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Controlling Costs;. The processes…. Question : What Should the Food Cost % be ? Answer : The difference between the Contribution Margin and the Selling Price. Selling Price – all costs – profit = Food Cost. Food Cost % . Selling Price. Cost Markup =. Portion Cost. Portion Cost. 100.

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Controlling costs

Controlling Costs;

The processes….

Gilbert Noussitou 2006


Food cost

  • Question:

    • What Should the Food Cost % be?

  • Answer:

    • The difference between the Contribution Margin and the Selling Price

Selling Price – all costs – profit = Food Cost

Food Cost %

Gilbert Noussitou 2006


Food cost1

Selling Price

Cost Markup =

Portion Cost

Portion Cost

100

Food Cost % =

Selling Price

Cost %

  • Ratio of product cost compared to selling price

  • Cost Markup

    • also known as the cost factor

or

Food Cost %

Gilbert Noussitou 2006


Food cost what should it be
Food Cost %: What should it be?

Gilbert Noussitou 2006


Potential profitability

  • More important than food cost is profitability.

  • Every menu item must generate its share of income to paid for all other costs and profit.

    • Referred to as: contribution marginor gross profit

  • Contribution Margin is the difference between the product cost & the selling price.

Potential Profitability

Gilbert Noussitou 2006


Profitability

Sales – Cost of Sales = Gross profit

Profitability

Gross Profit = Contribution Margin (C.M.)

Gilbert Noussitou 2006


Contribution margin

Food of funds available to operate the business & the larger the net profit will be

Cost

Selling

Price

Item

C.M.

F.C. %

Chicken

Sandwich

$1.25

$4.65

27%

$3.40

Fish

Burger

34%

$4.30

$2.20

$6.50

Steak

Sandwich

$4.65

$3.10

$7.75

40%

Contribution Margin

Gilbert Noussitou 2006


The profit myth

In most peoples mind;

Revenue – Expenses = Profit

Revenue – Required Profits = Allowable Expenses

The Profit Myth

In this case, the only way to survive is to manage expenses properly!!!

Gilbert Noussitou 2006


The budget

  • A budget is a plan for operating a business expressed in financial terms or a plan to control expenses and profit in relation to sales.

  • A budget is a tool used with performance reports to coordinate, evaluate and control operations in accordance with the goals specified in the BUDGET plan.

    Cont…

TheBUDGET

Gilbert Noussitou 2006


The budget cont

  • Budgeting financial terms or a plan to control expenses and profit in relation to sales.provides and organized procedure for planning and for development of standards of performance in numerical terms.

  • Planning, coordination and control are the three primary objectives of Budgeting.

  • Budgets provide basis for control but they must be planned and implemented by all operational personnel within the organization.

TheBudget (cont.)


Steps in planning a budget

1 financial terms or a plan to control expenses and profit in relation to sales.st Step:Budget Sales

2nd Step:Budget Expenditures

3rd Step:Budget Cash Flow

4th Step:Budget Capital Expenditures

5th Step:Compile Forecast Income Statement

Steps in Planning a Budget

Gilbert Noussitou 2006


Control point flow chart
Control Point financial terms or a plan to control expenses and profit in relation to sales.Flow Chart

Control the processes,

not the end result!!!

Gilbert Noussitou 2006


Cost control process

  • Establish standards: financial terms or a plan to control expenses and profit in relation to sales. (Standards = expected level of performance)

  • Measure actual results of operation

  • Compare actual results to standards

  • Identify corrective action

  • Select corrective action

  • Review corrective action

COST CONTROL PROCESS

Gilbert Noussitou 2006


Food cost controls

  • Standard financial terms or a plan to control expenses and profit in relation to sales.Product Specifications

  • Standard Recipes

  • Standard Yields:

    • Ratio of useable product to total weight before processing

  • Standard Portions

    • Count – ladle – scoop – bowl – weigh – etc.

  • Standard Portion Cost

    • Always resulting from the 4 previous standards!!!

There are five main standards related to cost control

Food Cost Controls

Gilbert Noussitou 2006


Yield cost calculations

Effective Standards:

Yield & Cost Calculations

Gilbert Noussitou 2006


Problem food cost is too high

POSSIBLE SOLUTIONS:

PROBLEM:FOOD COST IS TOO HIGH!?

Gilbert Noussitou 2006


Cost controls use of leftovers

  • Normal waste is market expectationscosted and sold

  • Abnormal waste is used but not sold

  • Proper planning is essential

THE BEST WAY TO USE LEFT-OVERS IS……

NOT TO HAVE ANY!

What is the best way to use leftovers?

EVERYTHING YOU BUY MUST BE SOLD

Cost ControlsUse of Leftovers

Gilbert Noussitou 2006


Taking inventory

Taking Inventory; market expectations

Is that a cost control measure?

Gilbert Noussitou 2006


The formula for food cost calculation

OPENING INVENTORY $11,000.00 market expectations

PLUS

PURCHASES (less credits) + $40,000.00

MINUS

CLOSING INVENTORY - $9,000.00

EQUALS

COST OF FOOD SOLD (or used) = $42,000.00

Sales are $120,000

Food Cost % = (cost) $42,000.00 x 100 = 35%

(Sales) $120,000.00

THE FORMULA FOR FOOD COST CALCULATION

Gilbert Noussitou 2006


Example #1 market expectations

Gilbert Noussitou 2008


Example #2 market expectations

Gilbert Noussitou 2008


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