1. Managing Costs in OAA Nutrition Programs Presented By Audrey C. McCool, EdD, RD, LD 1

2. Effective Cost Management Managing costs effectively means OPTIMIZING costs relative to the revenue anticipated for your program. It does NOT mean your costs are reduced to the minimum possible 2

3. Effective cost management is achieved through the development and consistent implementation of an effective control process throughout the entire foodservice system 3 Effective Cost Management

4. The Control Process  Set Standards  Implement Standards  Collect Operational Data  Identify Variances  Determine Variance Significance  Investigate Causes of Significant Variances  Determine Appropriate Remedial Action  Implement Remedial Action  Collect New Operational Data  Repeat Above Steps 4

5. The Control Process Question: Do you have a process to control costs in your program that follows these steps? a. Yes, we do all these steps b. We do some of these steps c. No, we don’t have a defined cost control process 5

6. Forecasting Provides the data base for decision making and planning Essential for cost effective food procurement and food production –Helps avoid product shortages and spoilage –Helps avoid both over- and under-food production Generally based on historical records 6

7. Effective historical records for forecasting should include: –Date and day of the week –Meal (Congregate, home delivered, etc.) –Notation of special event, holiday, and weather conditions, if applicable –Food items prepared (especially the entrée) –Quantity of each item prepared –Quantity of each item served Forecasting 7

8. Forecasting Exercise 1: Forecasting If you would like to learn more about forecasting and using the Moving Average forecasting method, there is an exercise in your webinar workbook, pages 1-3, which will introduce you to this concept. You can work through this exercise on your own at your convenience. 8

9. PURCHASING OBJECTIVE TO OBTAIN: THE RIGHT QUALITY IN THE RIGHT QUANTITY AT THE RIGHT TIME AT THE RIGHT PRICE FROM THE RIGHT SUPPLIER 9

10. Match Products To Your System Your product requirements MUST reflect your production capabilities and your storage facilities, i.e. the type of foodservice system in your operation. 10

11. Saving $$ Through Product Selection  Can a product be used for multiple menu items?  What form of a product is best? ??  Production equipment available ??  Labor available (amount & skill level) ??  Costs of alternatives ??  What is the yield from product alternatives?  Yield tests – can cuttings 11

12. Cost Effective Products For Your Program Purchase the products that are the best “fit” for the menu items being prepared and the most cost effective form of that product relative to your overall menu and your program’s type of foodservice operation. 12

13. Talking the Language to Make the Best Buy for Your $$ Question: Are you familiar with the terms used in the foodservice industry – terms such as AP, EP or Yield? a. Yes, I’m familiar with foodservice industry terms and know what they mean b. I’ve heard of these terms, but I’m not too sure about what they mean c. No, I’m not at all familiar with foodservice industry terminology 13

14. Talking the Language to Make the Best Buy for Your $$ To purchase cost effectively, it is important to know the difference between the “as purchased” or AP cost and the “edible portion” or EP cost Calculating and comparing AP and EP costs for products requires an understanding of product yields and yield calculations 14

15. Calculating Cost – Usable Yield  AP Cost = unit price paid to vendor  EP Cost = Cost of usable (servable) yield.  AP Weight (volume) = weight (volume) purchased from vendor  EP Weight(volume) = Usable weight (volume)  Yield % = EP weight (volume)/AP weight (volume)  EP Cost = AP cost/Yield % 15

16. Calculating Cost – Usable Yield  LET’S PRACTICE WITH SOME PROBLEMS CALCULATING YIELDS, AP COSTS, AND PORTION COSTS FOR SOME TYPICAL ITEMS USED IN MANY PROGRAMS  LOOK IN OUR WEBINAR WORKBOOK, PAGE 4, FOR THE EXERCISE 2 PROBLEMS 16

17. Calculating Cost – Usable Yield Exercise 2: Problem 1: Case of iceberg lettuce = 25 lbs AP; trim = 5 lbs; usable lettuce = 20 lbs. 2 oz. of trimmed lettuce is used in a salad. AP cost/case = $30.00 Calculate: a) The % yield b) The cost per pound of trimmed lettuce c) The portion cost for the 2 ounces of lettuce in the salad 17

