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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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