 Monitor food storage and rotation.
 Monitor food purchasing (buy
appropriate amounts).
 Minimize production errors.
OH 1-32
Corrective Actions for Cost Control continued
To reduce labor cost
 Reduce the number of employees on
the schedule.
 Ask employees to end their shift early if they
are not needed.
 Cross-train staff.
OH 1-33
Corrective Actions for Cost Control continued
 Do you think food or
labor costs are higher
in this restaurant?
 Why?
OH 1-34
How Would You Answer
the Following Questions?
1.
2.
Who is responsible for the size of a
restaurant’s fixed expense?
Which of the following vary with sales volume?
A.
B.
C.
D.
3.
4.
OH 1-35
Fixed expense
Semivariable expense
Variable expense
Both B and C
Who is responsible for monitoring
controllable costs?
What two components make up “prime cost?”
Key Term Review
OH 1-36
 Control
 Gross profit
 Controllable cost
 Income statement
 Corrective action
 Labor expense
 Cost of food sold
 Line item review
 Fixed cost
 Loss
Key Term Review continued
OH 1-37
 Noncontrollable cost
 Semivariable cost
 Prime cost
 Standard
 Profit
 Total expense
 Sales
 Variable cost
Chapter Learning Objectives—
What Did You Learn?
 Describe the relationship between standards and
controlling costs.
 Identify the types of costs incurred by a
restaurant or foodservice organization.
 Classify foodservice costs as controllable
or noncontrollable.
 Describe and give examples of controllable and
noncontrollable costs.
OH 1-38
Chapter Learning Objectives—
What Did You Learn? continued
 Classify foodservice costs as variable,
semivariable, or fixed.
 Describe and give examples of variable,
semivariable, and fixed costs.
 Explain the basic foodservice cost
control process.
OH 1-39