18. Calculating Cost – Usable Yield Exercise 2: Problem 1 Answers: a) Yield = 20 lbs EP/25 lbs AP = 80% b) EP Cost/lb (20 lbs usable lettuce) = $30.00 AP cost per case/.8 (80% yield)= $37.50 EP cost per case or 37.50/20 lbs EP = $1.87/lb or $1.87/16 oz per lb = $0.117 per oz EP cost c) Portion Cost: Thus, a salad using 2 oz of lettuce would have an ingredient cost of $0.234 per portion (either $0.117 X 2oz or $1.87/8 portions per pound). 18

19. Calculating Cost – Usable Yield Exercise 2: Problem 2: A #10 Can of cream corn = 7 lbs & has an AP cost of $5.00. Cream corn is 100% usable from the can, but there is some production loss during heating and portioning – about 3%. Calculate: a)The EP cost per can b)The EP cost per ounce c)The portion cost of a 3 ounce portion 19

20. Calculating Cost – Usable Yield Exercise 2: Problem 2 Answers: a) The EP cost/can = $5.00/.97 (97% yield)= $5.15 for 6.75 pounds of corn (7 pounds AP X 97% yield = 6.75 pounds EP) b) Cost per Pound: $5.15 EP cost/6.75 EP pounds = $0.76 per pound or $0.048 per ounce ($0.76/16 oz) c) Portion Cost: If a 3 oz portion is served, $0.048/per ounce X 3 ounces = $0.144 per portion 20

21. Calculating Cost – Usable Yield Exercise 2: Problem 3: A 25lb bag of dry rice costs $20.00 AP, or 1 lb costs $0.80 AP. Rice absorbs water in a 2:1 ratio when cooked. Calculate: a) The yield percent b) The EP cost of 1 pound of cook rice c) The portion cost of a 3 ounce serving of cooked rice 21

22. Calculating Cost – Usable Yield Exercise 2: Problem 3 Answers: a)Yield percent: 1 lb AP dry rice = 3 lb EP cooked rice (1 lb rice + 2 lb of absorbed water). Thus, yield = 3 lb cooked rice/1 lb dry rice= 300% b)EP cost/lb = $0.80/3.0 = $0.267 (cost of 1 lb dry rice [$0.80]/yield % [300% or 3.0]. c) Portion Cost: Cost /oz = $0.267 EP cost per pound/16 oz = $0.017. So, a 3 oz portion cost = $0.017 X 3 = $0.051. Or there are 5.33 portions (3 oz size) in a pound; so the portion cost could also be calculated as $0.267 (EP cost per pound)/5.33 (number of portions per pound) = $0.50. 22

23. Calculating Cost – Usable Yield Exercise 2: Problem 4: Ground beef A costs $2.95/lb AP – cooked yield = 85% Ground beef B cost $2.65/lb AP – cooked yield = 76% Ground beef C cost $3.10/lb AP – cooked yield = 94% Calculate: a) The EP cost per pound for each of the 3 ground beef alternatives b) Determine which of the 3 products you should purchase, based on the EP costs per pound. 23

24. Calculating Cost – Usable Yield Exercise 2: Problem 4 Answers: a)Calculated EP costs per pound: Ground beef A costs $2.95/lb AP – cooked yield = 85%; so EP cost/lb = $2.95/.85 = $3.47 Ground beef B cost $2.65/lb AP – cooked yield = 76%; so EP cost/lb = $2.65/.76 = $3.49 Ground beef C cost $3.10/lb AP – cooked yield = 94%; so EP cost/lb = $3.10/.94 = $3.30 b) Which product to purchase: Ground Beef C as it has the lowest EP cost/lb even though it has the highest AP cost per pound. It is the yield from the product that determines the actual EP cost, or the cost for the amount of the product that can be served. 24

25. Yield Tests You should periodically conduct yield tests on most products – especially meats, canned fruits and vegetables, and fresh produce – before making decisions as to which products to purchase for your menu items. 25

26. Yield Test Procedures  Weigh (or measure – volume) AP product as accurately as possible  Prepare item to servable form (drain canned items, trim/cut produce, trim/cut/cook meat – as appropriate)  Weigh (or measure – volume) servable (EP) product as accurately as possible  Divide EP weight (volume)/AP weight (volume) to calculate yield %  Divide AP product cost by yield% to calculate EP product cost 26

