Cost Concept Definition of Cost: Cost is defined as the expense to a foodservice establishment for goods or services when the

e goods are consumed or the services are rendered. Cost of Food can be expressed in weight volume or total value Cost of Beverage can be expressed in value per bottle, per drink, per ounce Labor Cost can be expressed as value per hour or weekly salary. Fixed and Variable Costs We used the terms Fixed and Variable to distinguish between costs that have NO direct relationship to business volume and those that do have a direct relationship with business volume. Example of Fixed Costs: Rent, Insurance premiums, Real Estate Tax, Accounting services Example of Variable Costs Food, Beverage, Labor

Controllable and Non-controllable costs In Contrast, non-controllable costs are those that cannot normally be changed in the short term. These are usually fixed costs Rent, Interest on mortgage, real estate taxes, license fees Managers do not normally have the ability to change any of these in the near term. Unit and Total Costs Units may be food or beverage PORTIONS (as the cost of one steak) or units of work, as in the hourly rate for an employee. It is also useful to consider costs in terms of Totals as the total costs of labor for a period (week/ month) On an Income Statement, Costs are expressed in Total, not in Units Historical and Planned Costs

 Historical means that this data can be found in business records, books of accounts, financial statements, invoices, employees time cards Historical costs are used to establish unit costs, determining menu prices and comparing present with past performances Historical costs are used to plan future costsfor budgeting purposes Sales Concepts Sales is defined as revenue resulting from the exchange of products and services for Value. In our business, F&B are exchanges of the products and services of a restaurant, bar for Value. We normally express Sales in monetary terms (or sometimes in non-monetary terms) Non-monetary Terms Total number Sold (how many of each items sold) Covers (means one Guest/ Customer) Total Covers (Total cover count for a period (per hour/ meal/ day/ week/ month) Average Covers (per hour/ day/ server) Seat Turnover (Dividing the number of guest by the number of seats available) Sales Mix (the relative quantity sold of any item compared to other items in the same category The cost-to-sales ratio (COST PERCENT) Food cost/ Food Sales = Food Cost % Beverage cost/ Beverage Sales = Bev. Cost % Labor Cost/ Total Sales = Labor Cost % Lets compare the Cost% of our 2 restaurants Industry wide Variation in Cost Percent

 Cost percent vary considerably from a food service operation to another. In very broad terms, there are 2 basic types of foodservice operations: Those that operate a low margin of profit per item served and depend on relatively high business volume. Those that operate at a relatively high margin of profit per item and therefore do not require such high business volume. Chapter Essentials Cost viewed from several perspective: Fixed vs Variable Controllable vs Non-Controllable Total vs Unit Historical vs Planned Prime Cost vs Overheads Chapter Essentials Sales expressed in monetary and non-monetary terms Monetary = Total Sales, Per Category, by server, by seat, average sales Non-monetary = number sold, covers, average covers , seat turnover, sales mix Cost to Sales Ratio & Percentages In Food and Beverage Cost control is defined as the process used by managers to regulate costs and guard against excessive costs. It is an ongoing process and involves every step in the chain of purchasing, receiving, storing issuing and preparing food and beverages for sales as well as the training and scheduling of the personnel involved. The principal causes of high costs are Inefficiency Waste

Ex: Storing food in refrigerators not cold enough/ Storing Wine or Beer in a too warm room Preparing food or beverage in a way that it has to be thrown away. Instituting Control All Food and Beverage businesses must: Purchase, receive, store and issue products for sale We deal with fruits, vegetables, meat, poultry and so forth. Fresh, frozen, and canned as well as alcoholic beverages. Products must be carefully selected, with the desired end product in mind...

Overview of the Purchasing Cycle in the Hotel Control Techniques 1. Establish Standards 2. Establish Procedures 3. Training 4. Setting examples 5. Observing and Correcting employees actions 6. Requiring records and reports 7. Disciplining employees 8. Preparing and following Budgets Establishing Standards Standards are defined as rules or measures established for making comparisons and judgments. Quality Standards (to define the degree of excellence of a raw or finished product F or B) Quantity Standards (defined as measures of weight, count, volumePortion size, garnishes, Standard Pour Sizes Also used in Labor cost control: # of Guest per server 1 Establishing Standards (2) Standards are defined as rules or measures established for making comparisons and judgments. Standard Costs: The cost of goods or services identified, approved and accepted by Management. (Food Beverage Labor) Standard Costs are used to set pricing and compare budgeted vs actual costs Example of a bottle of whisky Establishing Procedures Standard Procedures (SOPs)

Methods, routines, techniques employed consistently to prepare products or perform jobs (all jobs!) Ordering Purchasing, Receiving, Storing, Issuing, Preparing, Cooking, Serving SOPs must be set The objective of SOPs is to consistently meet (or exceed) guest expectations Training The next step after establishing standards It is the employees who are delivering the products and services. They must be aware of the SOPs and trained to achieve the standards Without Training, SOPs are useless ! Without Training, control is impossible Setting examples The Managers Leadership Employees usually follow the examples of the Manager (good or bad!) As a manager, what you do is more important than what you say! Your attitude and behavior (as a formal leader) influence your team members. You must be CONSISTENT in setting examples (whenever you help on the floor) Observing and Correcting Actions Basic supervisory skills Go on the Front Line at Peak Hours (a good leader does not lead from the back) Inspect what you expect Give feedback to your collaborators (catch them doing something right) Praise Reprimand and encourage Train and encourage 7. Disciplining Employees Discipline is a control technique used in F&B operations. Discipline starts when observing and correcting (item 5 of our list) has failed. Discipline follows progressive steps such as Verbal warnings =>Written warnings =>Dismissal The objective is to bring improvement in the organization. 01/07/2008

8. Preparing and Following Budgets A budget is a financial plan, a realistic expression of managements GOALS and OBJECTIVES expressed in financial terms. Sales Budgets Capital Expenditures Budgets (Capex) Advertising Budgets Operating Budget (a forecast of Sales activity and the Costs to generates these Sales) http://chrismercier.org/costcontrol.htm

Importance of control in a hotel

Maximizing the profit is the main objective of any organization. A hotel being a commercial organization has the same aim and objective. Due to the competitive market, management cannot use the technique of hiking price to increase profit. The only remaining way is to minimize the operating expense so that the profit is maximized. Operating expenses are the sum of material cost and labour cost and overhead cost. Management cannot do much in the case of fixed costs like rent, electricity, tax etc. so controlling and limiting the variable costs like materials and labour is the only way to attain profit maximization and because of this reason control in a hotel is highly important to the management.