What Is Cost Control?
1
OH 1-1
1-1
 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 1-2
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 1-3
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 1-4
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 1-5
Costs Impact Profit
Excessive costs reduce restaurant profitability.
OH 1-6
Types of Costs
 Controllable Costs
 Food
 Insurance
 Labor
 Mortgage payments
 Cleaning supplies
OH 1-7
 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 1-8
Variable Costs
 Directly affect
profitability
 Can be controlled
by management
 Are compared to
an established
standard
OH 1-9
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 1-10
Prime Costs continued
The costs of food and labor are a restaurant’s
greatest expenses.
OH 1-11
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 1-12
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 1-13
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 1-14
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 1-15
Computation of Percent Difference
Actual cost of $48,000
Budgeted cost of $45,000
Actual cost – Budgeted cost
$48,000
OH 1-16
–
$45,000
= Cost difference
=
$3,000
Computation of Percent Difference continued
Cost difference ÷
Cost
budgeted
=
$3,000 ÷ $45,000 =
OH 1-17
Percent
difference
0.067, or 6.7%
Cost Variations
 Can be preventable
 May be unpreventable
 Take corrective action on preventable
cost variations
OH 1-18
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 1-19
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 1-20
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 1-21
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 1-22
Corrective Actions for Cost Control continued
 Do you think food or
labor costs are higher
in this restaurant?
 Why?
OH 1-23
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 1-24
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 1-25
 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 1-26
 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 1-27
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 1-28