UNIT-IUNIT-I

FOOD COST CONTROLSFOOD COST CONTROLS

Introduction to cost controls:Introduction to cost controls:

• Food & Beverage controls may be defined as the guidance & regulation of the costs and revenue for operating catering activity in hotels, restaurants, hospitals, schools, employee restaurants and other establishments.

Limitations of Control System:Limitations of Control System:

• A control system in itself will not cure or prevents problems occurring. An effective system is dependent upon correct up-to-date policies and operational procedures. But the system should identify problems and trends in the business.

• A control system will require constant management supervision to ensure that it functions efficiently.

• A control system will need management action to evaluate the information produced and to act upon it.

Cost Control:Cost Control:

• Definition: Cost control can be defined as a process used by managers to regulate costs and guard against excessive costs. It is an ongoing process and involves every step in the chain of purchasing, receiving, storing, issuing, ad preparing food & beverages for sale, as well as training and scheduling the personnel involved. Methods involves for controlling the cost may also very from operations to operations depending upon the nature and scope of operation, but the principles behind these operations are constant.

Objectives and advantages of Objectives and advantages of cost control:cost control:

• The objectives of a food and beverage control system may be summarized as follows:

– Analyses of Income and Expenditure.– Establishment and maintenance of standards.– Pricing– Prevention of waste.– Prevention of frauds.– Management information.

Analyses of Income and Analyses of Income and Expenditure:Expenditure:

• The revenue of each food & Beverage outlets is analyzed by considering the various aspects of revenue such as: volume of food and beverage sales, the sales mix, the average spending power of customers at the various times of the day and the number of customers served.

• The analyses of cost include departmental food and beverage costs and labor costs. The performance of each outlet can then be expressed in terms of the gross profit and net margin (Gross Profit- Wages) and the net profit

• (Net Profit= Gross Profit- wages+ all overhead expenses such as rent, rates, insurance etc.)

Establishment and maintenance Establishment and maintenance of standards:of standards:

1. Setting up of standards is very important for the success of any establishment. Without doing so no employee would know in details the standards to be achieved nor could the employee’s performance be effectively measured by the management. An efficient unit should have laid down standards in manuals often as S.O.P’S (Standard operating Procedures) which should be readily available to all staff for reference.

Pricing:Pricing:

An important objective of Food & Beverage control in to provide sound basis for menu pricing including quotations for special functions. It is therefore important to determine food & Beverage list prices in the light to accurate food & beverage costs and other main establishment costs; as well as general market considerations, such as the average customer spending power, the prices charged by the competitors and the prices that the market will accept.

Prevention of waste:Prevention of waste:

In order to achieve the set standards it is necessary to prevent the wastage of raw material such as poor preparation, over production, failure to use standard recipes etc. Even the proper use of man power is taken in to the consideration.

Prevention of frauds:Prevention of frauds:

It is necessary for a control system to present or at least restrict the possible areas of fraud by customers and staff. Typical areas of fraud by customers are such things as deliberately walking out without paying; unjustifiably claiming that the food or drink that they had partly or totally consumed was not palatable and indicating that they will not par for it; disputing the number of drinks served; making payment by stolen cheques or credit cards. Typical areas of fraud by staff are overcharging or undercharging for items served and stealing of food, drink or cash.

Management information:Management information:

An effective control system should provide accurate up-to-date information for the preparation of periodical reports for management. This information should be sufficient enough to provide complete analyses of performance for each outlet of an establishment for comparison with set standards previously laid down (For Example: Budget standards.)

Basic Costing:Basic Costing:

• Cost• Definition: Accountants define a cost as a reduction in the value of

an asset for the purpose of securing profit or gain.• In context of the hotel industry cost can be defined as the expense

to the hotel or restaurant for goods or services when the goods are consumed or the services rendered.

• Food and beverages are considered consumed when they have been used, wastefully or otherwise, and are no longer available for the purpose for which they were acquired.

• Example: The cost of a piece of meat is incurred when the piece is no longer available for the purpose for which it was purchased because it has been cooked, served, or thrown away because it has spoiled, or it has been stolen. The cost of labor is incurred when people are on duty, whether or not they are working and whether they are paid at the end of a shift or at some later date.

Types of Costs:Types of Costs:

1. Fixed and Variable Cost: • Fixed Cost: These are the cost which are normally

unaffected by the change in sales volume. Items of Fixed cost are as follows:

• Examples: Insurance premium, real estate taxes, depreciation in equipments etc.

• Variable Costs: These are the cost which has direct relationship with the sales volume. As business volume increases, variable cost will increase; as volume decreases, variable cost should decrease. Items of variable cost are as follows:

• Examples: Labor cost, raw material cost, beverage cost etc.

2.2. Controllable and Non Controllable and Non controllable Cost:controllable Cost:

• Controllable costs are those that can be changed in the short term. All the variable costs are generally controllable. The cost of food or beverage, for Example, can be changed in several ways-by changing portion sizes, by changing ingredients or by changing both of these. The cost of labor can be increased or decreased in the short term by hiring additional employees or by laying some of them off.

• Non Controllable Cost: These are the cost which normally does not change in the short time. These are usually fixed costs, and the list of most common would include rent, interest on mortgage, real estate taxes, license fees and depreciation.

3.3. Unit and Total Cost:Unit and Total Cost:

Unit Cost can be defined as the expenses incurred in the preparation of one individual portion of the dish or any other item like beverage etc. Where as total cost can be defined as the expenses incurred in preparation of all the food stuffs served in any meal period.

4.4. Prime Cost:Prime Cost:

This term refers to the cost of material and labor: food, beverages and pay roll.

5.5. Historical and Planned Cost:Historical and Planned Cost:

• Historical cost can be defined as the cost incurred in past for operating the business entity. Such type of cost can be found in business records, books of accounts, financial statements, employees time cards and similar other statements.

• These historical costs are very much helpful in projecting the planned cost for any business entity. Managers by comparing historical cost or data can easily estimate or project the cost for future operations.

• Planned Cost can be defined as the cost estimated or projected to operate any business entity in future.