Managing Costs in OAA Nutrition Programs

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Managing Costs in OAA Nutrition

ProgramsPresented By

Audrey C. McCool, EdD, RD, LD

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Effective Cost Management

• Managing costs effectively means OPTIMIZING costs relative to the revenue anticipated for your program.

• It does NOT mean your costs are reduced to the minimum possible

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Effective cost management is achieved through the development and consistent implementation of an effective control process throughout the entire foodservice system

Effective Cost Management

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The Control Process Set Standards Implement StandardsCollect Operational Data Identify VariancesDetermine Variance Significance Investigate Causes of Significant VariancesDetermine Appropriate Remedial Action Implement Remedial ActionCollect New Operational DataRepeat Above Steps

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The Control ProcessQuestion:

Do you have a process to control costs in your program that follows these steps?

a. Yes, we do all these stepsb. We do some of these stepsc. No, we don’t have a defined

cost control process

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Forecasting

• Provides the data base for decision making and planning

• Essential for cost effective food procurement and food production– Helps avoid product shortages and

spoilage – Helps avoid both over- and under-food production

• Generally based on historical records

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• Effective historical records for forecasting should include:– Date and day of the week–Meal (Congregate, home delivered, etc.)– Notation of special event, holiday, and

weather conditions, if applicable– Food items prepared (especially the

entrée)– Quantity of each item prepared– Quantity of each item served

Forecasting

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ForecastingExercise 1: Forecasting

If you would like to learn more about forecasting and using the Moving Average forecasting method, there is an exercise in your webinar workbook, pages 1-3, which will introduce you to this concept. You can work through this exercise on your own at your convenience.

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PURCHASING OBJECTIVETO OBTAIN:

THE RIGHT QUALITYIN THE RIGHT QUANTITYAT THE RIGHT TIMEAT THE RIGHT PRICEFROM THE RIGHT SUPPLIER

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Match Products To Your System

Your product requirements MUST reflect your production capabilities and your storage facilities, i.e. the type of foodservice system in your operation.

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Saving $$ Through Product Selection

Can a product be used for multiple menu items?

What form of a product is best? ??Production equipment available ??Labor available (amount & skill level) ??Costs of alternatives ??

What is the yield from product alternatives?Yield tests – can cuttings

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Cost Effective Products For Your Program

Purchase the products that are the best “fit” for the menu items being prepared and the most cost effective form of that product relative to your overall menu and your program’s type of foodservice operation.

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Talking the Language to Make the Best Buy for Your $$

Question:Are you familiar with the terms used in the foodservice industry – terms such as AP, EP or Yield?a. Yes, I’m familiar with foodservice industry terms and know what they mean

b. I’ve heard of these terms, but I’m not too sure about what they mean

c. No, I’m not at all familiar with foodservice industry terminology

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Talking the Language to Make the Best Buy for Your $$

• To purchase cost effectively, it is important to know the difference between the “as purchased” or AP cost and the “edible portion” or EP cost

• Calculating and comparing AP and EP costs for products requires an understanding of product yields and yield calculations

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Calculating Cost – Usable Yield AP Cost = unit price paid to vendor EP Cost = Cost of usable (servable) yield. AP Weight (volume) = weight (volume) purchased

from vendor EP Weight(volume) = Usable weight (volume) Yield % = EP weight (volume)/AP weight (volume) EP Cost = AP cost/Yield %

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Calculating Cost – Usable Yield

LET’S PRACTICE WITH SOME PROBLEMS CALCULATING YIELDS, AP COSTS, AND PORTION COSTS FOR SOME TYPICAL ITEMS USED IN MANY PROGRAMS

LOOK IN OUR WEBINAR WORKBOOK, PAGE 4, FOR THE EXERCISE 2 PROBLEMS

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Calculating Cost – Usable YieldExercise 2: Problem 1:

Case of iceberg lettuce = 25 lbs AP; trim = 5 lbs; usable lettuce = 20 lbs. 2 oz. of trimmed lettuce is used in a salad. AP cost/case = $30.00

