What Is Cost Control

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What Is Cost Control?
1

• Controlling Foodservice Costs

OH 1-1
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Chapter Learning Objectives

• Describe the relationship between standards and
  controlling costs.
• Identify the types of costs incurred by a
  restaurant or foodservice organization.
• Classify foodservice costs as controllable or
  noncontrollable.
• Describe and give examples of controllable and
  noncontrollable costs.

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Chapter Learning Objectives continued

• Classify foodservice costs as variable,
  semivariable, or fixed.
• Describe and give examples of variable,
  semivariable, and fixed costs.
• Explain the basic foodservice cost control
  process.

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Characteristics of Controls

• Contribute to profit making
• Start with the menu
• Affect all areas of the operation
• Are formalized through a restaurants policies
  and procedures

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Cost Standards

• Are used to compare actual results to planned
  results
• Are established by management
• Standards may be designed to
• Ensure a profit
• Stay within the budget
• Achieve planned quality levels

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Costs Impact Profit

• Excessive costs reduce restaurant profitability.

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Types of Costs

• Controllable Costs
• Food
• Labor
• Cleaning supplies

• Noncontrollable Costs
• Insurance
• Mortgage payments
• Cost of licenses

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Types of Costs continued

• Fixed Costs
• Do not vary with sales volume
• Do not change from one accounting period to the
  next
• Variable Costs
• Increases and decreases are directly related to
  sales volume
• Semivariable Costs
• Increase or decrease with changes in sales
  volume, but not in direct proportion
• Contain both fixed and variable components

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Variable Costs

• Directly affect profitability
• Can be controlled by management
• Are compared to an established standard

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Prime Costs

• Include those expenses classified as
• Food
• Labor
• Are directly controlled by management
• Make up the majority of a restaurants total
  costs
• Are directly related to profitability

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Prime Costs continued

• The costs of food and labor are a restaurants
  greatest expenses.

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The Cost Control Process Steps

• Step 1 Collect sales and cost data.
• Step 2 Monitor and analyze sales and costs.
• Step 3 Take corrective action as appropriate.

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The Cost Control Process

• Step 1 Collect sales and cost data.
• Yearly and monthly data are used for budgets and
  income statements.
• Weekly and monthly data are used for purchasing
  and scheduling.
• Meal period data are used for production
  planning.

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The Cost Control Process continued

• Step 2 Monitor and analyze sales and costs.
• Evaluate
• The line items name
• Budgeted cost
• Actual cost
• Cost difference
• Percentage difference

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The Cost Control Process continued

• Step 2 Monitor and analyze sales and costs.
• Compare actual sales and costs to
• Budget (line item review)
• Operational standards
• Historical information
• Identify variances

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Computation of Percent Difference

• Actual cost of 48,000
• Budgeted cost of 45,000

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Computation of Percent Difference continued

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Cost Variations

• Can be preventable
• May be unpreventable
• Take corrective action on preventable cost
  variations

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The Cost Control Process continued

• Step 3 Take corrective action as appropriate.
• Variations from anticipated results may be
• Large and significant
• Small, but still significant
• Small and insignificant

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Corrective Actions for Cost Control

• To reduce food cost
• Reduce portion size.
• Replace the item with a lower cost alternative.
• Feature menu items with higher profit margins
  (lower costs).
• Raise menu prices.

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Corrective Actions for Cost Control continued

• To reduce food waste
• Monitor portion control.
• Monitor food storage and rotation.
• Monitor food purchasing (buy appropriate
  amounts).
• Minimize production errors.

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Corrective Actions for Cost Control continued

• To reduce labor cost
• Reduce the number of employees on the schedule.
• Ask employees to end their shift early if they
  are not needed.
• Cross-train staff.

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Corrective Actions for Cost Control continued

• Do you think food or labor costs are higher in
  this restaurant?
• Why?

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How Would You Answer the Following Questions?

• Who is responsible for the size of a restaurants
  fixed expense?
• Which of the following vary with sales volume?
• Fixed expense
• Semivariable expense
• Variable expense
• Both B and C
• Who is responsible for monitoring controllable
  costs?
• What two components make up prime cost?

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Key Term Review

• Control
• Controllable cost
• Corrective action
• Cost of food sold
• Fixed cost

• Gross profit
• Income statement
• Labor expense
• Line item review
• Loss

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Key Term Review continued

• Noncontrollable cost
• Prime cost
• Profit
• Sales

• Semivariable cost
• Standard
• Total expense
• Variable cost

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Chapter Learning ObjectivesWhat Did You Learn?

• Describe the relationship between standards and
  controlling costs.
• Identify the types of costs incurred by a
  restaurant or foodservice organization.
• Classify foodservice costs as controllable or
  noncontrollable.
• Describe and give examples of controllable and
  noncontrollable costs.

28
Chapter Learning ObjectivesWhat Did You Learn?
continued

• Classify foodservice costs as variable,
  semivariable, or fixed.
• Describe and give examples of variable,
  semivariable, and fixed costs.
• Explain the basic foodservice cost control
  process.