Cost Control ProStart Chapter 3

Rule of thumb… A business must make more money than it spends…..dah!!!!! Revenue (total sales) - Cost (total spent) $$$ in your pocket if you have good Cost Control

Types of Costs Variable/Semivariable Controllable Costs: Food, beverage, and labor costs are subjected to change based on how operation is doing. (weather, time of year, construction) Fixed/Non- Controllable Costs An operation needs to pay insurance, utilities, and lease/mortgage regardless of how the operation is doing. (things that don’t change)

Cost Controlling Fool standardized recipes standard procedures for portion control menu listing pricing

Read Page 149 Manage hourly wages Reduce hours worked and you reduce labor costs Late lunch hours, slow time for a business Holidays that people are not eating out Off season

Operating Budget A financial plan for a specific period of time: analyze controllable costs (supplies, labor, food&bev), outline operating goals and mangers’ performance responsibilities, measure actual performance against anticipated performance. salescost of sales operating expenses other income or expense Food PayrollDonation Beverage BenefitsEnd of season party Repairprofit before income tax $60,000$18,000Entertainment$7000 Utilities gross profit on sales $42,000$29,000$6,000

Developing an Operating Budget… 1.Contact National Restaurant Association (NRA), local Chamber of Commerce, records (if not an operations’ first year) to collect demographic data. 2.Predict how much $$ a business will make in the upcoming year by using forecast revenues. create categories 3.Predict how much $$ a business will spend in the upcoming year by using forecast costs. create categories

Effective cost control tools… A POS (point-of-sale) system can help monitor all of the following activities. Operating budgets are based on forecasts (prediction of sales levels or costs that will occur during a specific time period). Need to have accurate historical data for this to work. How to forecast sales volume: analyze the sales history, account for externalities, predict sales volume (based on previous 2), predict sales mix. $60,000/9,000 people=$6.67 average sales per customer Sales history is a record of the number of portions of every item sold on a menu. Production sheet is a list of all menu items that are going to be prepared for a given date, based on forecasts.

6 cost control tools… portioning equipment time clocks/ POS system full line supplier receiving & portion scales cash register/ POS system equipment monitoring systems

More ways to manage and control costs…. Profit and Loss Report a compilation of sales and costs information for a specific period of time shows whether business made or loss $$ helps manager gauge operations profitability compares actual results to expected goals Moving Average Technique or Smoothing a forecasting technique that averages together sales information for 2 or 3 recent and similar periods to predict future sales more likely to be accurate, because it is not based solely on one period that might have had unique circumstances

Activity: groups of 3 P. 163 #1 – Quick-Service Budgeting Neat Well thought out Realistic P. 163 #3 – Start-Up Costs Lists or essay Detailed Resources

Pricing of Food Why is one more expensive than the other? KFC Fried Chicken Dinner $2.99 and Chili’s Chicken Crisper Dinner $ tip

The Real Story Read through the story on your Controlling Food Service Costs worksheet. What are the labor costs?? Multiply students by hours by wage. Find the sub total to keep the restaurant open by adding food cost and labor costs. What is 12% of that total? Add the sub total with the 12% for the cost to find the total to keep the restaurant open. Divide the total by $18.00 (price charged for the meal) How many people have to come to break even?? Homework – answer the question about how to increase their income.

Food Cost Average The Average Food Cost is 28-42% and depends on the food establishment, location, and so many other factors. Most restaurants have a specific percent and manager and chefs must work hard to meet that percent and not exceed it. Some meals like pasta might be less than 28% and some with lots of protein like steak might be higher than 42%, but it will average out.

Where are food costs low? Places you are “captive” – they can make a fortune!! Disneyland Recreation locations (Yellowstone, Lake Powell, etc… high food cost might be because of location) Movie Theaters College and Professional Athletic Events

Where are food costs high? Places where they make more money other ways but they need to get you to come – so the food is cheap. They make little no money from the food, but when you’re there you’ll spend money in other ways. Las Vegas Ikea

What is a Percent? What is a percentage? Where have you used percentages before? If you’re downloading a program onto your phone or computer and you’ve downloaded for 1 minute and it says you are 30% complete, what is the total download time?

Menu Pricing Four Methods Contribution Margin Method Straight Markup Method Average Check Method Food Cost Percentage

Contribution Margin Method A portion of the money from a menu item contributes to overall profits. Gross Food Sale – Cost of Food Sold = Gross Profit (Contribution Margin) Gross Profit Number of Customers = Average Amount Contributed to Overhead or Fixed Costs and Profit (Add this amount to the cost of the food) $100,000 (Gross Food Sale) - $40,000 Cost of Food = $60,000 (Gross Profit) $60,000 (Gross Profit) 30,000 Customers = $2.00 Contributed per food item Work through problem A in the packet.

Straight Markup Method Multiply raw food costs by a predetermined fraction then add that back to the raw food cost.63 (Raw Food Cost) x 2/3 =.42 (Gross Profit) = $1.05 (Menu Price) Work through problem B in the packet.

Average Check Method Total revenue is divided by the number of seats, average turn over and days open in one year. The average check gives managers an idea of the price range of items on the menu. Use this range, with approximate food cost percentage to determine each item’s selling price Not really specific, needs years of experience to make correct pricing decisions.

Food Cost Percentage Most common method Foods cost divided by food sales $18,000 (Food Costs)/$62,000 (Food Sales) = 29% (Food Cost %) Item Cost / Food Cost % = Menu Price 1.12 (Item Cost) /.29 (Food Cost %) = $3.86 (Menu Price) Round up menu price – to a 0, 5 or 9 (3.90, 3.95, 3.99, 4.00 Work through problem C in the packet.

Other ideas When multiplying with a percent – make sure you move the decimal point two places to the left. If a store advertises 35% off an item that costs $6.79 what would you pay for that item? 6.79 x.35 = 2.38 off the original price or 6.79 – 2.38 = 4.41 Try this 6.79 x.65 = 4.41 (where did the 65 come from?) Remember Altitude Conversions….. (we did this when decreasing by a percentage) If someone purchases food totaling $13.67 and tax is 7.75% on restaurant food. What would the total food bill be? x.0775 = (or 1.06) = Try this x = Remember Altitude Conversions….. (we did this when increasing by a percentage) If you are making a recipe that yields 40 servings and you only need to serve 24 how do you figure that out? 24/40 =.60 (or you’re using 60% of the ingredients) So multiply each ingredient amount by.6

More math Complete the packet as test practice. Read carefully!!