27. Purchasing Products Purchasing Alternatives  Cooperative Purchasing  Prime Vendor  Local Suppliers  Bid Purchasing  Daily/Weekly Quotations  Contracting Consider the advantages (possible cost savings) and disadvantages (possible program costs) for all possible alternatives for your program 27

28. Product Specifications Question: Do you write your own product specifications? a. Yesb. No 28

29. Product Specifications  A specification may be defined as a ready reference to the standards by which you measure the foods you specify for purchase and inspect upon delivery.”  Specifications are a communication tool between you and your suppliers  For more information on specifications, you can access the following web site: http://nutritionandaging.fiu.edu/creative_solutions/bid_specs.asp Information will also be available on the information library currently under development by MOWAA. 29

30. Product Specifications  Are essential for product quality and consistency  Are needed for all items purchased  Can be developed specifically for your program or can be “borrowed” from various reference resources such as:  Meat Buyer’s Guide  http://www.namp.com/namp/Meat_Buyers_Guide.asp?SnID=2  USDA grading standards  http://www.ams.usda.gov/AMSv1.0/ams.fetchTemplateData.do?template=T emplateN&navID=USGradeStandards&rightNav1=USGradeStandards&topNa v=&leftNav=&page=FreshGradeStandardsIndex&resultType=&acct=freshgrdc ert  Federal product standards  http://www.fns.usda.gov/fdd/foods/specs.htm  Product suppliers such as the produce industry or canned foods packers  Multiple references for food product specifications are available on the Internet. 30

31. Product Specifications Sample Specification BEEF PATTY Beef U.S. Grade Good or Better not to exceed 25 percent fat, 2.67 ounce patty, six patties per pound, no soy, meat by-pro­ducts, binders, or extenders. Meat shall be free of bone. Meets Institutional Meat Purchase Specification #1136. 31

32. Product Specifications Sample Specification APPLESAUCE Quality: GRADE A Style/Variety: REGULAR OR CHUNKY Count Size: 6 / #10 Condition: CANNED Description: LIGHT GOLDEN IN COLOR; FREE FROM PARTICLES OR SEEDS. LIGHTLY SWEETENED. 32

33. Product Specifications Sample Specification BANANAS Quality: No. 1 Style/Variety: PETITE - 5/6" LONG Count Size: 150 Condition: FRESH Description: PLUMP, FIRM, BRIGHT COLORED FRUIT, FREE FROM SCARS AND BRUISES. FRUIT SHOULD BE SOLID YELLOW 33

34. Product Specifications Sample Specification BROCCOLI Quality: GRADE A Style/Variety: CHOPPED, SPEARS Count Size: Condition: FROZEN Description: TENDER AND FREE FROM TOUGH FIBER, BRIGHT GREEN COLOR TYPICAL FOR YOUNG, TENDER BROCCOLI. 34

35. Sample Specification Form Sample form that could be used for writing product specifications: Product Name: ___________________________ Quality: ___________________________ Style/Variety: ___________________________ Packing Medium: _________________________ Count Size: _________________________ Condition: _________________________ Description: ________________________________________________ ________________________________________________ 35

36. Product Specifications Exercise 3: Product Specifications At your convenience, you can use the sample product specification form, page 5 in your webinar workbook, to help you write specifications for products that you use in your program. Product Name: __________________________________ Quality: ________________________________________ Style/Variety: ___________________________________ Packing Medium: ________________________________ Count Size: _____________________________________ Condition: ______________________________________ Description: _____________________________________ 36

37. Purchasing Process Prior to actually purchasing, or ordering, products:  Distribute copies of your specifications to all potential suppliers  Obtain bid prices or price quotations for products  Determine which suppliers will be used by your program for the different categories of products to be purchased (meats, poultry, fish, produce, canned goods, cleaning products, paper products, condiments, etc.) 37

38. Purchasing Process When ready to purchase products:  Determine what products are needed and the quantity needed for each of the products  Prepare one or several purchase orders (PO’s) for needed products  Retain copies of PO’s for your files; submit the original to the selected supplier  File a copy of the PO’s near the receiving area in the kitchen so it is available for reference when the order is received. 38

39. Purchasing and Receiving Personnel Question: Do you have someone trained who does the food purchasing for your program? a) Yesb) No 39

40. Purchasing and Receiving Personnel Question: Do you have someone trained who is the person that does the product receiving for your program? a) Yesb) No 40