Calculate:a) The % yieldb) The cost per pound of trimmed lettucec) The portion cost for the 2 ounces of lettuce in the salad

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Calculating Cost – Usable YieldExercise 2: Problem 1 Answers:a) Yield = 20 lbs EP/25 lbs AP = 80%

b) EP Cost/lb (20 lbs usable lettuce) = $30.00 AP cost per case/.8 (80% yield)= $37.50 EP cost per case or 37.50/20 lbs EP = $1.87/lb or $1.87/16 oz per lb = $0.117 per oz EP cost

c) Portion Cost: Thus, a salad using 2 oz of lettuce would have an ingredient cost of $0.234 per portion (either $0.117 X 2oz or $1.87/8 portions per pound).

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Calculating Cost – Usable YieldExercise 2: Problem 2: A #10 Can of cream corn = 7 lbs & has an AP

cost of $5.00. Cream corn is 100% usable from the can, but there is some production loss during heating and portioning – about 3%.

Calculate:a) The EP cost per canb) The EP cost per ouncec) The portion cost of a 3 ounce portion

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Calculating Cost – Usable YieldExercise 2: Problem 2 Answers:a) The EP cost/can = $5.00/.97 (97% yield)= $5.15 for

6.75 pounds of corn (7 pounds AP X 97% yield = 6.75 pounds EP)

b) Cost per Pound: $5.15 EP cost/6.75 EP pounds = $0.76 per pound or $0.048 per ounce ($0.76/16 oz)

c) Portion Cost: If a 3 oz portion is served, $0.048/per ounce X 3 ounces = $0.144 per portion

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A 25lb bag of dry rice costs $20.00 AP, or 1 lb costs $0.80 AP. Rice absorbs water in a 2:1 ratio when cooked.

Calculate:a) The yield percentb) The EP cost of 1 pound of cook ricec) The portion cost of a 3 ounce serving of cooked rice

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Calculating Cost – Usable YieldExercise 2: Problem 3 Answers: a) Yield percent: 1 lb AP dry rice = 3 lb EP cooked rice (1 lb

rice + 2 lb of absorbed water). Thus, yield = 3 lb cooked rice/1 lb dry rice= 300%

b) EP cost/lb = $0.80/3.0 = $0.267 (cost of 1 lb dry rice [$0.80]/yield % [300% or 3.0].

c) Portion Cost: Cost /oz = $0.267 EP cost per pound/16 oz = $0.017. So, a 3 oz portion cost = $0.017 X 3 = $0.051. Or there are 5.33 portions (3 oz size) in a pound; so the portion cost could also be calculated as $0.267 (EP cost per pound)/5.33 (number of portions per pound) = $0.50.

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Ground beef A costs $2.95/lb AP – cooked yield = 85%Ground beef B cost $2.65/lb AP – cooked yield = 76%Ground beef C cost $3.10/lb AP – cooked yield = 94%

Calculate:a) The EP cost per pound for each of the 3 ground beef alternativesb) Determine which of the 3 products you should purchase, based on the EP costs per pound.

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Calculating Cost – Usable YieldExercise 2: Problem 4 Answers:a) Calculated EP costs per pound:

Ground beef A costs $2.95/lb AP – cooked yield = 85%; so EP cost/lb = $2.95/.85 = $3.47

Ground beef B cost $2.65/lb AP – cooked yield = 76%; so EP cost/lb = $2.65/.76 = $3.49

Ground beef C cost $3.10/lb AP – cooked yield = 94%; so EP cost/lb = $3.10/.94 = $3.30

b) Which product to purchase: Ground Beef C as it has the lowest EP cost/lb even though it has the highest AP cost per pound. It is the yield from the product that determines the actual EP cost, or the cost for the amount of the product that can be served.

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Yield Tests

You should periodically conduct yield tests on most products – especially meats, canned fruits and vegetables, and fresh produce – before making decisions as to which products to purchase for your menu items.

