Food & Beverage Cost Control

• Food and beverage cost control involves several key aspects, from understanding costs and control mechanisms to forecasting sales and planning menus.
• Effectively managing these elements ensures profitability and operational efficiency in the foodservice industry

Costs

• A reduction in an asset's value to secure benefit or gain.
• The price a hotel or restaurant pays for the consumed goods and services.

Control

• Management's process to direct, regulate, and restrain actions to achieve goals.
• Management function to evaluate performance and apply corrective measures.

Cost Control

• Management's process to regulate costs and prevent excessive costs at every operational step.
• Controlling all income and expenses within a foodservice operation.
• Operation is intended to be carried out at a reasonable expense without sacrificing service and product quality.

Cost Control System Design

• Standardizing baselines and consumption restrictions.
• Identifying and assessing divergences from established baselines.
• Pinpointing problematic areas
• Relaying assessment findings related to irregularities to users and managerial staff.

Need for Control

• Effective and reasonable management using material and human resources.
• Resources serve as input for desired output.
• If resources are unregulated, irregularities and abuses may occur.

Control Problems Faced by the Industry

• Unpredictable business sales and demands.
• Dealing with perishable raw materials that diminish in quality over time.
• Raw materials are basic pilferage and theft is high.
• The cycle of service operations is fast speed is important.
• Multiple low-value transactions require record-keeping.
• High departmentalization means jobs vary.
• Menu and sales mix are unpredictable.
• There is a short catering operation cycle.
• Daily variation in food production.

People Responsible for Control Implementation

• Cost controller instructs and assists staff with document completion, ensures proper use of forms/procedures, and ensures system simplicity, adaptation, and cooperation.
• Managers and assistant managers account for the profitability and effectiveness of their areas.
• Department heads are responsible for the actions of staff and their department.
• Control clerks are responsible the bookkeeping and accounting procedures.
• Storekeepers and stock controllers are responsible for the goods received and stock records.
• Accounts personnel and cash handlers account for money transactions and records in the appropriate document.
• All staff are cost and control conscious.

Goals and Advantages of Cost Control

• A simple cost control system provides data to show department profitability.
• An efficient system can reveal sources of economy and rationalize resources.
• Cost control data is necessary for sound policy decisions.
• Comparing the data can expose unfavorable trends

Limitations of Control Systems

• The control system by itself will highlight the problems/weakness
• This requires management supervision to ensure efficient operation.
• Management can have action and vigilance

Cost Control Techniques

Establishing Standards

• Standards are rules/measures to make comparisons and judgments in which the food and beverage industries uses to successfully control all operations.
• Quality standards ensure the degree of excellence raw materials and finished products.
• Quantity standards refer to measures of weight, count, or volume.
• Standard cost is the the agreed on cost used to measure other costs.
• Standard procedures are routines and techniques for the day-to-day operation of the business.

Establishing Procedures

• Ordering and purchase procedures ensures that the raw food and beverages are acquired in needed quantities and qualities at favorable prices at the appropriate time.
• Receiving procedures ensure that all goods conform to quantity and cost to those ordered.
• Storing procedures provides proper storage of received items and correct manner to be guarded against spoilage and theft.
• Issuing procedures ensure that foods and beverage items are issued with the proper documents to prevent misuse.
• Production procedures satisfies customers by producing the same product, same method, ingredients, and portion size.

Other Cost Control Techniques

• Training employees involves teaching them how to do a the work following the standards and procedures.
• Setting examples influences employees' actions in a food and beverage operation.
• Observing and correcting employee actions involves the manager to correct employees' actions at the appropriate time.
• Requiring records and reports help managers abstract information from records if operations are large.
• Preparing and following budgets creates a forecast of sales activity, costs and informs managers for corrective action

Censuring and Disciplining Employees

• Motivates employees to change or modify their performance, and make employee activities consistent with the standards and procedure

Food Cost Control System

Areas of Control

• Forecasting, budgeting, and setting standards.
• Menu planning.
• Purchasing.
• Receiving.
• Storing.
• Issuing.
• Production.
• Sales and service.
• Accounting and auditing.
• Analyzing and evaluating food costs.

Control Measures

• Establishing sales forecasts, budgets, desired profit, and performance targets.
• Preparation of menus, recipe standardization, costing and pricing, and test of quality and yield.
• Recognizing/determining needs, and searching the market with purchase specifications.
• Inspection of stocks vs quality standards and purchase specs via receiving reports.
• Limiting access, classifying stocks, reconciliation of actual vs expected stock balance.
• Requiring requisition procedures and use of requisition forms.
• Adhering to standard serving portions and recycling leftovers.
• Issuing receipts, documentation of transactions, revenue reporting, and financial statement prep.

Revenue, Expenses and Profit

Revenue or Sales

• The money you take in.
• It varies by the number of guests and amount each spends.
• Business can increase these by serving more guests.

Expenses or Costs

• Costs of operating the business.

Profit or Income

• Money remaining after expenses are paid.
• The following applies: Revenue - Desired Profit = Ideal Expenses

Profit and Loss Statement (P&L)

• Lists revenue, food and beverage cost, labor cost, other expenses, and profit; indicates the efficiency and profitability of operation

Factors Affecting Cost Control

• Food cost represents material used in production of meals sold
• Labor cost employs service accommodation, insurances, their meals.
• Overhead cost is expenses such as rent, gas, and electricity needed when running.
• Net profit is the return of capital invested in the business.

