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Controlling Costs;

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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  1. Controlling Costs; The processes…. Gilbert Noussitou 2006

  2. 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

  3. 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

  4. Food Cost %: What should it be? Gilbert Noussitou 2006

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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.)

  11. 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

  12. Control Point Flow Chart Control the processes, not the end result!!! Gilbert Noussitou 2006

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. Taking Inventory; Is that a cost control measure? Gilbert Noussitou 2006

  19. 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

  20. Example #1 Gilbert Noussitou 2008

  21. Example #2 Gilbert Noussitou 2008

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