Preface

The authors of this texts second edition recognize, as did the firsts,that all foodservice managers, regardless of the type of operationthey are involved in, must understand and manage the costs asso-ciated with operating their business. The foodservice manager,whether in a commercial restaurant, hotel, or institutional setting,is faced with a variety of responsibilities, from accounting, market-ing, human relations, facilities maintenance, and legal issues tosanitation, production, and service methods, to name but a few.This text will focus, in a very clear way, on helping managersunderstand the logic and the systems involved with managing theircosts. It is intended to be a primer, the first step, in what may be alifelong and rewarding study of how to be a better manager in theimportant area of cost control. The Integration of Technology The first edition of this text met with great success, thanks in largemeasure to its easy to teach, easy to read, and easy to understandstyle. This has been painstakingly maintained in the new edition.The hospitality industry, however, has changed greatly in the yearssince the publication of the first edition. This change, especially inthe area of technological advancements, was the determining fac-tor in the decision to update the book. The authors were committedto producing a work that includes the most up-to-date material ontechnology and its impact on the critical area of cost control. We be-lieve we have been successful.Teachers using the text will now find that it allows easy inte-gration of technology and that the teaching tools available to themhave been greatly enhanced. The floppy diskette that now accompanies the purchase of each textbook is just one such new tool.There are many others. In adition, the ability to begin immediatelyto utilize now common tools such as manager-developed spread-sheets and Internet access in ways that were not readily availablein the earlier edition are the defining characteristic of this new edition.Students will quickly see how the skills they have previously

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Preface

acquired while learning to use a computer can be easily adapted tothe study of cost control.Practicing managers will find the book useful as a reference aswell as a source of ready-to-use forms and formulas that can beeasily applied to their own operations. New in the Second Edition New authors bring new vision, and that is certainly true in the caseof this revision. In addition, those managers, students, and instruc-tors who used the first edition were extremely helpful in guidingthe direction of this revised work. As a result, significant changes inthis edition include the following: Technology Integration The primary driving force behindthis revision was the commitment to fully utilize the computer andthe Internet as teaching tools. This has been successfully achieved.As students have become more sophisticated in their use of technology, so, too, must those who write, publish, and use their learn-ing tools. At the same time, those who teach from this text will findit remains purposefully teacher-friendly. Expanded Coverage of Topics Practicing managers haveaccess to computer technology never before available in the food-service industry. The result is that they face a myriad of challengesas they select those technology tools that are right for their ownoperations. This new edition directly addresses this challenge of selecting technology tools appropriately with the inclusion of achapter titled Using Technology to Enhance Control Systems.Additional areas of expanded coverage include the Uniform System of Accounts for Restaurants, menu analysis, and cost/volume/profit analysis. Chapter Reorganization This effort included the elimina-tion of some topics not directly related to cost control, the inclusionof new topics, and the modification of chapters viewed by some astoo long. The result is a 12-chapter, rather than 9-chapter book, withno loss of significant content. In addition, the shorter chapters makethe book easier to teach from and understand. The authors in-class-room testing of this new format shows excellent student acceptance. Legal Information In those areas where knowledge of thelaw affects a managers application of cost control techniques, thelaws impact has been integrated.

vi

Extensive Revision and Examination of Formulas Per-haps no area is more important in a book on cost control than theaccuracyofthe formulasandmathematicalsolutionsusedtodemonstrateconcepts.Inadditiontoextensiverevieweranalysis, theauthorshaveconscientiouslycheckedandrecheckedtoensurethattheformulas,examples,andanswers providedareindeedaccurate.Onethingthathasnotchangedinthenewedition,however,isthat the authors continue to find the topic of cost management to beone of creativity, excitement, and, in many cases, outright fun. Con-trary to the prevalent idea of cost control as drudgery, cost man-agement in this text becomes an engaging challenge to be met bythefoodservicemanager.It may be said that there are three kinds of managers: thosewho know what has happened in the past, those who know what ishappening now, and those who know what is about to happen.Clearly, the manager who possesses all three traits is best preparedtomanageeffectivelyand efficiently.This text will give the reader the tools required to maintainsales and cost histories (the past), develop systems for monitoringcurrent activities (the present), and teach the techniques requiredto anticipate what is to come (the future). Essential Elements of the Text O eve s v ri w Eachchapterbeginswithabriefnarrativeoverview.Thisissimplya quick and easy guide to the chapters contents. Overviews makeit easy for readers to see what the chapter is about and what theywill learn by reading it. Chapter Outline Thechapteroutlinethatfollowstheoverviewhelpsteachersaswellasstudentsseehoweachtopicfollowsthe nextandprovidesasimplewaytoquicklyfindmaterialwithinthechapter. Chapter Highlights Each chapters highlights tell the reader what to expect in that chapter.Theyare wordedinsuchawaythatthereaderknowswhathe or she will be able to do attheconclusionofthechapter.Thesehighlights are designed so that readers will be prepared for and ex-