Forecasting Sales

Sales Forecast

• Forecasts the number of guests a business will serve and revenues generated in a time period.

Importance of a Sales Forecast

• Provides a tool for decision making and metrics for evaluating the progress of business.
• Gives an idea of revenues towards operating expenses and profit and to be a motivating factor.

Mechanics of Sales Forecasting

• Projected sales variations should be supported by information of patronage.

Factors to analyze:

• Sales history by analyzing previous revenue.
• Current factors by analyzing new competitions, street improvement project.
• Economic variables by analyzing price changes, inflation, public's habits and lifestyle changes.
• Other factors of internal sales promotion plans/remodeling that can potentially adjust sales trends.

Formulas for Predicting Sales Forecast

• Gross Sales = (Seating Capacity) x (Turnover Rate) x (Average Check)
• Daily Covers = (Maximum Seating Capacity) x (Turnover)
• Total Average Check = (Total Price on Bill)/(Number of Guests)
• Daily Sales = (Daily Covers) x (Average Check)
• Monthly Sales = (Covers) x (Average Check) x (Number of Operational Days in Month)

Techniques for sales Increase/Decrease

• Cover % + Actual covers
• Average Check = (Actual sales Ave Check x Forecast AVE check %) + Actual Ave Check
• Sales = Forecast Cover x Forecast Average Check

Menu Planning

Planning and Product Development

Market Analysis

• Studying population served to come out of a menu most acceptable to customers.

Demographics

• Statistics of the population Specific indicators includes age, gender, health status and level of education Eating habits vary across population and change

Sociocultural Influences

• Combines social cultural factors

Nutritional Requirements

• Using RDA for nutritional requirements

Food Consumption Trends, Habits and Preferences

• Food habits are based that is transferred from generation

Organizational Menu Decisions

Organizational Missions and Goals

• Planned menu must be in line with the organization's goals/missions

Budget Guidelines

• Amount of money spent can be known, and income revenue should cover all costs with allowance of desired profit.

Production and Service Capabilities

• Should consider the equipment, physical facility, and skillset of the staff.

Availability of Food

• Keep menu items fresh to add interest

Style of Service

• Distance between type of preparation and point of service should be considered, with respect to time elapsed.

Recipe Testing and Yield Analysis

Standard Yield

• The weight/volume of food ingredient after it has been processed/made ready for sale.
• Something has been subtracted from its original weight
• A percentage of weight has been lost higher actual food cost for a recipe has occurred

Yield Testing Objectives

• Guide the specification which materials should be purchased.
• Facilitate accurate costing and monitoring.
• Facilitate pricing for the products by costing the materials.
• Improves profitability, production and purchasing can better plan its activities, bettering establishment profits

Edible Portion (EP) Weight

• Refers to product weight after thawing, cleaning, peeling, trimming, bonding, and cutting.
• Food Waste = (AP Weight) - (EP Weight)
• Food Waste Percentage = (Loss/ AP Weight) * 100
• Standard Yield % = (EP Weight/AP Weight)*100

Standardized Recipe

• Tested and revised to repeatedly to produce good results for foodservice operations.
• These are consistent and have successful productions of products.

Qualities of a Standardized Recipe

• Tested multiple times to a produce the desired quality
• Yield produces will be consistent in flavor, taste, and appearance.
• Adjusted to create a Standard Yield/Portion Sized product through the needs of operations.
• Documented format that best suites production activities to be recorded in a written standardized recipe.

Benefits of a Standardized Recipe

• Eliminates guesswork, improves consistency/quality, eased up costing/training, minimized leftovers and waste, prevents dependence, facilitates control, and saves time during the steps of the recipe due of the process leading to it being organized and simplified.

Recipe Costing

• A process to determine the amount of resources for a specific product, the recipe cost represents the amount of money spent to produce using a standard.

Recipe Costing Considerations

• The cost of ingredients to meet the recipe field (Total Recipe Cost).
• The total cost for each ingredients.
• This is a cost of unit or the cost per portion with each portion containing a recipe.

The Need for Recipe Costing

• Knowing a dish requires determining an amount for required funds and planning based on the operations
• Production costing gives potential, and ideal cost (cost control).
• Determining the unit cost sets an items price to maintain profitability.

Recipe, Costing Requisites

• Tested standardized recipe
• A price of quotations for all ingredients needs
• Tool used to record the totals of the recipes ( Recipe Cost Worksheet)

Recipe Costing Process

• Enter standardized recipe data ( Details), (Ingredients), (EP Quantity)
• Input trimming loss percentage
  • formula: Food Waste Percentage = (Loss AP Weight) x 100
• Compute AP quantity by adjusting yields
  • formula: AP Quantity = (EP Quantity) ÷ (Yield %)
• Input price list data (Market List)
• Compute unit price of ingredients
  • formula: EP Unit Cost = AP Cost ÷ Given Weight (1000 g = 1 Kg (1000 mL = 1 L)
• Compute for extension cost
  • formula: Extension Cost = AP Quantity x EP Unit Cost
• Compute for total costs ( Sum of Extension Costs)
• Compute for recipe adjustments
  • formula: Recipe Cost Adjustment = Total Recipe Cost
• Compute for adjusted total recipe cost
  • Adjusted Total Recipe = (Total Recipes + (Recipe Cost Adjustments)
• Compute cost per unit
  • Cost Per Unit = Adjusted total Recipes + Recipe yields amount