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Yield Test ProceduresWeigh (or measure – volume) AP product as

accurately as possiblePrepare item to servable form (drain canned items,

trim/cut produce, trim/cut/cook meat – as appropriate)Weigh (or measure – volume) servable (EP) product

as accurately as possibleDivide EP weight (volume)/AP weight (volume) to

calculate yield %Divide AP product cost by yield% to calculate EP

product cost

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Purchasing ProductsPurchasing Alternatives

Cooperative Purchasing Prime Vendor Local Suppliers Bid Purchasing Daily/Weekly Quotations Contracting

Consider the advantages (possible cost savings) and disadvantages (possible program costs) for all possible alternatives for your program

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Product Specifications

Question:Do you write your own product specifications?

a. Yes b. No

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Product Specifications A specification may be defined as a ready reference

to the standards by which you measure the foods you specify for purchase and inspect upon delivery.”

Specifications are a communication tool between you and your suppliers

For more information on specifications, you can access the following web site:

http://nutritionandaging.fiu.edu/creative_solutions/bid_specs.asp

Information will also be available on the information library currently under development by MOWAA.

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Product Specifications Are essential for product quality and consistency Are needed for all items purchased Can be developed specifically for your program or can be “borrowed”

from various reference resources such as: Meat Buyer’s Guide

http://www.namp.com/namp/Meat_Buyers_Guide.asp?SnID=2 USDA grading standards

http://www.ams.usda.gov/AMSv1.0/ams.fetchTemplateData.do?template=TemplateN&navID=USGradeStandards&rightNav1=USGradeStandards&topNav=&leftNav=&page=FreshGradeStandardsIndex&resultType=&acct=freshgrdcert

Federal product standards http://www.fns.usda.gov/fdd/foods/specs.htm

Product suppliers such as the produce industry or canned foods packers Multiple references for food product specifications are available on

the Internet.

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Product SpecificationsSample Specification

BEEF PATTYBeef U.S. Grade Good or Better not to exceed 25

percent fat, 2.67 ounce patty, six patties per pound, no soy, meat by-pro ducts, binders, or extenders. Meat shall be free of bone.

Meets Institutional Meat Purchase Specification #1136.

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APPLESAUCE Quality: GRADE A Style/Variety: REGULAR OR CHUNKY Count Size: 6 / #10 Condition: CANNED Description: LIGHT GOLDEN IN COLOR; FREE FROM PARTICLES

OR SEEDS. LIGHTLY SWEETENED.

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BANANAS Quality: No. 1 Style/Variety: PETITE - 5/6" LONG Count Size: 150 Condition: FRESH Description: PLUMP, FIRM, BRIGHT COLORED FRUIT, FREE FROM

SCARS AND BRUISES. FRUIT SHOULD BE SOLID YELLOW

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BROCCOLI Quality: GRADE A Style/Variety: CHOPPED, SPEARS Count Size: Condition: FROZEN Description: TENDER AND FREE FROM TOUGH FIBER, BRIGHT

GREEN COLOR TYPICAL FOR YOUNG, TENDER BROCCOLI.

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Sample Specification FormSample form that could be used for writing product

specifications:Product Name: ___________________________ Quality: ___________________________ Style/Variety: ___________________________ Packing Medium: _________________________ Count Size: _________________________ Condition: _________________________ Description:

________________________________________________________________________________________________

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Product SpecificationsExercise 3: Product Specifications

At your convenience, you can use the sample product specification form, page 5 in your webinar workbook, to help you write specifications for products that you use in your program.

Product Name: __________________________________ Quality: ________________________________________ Style/Variety: ___________________________________ Packing Medium: ________________________________ Count Size: _____________________________________ Condition: ______________________________________ Description: _____________________________________

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Purchasing ProcessPrior to actually purchasing, or ordering,

products:Distribute copies of your specifications to all

potential suppliersObtain bid prices or price quotations for productsDetermine which suppliers will be used by your

program for the different categories of products to be purchased (meats, poultry, fish, produce, canned goods, cleaning products, paper products, condiments, etc.)

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Purchasing Process

When ready to purchase products:Determine what products are needed and the

quantity needed for each of the productsPrepare one or several purchase orders (PO’s) for

needed productsRetain copies of PO’s for your files; submit the

original to the selected supplierFile a copy of the PO’s near the receiving area in

the kitchen so it is available for reference when the order is received.