Preface vii

cited about what they will be able to achieve when the chaptersmaterial is successfully mastered. FunontheWeb! This new addition to the text adds to student learning by integrat-ing the use of technology, in this case the Internet (World WideWeb), to the study of cost control. Students will quickly realize thepower of the Web in assisting with the gathering of cost controlrelated information, as well as providing Web-based resources that help managers more effectively do their jobs. KeyTermsandConcepts Students often need help in identifying key concepts that should bemastered after reading a section of a book. These are listed at theconclusion of each chapter and are invaluable as study aids. TetYo rSkls s u i This popular feature has been retained from the first edition, but expanded by using Microsoft Excel spreadsheets (the industry stan-dard) in the solution of the exercise whenever applicable. These ex-ercises are now presented in spreadsheet form via the inclusion of the students computer diskette. Students can actually test theiranswers thus improving the Instructors ability to evaluate masteryof the actual cost control concept rather than spreadsheet buildingability. The Test Your Skills exercises allow the reader to conclu-sively determine if he or she has mastered the chapters content.Again, the intent is to allow the reader to immediately practice theskill acquired in the chapter. Through these exercises, the authorsseek to reinforce the concepts presented in the chapters. Managerial Tools It is the authors hope that readers find the book as helpful to useas we found it exciting to develop. To that end, additional appen-dixes have been developed that will be of great value. Appendix A: Spreadsheet Formulas is designed to give readers the formulas that they will need to complete the Test Your Skills exercises at the endof each chapter.As an easy reference guide, Appendix B: Frequently Used For- mulas for Managing Operations is included in the back of the text.

This section allows the reader to quickly look up the mathematicalformulaforanyofthecomputations presentedinthetext.Wehaveintentionally chosen the simplest formulas that have the widest use. Appendix C: Management Control Forms isasectiondevotedto providing simplified cost controlrelated forms. This popular ap-pendix has been retained from the first edition. These forms can beused as guideposts in the development of property-specific forms.They may be implemented as is or modified as the manager sees fit. AppendixD:FunontheWeb!Sites is designed to give readersthe Internet addresses of those sites identified in the text as beinghelpful in learning more about cost control. In this appendix, thesites are listed as they appear in the chapters.An expanded Glossary (larger by 50 percent than the glossaryin the first edition) of industry terms will help the reader with theoperational vocabulary necessary to understand the language of hospitality cost control management. This is included at the end of the text. Finally, a Bibliography is provided for the reader whowishes to pursue his or her study from a variety of excellent books. Instructors Materials TohelpInstructorseffectivelymanagetheirtimeandtoenhancestudent learning opportunities, three significant educational toolshavebeendevelopedspecificallyforthistext.Theseare: Students Floppy Diskette This diskette, included with thepurchase of each text, introduces students to the important skill of spreadsheetdevelopment.Theauthorshaveselectedthewidelyused Microsoft Excel spreadsheet program for this use. Using thesupplied diskette, students can immediately see how their answerstoTest YourSkillsproblemstranslateintocost controlsolutionsvia spreadsheet formula development and manipulation. Thesediskettes assist students in understanding the how and why of building spreadsheet solutions for the cost control related hospital-ity problems they will face in the classroom and in their careers. In-structors will find that the grading of problem sets becomes mucheasier when, with the aid of the diskette, all students use a consis-tent approach to classroom assignments.

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PREFACE

Instructors Manual As an additional aid for Instructors, anInstructors Manual (ISBN: 0-471-35738-3) has been painstakinglydeveloped and classroom tested for this text. The manual includes:Lecture outlines for each chapterAnswers to chapter ending Test Your Skills problemsA Test Bank including exam questions developed for eachchapter Wiley Web Site, (for Food and Beverage Cost Control) The segment of Wileys Web Site devoted to this book (www.wiley.com/college) is significant. It includes two very important instruc-tor aids that can immediately be used to enhance student learning.These are: PowerPoint slides These easy-to-read and graphically so-phisticated teaching aids are excellent for use by instructorspresenting their lectures via computer or for those who wishto download the graphics and present them as overhead trans-parencies. TestBank Instructors utilizing the web site will find apassword-protected bank of exam questions that include thequestions correct, and classroom tested, answers. NATIONAL RESTAURANT ASSOCIATION (NRA) Educa-tional Foundation Student Workbook The National Restau-rant Association Educational Foundation, in consultation with theauthors, has developed a Student Workbook for its ProMgmt. cer-tificate program. The workbook contains exercises and a study out-line for each chapter, and a practice test of 80 multiplechoice ques-tions. This practice test will assist students in preparing for thecertificate examination.In addition, an Instructors Guide (0-471-14992-6) is availableto qualified instructors to complement and highlight the informa-tion in the textbook and Student Workbook.As was true in the first edition, the authors hope that the studyof cost management creates in the reader the same interest and ex-citement for the topic that the authors experience. If that is the case,we will have again been successful, and our readers will surelylearn and be successful, too.

