The document discusses profit and loss (P&L) analysis and cost control. It covers the three sections of a P&L statement - gross profit, operating expenses, and operating profit. It also discusses calculating various percentages like sales, costs of goods sold, and analyzing expenses, inventory, labor costs, other operating expenses, and net profit in order to understand operations and control costs. The goal is to use P&L analysis as a tool to understand operations and identify areas for cost control and improvement.

1. Week 11: Cost control Topic objectives: Profit & Loss (Income Statement) analyses: Sales percentages Cost percentages, Gross profit Operating expenses and operating profit Variations and operations analyses Nethra - IHM Shri Shakti (Hyderabd) Nethra

2. Financial statements Income Statement (Profit & Loss – P&L) Statement of cash flow Balance sheet Nethra - IHM Shri Shakti (Hyderabd) Nethra

3. Profit & Loss (P&L) The 3 sections of the P&L: Gross Profit – sales & costs. Control can be on a daily basis Operating expenses Control is applicable on occurrence Non-operating expense Taxes and interests Nethra - IHM Shri Shakti (Hyderabd) Nethra

4. P&L function Time schedules – week/month/quarter Details revenues – Sales of products: food, beverage, functions Details expenses - CoGS, operations Nethra - IHM Shri Shakti (Hyderabd) Nethra

5. Types of expenses Inputs: rooms – linen, detergents front office – paper, toners kitchen, engineering, bars, Spa, restaurant inventory Transformational processes: labour, utilities, marketing Nethra - IHM Shri Shakti (Hyderabd) Nethra

6. Calculating Sales Percentage Nethra - IHM Shri Shakti (Hyderabd) Nethra Q1 Tutorial Food revenue/ Total revenue x 100 Beverage revenue/ Total revenue x 100 2006 % 2007 % Food Rev. 2,647,415 84.2 2,675,889 73.5 Bev. Rev. 498,119 15.8 965,660 26.5 Total Rev. 3,145,534 100 3,641,549 100

7. Calculating Cost of Sales (CoGS) Percentage Question 1 Tutorial Nethra - IHM Shri Shakti (Hyderabd) Nethra GP/Total Sales x 100 Total Sales - Total Cost of Sales Food Cost / Food Sales x 100 2006 % Food Sales 2,647,415 84.2 Beverage Sales 298,119 15.8 Total Sales 2,945,534 100 Food Cost 855,104 32.3 Beverage Cost 104,005 34.9 Total Cost 959,109 32.6 Gross Profit 1,986,425 67.4

8. Sales variance analysis Q2 Tutorial Nethra - IHM Shri Shakti (Hyderabd) Nethra 2,675,889 - 2,647,415 28,474/2,647,415 * 100 Comments Sales increase 1.2% Reason? Market share, New menu Sales 2006 2007 Variance % Food 2,647,415 2,675,889 28,474 1.2

9. Food Cost & variance analysis Cost of Sales Nethra - IHM Shri Shakti (Hyderabd) Nethra 1,074,420 – 855,104 219,316/855,104 * 100 Variation CoGS 2006 2007 Variance % Food 855,104 1,074,420 219,316 25.6

10. Inventory Analysis What is inventory? In F&B operations – supplies needed to produce menu items for the operation (restaurant food and bar drinks). Nethra - IHM Shri Shakti (Hyderabd) Nethra

11. Determining inventory costs Calculating Cost of Sales: Purchases & Stock taking Stock taking (stock valuation template in assignment 2) – Closing stock, Opening stock Formula: (Opening Stock + Purchases) – Closing Stock = Cost of Sales Nethra - IHM Shri Shakti (Hyderabd) Nethra

12. What is inventory turnover? It is the movement of stock through system: Nethra - IHM Shri Shakti (Hyderabd) Nethra High Turnover? Reflected in Sales? Or a Process & Control Issue Stores Receive Issues User dept. Transformation. Sales Supplier

13. The P&L and IPO The classifications Sales: Food Beverage Functions The identification of item costs: Food Categories (Meat, Seafood) Beverage categories (Wine, Beers) How to address changes - clear Nethra - IHM Shri Shakti (Hyderabd) Nethra

14. P&L Inventory analysis Nethra - IHM Shri Shakti (Hyderabd) Nethra 2006 % 2007 % SALES: Food $1,891,011 82.0 $2,058,376 81.0 Beverage 415,099 18.0 482,830 19.0 COST OF SALES: Beer 22,100 5.4 23,200 4.8 Liquor 16,220 3.9 16,100 3.4 Mixes 8,800 2.1 8,900 1.8 Wine 20,400 4.9 21,300 4.4 Others 27,030 6.5 27,066 5.6 Total Cost of Beverage 94,550 22.8 96,566 20.0 P&L

15. Operating Expenses Analysis - Labour Nethra - IHM Shri Shakti (Hyderabd) Nethra Page 11 of Handout +0.4% = Increase in total labour costs +10.2% sales variance for 2007 (pg.3 of pass out) Increased sales More staff (P/T, overtime) Labour Cost 2006 % 2007 % Salaries & Wages 641,099 27.8 714,079 28.1 Employee Benefits 99,163 4.3 111,813 4.4 Total Labour Cost 740,262 32.1 825,892 32.5

16. Operating Expenses Analysis – Other Expenses. (pg. 9 of pass out) Nethra - IHM Shri Shakti (Hyderabd) Nethra Discuss: In relation to Sales Increases & reasons Decreases & reasons 122,224/2,306,110 x 100 2006 % 2007 % OPERATING EXPENSES Excluding Wages & Salaries Direct Operating Exp. 122,224 5.3 132,143 5.2 Marketing 45,122 2.0 71,154 2.8 Utilities Services 73,796 3.2 88,942 3.5 Repairs & Maintenance 34,592 1.5 35,577 1.4 Depreciation 41,510 1.8 55,907 2.2 Administration & Others 186,877 8.1 191,154 7.5 Total Op. Expenses 1,245,383 54.0 1,400,769 55.1

17. Profit Analysis Types of profits in the P&L: Gross Profit Sales less Cost of Sales Operating Profit Gross Profit less Total Operating Expenses Income Before Income Tax (IBIT) Operating Profit less Interest Net Income IBIT less income Tax Nethra - IHM Shri Shakti (Hyderabd) Nethra

18. Profit Analysis Nethra - IHM Shri Shakti (Hyderabd) Nethra Operating income - Interest IBIT – Income tax Net income/ Total Sales x 100 Discussion: Net income, Sales, Marketing Net income & operational expenses. Correlation? +12.9% net income variation - discuss P&L 2006 % 2007 % Operating Income 253,590 11.0 276,428 10.9 Interest 86,750 3.8 84,889 3.3 IBIT 166,840 7.2 191,539 7.5 Income Tax 65,068 2.8 76,616 3.0 Net Income 101,772 4.4 114,923 4.5

19. Summary Three sections of the P&L Profit determination Information – detail Analysis and strategy for control Nethra - IHM Shri Shakti (Hyderabd) Nethra