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Purchasing and Receiving Personnel

Question:Do you have someone trained who does the food purchasing for your program?

a) Yes b) No

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Question:Do you have someone trained who is the person that does the product receiving for your program?

a) Yes b) No

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Receiving ProductsCost effective receiving of purchased products

requires receiving equipment such as:Accurately calibrated platform scale with sufficient

capacity to weigh the volume of product usually purchased by your program

Accurately calibrated food thermometer for checking refrigerated and frozen product temperatures

Desk or similar writing areaFiling cabinet for purchase orders and other paperworkSmall items such as marking pens and a calendar

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Receiving Process Set times that your program will receive products and

notify all suppliers of those times. Refuse to receive products at other times, particularly during

your busy production and packaging times Receiving person should check ALL items being delivered

against the listing on the invoice and on the purchase order Check prices to be sure invoice prices charged match prices on

the purchase order Check invoice quantities to be sure the listed quantities match

the quantities on the purchase order Check that all items listed on the invoice were items ordered

on the purchase order.

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Receiving ProcessReceiving person must check the weights of

items -- especially meat, poultry, & fish.Check the ice pack on fresh poultry and fish

to make sure that there is adequate, but not excessive ice.

If portion cut pieces of meat, poultry, or fish are being received, weigh sample portions to be sure the portion size is accurate.

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Receiving ProcessReceiving person must check the

temperatures of refrigerated & frozen products

Products out of the safe temperature zone or which show evidence of having been thawed and refrozen should not be accepted, but should be returned to the supplier with the delivery person

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Receiving Process If all products are acceptable & all is correct on the

invoice, the receiving person signs the invoice Original copy is kept for program accounting office Copy goes back to the supplier with the delivery person

If all is not acceptable/correct, the receiving person should not sign the invoice until the delivery person has issued a credit memo or other documentation is obtained adjusting/correcting the invoice. Once the adjustment has been made, the receiving

person should sign the invoice. Then, all products are moved to storage areas ASAP.

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Receiving ProcessREMEMBER:

The program owns the products that have been delivered , as they were delivered – whether correct or not -- as soon as anyone associated with the program signs the invoice. Once the invoice is signed, the program is legally responsible for paying the stated amount to the supplier.

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It is essential that you have a specific person designated to do the purchasing for the program and one or more specific persons designated to receive products when they are delivered

These persons must be trained in appropriate purchasing and/or receiving procedures.

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Purchasing and Receiving Cost effective purchasing and receiving

provide you with the quality of products you desire in the quantity that you desire when and where you want them

Both the purchasing and receiving processes are critical components of effective cost control. Neither process will be as effective as it should be without the other.

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Purchasing and Receiving

Whiteboard Discussion:

What are the biggest purchasing and/or receiving challenges at your program?

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Product Preservation Product “shrinkage” must be avoided to optimize

product costs “Shrinkage” can result from:

Theft - intentional or unintentionalExcessive use of productWaste in product preparation/handlingSpoilage

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Product PreservationFresh Item “Shrinkage”

Directly adds to food costsCan be prevented by proper storage conditions and

product rotation“Shrinkage” of inventoried (dry storage or staple)

items -- results from:Unlocked storage areasPoor control of product issuesPoor product rotationInfestation of insects and/or verminImproper storage conditions

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Product Preservation

Taking appropriate actions to prevent product "shrinkage" through product loss, over-usage, and spoilage is a critical step in maintaining effective cost management.

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Inventory Management Careful inventory records need to be maintained in order

to control inventory usage Acquisitions should be recorded from invoices; issues

should be recorded from requisition forms Perpetual inventory records can be maintained on

computers Physical inventory counts need to be taken monthly Perpetual and physical inventory valuations need to be

reconciled monthly Significant variations in inventory values need to be

investigated and accounted for

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Inventory ManagementQuestions:

Do you take a monthly physical inventory of your products in your storerooms?

a) Yes b) No

Do 2 persons work together to take this inventory?a) Yes b) No

Is one of the persons taking the inventory someone who is not working in your foodservice operations?

a) Yes b) No

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Inventory Management

Careful management of inventory investment and monitoring the flow of products placed in inventory is required to calculate actual food costs and effectively manage costs.

