Cost ControlChapter 11David K. Hayes Allisha A. Miller

Cost Control
Chapter 11
David K. Hayes | Allisha A. Miller | Jack D. Ninemeier
The Professional
Restaurant Manager
Book Title
Author name
© 2012 by Pearson Higher Education, Inc
Upper Saddle River, New Jersey 07458 • All Rights Reserved
The Professional Restaurant Manager, 1e
David K. Hayes, Allisha A. Miller, and Jack D. Ninemeier
Managing Food and Beverage Costs
Cost of goods sold: food
The actual cost of the food used to generate food
revenue for a specific time period; also called
adjusted food cost or net food cost.
Cost of goods sold: beverage

The actual cost of the beverages used to generate
beverage revenue for a specific time period; also
called adjusted beverage cost or net beverage
cost
Book Title
Author name
Managers Calculate Cost of Goods Sold:
To compare the
operating budget with
actual costs
To include as an entry
on the property’s
income statement

Book Title
Author name
Calculation of Cost of Goods Sold
Income statement
A summary of the restaurant’s profitability that
details revenues generated, costs incurred and
profits or losses realized during a specific
accounting period
Also called a profit and loss statement (P&L) or an
income and expense statement
Book Title
Author name

Calculation of Cost of Goods Sold
Book Title
Author name
Food and Beverage Cost Percentages
Food-cost percentage
The percentage of food revenue used to purchase
the food that generated the revenue.
Beverage-cost percentage
The percentage of beverage revenue used to
purchase the beverage that generated the

revenue.
Book Title
Author name
Prime costs
The term used to describe the sum of food and
beverage costs plus labor costs.
Book Title
Author name

COGS:
food
(Unadjusted)
Food
revenue
Food
cost %
(Unadjusted)
COGS:
Bev.
(Unadjusted)
Bev.
revenue
Bev.
cost %
(Unadjusted)
Book Title

Author name
Concerns About Cost of Goods Sold
Inventory turnover rate
The speed with which food or beverage inventory
is turned into revenue within a specific time period
* Average inventory = (Beginning inventory + Ending
inventory) ÷ 2
Cost of
goods sold
(food or
beverage)
Average
inventory
(food or
beverage)*
Inventory
turnover

rate
Book Title
Author name
Concerns About Cost of Goods Sold
Book Title
Author name

Factors Affecting Costs
Menu Food preparation methods
Desired service
levels
Quality of
employee training
Book Title
Author name
Five-Step Labor Control System
• Select productivity measuresStep 1
• Forecast revenues Step 2
• Establish staffing requirementsStep 3
• Schedule staffStep 4

• Evaluate labor control resultsStep 5
Book Title
Author name
Lunch and Dinner Labor Cost Percentages
Meal Period Cost of Labor Revenue Labor Cost %
Lunch $2,500.00 $5,000.00 50.0%
Dinner $4,000.00 $12,000.00 33.3%
Total $6,500.00 $17,000.00 38.2%
Cost of
Labor Revenue
Labor
Cost %
Book Title

Author name
Total
Revenue
Total
Labor
Hours
Used
Revenue
per
Labor
Hour
Total
Labor
Dollars
Number
of Guest
Served

Labor
Dollars
per
Guest
Book Title
Author name
Guest
Served
Labor
Hours
Used
Guests
Served
per

Labor
Hour
Book Title
Author name
• Days and dates covered
• Employees’ first and last names
• Days to work and scheduled days off
• Start and stop times
• Total hours to work
• Requested vacation time or personal days off
• On/off days for salaried personnel
• Date of schedule preparation
• Name of manager preparing/approvi ng the schedule
Effective employee schedules should
always indicate:
Book Title
Author name

• Develop a productivity target and schedule to
meet it
• Determine forecasted revenue
• Schedule for the needs of guests first and
employees second
• Avoid scheduling overtime whenever possible
• Use part-time employees for peak-volume
periods
When preparing employee
schedules:
Book Title
Author name

