ch02 costcontrol final.ppt
TRANSCRIPT
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OH 2-1
A Closer Look at Food Cost
Controlling Foodservice Costs
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OH 2-1
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Chapter Learning Objectives
Calculate food cost.
Calculate food cost percentage.
Explain the effect that changes in food cost andsales have on food cost percentage.
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Food Cost
The actual dollar value of the food used in afoodservice operation
Often referred to as cost of food sold
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Food Cost continued
Includes the cost of food sold to customers
Also includes the value of food that is givenaway, wasted, or even stolen
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Reductions from Cost of Food
Employee meals
The actual cost of the food served toemployees is subtractedfrom cost of food.
Complimentary (Comp) meals
The actual cost of the food that is given away(not its selling price) is subtractedfrom costof food.
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Reductions from Cost of Food continued
Grease sales
Payments from sales ofused oil or grease, bones,and fat scraps are subtractedfrom food cost.
Transfers to other units
If an operation has more than one unit, transfersTO another unit are subtractedfrom food cost.
Transfers INTO a unit are addedto its food cost.
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Bar Transfers
Food to Bar Transfers
The value of items transferred to the bar for makingdrinks is subtractedfrom food cost.
Typical products transferred to the bar includenonalcoholic beverages, fruits, vegetables, spices,juices, and dairy products.
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Bar Transfers continued
In a busy bar, theamount of food that istransferred from thekitchen to the bar canbe significant.
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The Food Cost Formula
Opening inventory
+ Purchases
Total food available
Closing inventory
Cost of food sold
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The Food Cost Formula in Use
Opening inventory $5,000
+ Purchases + $30,000
Total food available $35,000
Closing inventory $4,000
Cost of food sold $31,000
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Physical Inventory
To accurately calculate cost of food sold, managersmust take a physical inventory.
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Food Cost Formula Definitions
Opening inventory
Dollar value of the physical inventory at the beginning of anaccounting period
Purchases Dollar value of all food purchased (less any appropriate
subtractions) during the accounting period
Closing inventory
Dollar value of the physical inventory counted at end of theaccounting period
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The Food Cost Percentage Formula
Food cost Sales = Food cost percentage
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The Food Cost Percentage Formula in Use
Food cost Sales =Food costpercentage
$7,000 $25,000 = 0.28 or 28.0%
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Two Ways to Make a Decimal Conversion
Method One
Move the decimaltwo places to theright.
.35 = 35%
Method Two
Multiply by 100.
0.35 x 100 = 35%
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Food Cost Percentage
Allows managers in one restaurant to comparetheir food usage efficiency to that of previoustime periods
Can be used to compare the food usageefficiency of one restaurant to another
Allows comparison to the restaurants budgetedfood cost percentage or other standard
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Food Cost Percentage continued
Is the proportion of the restaurants sales that isused to pay for food
Means out of each dollar
A 35% food cost percentage means that out ofeach dollar of sales, the restaurant pays $0.35for food.
Must be controlled by management
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Costs and Sales Affect Food Cost Percentage
Food cost is a variable cost, so it shouldincrease when sales increase and decreasewhen sales decrease.
If controls and standards are in place, food costwillgo up and down in direct proportion to sales.
If controls and standards are not in place, itwillnot!
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How Costs and Sales AffectFood Cost Percentage
A food cost percentage is computed usingboth a food cost (the numerator) and sales(the denominator).
An equal percentage increase (or decrease) ineach of these will result in an unchanged foodcost percentage.
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Ten Percent Increase in Sales andCost of Food
Original cost of food $1,000
Original sales $3,000
Food cost percentage 33%
With 10% increase in sales and food cost
New cost of food $1,100
New sales $3,300
Food cost percentage 33%
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Ten Percent Decrease in Sales andCost of Food
Original cost of food $1,000
Original sales $3,000
Food cost percentage 33%
With a 10% decrease in sales and food cost
New cost of food $ 900
New sales $2,700
Food cost percentage 33%
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The ABCs of Food Cost Percentage (A/B = C)
Where: A = Food Cost
B = Sales
C = Food Cost Percentage
1. If A stays the same, and B increases,C decreases.
2. If A stays the same and B decreases,C increases.
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ABCs of Food Cost Percentage (A/B = C)continued
3. If A decreases, and B stays the same,C decreases.
4. If A increases, and B stays the same,C increases.
5. If A increases at the same proportional rate thatB increases, C stays the same.
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Food Cost Percentage
Should be controlled
Should notbe allowed to fall far below therestaurants standard
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Food Cost Percentage continued
If food costpercentages areallowed to drop belowthe restaurants
standards, theguests perceptions ofvalue may benegatively affected.
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How Would You Answerthe Following Questions?
1. The cost of employee meals should be(subtracted/added) to the cost of food beforecomputing a food cost percentage.
2. A restaurants food cost percentage should increasewhen sales increase and decrease when salesdecrease. (True/False)
3. Which best describes food cost as an expense?A. It is fixedB. It is semivariable
C. It is variableD. It is noncontrollable
4. A managers job is to reduce the food costpercentage as much a possible. (True/False)
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Key Term Review
Closing inventory
Food cost
Food cost percentage
Inventory
Opening inventory
Purchases
Total food available
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Chapter Learning ObjectivesWhat Did You Learn?
Calculate food cost
Calculate food cost percentage
Explain the effect that cost and sales have onfood cost percentage