Controlling costs
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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;

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Controlling Costs;

The processes….

Gilbert Noussitou 2006


  • 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


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?

Gilbert Noussitou 2006


  • 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


  • The larger the contribution margin is, the larger the amount of funds available to operate the business & the larger the net profit will be

  • Regardless of the food cost %, items with the largest contribution margin are the most profitable

Sales – Cost of Sales = Gross profit

Profitability

Gross Profit = Contribution Margin (C.M.)

Gilbert Noussitou 2006


Food

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


  • In other words, profits are what ever is left after expenses have been paid.

  • Profits should be treated as a must be paiditem just like rent is.

  • Then the formula becomes:

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


  • 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


  • Budgetingprovides 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.)


1st 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 the processes,

not the end result!!!

Gilbert Noussitou 2006


  • Establish standards: (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


  • Standard 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


  • are an accurate reflection of desired results based on market expectations

  • encouraging excellence

  • are reasonable & challenging

  • are specific & measurable

  • allow slight flexibility to encourage creativity & challenge

  • include feed back (in control system)

Effective Standards:

Yield & Cost Calculations

Gilbert Noussitou 2006


  • Reduce dollar value of food in each sale

  • Increase revenue from each sale

  • Reduce inefficiency in handling food

  • Change (review) the menu

POSSIBLE SOLUTIONS:

PROBLEM:FOOD COST IS TOO HIGH!?

Gilbert Noussitou 2006


  • Normal waste is costed 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;

Is that a cost control measure?

Gilbert Noussitou 2006


OPENING INVENTORY$11,000.00

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

Gilbert Noussitou 2008


Example #2

Gilbert Noussitou 2008


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