41. Receiving Products Cost effective receiving of purchased products requires receiving equipment such as:  Accurately calibrated platform scale with sufficient capacity to weigh the volume of product usually purchased by your program  Accurately calibrated food thermometer for checking refrigerated and frozen product temperatures  Desk or similar writing area  Filing cabinet for purchase orders and other paperwork  Small items such as marking pens and a calendar 41

42. Receiving Process  Set times that your program will receive products and notify all suppliers of those times.  Refuse to receive products at other times, particularly during your busy production and packaging times  Receiving person should check ALL items being delivered against the listing on the invoice and on the purchase order  Check prices to be sure invoice prices charged match prices on the purchase order  Check invoice quantities to be sure the listed quantities match the quantities on the purchase order  Check that all items listed on the invoice were items ordered on the purchase order. 42

43. Receiving Process  Receiving person must check the weights of items -- especially meat, poultry, & fish.  Check the ice pack on fresh poultry and fish to make sure that there is adequate, but not excessive ice.  If portion cut pieces of meat, poultry, or fish are being received, weigh sample portions to be sure the portion size is accurate. 43

44. Receiving Process  Receiving person must check the temperatures of refrigerated & frozen products  Products out of the safe temperature zone or which show evidence of having been thawed and refrozen should not be accepted, but should be returned to the supplier with the delivery person 44

45. Receiving Process  If all products are acceptable & all is correct on the invoice, the receiving person signs the invoice  Original copy is kept for program accounting office  Copy goes back to the supplier with the delivery person  If all is not acceptable/correct, the receiving person should not sign the invoice until the delivery person has issued a credit memo or other documentation is obtained adjusting/correcting the invoice.  Once the adjustment has been made, the receiving person should sign the invoice.  Then, all products are moved to storage areas ASAP. 45

46. Receiving Process REMEMBER: The program owns the products that have been delivered, as they were delivered – whether correct or not -- as soon as anyone associated with the program signs the invoice. Once the invoice is signed, the program is legally responsible for paying the stated amount to the supplier. 46

47. Purchasing and Receiving Personnel It is essential that you have a specific person designated to do the purchasing for the program and one or more specific persons designated to receive products when they are delivered These persons must be trained in appropriate purchasing and/or receiving procedures. 47

48. Purchasing and Receiving Cost effective purchasing and receiving provide you with the quality of products you desire in the quantity that you desire when and where you want them Both the purchasing and receiving processes are critical components of effective cost control. Neither process will be as effective as it should be without the other. 48

49. 49 Purchasing and Receiving Whiteboard Discussion: What are the biggest purchasing and/or receiving challenges at your program?

50. Product Preservation  Product “shrinkage” must be avoided to optimize product costs  “Shrinkage” can result from:  Theft - intentional or unintentional  Excessive use of product  Waste in product preparation/handling  Spoilage 50

51. Product Preservation  Fresh Item “Shrinkage”  Directly adds to food costs  Can be prevented by proper storage conditions and product rotation  “Shrinkage” of inventoried (dry storage or staple) items -- results from:  Unlocked storage areas  Poor control of product issues  Poor product rotation  Infestation of insects and/or vermin  Improper storage conditions 51

52. Product Preservation Taking appropriate actions to prevent product "shrinkage" through product loss, over-usage, and spoilage is a critical step in maintaining effective cost management. 52

53. Inventory Management  Careful inventory records need to be maintained in order to control inventory usage  Acquisitions should be recorded from invoices; issues should be recorded from requisition forms  Perpetual inventory records can be maintained on computers  Physical inventory counts need to be taken monthly  Perpetual and physical inventory valuations need to be reconciled monthly  Significant variations in inventory values need to be investigated and accounted for 53

54. Inventory Management Questions: Do you take a monthly physical inventory of your products in your storerooms? a) Yesb) No Do 2 persons work together to take this inventory? a) Yesb) No Is one of the persons taking the inventory someone who is not working in your foodservice operations? a) Yesb) No 54

55. Inventory Management Careful management of inventory investment and monitoring the flow of products placed in inventory is required to calculate actual food costs and effectively manage costs. Your inventory is an investment and an asset of your program and must be treated as suc h. 55

56. Storage Conditions Maintaining proper storage conditions is essential for preventing product “shrinkage” Conditions to be considered are:  Local health department storage regulations  Type of shelving  Placement of products on shelving  Storage containers used for various products 56

