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Cost Control. Chapter 1 Managing Revenue and Expense. Main Ideas. Professional Foodservice Manager Profit: The Reward for Service Four Major Foodservice Expense Categories Percentages Percentages in Foodservice Profit Formula Understanding the Income (Profit and Loss) Statement

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cost control

Cost Control

Chapter 1

Managing Revenue and Expense

main ideas
Main Ideas
  • Professional Foodservice Manager
  • Profit: The Reward for Service
  • Four Major Foodservice Expense Categories
  • Percentages
  • Percentages in Foodservice
  • Profit Formula
  • Understanding the Income (Profit and Loss) Statement
  • Common Percentages Used in a P&L Statement
  • Understanding the Budget
  • Technology Tools
professional foodservice manager
Professional Foodservice Manager
  • Management handles functions of product sales to product delivery.
  • Management of foodservice is more difficult than for manufacturing or retailing management counterparts.
profit the reward for service
Profit: The Reward for Service
  • If management focuses on controlling costs more than on servicing guests, problems will certainly surface.
  • Do not get yourself in the mind-set of reducing costs to the point where it is thought that “low” costs are good and “high” costs are bad.
profit the reward for service1
Profit: The Reward for Service
  • Efforts to reduce costs that result in unsafe conditions for guests or employees are never wise.
  • The question is whether costs are too high or too low, given management’s view of the value.
profit the reward for service2
Profit: The Reward for Service

Revenue - Expenses = Profit

  • Revenue is the amount of dollars you take in.
  • Expenses are the costs of the items required to operate the business.
  • Profit is the amount of dollars that remain after all expenses have been paid.
profit the reward for service3
Profit: The Reward for Service

Revenue - Expenses = Profit

  • The following terms will be used interchangeably: revenue and sales; expenses and costs.
  • All foodservice operations, including non-profit institutions, need revenue in excess of expenses if they are to thrive.
  • Profit is the result of solid planning, sound management, and careful decision-making.
profit the reward for service4
Profit: The Reward for Service

Revenue – Desired Profit = Ideal Expense

  • Desired profit is defined as
    • Profit that the owner wants to achieve on that predicted quantity of revenue.
  • Ideal Expense is defined as
    • Management’s view of the correct or appropriate amount of expense necessary to generate a given quantity of revenue.
profit the reward for service5
Profit: The Reward for Service

Revenue – Desired Profit = Ideal Expense

  • Revenue varies with
    • Number of guests
    • Amount of money spent by each guest
  • Increase revenue by
    • Increasing the number of guests served
    • Increasing the amount that each guest spends
    • Or a combination of both
four major foodservice expense categories
Four Major Foodservice Expense Categories
  • Food Costs
    • Costs associated with actually producing menu items
    • Largest or second largest expense category
  • Beverage Costs
    • Costs related to the sale of alcoholic beverages-beer, liquor, wine
    • May also include ingredients, mixers and garnishes
four major foodservice expense categories1
Four Major Foodservice Expense Categories
  • Labor Costs
    • Cost of all employees, including taxes
    • Labor costs are second only to food costs in total dollars spent
    • Some include the cost of management in this category. Others prefer to place the cost of managers in the Other Expense category.
  • Other Expenses
    • Include all expenses that are neither food, beverage nor labor, such as utilities, rent, linen, etc.
percentages
Percentages
  • Numbers can be difficult to interpret due to inflation. Therefore, the industry often uses percentage calculations.
  • You will be evaluated primarily on your ability to compute, analyze, and control these percent figures.
percentages1
Percentages
  • Percent (%) means “out of each hundred.”
  • There are three (3) ways to write a percent:
    • Common Form
      • “%” sign is used, as in 10%
    • Fraction Form
      • the part, or a portion of 100, as in 10/100
    • Decimal Form
      • the decimal point (.), as in 0.10
percentages2
Percentages
  • Divide the number that is the part by the number that is the whole.

Part = Percent

Whole

percentages in foodservice
Percentages in Foodservice
  • Percentage of revenue that went to pay for expenses:
      • Expense
  • Revenue = Expense %
percentages in foodservice1
Percentages in Foodservice
  • As long as expense is smaller than revenue, some profit will be generated
  • Modified profit formula:
      • Profit
  • Profit % = Revenue

Revenue - (Food and Beverage Cost + Labor Cost + Other Expenses) = Profit

profit formula
Profit Formula
  • Put in another format, the equation looks as follows:
  • Revenue (100%)
  • - Food and Beverage Cost %
  • - Labor Cost %
  • - Other Expense %
  • = Profit %
understanding the income profit and loss statement
Understanding the Income(Profit and Loss) Statement
  • Profit and loss statement (P&L) lists revenue, food and beverage cost, labor cost, other expense, and profit.
  • The P&L is important because it indicates the efficiency and profitability of an operation.
understanding the income profit and loss statement1
Understanding the Income(Profit and Loss) Statement
  • The Uniform System of Accounts is used to report financial results in most foodservice units. This system was created to ensure uniform reporting of financial results.
  • Published by the National Restaurant Association.
common percentages used in a p l statement
Common Percentages Used in a P&L Statement
  • Food and Beverage Cost

Revenue= Food and Beverage Cost %

  • Labor Cost

Revenue= Labor Cost %

  • Other Expense

Revenue= Other Expense %

  • Total Expense

Revenue= Total Expense %

  • Profit

Revenue= Profit %

understanding the budget
Understanding the Budget
  • Budget
    • An estimate of projected revenue, expense, and profit.
    • The budget is known as the plan.
    • All effective managers, whether in the commercial (for profit) or non-profit sector, use budgets.
understanding the budget1
Understanding the Budget
  • Performance to budget is the percentage of the budget actually used.
  • The 28-day-period approach to budgeting
    • 13 equal periods of 28 days each
understanding the budget2
Understanding the Budget
  • Percentages are used to compare actual expense with the budgeted amount, using the formula

Actual

Budget = % of Budget

understanding the budget3
Understanding the Budget
  • “in-line” with the budget vs. “significant” variation to the budget.
  • A significant variation is any variation in expected costs that management feels is an area of concern.
understanding the budget4
Understanding the Budget
  • If significant variations with planned results occur,

management must:

    • Identify the problem
    • Determine the cause
    • Take corrective action
technology tools
Technology Tools
  • Most hospitality managers would agree that an accurate and timely income statement (P&L Statement) is an invaluable aid to their management efforts.
  • There are a variety of software programs on the market that can be used to develop this statement.
technology tools1
Technology Tools
  • Variations include programs that can compare actual results to budgeted figures or forecasts, to prior-month performance, or to prior-year performance.
  • P&L’s can be produced for any time period, including months, quarters, or years.
  • Most income statement programs will have a budgeting feature and the ability to maintain historical sales and cost records.
technology tools2
Technology Tools
  • Not all information should be accessible to all parties, and security of cost and customer information can be just as critical as accuracy.
  • To effectively manage an operation, a manager will need to communicate with employees, guests, and vendors. Thus, the software you will need includes office products for word processing, spreadsheet building, faxes, and e-mail.
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