Acknowledgments
The impetus for the second edition of this book was due, as was thefirst, to the wisdom and insight of Jack Miller, a long-time hospi-tality educator at St. Louis Community College and a recognizedleader of the hospitality education community. Jack was committedto an update of the material in the first edition that incorporated uti-lizing the computer applications so readily available today. Sadly,Jack passed away before the revision was complete.Jacks vision was always to help students by giving them themost up-to-date material at hand, in a way that was easy to read,easy to understand, and easy to retain. We strove to achieve that vi-sion. The final version of this edition would, we truly hope and be-lieve, meet Jacks rigorous standards.The first edition of this text was very popular, for which we aredeeply grateful. Its success stemmed in large part from the testingof its concepts and materials in classes at Purdue University, TexasTech University, the University of Houston, and, with the additionof a new author, the Collins School of Hospitality Management at California State Polytechnic University, Pomona, as well as thoseoriginal St. Louis Community College students. Students today willindeed benefit from the insight and input of students in our past classes.As with the first edition, we appreciate all the assistance andcomments we have received in bringing this book to fruition. Weare extremely grateful to those who contributed to the original con-cept and idea for the book as well as the books continued support from the National Restaurant Association.For comment, encouragement, and constructive criticism onthe manuscript, we again thank our reviewers: Jane Boyland, John-son & Wales University; Michael Brizek, Baltimore InternationalCollege; Andrew Glidden, Mohawk Valley Community College; andCharlie Martin, Spokane Community College. They often remindedus of our original concept and kept us from straying from it.We thank our editor, JoAnna Turtletaub, whose support andconstant encouragement kept the book on track with the additionof a new author and, thus, a modified writing team. Thanks Coach!We also want to thank those colleagues and loved ones whohave been so supportive to us throughout our careers, Peggy, Joe, xi

Jack,Ray,Pauline,andMD.ThanksalsotoLoralei,Terry,Laurie,Lou, Billie,Trish,Ed,andBarb.AspecialthanksgoestoDonSt.Hilaire for the Web and Excel ideas and for testing the book in hisclass. The Collins School HRT 276 classes in Fall 2000 are alsodeeply appreciated for their input on the book. Also, thanks to MikeMeraz for assisting with the Excel spreadsheets early on, andthanks to Lucir Schlickmann for assisting with the InstructorsManual. Also, thanks to Csilla Pomjanek for her brilliant computerassistance.Weappreciateallofyou.Mostimportant,we wishtothankJackandNitaMiller.Wehopethisbook demonstratesourloveandgratitudetoyouandourcommitment to hospitality education. DavidK.HayesLeaR.Dopso

nxii ACKNOWLEDGMENTS

Chapter MANAGING REVENUE AND EXPENSE

1 OVERVIEW
This chapter presents the relationship among foodservice revenue, ex-pense, and profit. As a professional foodservice manager, you must un-derstand the relationship that exists between controlling these three areasand the resulting overall success of your operation. In addition, the chap-ter presents the mathematical foundation you must know to express youroperating results as a percentage of your revenue or budget, a method that is the standard within the hospitality industry. CHAPTER OUTLINE Professional Foodservice ManagerProfit: The Reward for ServiceGetting StartedUnderstanding the Profit and Loss Statement Understanding the Budget Key Terms and Concepts, and Test Your Skills HIGHLIGHTS At the conclusion of this chapter, you will be able to: Apply the basic formula used to determine profit. Express both expenses and profit as a percentage of revenue. Compare actual operating results with budgeted operating results.

Professional Foodservice Manager There is no doubt that to be a successful foodservice manager you must be a talented individual. Consider, for a moment, your role in the opera-tion of an ongoing profitable facility. As a foodservice manager, you are

2 CHAPTER

1 MANAGING

RE V E N U E A N D EXPENSE

both a manufacturer and a retailer. A professional foodservice manager isunique because all the functions of product sales, from item conceptual-ization to product delivery, are in the hands of the same individual. As amanager, you are in charge of securing raw materials, producing a prod-uct, and selling itall under the same roof. Few other managers are re-quired to have the breadth of skills that effective foodservice operatorsmust have. Because foodservice operators are in the service sector of busi-ness, many aspects of management are more difficult for them than fortheir manufacturing or retailing management counterparts.A foodservice manager is one of the few types of managers who ac-tually has contact with the ultimate customer. This is not true of the man-ager of a tire factory or automobile production line. These individuals pro-duce a product, but do not sell it to the person who will actually use theirproduct. In a like manner, grocery store or computer store managers willsell their product lines, but they have had no role in actually producingtheir goods. The face-toface guest contact in the hospitality industry re-quires that you assume the responsibility of standing behind your ownwork and that of your staff, in a one-on-one situation with the ultimateconsumer, or end-user of your products and services.The management task checklist in Figure 1.1 shows just some of theareas in which foodservice, manufacturing, and retailing managers varyin responsibilities.In addition to your role as a food factory supervisor, you must alsoserve as a cost control manager, because, without performing this vitalrole, your business might cease to exist. Foodservice management pro-