PRINCIPLES OF FOOD & BEVERAGE COST CONTROLS

Defining Control

Defining Control

  1. How do costs affect profit. Provide 1 example (that is not provided in the book) of how controlling costs can affect profit.
  2. It takes money to make money, but cost can affect profit in a profound way in the hospitality setting. If the cost is too much, no profit is made. If the cost can be controlled, then the bottom line will see the benefit. One example of controlling costs that might affect profit is developing a recipe that maintains quality but might use different, less expensive ingredients to make. Therefore, the reduction in the cost of the product – an appetizer for example – would impact the profit margin in a positive way.
  3. What is the manager's role in establishing cost controls?
  4. A manager will be able to set the example for everyone in the facility. Someone who is positive, upbeat, and pays attention to details will be able to maintain a happy work environment while also providing the establishment with an effective way to produce the highest standards and maintain strict cost controls. The manager sets the tone. That means the manager can step in and correct things when he or she sees them happening. This will be the best way to change course quickly.
  5. Please provide one example of a:
  6. Fixed Cost – the rent of the building
  7. Variable Cost – hourly employees
  8. Controllable Cost – staffing level
  9. Non-controllable Cost – price of eggs
  10. Why is Labor Cost considered semivariable?
  11. Labor comprises both fixed and variable aspects. The employee’s wage is set, but the manager may control how much the employee is on shift depending on restaurant volume.
  12. What is the universal formula for %?
  13. % = Part / Whole x 100


Chapter 1 - The Importance of Cost Control

Fixed Costs are costs that remain the same regardless of sales volume. Insurance is a good example. The policy cost will remain the same throughout the term. Variable costs increase and decrease in direct proportion to sales. Food cost is an example. As sales increase, more food is purchased to replenish inventory. With adequate controls, there is little waste or theft. Semi-variable costs increase and decrease as sales increase and decrease, but not in direct proportion. It's made up of both fixed costs and variable costs. Labor cost is an example. Managers are normally paid a salary that remains the same regardless of the operation's sales volume. On the other hand, waitstaff and line cooks are paid hourly wages and are scheduled according to anticipated sales. As a result, the cost of hourly staff increases as sales increase - and decrease as sales decrease.


Controllable costs are those that the managers can control. One example is food cost. Managers can use standardized recipes for portion control, menu listing, and pricing. Labor is also a controllable cost. By changing the number of hours an employee works, a manager can affect labor costs.


Prime Cost is the operation's total food cost, beverage cost, and labor costs for a specific time period, usually a week or month.


Prime cost = Food Cost + Beverage Cost + Labor Cost



  • In your own words, describe the relationship between cost and profitability.
  • Profitability is what is left after all of the expenses have been paid such as the materials for the recipes and the labor. Cost is what takes away from the profit margins but is necessary to run the business and maintain quality.
  • Calculate the profit or loss
  • Sales = $25,000 and Expenses = $20,0000
  • $5,000 profit.
  • Sales = $15,250 and Expenses = $ 15,350
  • Loss of -$100.


  • Draw a line to connect the term to the appropriate chart
  • Create a list of controllable costs.
  • Food & Beverage
  • Wages/labor
  • Marketing
  • Supplies


  • Create a list of Non-controllable Costs
  • Rent for the building
  • Utilities
    Permits or licenses needed


  • Prime Costs include __food cost_____, ___beverage cost____, and __labor costs_____.


  • Food cost % is the relation of ___cost____ to __selling price______.


8.    Draw the tool discussed in class to easily calculate Food Cost %, Menu Price, or Recipe Cost

  • To use the tool above, you __cover up______ what you are looking for, and fill in the remaining information.


  • Complete the following equations.
  • Food Cost = % x selling price
  • Food Cost % = cost / selling price
  • Selling Price = cost / %


  •  __Variance___ is the difference between budgeted and actual performance.


  • To determine the Variance %, follow the steps below:
  • Actual Performance – Budgeted Amount = Variance
  • Variance / Budgeted Amount x 100 = Variance %


Chapter 2 - Forecasting & Budgeting

1. A budget is a __plan that shows financial objectives or standards.________.


2. __Forecasting________________ is used when preparing a budget.


3. Increasing by a %

a. __Multiply______ the original number by the %

b. _Add____ to the original number


4. Decreasing by a %

a. __Multiply_____ the original number by the %

b. __Subtract____ from the original number


5. _Profit and Loss Statement____ is a snapshot of a business’s profitability, also know as an Income statement


6. First line of the P&L __Sales__________

Second line of the P&L _Food and Beverage Costs________________

Third Line of the P&L___Gross Operating Profit/Payroll____________

Fourth Line of the P&L __Other______

Bottom Line of the P&L___Profit/Loss_____


7. Sales always represents __100% - the whole_____


8. All costs % + profit % added together equals _total cost of sales____.


9. The final two steps in the budget process _evaluation/analyze__ and __corrective action____. 




Chapter 3 -

1.    Food only becomes part of Food Cost when ____it goes into production/when it is actually used__________.

The Formula for calculating cost of food sold is:
Beginning Inventory + Purchases - Ending Inventory = Cost of Food Sold (CoGS, cost of goods sold)
Divide COGS by total food sales x 100.

