Prostart Chapter ,8

Chapter 8:

Introduction

to Cost Control

Open Ended

What is the Difference between a Operating Budget, Forecast and A profit and loss Statement?

COST CONTROL

Revenue:
•Income from sales
•Before expenses subtracted

Costs:
•Expenses incurred
•Purchase, prepare, serve products

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COST CONTROL

Costs higher than sales:
•Business losing money
•May go out of business

Cost control:
•Manage spending

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MANAGING COSTS

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STUDENTS MUST WATCH: NRAEF Types of Cost Video

TYPES OF COSTS

Review from Video: Determine if each cost is Controllable/Variable or
Fixed Cost/non Controllable
Four main cost categories:

1.Product or food costs
2.Beverage costs
3.Labor costs
4.Overhead costs

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TYPES OF COSTS

Controllable costs:
•Food costs
•Beverage costs
•Labor costs
•Incurs when meals or services are provided
•Can be adjusted

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CONTROLLABLE COSTS

• Food costs

o Food items to create menu

• Beverage costs

o Ingredients to make beverages

• Direct proportion to sales

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FOOD COSTS FOR PENNE PASTA

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BEVERAGE COSTS FOR LANA FIZZ

STANDARDIZED RECIPE

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CONTROLLABLE COSTS

Control food and beverage costs:
•Use standardized recipes
•Standardized procedures for

o Portion control
o Menu listing

o Pricing

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CONTROLLABLE COSTS

Labor costs:
•All staff

o Management
o Front of house
o Back of house

•Wages to benefits

o Insurance
o Retirement plan

•Hourly employees

o Scheduled according to sales

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TYPES OF COSTS

Noncontrollable (fixed) costs:
•Overhead costs

o Insurance, utilities, lease or mortgage

•Costs do not change
•Cannot be adjusted

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NONCONTROLLABLE COSTS

Overhead costs:
•Fixed costs
•Sales volume does not impact
•Insurance

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THE OPERATING BUDGET

Operating budget:
•Financial plan
•Specific period of time

o One year
o Broken into months

•Manage operation’s costs
•Anticipated sales revenue
•Projected costs
•Estimate of profit or loss expected

Depreciation

o Loss of value of time

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NRAEF Operating Budget Video

Multiple Choice

An Operating Budget is a _________ for a Specific period of time

• Finacial Plan

• Profit and Loss Statement

• Controllable Cost

THE OPERATING BUDGET

Operating budget’s purpose:

1.Predict potential sales

o Revenue

2.Identify controllable cost needs
3.Note all noncontrollable costs
4.Identify operating goals and manager’s performance responsibilities
5.Provide benchmark of operation’s performance

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SAMPLE OPERATING BUDGET

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THE OPERATING BUDGET

• Critical tool
• Requires time and care
• Monitor daily
• Changes in sales or forecasted costs

o Change operating budget

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THE OPERATING BUDGET

Forecast:
•Current business trends
•Estimate of future sales and costs
•Predict changes that affect operating budget
•Accurate historical data

o Past performance

•Account for outside factors

o Weather, time of year, local construction

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Multiple Choice

A Forecast predicts

• Business Trends

• Estimate Future Sales

• Uses Past Performane

• All of these

SAMPLE SALES FORECAST

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THE OPERATING BUDGET
Revenue:
•Estimate potential changes

o Previous sales

•Customer count

o Changes in customer numbers

•Average sales per customer

o Change in money average customer spends
o Total dollar sales / total number of customers

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THE OPERATING BUDGET
Revenue Example:

Redraiderville is a Polish restaurant with a total annual revenue of
$538,021.

Redraiderville’s breakfast buffet:
• is responsible for bringing in 24% of the operation’s total revenue
• has a total annual expenses of $62,009

Based on this information, calculate the revenue generated by the
breakfast buffet last year.

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Fill in the Blanks

Based on this information, calculate the revenue generated by the breakfast buffet last year.

Don't Use comma's. Use $ sign and don't round up

Example Format

$495678.05

THE OPERATING BUDGET

Redraiderville calculations...

total annual revenue x percentage of the operation’s total revenue

$538,021 x .24 =

$129,125.04

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Fill in the Blanks

Now Calculate Profit from Breakfast By subtracting Revenue

Don't Use comma's. Use $ sign and don't round up

Example

$495678.05

THE OPERATING BUDGET

Redraiderville calculations...

total annual revenue x percentage of the operation’s total revenue

$538,021 x .24 =

$129,125.04

Now subtract expenses...

$129,125.04 - $62,009 =

$67,116.04

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THE OPERATING BUDGET

Food or beverage costs:
•Sales history

o Record of every portion sold

•Moving average technique

o Average sales over months
o Numbers not based on

unique month

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THE OPERATING BUDGET

Production sheet:
•All items prepared on given day
•Produce right amount of food

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SAMPLE PRODUCTION SHEET

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THE OPERATING BUDGET

Point-of-sale (POS) system:
•Run historical sales
•Production reports

Projected sales estimate:
•Labor needs

o Production
o Front of house

•Kitchen staffing

o Menu item production

•Food and beverage ordering

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PROFIT AND LOSS REPORTS
P&L report or P&L statement:

•Explains what happened

•Compilation of sales and cost information

o Specific period of time

•Lost or made money

•Met budget

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PROFIT AND LOSS REPORTS
P&L report includes:

•Income

o Food and beverage sales
o Merchandise sales

•Expenses

o Food, beverage, labor

Profitable operation:
•Sales greater than costs

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PROFIT AND LOSS REPORTS

Managers use reports:
•Efficiency of operation
•Determine where costs increased
•Make decisions

o Control costs

•Profitability of operation

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Fill in the Blanks

Profit and Loss Statement has two type of items Revenue and

Multiple Choice

What do Profit and Loss Statement Do?

• Help Control Cost

• Is a Financial Plan

SAMPLE PROFIT AND LOSS REPORT

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PURCHASING CONTROL

Invoice:
•Bill for purchased items
•Check invoice for accuracy

o Correct quantity
o Correct price

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SAMPLE PRODUCT INVOICE

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PURCHASING CONTROL

Packing slip:
•Separate from invoice
•List of items
•Quantities received

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SAMPLE PACKING SLIP

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PURCHASING CONTROL

• Inaccurate invoice or delivery

o Invoice corrected

• Check purchase order and invoice

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SAMPLE PURCHASE ORDER

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COST-CONTROL TOOLS

Control costs:
•Consistent quality and portion sizes

o Ladles and scoops
o Receiving scales and portion scales

Control staffing and labor costs:
•Time clocks
•POS systems
•Keep track of sales

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COST-CONTROL TOOLS

Managers monitor sales:
•Email
•Internet
•Software programs

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Full-line supplier companies:
•One-stop shops
•Provide equipment, food, supplies
•Programs to control costs

o Cost planning
o Controlling sales
o Controlling inventory
o Menu focus

COST-CONTROL TOOLS

Software programs:
•Better access to information
•Accurate and convenient collection of information
•Improved analysis of information

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SAMPLE DATA ANALYSIS FROM A POS SYSTEM

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COST-CONTROL TOOLS

When choosing technology ask:
•Will it help enhance guest satisfaction?
•Will it help increase revenue?
•Will it help reduce costs?
•Will it increase employee or management productivity?
•Will it improve communication?

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Multiple Choice

Cost Control Tools include all of the following EXCEPT

• POS Software

• Operating Budget

• Profit and Loss Statements

• Purchase Order