1. © Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF) and published by Pearson Education, Inc. All rights reserved. Chapter 3 Cost Control

2. Cost Control Overview  _______ is the price an operation pays out in the purchasing and preparation of its products or the providing of its service. 2 Cost control is a business’s efforts to manage how much it spends. 3.1 Chapter 3 | Cost Control  Every business needs to make more money than it spends in order to survive. That is, its sales, or revenue, have to be higher than its costs.  ___________ is the income from sales before expenses, or costs, are subtracted.

3. Types of Costs  A successful restaurant or foodservice operation needs to manage and control many costs.  Food costs, beverage costs, and labor costs each have components that are related to _____ _______.  ________ or ____-_______ costs can change based on sales. These are controllable costs because the operation has a certain amount of control in how it spends on these aspects of the operation.  ____________ cost is a fixed or non-controllable cost, meaning it needs to be paid regardless of whether the operation is making or losing money.  Fixed costs do not change based on the operation’s sales. 3 3.1 Chapter 3 | Cost Control

4. Operating Budgets  A _________ is a prediction of sales levels or costs that will occur during a specific time period.  Most forecasting techniques rely on having accurate _________ _______ for the operation.  The most common foodservice revenue forecasting techniques are based on the number of _________ and ________ _______ per customer.  A _______ ________is a record of the number of portions of every item sold on a menu.  Most operations can run historical sales and production reports from their _____-___- _____ (POS) systems. 4 An operating budget is a financial plan for a specific period of time. 3.1 Chapter 3 | Cost Control

5. Profit-and-Loss Report  A P&L shows whether an operation has ______ or ______ money during the time period covered by the report.  The P&L, or income statement, helps managers gauge an operation’s __________ as well as compare actual results to expected goals.  A P&L also helps management determine areas where ____________ must be made to bring business operations in line with established financial goals.  For an operation to be profitable, _____ must exceed costs. 5 A profit-and-loss report (P&L) is a compilation of sales and cost information for a specific period of time. 3.1 Chapter 3 | Cost Control

6. Cost-Control Tools  Advances in technology have drastically increased the number of options available to operations in controlling costs.  ________ ___________ can be used to complete the calculations required in cost planning, controlling sales, controlling inventory, and focusing on the menu.  Computer software can easily provide better access to information, more accurate and convenient collection of information, and improved analysis of that information.  If used effectively, technology can help in running an operation more efficiently and helping to reduce and effectively control costs. 6 3.1 Chapter 3 | Cost Control

7. Section 3.1 Summary  Every business needs to obey one basic principle to survive: it must make more money than it spends.  Food costs, beverage costs, and labor costs each have components that are related to sales levels.  An operating budget is a financial plan for a specific period of time. It lists the anticipated sales revenue and projected costs and gives an estimate of the profit or loss expected for the period.  A profit-and-loss report is a compilation of sales and cost information for a specific period of time that shows whether an operation has made or lost money. 7 3.1 Chapter 3 | Cost Control

8. Steps in Controlling Food Costs 1.Purchasing 2.Receiving 3.Storage 4.Issuing 5.Preparation 6.Cooking (production) 7.Service (sale) 8 Food costs must be controlled during all seven stages of the food flow process: 3.2 Chapter 3 | Cost Control

9. Determining Food Cost  ______ _______includes the cost of food sold, given away, wasted, spoiled, incorrectly prepared, overportioned, overproduced, or pilfered.  _________ is the dollar value of a food product in storage and can be expressed in terms of units, values, or both:  _________ inventory is the physical inventory at the beginning of a given period.  The _________ inventory is the inventory at the end of a given period.  The formula for obtaining an actual food cost accurately is: (Opening inventory + Purchases = Total food available) – Closing inventory = Total food cost 9 Food cost is the actual dollar value of the food used by an operation during a certain period. 3.2 Chapter 3 | Cost Control