57. Storage Conditions Conditions to be considered are:  Temperatures  Dry Stores: 65 – 70 degrees F  Fresh meats, produce, and fresh dairy products: 34 – 36 degrees F  Fresh fish: 30 – 34 degrees F  Frozen Foods: minus 10 – zero degrees F  Thaw frozen foods at proper temperatures  Do not thaw foods at room temperature  Keep storage equipment clean and sanitized  Cleanliness of ice is critical 57

58. Storage Conditions Proper storage conditions must be maintained in all storage areas at all times to maintain product quality and prevent undue costs as a result of product spoilage. Proper storage conditions are essential for food safety 58

59. Stretch Break Let’s take a minute to stretch and get a sip of water. 59

60. Food Production Excessive costs often occur during the food production process  Product waste from over-production  Product waste from under-production followed by “emergency” production  Inconsistency in prepared products  Unacceptable products thrown away  Incorrect amounts issued from freezer or storeroom and allowed to spoil before used  Lack of standardized portions served to clients 60

61. Standardized Recipes Standardized recipes are essential to achieve effective cost control Standardized recipes:  Enhance menu item quality consistency  Control ingredient use during menu item preparation  Lead to consistent recipe yields  Control cost of menu item portions  Help reduce client complaints about menu items 61

62. Standardized Procedures  Standard production procedures are as important as standard ingredients  Failure to follow standard procedures can lead to:  Reduction in menu item quality  Recipe yield shrinkage  Production personnel must recognize the importance of following standardized procedures for the production of all menu items  Standardized procedures must be followed for convenience items, as well as for items prepared “from scratch” 62

63. Standardized Recipes and Production Procedures Effective management of costs is not possible without the development and incorporation of standardized recipes and standard preparation procedures into your foodservice operation. 63

64. Portion Control  Programs often lose control of their costs when they fail to establish portion control and serve consistent size pre-costed portions  Standard portions:  Mean the expected number of portions will consistently be obtained from a standardized recipe’s yield  Help prevent menu shortages or “running out” of a menu item  Maintain meal portion consistency for clients  Help maintain desired meal costs 64

65. Portion Control Portion control cannot be achieved unless personnel have the necessary tools & equipment such as:  Proper portioning tools  Different size ladles  “Ice cream” scoops  Portion scales  Containers for packaging items for clients or serving congregate meal clients  Proper pans for baking/cooking items so menu items can always be prepared in standardized pans  All personnel must know portion sizes and be trained in proper portioning procedures. 65

66. Portion Control Personnel cannot be expected to consistently serve standard portions of menu items unless they are provided with the proper portioning tools. 66

67. Portion Control  Meal item packaging should be planned to support standardized portions.  Consider sizes of packaging materials  Choose the optimum priced packaging for the type of items served on the menu which will also facilitate appropriate temperature maintenance. 67

68. Portion Control While standardized recipes and standardized production procedures are essential for effective cost control, that control will be lost unless standard portions are served from the items prepared from the standard recipes and those portions are packaged such that food quality and food temperatures are maintained. 68

69. Contracting Chat Question: Who is responsible for negotiating contracts? Please write your answers in the Chat room. 69

70. Contracting  The contracting process parallels the purchasing process  Contracting can be used to acquire either products required by the program or for services  Any part of or all of the services provided by a program or the services needed by a program may be obtained via a contract with an outside supplier  Successful contracting means that;  the program knows exactly what is desired;  has communicated very specific requirements to the contractor ;  Follows up consistently to be sure contract terms are met and the products/services provided comply with expectations 70

71. Contracting Process Most contracts are established by means of the bid purchasing process. That process entails:  Developing detailed specifications for the desired product(s) or services  Researching possible suppliers to identify as many potentially qualified suppliers as possible  Submitting the specifications for the desired product(s) or services to all potentially qualified suppliers  Requesting that sealed bids be submitted by a stated deadline 71

72. Contracting Process, Cont.  Once the deadline for bid submission has passed, opening all received bids and evaluating them relative to the specifications submitted to the potential suppliers  If no one bid meets all requirements, select the most promising and negotiate with the supplier(s) until an agreement is reached that is acceptable to both parties  Be sure that a time period for which the contract will be in effect is clearly identified  Prepare and sign the contract  Begin working with the contracted supplier 72