• Minimize split shifts
• Grant employee schedule requests when
possible
• Be fair when scheduling preferred work periods
• Comply with all applicable laws and company
policies
• Communicate scheduling decisions in a timely
manner
When preparing employee
schedules:
Book Title
Author name

Managing Other Costs
Variable Costs and Fixed Costs
• Food
• Labor
Variable costs are those that change in
direct proportion to changes in revenue.
• Rent
• Insurance
Fixed costs are those that do not vary as
revenue changes.
Book Title
Author name
Managing Other Costs
Common Restaurant Costs

Managing for Profit
Chapter 13
David K. Hayes | Allisha A. Miller | Jack D. Ninemeier
The Professional
Restaurant Manager
Book Title
Author name
The Budget Process
• Requires managers to consider future
external events and their financial
impacts.
• Challenges managers to recognize the
importance of sales when projecting
expenses and allows them to carefully
prioritize competing sales demands.
A well prepared operating budget is critical
because it:

Book Title
Author name
The Budget Process
• Creates a standard (benchmark) against
which to compare actual versus budgeted
performance.
• Helps managers establish an appropriate
menu pricing structure.
• Communicates a realistic estimate of
future financial results to owners so they
can evaluate the restaurant as an
investment.
A well prepared operating budget is critical
because it:
Book Title
Author name

The Budget Process
Importance of Budgeting Sales
Budgeted
sales
Budgeted
expense
Budgeted
profit
Book Title
Author name

The Budget Process
Budgeting Sales
Step 5
Estimate impact of price changes on revenue
Step 4
Estimate long-term effect of menu changes on revenue
Step 3
Evaluate changes in external environment
Step 2
Evaluate changes in internal environment
Step 1
Review revenue data from previous years
Book Title
Author name
The Budget Process

Monitoring the Budget
Variance is the difference between actual and
planned results.
Actual
$
expense
Budgeted
$
expense
$
Variance
Actual
expense
Budgeted
expense
Variance
%
Book Title
Author name

The Budget Process
Step 4:
Take corrective action, if appropriate
Step 3:
Determine cause(s) of the variance
Step 2:
Identify areas of significant variance
Step 1:
Compare actual results from income statement to the budget
Book Title
Author name
The Budget Process

Book Title
Author name
The Budget Process
Return on Investment (ROI)
$100,000 $1,000,000 10% ROI
$100,000 $2,000,000 5% ROI
Book Title
Author name

The Budget Process
Considerations for revising the budget
1
• The opening or closing of a competitor.
2
• Opening, by the same or different ownership, of
an identical restaurant in the property’s market
area.
3
• A significant and long-term change in major
menu ingredient prices.
Book Title
Author name
The Budget Process

4
• Significant and unanticipated increases in
fixed expenses, such as insurance or taxes.
5
• Unplanned road construction that
significantly affects consumers’ abilities to
reach the restaurant.
Book Title
Author name
The Budget Process
6
• Natural disasters (floods/hurricanes) that
significantly affect forecasted sales.

7
• Significant changes in operating hours.
Book Title
Author name
The Budget Process
8
• Permanent changes in service style that
appreciably affect labor costs.
9
• Changes in financial statement formats and/or
bases for allocation of financial resources.
10
• The loss of especially skilled or talented
employees.

Book Title
Author name
The Corrective Action Process
Model for Corrective Action
Book Title
Author name
The Corrective Action Process
Decision Making Process

The Decision Making (Problem Solving) Process
• Step 1:
• Define the Problem
• Step 2:
• Generate
Solution
Alternatives
• Step 3:
• Evaluate

Cost ControlChapter 11David K. Hayes Allisha A. Miller

Recommended

Recommended

More Related Content

Similar to Cost ControlChapter 11David K. Hayes Allisha A. Miller

Similar to Cost ControlChapter 11David K. Hayes Allisha A. Miller (20)

More from AlleneMcclendon878

More from AlleneMcclendon878 (20)

Recently uploaded

Recently uploaded (20)

Cost ControlChapter 11David K. Hayes Allisha A. Miller