10. Determining Food Cost Percentage  Analyze food cost percentage by comparing it to company standards, historical costs, or even industry standards.  To determine the percentage, divide the total food cost by the sales: Total food cost ÷ Sales = Food cost percentage  Food cost is a ________ cost: It should increase or decrease in direct proportion to an increase or decrease in sales if all of the standards and food controls are followed correctly. 10 Total food cost percentage is the relationship between sales and the cost of food to achieve those sales. 3.2 Chapter 3 | Cost Control

11. Establishing Standard Portion Costs  Most every operation has __________ ________that are followed every time a menu item is prepared.  For every standardized recipe, an operation should establish a ________ _________ cost, which is the exact amount that one serving, or portion, of a food item should cost when prepared according to the item’s standardized recipe.  A _______ _______ _______ is a tool used to calculate the standard portion cost for a menu item.  As with the standardized recipe, a recipe cost card should exist for every multiple-ingredient item listed on the menu. 11 3.2 Chapter 3 | Cost Control

12. As-purchased versus Edible-portion Costs  The ___-__________(AP) method is used to cost an ingredient at the purchase price before any trim or waste is taken into account.  In the AP method, all ingredient quantities are listed on the standardized recipe in the form in which they are purchased.  The ______-_______ (EP) method is used to cost an ingredient after trimming and removing waste, so that only the usable portion of the item is reflected.  Using the EP method to cost an ingredient, the quantity is listed on the standardized recipe using only the edible portion of that particular ingredient. 12 3.2 Chapter 3 | Cost Control

13. Recipe Yields  To determine how many portions a recipe yields, calculate the total volume of the recipe either by weight or by volume, depending on how the portion size is calculated.  Understanding _____ _______ is one of the keys to successful food preparation and controlling food costs. The measurements given in recipes must be followed exactly.  Once a yield is known and properly followed, it’s easier to ________ or _________ the size of the recipe based upon the operation’s changing needs. 13 A recipe yield is the process of determining the number of portions that a recipe produces. 3.2 Chapter 3 | Cost Control

14. Controlling Portion Sizes  Controlling portions is very important for a restaurant to meet its standard food cost.  Tools that are essential for accurate portion control include:  Scoops  Ladles  Serving spoons  Serving dishes  Ramekins, bowls, cups, and so on  Portion scales  Another mechanism for ensuring that portions are the right size is to proportion any item that can be preportioned before serving. 14 3.2 Chapter 3 | Cost Control

15. Monitoring Production Volume and Cost  When restaurants produce too much, food cost goes up; produce too little, and sales are lost.  A _____ __________ _______shows how much product should be produced by the kitchen during a given meal period.  A well-structured chart can ensure product quality, avoid product shortages, and minimize waste, spoilage, theft, energy costs, and administrative costs.  _____ _______ is critical in helping management forecast how many portions of each menu item to produce on a given day. 15 3.2 Chapter 3 | Cost Control

16. Menu Pricing  The menu is the primary sales tool in most restaurant and foodservice operations.  There are a number of methods for menu pricing:  A contribution margin is the portion of dollars that a particular menu item contributes to overall profits. To use the contribution margin method, an operation must know the ______ ______ for each item sold.  In the straight markup pricing method, multiply ____ ______ costs by a predetermined fraction.  With the average check method, the _____ _______ is divided by the number of seats, average seat turnover, and days open in one year.  The food cost percentage is equal to the food _____ divided by food _______. 16 3.2 Chapter 3 | Cost Control

17. Section 3.2 Summary  Food costs must be controlled during all seven stages of the food flow process, from the actual purchasing of food items to how they are served to customers.  Food cost is the actual dollar value of the food used by an operation during a certain period.  Food cost percentage is the relationship between sales and the cost of food to achieve those sales.  Most operations have standardized recipes that are followed every time a menu item is prepared. 17 3.2 Chapter 3 | Cost Control

18. Section 3.2 Summary (Cont.)  Two methods used to determine the cost of ingredients in a standardized recipe are the AP method, which means “as purchased,” and the EP method, which stands for “edible portion.” 18 3.2 Chapter 3 | Cost Control  A recipe yield is the process of determining the number of portions that a recipe will produce.  Controlling portions is very important for a restaurant to meet its standard-food cost.  The menu is the primary sales tool in most restaurant and foodservice operations.