Your inventory is an investment and an asset of your program and must be treated as such.

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Storage ConditionsMaintaining proper storage conditions is

essential for preventing product “shrinkage”Conditions to be considered are:

Local health department storage regulationsType of shelving Placement of products on shelvingStorage containers used for various products

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Storage ConditionsConditions to be considered are:

TemperaturesDry Stores: 65 – 70 degrees FFresh meats, produce, and fresh dairy products: 34 –

36 degrees FFresh fish: 30 – 34 degrees FFrozen Foods: minus 10 – zero degrees F

Thaw frozen foods at proper temperaturesDo not thaw foods at room temperature

Keep storage equipment clean and sanitizedCleanliness of ice is critical

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Storage Conditions

Proper storage conditions must be maintained in all storage areas at all times to maintain product quality and prevent undue costs as a result of product spoilage.

Proper storage conditions are essential for food safety

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Stretch Break

Let’s take a minute to stretch and get a sip of water.

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Food ProductionExcessive costs often occur during the food

production processProduct waste from over-productionProduct waste from under-production followed by

“emergency” production Inconsistency in prepared productsUnacceptable products thrown away Incorrect amounts issued from freezer or

storeroom and allowed to spoil before usedLack of standardized portions served to clients

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Standardized RecipesStandardized recipes are essential to achieve

effective cost controlStandardized recipes:

Enhance menu item quality consistencyControl ingredient use during menu item

preparationLead to consistent recipe yieldsControl cost of menu item portionsHelp reduce client complaints about menu items

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Standardized ProceduresStandard production procedures are as

important as standard ingredients Failure to follow standard procedures can lead to:

Reduction in menu item qualityRecipe yield shrinkage

Production personnel must recognize the importance of following standardized procedures for the production of all menu items

Standardized procedures must be followed for convenience items, as well as for items prepared “from scratch”

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Standardized Recipes and Production Procedures

Effective management of costs is not possible without the development and incorporation of standardized recipes and standard preparation procedures into your foodservice operation.

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Portion Control

Programs often lose control of their costs when they fail to establish portion control and serve consistent size pre-costed portions

Standard portions:Mean the expected number of portions will consistently

be obtained from a standardized recipe’s yieldHelp prevent menu shortages or “running out” of a menu

item Maintain meal portion consistency for clientsHelp maintain desired meal costs

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Portion ControlPortion control cannot be achieved unless personnel

have the necessary tools & equipment such as: Proper portioning tools

Different size ladles“Ice cream” scoopsPortion scalesContainers for packaging items for clients or serving congregate

meal clients Proper pans for baking/cooking items so menu items can

always be prepared in standardized pans All personnel must know portion sizes and be trained

in proper portioning procedures.

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Portion Control

Personnel cannot be expected to consistently serve standard portions of menu items unless they are provided with the proper portioning tools.

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Portion ControlMeal item packaging should be planned to

support standardized portions.Consider sizes of packaging materialsChoose the optimum priced packaging for the

type of items served on the menu which will also facilitate appropriate temperature maintenance.

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Portion Control

While standardized recipes and standardized production procedures are essential for effective cost control, that control will be lost unless standard portions are served from the items prepared from the standard recipes and those portions are packaged such that food quality and food temperatures are maintained.

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ContractingChat Question:Who is responsible for negotiating contracts?

Please write your answers in the Chat room.