73. Contracting Contracting can be a cost effective approach to the acquisition of products and services when the process incorporates careful preparation of specifications, and the bidding process is carried out carefully and thoroughly. 73

74. BUDGETING PROCESS Operating Budget Development  Estimate Revenue  Estimate Variable Costs  Estimate and/or Allocate Fixed Costs  Treat “profit”, or your operating reserve, as a cost  Operating budgets are developed for a year and broken down into monthly operating budgets which serve as cost control tools 74

75. Calculation of Actual Meal Costs  Fixed costs and utilities are available from documents such as billings and contracts.  Fixed costs include items such as:  Communications  Building Costs  Utilities  Capital Equipment, Including Transport Vans, Depreciation  Operating Costs  A Portion of the Labor Costs  Fixed costs must be allocated among programs on some basis, such as square footage, proportion of clients or client revenue, or other basis appropriate to the specific program 75

76. Calculation of Actual Meal Costs Exercise 4: Fixed Cost Identification Considering the cost data in the table on pages 6-7 in your webinar workbook to be used for this exercise, which cost categories do you feel should be considered fixed costs? A)Kitchen SuppliesB) Office Supplies C)TransportationD) Travel E)Kitchen Equipment F) Office Equipment G)Building CostsH) Utilities I) CommunicationsJ) Operating Costs I) CommunicationsJ) Operating Costs K) Food SuppliesL) Labor Costs 76

77. Calculation of Actual Meal Costs Exercise 5: Fixed Cost Allocation Discussion: Fixed costs that are incurred must be allocated to programs in order to calculate the true meal cost or the true cost of a program per client. Fixed costs that are incurred must be allocated to programs in order to calculate the true meal cost or the true cost of a program per client. Does your center allocate your fixed costs among the programs operated by the center? a) Yesb) No 77

78. Calculation of Actual Meal Costs Exercise 5: Fixed Cost Allocation Discussion: If you do allocate fixed costs among your programs, how do you allocate these costs; that is, what is the basis of your allocation? Please type your answers in the Chat room. 78

79. Calculation of Actual Meal Costs  Cost control is primarily related to the control of variable costs.  Variable costs include:  Food  Travel – Mileage Reimbursement  Conference & meetings  Equipment and van maintenance and repairs  Supplies  The variable portion of labor costs 79

80. Calculation of Actual (Total) Meal Costs  Labor costs can be calculated from payroll records  Include all costs – salaries, wages, benefits  Benefits provided to volunteers (meals, mileage reimbursement, etc.) should be included in labor costs  Fixed labor costs are labor costs that have to be paid in order to have a program, even if few, if any participants  Variable labor costs are all costs beyond the minimum required to have a program  Consider the value of the volunteer hours when determining the true cost of meals  If the volunteers were not there, the program would have to be paying persons to do what the volunteers are doing 80

81. Calculation of Actual Meal Costs Exercise 6: Labor Cost Identification and Allocation Consider the different categories of labor costs listed for this exercise, page 8 in the webinar workbook. Consider the different categories of labor costs listed for this exercise, page 8 in the webinar workbook. Which ones should be considered fixed costs that should be allocated among all the programs and which ones should be considered to be variable costs charged 100% to a program? Which ones should be considered fixed costs that should be allocated among all the programs and which ones should be considered to be variable costs charged 100% to a program? 81

82. Calculation of Actual Food Costs Calculation of actual food costs is more complex; it is NOT just the cost of items you purchased.  Requires calculation of inventory value based on the monthly physical inventory  The physical inventory must be valued using a standard valuation method. Common methods are:  FIFO – First in, First Out  LIFO – Last in, First Out  Latest Purchase Price – i.e., The last price paid for products 82

83. Valuing Your Inventory  The method chosen to value your inventory is NOT related to the actual movement or product in and out of your storeroom  Latest Purchase Price Method  Values all items still in storage at the last price paid for the items. 83

84. Valuing Your Inventory  LIFO:  This approach assumes that the products that were purchased last were the first products used  Thus, the items left in inventory are valued at the oldest prices paid for the items  FIFO:  This approach assumes that the products that were purchased first were the first products used.  Thus, the items left in inventory are valued at the more recent prices paid for the items 84

