Cost-Control-Reviewer.pdf

LESSON 1: INTRODUCTION TO outputs, such as activities involved in the production of food. COST CONTROL AND Transformation also includes: IMPORTANCE IN THE...

LESSON 1: INTRODUCTION TO outputs, such as activities involved in the production of food. COST CONTROL AND Transformation also includes: IMPORTANCE IN THE Having right person for the right job and HOSPITALITY INDUSTRY capacity. SYSTEMS MODEL OF AN OUTPUT – the result from transforming the ORGANIZATION input, and it represents achievement of the system’s goal. Expanded system model of an organization: Output also includes: - Input - Transformation (Process) Quality check - Output Feedback Service recovery to handle negative Four additional parts: feedback. - Control - Memory - Environmental Factors CONTROL element performs three functions in - Feedback a system: It ensures that resources are used effectively and efficiently in INPUT – defined as any human, physical, or accomplishing organizational objectives. operational resources required to accomplish objectives of the system. It ensures that the organization is Input also includes: functioning within legal and Raw materials regulatory constraints. Manpower Specification It provides standards to be used in the evaluation of operations. TRANSFORMATION – involves any action or activity used in changing inputs into Internal and external control inside the system: environment. Feedback assists the system in adjusting to needed changes. INTERNAL CONTROL – consists of plans, including the goals and objectives of the organization, standards, policies and FOODSERVICE SYSTEM MODEL – provides procedures. a more detail information on what we expect on acquiring input does human (labor, skills), materials (food, supplies), facilities (space, EXTERNAL CONTROL – consists of local, equipment) and operational (money, time, state, and federal regulations and contracts utilities, information) will be transformed into with outside companies. meals (quantity, quality), customer satisfaction, employee satisfaction and financial MEMORY – includes all stores information accountability. and provides historical records of the system’s operation. Analysis of past records FOOD SERVICE MANAGEMENT – it includes can help in making plans and avoiding planning, managing, organizing and controlling repetition of past mistakes. food service operations. Implementation and controlling ENVIRONMENTAL FACTORS – things that Laws and regulations occur outside of the system yet impacts Food safety some component of the system. This may include: REVENUE, EXPENSES, AND PROFIT Technological innovation Globalization PROFIT is a function of two primary variables: Competition (direct if same product and REVENUE and EXPENSES indirect if alternating product) PROFIT – when a company brings in more Changing demographics money than it spends, the surplus money is Political Changes termed “profit”. LOSS – if expenses outpace the revenue, then the business experience a “loss”. FEEDBACK – includes those processes by which a system continually receives Profit (or Loss) = Revenue – Expenses information from its internal and external 36% - 40% Food Cost (Non Profit) 2.) BEVERAGE COSTS – these are the costs paid for the ingredients used to 30% - 35% Food Cost (For Profit) generate beverage sales. (Some 18% - 25% Beverage Cost manager only include alcoholic drinks in When revenue minus expenses is a positive beverage cost, while others include both number, the business makes a profit. When it alcoholic and nonalcoholic drinks.) is a negative number, it incurs a loss. 3.) LABOR COSTS – these are the costs associated with having employees. It TYPES OF REVENUE AND includes wages, salaries and EXPENSES employee benefits. REVENUE – is the money coming in from 4.) DIRECT OPERATING COSTS – these sales of products and services. costs relate to the supplies that go Typical restaurant sales are lf two types: directly to customer service activities, such as flatware, chinaware, Food sales linen, uniforms and flowers. Beverage sales 5.) MARKETING, ADVERTISING AND Special services sales for customers: PROMOTION – these costs stem from Room rentals or separate charges for activities designed to generate sales service staff. for the foodservice operation. Venue rental Spa services 6.) MUSIC AND ENTERTAINMENT – Transportation services and etc. these are the costs paid for music and entertainment. Depending on the type Lodging sales: of foodservice operation, these could Room sales be very small or very large expenses. Food sales 7.) UTILITIES – these costs include payment for gas, electric, water, and CATEGORIES OF EXPENSES: sewer expenses. 1.) FOOD COSTS – these are the costs paid for the ingredients used to 8.) REPAIR AND MAINTENANCE – these generate food sales. are the costs for repairing and maintaining expensive pieces of  equipment with long life spans as well WASTE (via production) – Loss through as for the larger facility and grounds. waste is typically the result of poor training Inexpensive equipment is replaced and by extension, poor management. Waste rather than repaired. through production usually comes in three forms: 9.) EQUIPMENT PURCHASE – these When an employee trims too much of an costs apply not to only to inexpensive ingredient. kitchen utensils, but also to Employee ruining a dish through a equipment designed to last for cooking or cutting error. multiple years. Poor portion control 10.) ADMINISTRATIVE AND GENERAL COSTS – these are the SPOILAGE – it occurs when food goes bad costs that come from the supplies before it has a chance to be prepared and and infrastructure one would find in a sold to a customer. typical office (paper, pens, internet, phone connections). COST CONTROL CYCLE 11.) OCCUPATIONAL COSTS – Control through the Flow of Food these costs include rent, property and PURCHASING related taxes, property insurance, and any other costs required to business’s Purchasing