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Contracting The contracting process parallels the purchasing process Contracting can be used to acquire either products

required by the program or for services Any part of or all of the services provided by a program or

the services needed by a program may be obtained via a contract with an outside supplier

Successful contracting means that; the program knows exactly what is desired; has communicated very specific requirements to the

contractor ; Follows up consistently to be sure contract terms are met and

the products/services provided comply with expectations

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Contracting ProcessMost contracts are established by means of the bid

purchasing process. That process entails:Developing detailed specifications for the desired

product(s) or servicesResearching possible suppliers to identify as many

potentially qualified suppliers as possibleSubmitting the specifications for the desired product(s)

or services to all potentially qualified suppliersRequesting that sealed bids be submitted by a stated

deadline

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Contracting Process, Cont.Once the deadline for bid submission has passed,

opening all received bids and evaluating them relative to the specifications submitted to the potential suppliers

If no one bid meets all requirements, select the most promising and negotiate with the supplier(s) until an agreement is reached that is acceptable to both parties

Be sure that a time period for which the contract will be in effect is clearly identified

Prepare and sign the contractBegin working with the contracted supplier

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Contracting

Contracting can be a cost effective approach to the acquisition of products and services when the process incorporates careful preparation of specifications, and the bidding process is carried out carefully and thoroughly.

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BUDGETING PROCESSOperating Budget Development

Estimate RevenueEstimate Variable CostsEstimate and/or Allocate Fixed CostsTreat “profit”, or your operating reserve, as a cost

Operating budgets are developed for a year and broken down into monthly operating budgets which serve as cost control tools

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Calculation of Actual Meal Costs Fixed costs and utilities are available from documents such

as billings and contracts. Fixed costs include items such as:

Communications Building Costs Utilities Capital Equipment, Including Transport Vans, Depreciation Operating Costs A Portion of the Labor Costs

Fixed costs must be allocated among programs on some basis, such as square footage, proportion of clients or client revenue, or other basis appropriate to the specific program

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Calculation of Actual Meal CostsExercise 4: Fixed Cost Identification

Considering the cost data in the table on pages 6-7 in your webinar workbook to be used for this exercise, which cost categories do you feel should be considered fixed costs?A) Kitchen Supplies B) Office SuppliesC) Transportation D) TravelE) Kitchen Equipment F) Office EquipmentG) Building Costs H) Utilities I) Communications J) Operating CostsK) Food Supplies L) Labor Costs

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Calculation of Actual Meal CostsExercise 5: Fixed Cost Allocation

Discussion: Fixed costs that are incurred must be allocated to programs in order to calculate the true meal cost or the true cost of a program per client.

Does your center allocate your fixed costs among the programs operated by the center? a) Yes b) No

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Calculation of Actual Meal Costs

Exercise 5: Fixed Cost AllocationDiscussion:If you do allocate fixed costs among your programs, how do you allocate these costs; that is, what is the basis of your allocation?

Please type your answers in the Chat room.

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Calculation of Actual Meal Costs

Cost control is primarily related to the control of variable costs.

Variable costs include:FoodTravel – Mileage ReimbursementConference & meetingsEquipment and van maintenance and repairsSuppliesThe variable portion of labor costs

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Calculation of Actual (Total) Meal Costs

Labor costs can be calculated from payroll records Include all costs – salaries, wages, benefits Benefits provided to volunteers (meals, mileage

reimbursement, etc.) should be included in labor costs Fixed labor costs are labor costs that have to be paid in

order to have a program, even if few, if any participants Variable labor costs are all costs beyond the minimum

required to have a program Consider the value of the volunteer hours when

determining the true cost of meals If the volunteers were not there, the program would have

to be paying persons to do what the volunteers are doing

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Calculation of Actual Meal CostsExercise 6: Labor Cost Identification and

Allocation• Consider the different categories of labor costs

listed for this exercise, page 8 in the webinar workbook.

• Which ones should be considered fixed costs that should be allocated among all the programs and which ones should be considered to be variable costs charged 100% to a program?

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Calculation of Actual Food CostsCalculation of actual food costs is more complex;

it is NOT just the cost of items you purchased.Requires calculation of inventory value based on

the monthly physical inventoryThe physical inventory must be valued using a

standard valuation method. Common methods are:FIFO – First in, First OutLIFO – Last in, First OutLatest Purchase Price –

i.e., The last price paid for products

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Valuing Your Inventory

The method chosen to value your inventory is NOT related to the actual movement or product in and out of your storeroom

Latest Purchase Price MethodValues all items still in storage at the last price

paid for the items.

