This document discusses cost control in the restaurant industry. It defines different types of costs including food, beverage, labor, and overhead costs. It explains how to classify costs as variable, semi-variable, or fixed. The document outlines steps to control food costs such as purchasing, receiving, storage, and production. It provides formulas to calculate food cost percentage and standard portion costs. Additional topics covered include forecasting, operating budgets, profit and loss reports, scheduling, and establishing quality standards.

1. © Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF)
and published by Pearson Education, Inc. All rights reserved.
Chapter 3
Cost Control

2. Cost Control Overview
 Cost is the price an operation
pays out in the purchasing and
preparation of its products or the
providing of its service.
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Cost control is a business’s efforts to manage how much
it spends.
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 Every business needs to make more money than it
spends in order to survive.
 Its sales, or revenue, have to be higher than its costs.
 Revenue is the income from sales before expenses, or
costs, are subtracted.

3. Types of Costs
 A successful restaurant or foodservice operation
needs to manage and control many costs.
 Four main categories of costs:
 Food costs
 Beverage costs
 Labor costs
 Overhead
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4. Costs cont.
 Controllable costs can change based on sales
 Variable: go up and down as sales go up and
down (food cost) in direct proportion (more
business, buy more food inventory)
 Semivariable: go up and down as sales go
up and down in indirect proportion; labor costs
(less business, must pay manager but can
have less waiters)
 the operation has a certain amount of control
in how it spends on these aspects of the
operation.
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5. Costs cont.
 Non-controllable/fixed costs: needs to be paid
regardless of whether the operation is making or
losing money
 overhead costs = lease, utilities, insurance
 do not change based on the operation’s sales.
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6. Operating Budgets
 Forecast is a prediction of sales levels or costs that will
occur during a specific time period.
 Steps of forecasting
 Analyze sales history: what items were popular at
what time
 Account for externalities: hurricane, hot weather
 Predict sales volume: How busy will certain days be?
 Predict sales mix: how will each menu item sell
Most forecasting techniques rely on having accurate
historical data
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An operating budget is a financial plan for
a specific period of time (usually monthly)
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7. Forecasting cont.
 The most common foodservice revenue
forecasting techniques are based on the number
of customers and average sales per customer.
 A sales history is a record of the number of
portions of every item sold on a menu.
 Most operations can run historical sales and
production reports from their point-of-sale (POS)
systems.
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8. Profit-and-Loss Report
 A P&L shows whether an operation has made or lost
money during the time period covered by the report.
 A P&L helps management determine areas where
adjustments must be made to bring business operations
in line with established financial goals.
 For an operation to be profitable, sales must exceed
costs.
 Net earning is listed on bottom of P&L statement
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A profit-and-loss report (P&L) is sales and cost
information for a specific period of time.
P&L is also known as an income statement p. 157
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9. Cost-Control Tools
 Cost control measures:
 Portioning menu items (food costs)
 Time clocks/POS systems (labor costs)
 Full-line supplier co.: one-stop shops that
provide equipment, food, and supplies have
software programs to help control costs
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10. Steps in Controlling Food Costs
1. Purchasing
2. Receiving
3. Storage
4. Issuing
5. Preparation
6. Cooking (production)
7. Service (sale)
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Food costs must be controlled during all seven
stages of the food flow process:
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11. Determining Food Cost
 Inventory: dollar value of a food product in storage and
can be expressed in terms of units, values, or both:
 Opening inventory is the physical inventory at the
beginning of a given period.
 The closing inventory is the inventory at the end of a
given period.
 food cost formula:
(Opening inventory + Purchases = Total food available) –
Closing inventory = Total food cost
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Food cost: actual dollar value of the food used by an
operation during a certain period (sold, given away, wasted,
spoiled, overportioned, etc.)
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12. Determining Food
Cost Percentage
 Food cost % formula
Total food cost ÷ Sales = Food cost %
 Food cost is a variable cost: It should increase or
decrease in direct proportion to an increase or decrease
in sales
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Total food cost percentage is the relationship between
sales and the cost of food to achieve those sales.
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13. Establishing Standard
Portion Costs
 Most every operation has standardized recipes that are
followed every time a menu item is prepared.
 For every standardized recipe, an operation should
establish a standard portion cost, which is the exact
amount that one serving, or portion, of a food item
should cost when prepared according to the item’s