is the point which a physical space. purchasing agent or other employee determines how much to order, when 12.) INTEREST – this is the expense to order it, and which purveyors to that comes from paying interest on patronize. It’s the process of selecting loans owed to investors or banks. the right product, right quantity, right quality, at the right and at the right TYPES OF LOSS place. THEFT – May include money or property Over purchasing may lead to product (food, equipment, etc.), but the result is the spoilage, which is down the drain. same either way. The businesses losses something of value that takes away from its potential profit. RECEIVING AND STORAGE SALES CONTROL It needs to be checked and stored Sales control goes well beyond delivery upon its arrival to a foodservice of a guest check; manager must business. properly calculate sales prices to make sure that a dish brings in Receiving is the process which an enough revenue to cover its employee confirms that the food ingredients, labor, overhead, and profit. received matches both the invoice and the order placed, receiving the right product, right quantity, right quality, at EMPLOYEE SCHEDULING the right and at the right place. Labor is technically not part of food flow; employees are mentioned here to acknowledge the potential for ISSUING significant cost savings through Controls in issuing help to ensure that efficient scheduling (or loss through food is tracked, so undetected theft poor scheduling). becomes more difficult. Stock rotation helps minimize loss from spoilage. FORECASTING Each sale provides historical RECIPE PRODUCTION information that helps a manager to Well-controlled kitchen uses continually improve his performance standardized recipes to help control controlling inefficiencies in the flow costs and minimize waste. of food. Forecasting also helps manager to PRESENTATION AND PORTION CONTROL schedule the right number of employees to handle customer needs Even when a recipe is properly followed without paying workers to kill time. in the kitchen, if it is portioned inaccurately, expenses will increase. Presentation and portion control must be managed to remain profitable. IMPORTANCE OF COST CONTROL Appreciating the importance of cost control in any business organization recognize the Effective cost control creates significant advantage it creates for the organization. opportunities for a business and these include The following are the advantages of cost the following: control: PAY DOWN DEBT. A lower debt load COST CONTROL PROVIDE BASIS reduces the ratio of debt to equity. FOR MEASURING OPERATING IMPROVE CREDITWORTHINESS. A PERFORMANCE. As standards are lower debt-to-equity ratio improves the developed from the study of cost financial strength of the firm and operations and existing conditions, increases the credit rating. they become a pointer to the weaker PURCHASE BETTER EQUIPMENT. aspect of operation. With better profits, an owner can buy STANDARD COSTS PROVIDE more efficient and updated equipment. EASY COMPARABILITY. Because REDUCE REPAIR AND of standards, cost control exercises MAINTENANCE. New equipment needs influence all the factors of operation. less maintenance. You will spend less Measurement, comparison, and money on repairing old equipment that evaluation of current performance breaks down. become more effective. INCREASE BUDGET FOR STANDARD COSTING IS MARKETING AND ADVERTISING. A BASICALLY AN ECONOMIC TOOL. more efficient operation generates more It helps in cost reduction by putting funds for aggressive sales campaigns. effective check over inefficiency in More sales and new equipment lead to operations and by eliminating undue better profits. paper work. IMPROVE COMPETITIVE ADVANTAGE. For a company to stay in business, it needs to remain an efficient COST CONTROL TEST AND SPOT operation, which gives it a competitive CHECKS advantage. MARKET PRICE SURVEY Comparison of an establishment’s purchase prices against outside market prices on same time period.  Purchasing and End User departments Compare actual test result vs. standard must be represented. recipe items and cost. As much as possible, specifications Take action if difference is significant. must made to be the same for an Repeat exercise for popular and/or “apple-to-apple” comparison. expensive items. Other factors to consider are the quality, Check the effect on profitability with the proximity, volume, delivery and payment volume of covers sold per menu item. terms, hygiene issues, etc., before we judge which source gives a more CONSUMPTION vs. SALES TESTS competitive price. Compare item consumption if usage match with the sales figures. YIELD TEST Inventories, transfers, requisitions, credits, void orders must be included on Compute the cost of the usable the computation. quantity as per desired unit size, assuming that trimming/wastages has Any shortage on overage must be zero value. accounted by concerned function. Applicable in recipe costing and when Same above principles apply with Bar comparing product prices in relation to and Bakeshop/Deli Tests. yield. Yield % = Trimmed Quantity BUFFET TEST ------------------------- × 100 Original Quantity A test to get factual data or buffet’s: - Food Cost% Trimmed Cost = A.P Price per Kg - Profitability ----------------------- - Top high cost items Yield % - Amount of leftovers - Popular and unpopular items PORTION TEST - Statistics on covers Random measurement of actual After evaluation of the said data items, weight, volume, count on decision can be made actual orders. Cost the actual ingredients used GARBAGE TEST It’s like opening a can of worms which could help in supervision of the operation. Literally check the garbage bins and look for items that should not be there in the first place. Photos and witness would help in reporting the findings. Regular checks result to less wastage, improvement of product specs, better efficiency, and discourage theft.