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Valuing Your Inventory

LIFO:This approach assumes that the products that were

purchased last were the first products usedThus, the items left in inventory are valued at the

oldest prices paid for the itemsFIFO:

This approach assumes that the products that were purchased first were the first products used.

Thus, the items left in inventory are valued at the more recent prices paid for the items

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Calculation of Actual Monthly Food Costs

Formula for calculating actual food costs for a month – whether preparing your own meals or purchasing meals from a contractor.Beginning Inventory (ending inventory from previous month)

+ Purchases during the month- Ending Inventory= Cost of food consumed during the month- Adjustments (food provided for volunteers, used for other program, etc. – must be charged to other accounts )

= Actual Food Costs for the month

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Calculation of Monthly Food CostsExercise 7: Calculation of Monthly Food Costs

Use the data given in Exercise 7, page 9 in your webinar workbook to calculate the actual monthly food cost for this program.

Which of the following do you think is the correct actual monthly food cost?

a) $21,790 b) $20,415 c) $26,440 d) $23,980

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Calculation of Monthly Food CostsExercise 7: Calculation of Monthly Food CostsThe food cost for the month is calculated as:

$ 5,435 (opening inventory)+ $11,780 (dry stores purchases)+ $ 9,225 (perishable food purchases)- $ 4,650 (closing inventory)= $21,790 (cost of food consumed)- $ 1,800 (value of meals served to volunteers - charged to volunteer benefits)- $ 425 (value of food served at board meeting - charged to cost of administration)= $20,415 - the actual food cost for the month

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Actual meal costs include:Food costsSupplies costsKitchen and transport equipment costs Proportionate share of fixed costs if site has other programs;

if no other programs, than all fixed costs are includedAppropriate share of fixed and variable labor costs, including

value of volunteer labor hoursCost per meal = total actual meal costs for the period

divided by total number of meals SERVED during that same period.

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Exercise 8: Calculation of Actual Meal CostsGiven the data in the table, p. 10 of the webinar workbook, calculate the following:

A. The actual (total) meal cost for the Congregate Meals Program

B. The actual (total) meal cost for the Home Delivered Meals Program

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REMEMBER: The actual (or total) meal cost for either the congregate or the

home delivered meal program must include the costs directly associated with the program (i.e., food, labor, packaging, transportation, etc.) AND the allocated proportion of the management and overhead costs of the center.

Given the data for this exercise, the actual (total) meal cost for both the congregate and home delivered meal programs would be the sum of all the costs associated with that program divided by the number of meals served by the program.

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The Budget as a Control ToolBudgeted costs are the cost standards estimated in the

operating budget. In accord with the control process, actual costs (and

revenue) are compared with the standard, i.e. the budgeted costs (and revenue) to determine variances.

Variances are evaluated to determine if they are significant.

If significant, then variances must be investigated and actions taken, as indicated

in the discussion of the control process

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Budget Variance Analysis

• Variance Analysis :– By $$ and/or by % or both– Determining Significance• Significance levels are determined by each program

based on their operating expectations• Usually significance is determined by a combination

of both $$ and % levels

• Include Year-To-Date Comparisons

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Budget Variance Analysis

Potential Savings:The difference between actual costs and planned

costsRepresents $$$ that would still be in the bank as

$$$ still available to the program had the actual revenue and costs been the budgeted amounts

Goal is to minimize potential savings (i.e. variance from budgeted $$$ through careful planning and careful control of operations)

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Budget Development

The time invested to prepared a detailed, well-constructed operating budget will pay dividends when the budget is used as a primary tool in the development and implementation of an effective cost control process.

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SummaryTO OPTIMIZE COST MANAGEMENT – Standards are essential for all aspects of a

program’s foodservice operations Cost analyses and efforts to control

costs should focus on variable costs which are controllable in the short run at the program level.

Analyses should be conducted on a regular basis. When significant variances are noted, appropriate action should be taken.

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THANK YOU!!!

QUESTIONS????For any further questions or a copy of These overheads, you can email me, Dr. Audrey C. McCool at:[email protected]

Documents

Managing Costs in OAA Nutrition Programs