2.    Food ingredients are considered beverage cost when __an item might be transferred to the bar to be used in a __drink__

3.    Beverage ingredients are considered food cost when __the item like a lime or strawberry used for a drink is transferred to the kitchen to be used in a __dish___

4.    When calculating transfers you have to:

a.    __Subtract______ the amount from the original location.

b.    __Add______ the amount to the new location.

5.    List the advantages to standardized recipes discussed in class. Consistent tasting dishes, able to control costs, and increases productivity.

6.    Portions can be controlled by __quality___, ___quantity___, and __product specifications____. Or weight, volume, count.

7.    __Edible portion (EP)_____ refers to the amount left over after processing.

8.    __As purchased (AP)_____ refers to the amount of product delivered.

9.    ___Yield factor______ refers to a % of usable product.

Chapter 4 -

1.    What 4 external factors affect menu prices?

a.    _Competition/Market Driven Pricing___

b.    _Price value relationship (guests have to find value in it)_____________________

c.     _Markup differentiation__Not every item is created equal. The higher the cost of the menu item, the lower the markup can be.___________________

d.    _Demand-driven pricing (airports, concert venues)_____________________

2.    4 methods to determine menu selling price include:

a.    _Triangle______________________________

b.    _Factor method – whatever it costs multiply by 3_________________________

c.     _Contribution margin method______________________________

d.    _Q Factor______________________________

3.    To calculate the Food cost % method we will use the ______ tool. Triangle

4.    To calculate using the Factor Method, we need to:

a.    Divide          by the desired percentage to get the factor.

b.    Then ____multiply________ the recipe cost by the factor.

Example: 

$2.50 Food Cost and a 20% target FC%

a.    100 / 20% target food cost = 5 (the factor number)

b.    $2.5 x 5 = $12.5


5.    To calculate using the contribution margin method we need to:

a.    Add __Non Food Costs_________ and ___Profit____________

b.    __Divide________ by the number of guests

c.     Add the Contribution margin per guest to the recipe cost

Example: 

$5000 Non Food Cost and a $3000 profit         2000 guests

a.    $5,000 (rent, insurance) + $3,000 (profit) = $8,000

b.    Divide by 2,000 guests = $4 per guest

c.     + Recipe costs: + $2.50 = $6.50; + $3.00 = $7.00; + $15.25 = $19.25; + .15 = $4.15


6.    The ___Q Factor_____________ refers to the total of all similar complementary items in a plate.
All of the “free” stuff that comes with the menu item. Entrée + two sides. Ketchup packets.



7.    The ___profit______ is the difference between the selling price and the recipe cost.


8.    To find the average Contribution Margin, we need to:

a.    ___Add___________ all the contribution margins together

b.    And then _____divide___________ by the number of items on the menu.

9.    The ______popularity_________________ or ____contribution margin___________________ refers to how popular an item is on the menu.


10.    To Find the Popularity Benchmark, we need to:

a.    Divide ___100_____ by the number of items on the menu

b.    Then __multiply________ by the Popularity factor provided.


11.    Draw the menu analysis diagram discussed in class.


High contribution high popularity = star

High proft and low pop = puzzle

Chapter 5 -

1.   Draw the Purchasing Cycle below

 



 

2.  When purchasing we need to know the __Inventory______.

 

3.  Product Specifications are divided in two categories __Quality____ and __Quantity____.

 

4.  Ingredient Example_____________________

Quality                                                                   Quantity

                                                                           15 lb

 

5.  __PAR level__________ is the minimum amount needed on hand for normal operations.

 

6.  Establishing PAR

 

a.  (Similar Daily Usage)_____________ the daily Usage by the number of days between deliveries.

b.  (Different Daily Usage)_____________ the daily Usage for days between deliveries.

 

 

Item

Sun

Mon

Tue

Wed

Thur

Fri

Sat

Chicken

2 cases

2 cases

2 cases

2 cases

2 cases

6 cases

6 cases

Potatoes

150 lbs

100 lbs

100 lbs

100 lbs

150 lbs

200 lbs

250 lbs

Bud Light

1.5

1.5

1.5

1.5

1.5

1.5

1.5

 

Par Mon- Thursday                               Par Friday- Sunday

Chicken 

 

Potatoes

 

Bud Light

 

7.  ___________ usage is the amount used between ordering and delivery.