Principles of Food, Beverage, and Labor Cost Controls, Ninth Edition

 - Costs can be fixed or variable  - VC are directly variable  - Fixed costs are stable  - Sales prices are constant  - Sales mix will remain constant

Cost/Volume/Profit Analysis  Each foodservice operator knows that some accounting periods are more profitable than others. Profitability, then, can be viewed as existing on a scale. The midpoint on the scale, indicated by the zero, is called the break-even point. At the break-even point, operational expenses are exactly equal to sales revenue. LargeSmall0Small Large $ $$ $ $ LossesProfits

 CVP calculations can be done either on the dollar sales volume required to break even or achieve the desired profit, or on the basis of the number of units required.  A cost/volume/profit (CVP) analysis helps predict the sales dollars and volume required to achieve desired profit (or break even) based on your known costs.

 Contribution margin for the overall operation is defined as the dollar amount that contributes to covering fixed costs and providing for a profit.  Contribution margin is calculated for as follows: Total Sales - Variable Costs = Contribution Margin

 1. Sales = VC + FC + Profit  2. Variable rate = VC/Sales  3. Contribution rate = 1 - VR

 Sales = Sales cost + Labor cost + OH + Profit  $325,000 = $108,875 + $81, ,500 + $37,375 S = VC +FC+P  VC = Food & Beverage Cost + Variable LC (40% Total Labor)  FC = Fixed LC ( 60% Total Labor) + Overhead  S ($325,000) = VC ($141,375) + FC ($146,250)+ Profit ($37,375)

 Ratio of variable cost to dollar sales  Variable rate = VC/Sales  VR = VC($141,375)/Sales($325,000)  VR =.435 Contribution Rate  CR = 1 - VR  =.565  CR =.565

 Point at which the sum of all costs equals sales, thus profit = 0  BE = Fixed Costs/CR  BE = $146,250/.565  BE = $258,849  $325,000 - $258,850 = $66,150  Profit = Sales after BE x CR  $66,150 x.565 = $37,375

 To determine sales dollars to achieve the profit goal, use the following formula: Fixed Costs + Profit Contribution Rate= Sales Dollars to Achieve Desired Profit  To determine break-even point, compute the following: FC + 0 CR= Break-even point

 To determine the dollar sales required to break even, use the following formula: Fixed Costs Contribution Rate = Break-Even Point in Sales  In terms of the number of units that must be served in order to break even, use the following formula: Fixed Costs Contribution Margin per Unit =Break-Even Point in Unit Sales © John Wiley & Sons, Inc. 2009