chapter 1 controls and sales concepts

7/29/2019 Chapter 1 Controls and Sales Concepts

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Principles of Food, Beverage, and Labor CostControls, Ninth Edition


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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 remainafter all expenses have been paid.

Revenue - Expenses = Profit


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There are four costs a Food Service Managermust concern themselves with

Food costs are the costs associated with

actually producing the menu items. In mostcases, food costs will make up the largest orsecond largest expense category you mustlearn to manage.


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Beverage costs are those related to the sale ofalcoholic beverages. Costs of a non-alcoholicnature are considered an expense in the FoodCosts category. Alcoholic beverages accounted

for in the Beverage Costs category include beer,wine, and liquor. It may also include the costs ofingredients necessary to produce these drinks,such as cherries, lemons, olives, limes, mixers

like carbonated beverages and juices, and otheritems commonly used in the production andservice of alcoholic beverages.


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Labor costs include the cost of all

employees necessary to run the business,

including taxes and benefits. In most

operations, labor costs are second only tofood costs in total dollars spent.

Overhead costs include all expenses that

are neither food, beverage nor labor, such asutilities, rent, linen, etc.


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Good managers learn to understand, control,and manage their expenses. Numbers can bedifficult to interpret due to inflation.Therefore, the industry uses percentage

calculations.

Percentages are the most common standardused for evaluating costs in the foodserviceindustry.


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Food Cost = Food Cost % Food Sales

Beverage Cost = Beverage Cost %

Beverage Sales Labor Costs = Labor Cost %

Total Sales


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Percent (%) means out of each hundred. There are three (3) ways to write a percent: Common Form In its common form, the

"%" sign is used to express the percentage,

as in 10%. Fraction Form In fraction form, the

percent is expressed as the part, or aportion of 100, as in 10/100.

Decimal Form The decimal form usesthe (.) or decimal point to express thepercent relationship, as in 0.10.


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Fixed costs are those that are normallyunaffected by changes in sales volume.

Variable costs are those that are clearlyrelated to business volume. Directlyvariable costs are those that are directlylinked to volume of business, such thatevery increase or decrease in volume bringsa corresponding increase or decrease incost.

Semi variable costs have both fixed andvariable elements.


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Controllable costs are those that can bechanged in the short term. Variable costsare normally controllable.

Noncontrollable costs are those that cannot

normally be changed in the short term.These are usually fixed costs.

Unit costs may be food or beverageportions or units of work.

Total costs may be the total cost of laborfor one period.


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Prime cost is the sum of food costs, beveragecosts, and labor costs (salaries and wages,plus employee benefits).

Historical costs can be found in business

records, books of account, and other similarrecords.

Planned costs are projections of what costswill be or should be for a future period.


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Monetary terms include total sales Totalsales may be given by category (such astotal food sales or total beverage sales), byserver, or by seat (total dollar sales for a

given time period divided by the number ofseats in the restaurant).

Other monetary terms include sales price,average sale per customer (the result of

dividing total dollar sales by the number ofsales or customers), average sales perserver.


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Nonmonetary terms include total numbersold (such as number of steaks sold in agiven time period) and covers (one diner).Total covers refers to the total number ofcustomers served in a given period.

Other nonmonetary terms include seatturnover (the number of seats occupiedduring a given period divided by thenumber of seats) and sales mix (a term thatdescribes the relative quantity sold of anymenu item compared to other items in thesame category).


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A simplified statement that details revenue,expenses and profit, for a given period oftime, is called the profit and loss statement(P&L). It lists revenue, food and beveragecost, labor cost, other expense, and profit.

The P&L is important because it describesthe efficiency and profitability of an

operation.


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Put in another format, the equation looks asfollows:

Revenue (100%)- Food & Beverage Cost %

- Labor Cost %

- Overhead Cost %= Profit %


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The primary purpose of preparing a P&L isto identify revenue, expenses, and profits

for a given time period. Common percentages used in a P&L

statement:


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2. Labor Cost

Revenue = Labor Cost %

3. Overhead CostRevenue = Overhead Cost %

4. Profit

Revenue = Profit %

1. Food and Beverage Cost

Revenue = Food and Beverage Cost %


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Sales ______ 100%

Food Cost 349,725 33% Labor Cost ______ 29% Overhead ______ _____ Profit ______ 7%

John Wiley & Sons, Inc. 2009

chapter 1 controls and sales concepts

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