85. Calculation of Actual Monthly Food Costs Formula for calculating actual food costs for a month – whether preparing your own meals or purchasing meals from a contractor. Beginning Inventory (ending inventory from previous month) + Purchases during the month - Ending Inventory = Cost of food consumed during the month - Adjustments (food provided for volunteers, used for other program, etc. – must be charged to other accounts ) =Actual Food Costs for the month 85

86. Calculation of Monthly Food Costs Exercise 7: Calculation of Monthly Food Costs Use the data given in Exercise 7, page 9 in your webinar workbook to calculate the actual monthly food cost for this program.  Which of the following do you think is the correct actual monthly food cost? a) $21,790 b) $20,415 c) $26,440 d) $23,980 c) $26,440 d) $23,980 86

87. Calculation of Monthly Food Costs Exercise 7: Calculation of Monthly Food Costs The food cost for the month is calculated as: $ 5,435 (opening inventory) $ 5,435 (opening inventory) + $11,780 (dry stores purchases) + $ 9,225 (perishable food purchases) - $ 4,650 (closing inventory) = $21,790 (cost of food consumed) - $ 1,800 (value of meals served to volunteers - charged to volunteer benefits) - $ 425 (value of food served at board meeting - charged to cost of administration) = $20,415 - the actual food cost for the month 87

88. Calculation of Actual (Total) Meal Costs  Actual meal costs include:  Food costs  Supplies costs  Kitchen and transport equipment costs  Proportionate share of fixed costs if site has other programs; if no other programs, than all fixed costs are included  Appropriate share of fixed and variable labor costs, including value of volunteer labor hours  Cost per meal = total actual meal costs for the period divided by total number of meals SERVED during that same period. 88

89. Calculation of Actual (Total) Meal Costs Exercise 8: Calculation of Actual Meal Costs Given the data in the table, p. 10 of the webinar workbook, calculate the following: A. The actual (total) meal cost for the Congregate Meals Program B. The actual (total) meal cost for the Home Delivered Meals Program 89

90. Calculation of Actual (Total) Meal Costs REMEMBER: The actual (or total) meal cost for either the congregate or the home delivered meal program must include the costs directly associated with the program (i.e., food, labor, packaging, transportation, etc.) AND the allocated proportion of the management and overhead costs of the center. The actual (or total) meal cost for either the congregate or the home delivered meal program must include the costs directly associated with the program (i.e., food, labor, packaging, transportation, etc.) AND the allocated proportion of the management and overhead costs of the center. Given the data for this exercise, the actual (total) meal cost for both the congregate and home delivered meal programs would be the sum of all the costs associated with that program divided by the number of meals served by the program. Given the data for this exercise, the actual (total) meal cost for both the congregate and home delivered meal programs would be the sum of all the costs associated with that program divided by the number of meals served by the program. 90

91. The Budget as a Control Tool  Budgeted costs are the cost standards estimated in the operating budget.  In accord with the control process, actual costs (and revenue) are compared with the standard, i.e. the budgeted costs (and revenue) to determine variances.  Variances are evaluated to determine if they are significant.  If significant, then variances must be investigated and actions taken, as indicated in the discussion of the control process 91

92. Budget Variance Analysis Variance Analysis : – By $$ and/or by % or both – Determining Significance Significance levels are determined by each program based on their operating expectations Usually significance is determined by a combination of both $$ and % levels Include Year-To-Date Comparisons 92

93. Budget Variance Analysis Potential Savings:  The difference between actual costs and planned costs  Represents $$$ that would still be in the bank as $$$ still available to the program had the actual revenue and costs been the budgeted amounts  Goal is to minimize potential savings (i.e. variance from budgeted $$$ through careful planning and careful control of operations) 93

94. Budget Development The time invested to prepared a detailed, well-constructed operating budget will pay dividends when the budget is used as a primary tool in the development and implementation of an effective cost control process. 94

95. Summary TO OPTIMIZE COST MANAGEMENT –  Standards are essential for all aspects of a program’s foodservice operations  Cost analyses and efforts to control costs should focus on variable costs which are controllable in the short run at the program level.  Analyses should be conducted on a regular basis. When significant variances are noted, appropriate action should be taken. 95

96. THANK YOU!!! QUESTIONS???? For any further questions or a copy of These overheads, you can email me, Dr. Audrey C. McCool at: bmccool@earthlink.net 96