standardized recipe.
 A recipe cost card is a tool used to calculate the
standard portion cost for a menu item (p. 169)
 As with the standardized recipe, a recipe cost card
should exist for every multiple-ingredient item listed on
the menu (p. 169)
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14. As-purchased versus
Edible-portion Costs
 The as-purchased (AP) method is used to cost
an ingredient at the purchase price before any
trim or waste is taken into account.(p. 171)
 The edible-portion (EP) method is used to cost
an ingredient after trimming and removing
waste, so that only the usable portion of the item
is reflected.
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15. Recipe Yields
 To convert a recipe, use the formula:
desired yield = conversion factor
original yield
 When determining yield, take into account for
cooking loss of meats and some vegetables
(greens)
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A recipe yield is the process of determining the
number of portions that a recipe produces.
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16. Controlling Portion Sizes
 Controlling portions is very important for a
restaurant to meet its standard food cost.
 Tools that are essential for accurate portion
control include:
 Scoops
 Ladles
 Serving spoons
 Portion scales
 Another mechanism for ensuring that portions
are the right size is to preportion any item that
can be preportioned before serving.
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17. Monitoring Production
Volume and Cost
 When restaurants produce too much, food cost goes up;
produce too little, and sales are lost.
 A food production chart shows how much product
should be produced by the kitchen during a given meal
period.
 A well-structured chart can ensure product quality, avoid
product shortages, and minimize waste
 Sales history is critical in helping management forecast
how many portions of each menu item to produce on a
given day.
 p. 177
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18. Menu Pricing
 The menu is the primary sales tool in most restaurant
 There are a number of methods for menu pricing: (p.178)
 A contribution margin is the portion of dollars that a
particular menu item contributes to overall profits.
1. Contribution margin method, an operation must
know the portion costs for each item sold.
2. Straight markup pricing method, multiply raw food
costs by a predetermined fraction.
3. Average check method, the total revenue is divided
by the number of seats, average seat turnover, and
days open in one year.
4. Food cost percentage is equal to the food cost
divided by food sales.
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19. Budgeting Labor Costs
 Labor is a semivariable, controllable cost. Labor
costs are tied to sales, but not directly.
 Most operations have both full-time and part-
time staff.
 Operations must be aware of the fluctuations in
their sales so as to have just the right amount of
staff on hand to handle customers efficiently,
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20. Labor Cost Factors
 Business volume: amount of sales an operation is doing
for a given time period, impacts labor costs.
 Employee turnover: the number of employees hired to fill
one position in a year’s time.
 Quality standards: specifications of the operation with
regard to products and service (employee skills will need to
be higher in fine dining vs. quick service)
 A restaurant or foodservice operation must meet
operational standards. If an employee does not prepare a
product that meets the operation’s standards, the item must
be redone. This costs money, in terms of wasted product
and lost productivity (overcooked steaks, burnt fries)
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21. Scheduling
 A master schedule: shows the number of people
needed in each position to run the restaurant or
foodservice operation for a given time period. P. 190
 To make the best estimates for a master schedule, it also
needs to consider current trends (economy,
unemployment)
 A crew schedule is a chart that shows employees’
names and the days and times they are to work. P. 191
 A contingency plan helps an operation remain efficient
and productive even during adverse conditions (power
outage, employee absences)
 Cross-training employees
 On-call employees
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22. Quality Standards for
Purchasing and Receiving
 Purchasing: choose a credible supplier
 Receiving: receive only when operation is slow
Meat: 2 or 3 times a week
Dairy: at least 2X a week
Fish: fresh, daily; frozen fish, weekly
 When receiving:
 1. well lit area
 2. Have a copy of purchase order on hand
 3. Check delivery against both purchase order
and invoice (bill from vendor)
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23. Quality Standards
for Storing
 Monitor perishable food daily to preserve its
quality.
 Rotate all products in storage following the FIFO
(first in, first out) system.
 Check storage facilities:
 Dry storage 50-70 degrees
 Refrigerator: below 41 degrees
 Freezer: 0 degrees
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24. Quality Standards for Food
Production and Service
 Standard-portion sizes, standardized recipes,
and standard-portion costs are all food-
production standards.
 Managers should taste each item to be sure that
it meets quality standards
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25. Quality Standards
for Inventory
 Physical inventory means counting and
recording the number of each item in the
storeroom.
 Closely monitor inventory to ensure that
products are ordered as they are needed.
 Carefully monitoring inventory also helps ensure
that no product goes to waste. Minimizing waste
keeps costs down and sales up.
 75% of all inventory shortages are due to
employee theft
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