Cost control in restaurants

2
Objective of controlling cost
– Maintain profit.
– Maintain competitive
prices.
– Parameter in
management
performance
evaluation.

4
Cost Concepts
• Cost: The expense to the
restaurant when the service
is rendered.
Example:Salary
Rent
Food cost
License fees

5
Cost Concepts
• Fixed Cost: cost that is
unaffected by sales volume.
Example: Insurance
Real state taxes
Depreciation
Ads
Administration

6
Cost Concepts
• Variable Cost: Related to
increase in business volume.
Examples: Food cost
Beverage cost
Bonus
Part time & over time
• As restaurant sales increases,
variable cost will increase; as
sales decreases, variable cost
should decrease.

7
Cost Concepts
• Fixed costs are normally
noncontrollable, while the
variable cost are
controllable.
• Some fixed costs are
controllable, such as
electricity bill, telephone,
water, advertising &
promotions.

8
Cost Concepts
• Prime cost: is the cost of food, cost of
beverage & cost of labor.
• It is the most important cost to control.

10
Sales Concepts
• Sales: Revenue resulting from
the exchange of product &
service for value.
Examples: Food Sales
Beverage sales
Display rent
Party arranged

11
Sales Concepts
• Total sales by group: sales
of all items in one category.
Example:Beverage sales
Main course sales
Appetizers sales
Sweets sales

12
Sales Concepts
• Total sales by waiter: total
sales by a waiter in a specific
period such as lunch or dinner,
a week or a month.
• Total sales per table: on a
monthly basis to compare the
result of the restaurant with
the competitors.

13
Sales Concepts
• Average sale per
customer: is the result
of dividing total sales
by the number of
customers.
• Turn over: number of
tables occupied at a
specific period.

14
Sales Concepts
• Sales mix: average sales of one menu
item compared with other items in the
same group.
Example: Lemon juice 20%
Apple juice 12%
Cola 23%
Total beverage sales =100%

16
Cost Control
• Cost control: process used by managers
to regulate cost & guard against excessive
costs.
• Cost control is an on going process.
• It is to ensure that the restaurant is
profitable

17
Cost Control
• Food cost%= food cost/food sales
• Beverage cost%= beverage cost/beverage
sales
• Labor cost%= labor cost/total sales

19
Food Purchasing Control
• Two kinds of food:
– Perishable: short shelf life.
• Example: Fresh meat
Fresh chicken
Milk
– Nonperishable: long shelf life.
• Example: Canned foods
Sugar
Salt

20
• Perishable food will spoil
shortly.
• Perishable food has to be
used at the time of purchase.
• Non perishable food can be
purchased to keep enough
supply for long period of time.

21
• Food purchased has to be
according to standard
specifications.
• Benefits of specifications:
– Requirements determined in
advance.
– Useful in menu preparation.
– Avoid conflict between the
restaurant & the supplier.
– Facilitate the inspection of food.

22
• Example of a product specification:
Sugar: White color
Fine particles
No visible clotting
Amount per bag 50 kg ± 0.25 kg

23
1. Control of purchasing perishable foods:
• Par stock: Quantity of food needed to
meet forecasted period.
• Par stock of perishable food has to be
recorded daily (Market Quotation List)

24
• Example of a Market Quotation List:
On Hand Products Par To Order
2 Fillet chicken 20 18
1 Chicken breast 10 9
6 Chopped beef 7 1

25
2. Control of purchasing nonperishable
foods:
• Nonperishable foods quantity is
controlled in order to:
– Not to order too much stock & reduce cash
flow on hand.
– Elimination of some possibilities for theft.
– Reduction of storage space.

26
• It is important to label the space
for nonperishable.
• Bin Card: Record quantities In &
quantities issued during
operation

27
Spaghetti
In Out Balance
Date Qty Date Qty
1/11/2006 20 1/11/2006 2 22
2/11/2006 3 19
3/11/2006 4 15
4/11/2006 1 14
5/11/2006 2 12
6/11/2006 4 8
7/11/2006 5 3
8/11/2006 20 8/11/2006 3 20

28
• Periodic Order Method:
– Order regularly
• Periodic Order Method:
Amount required to the upcoming period
-
Amount presently in hand
+
Amount wanted on hand to at the end of the period to last until the next
delivery.
=
Amount to order

29
• Example of Periodic Order Method:
40 cans required for the next week
-
12 cans on hand
+
15 cans to be left at the end of the week
=
43 cans to be ordered on this date.
because cans in cartons each of 24 cans, so order 2
cartons = 48 cans

30
• Price quotations are obtained
thru computer which is linked
with the central kitchen & the
warehouse (Stock program).
• Always purchase the product of
best value for money.

32
Food Receiving Control
• Deliveries shall be
accompanied with an Invoice.

33
• During receiving, inspect
quantity, quality & price.
– Inspect quantity according to
ordered.
– Inspect quality against product
specification.
– Inspect price according to
purchase order.

34
• The time the product received it should be
added to the stock on hand (Stock
software).
• Products shall be stored immediately.
• In case of any damage after receiving, do
not add it to available stock.

36
Food Storing Control
• Products shall be stored
according to the
recommended temperatures
as follow:
– Refrigerated 1 – 5 C
– Frozen -18 C
– Dry 10 – 21 C
• Food shelf life will be
maximized when stored at the
correct storing temperature.

37
• All products received in a
sealed package shall be
divided into portions &
packed immediately.
• Storage area, shelves &
stands shall be clean at
all time.
• Handle gently to avoid
damage.

38
• Keep frequently used
items readily
available.
• Fix definite location
for each item.
• Rotate stock
according to FIFO.

39
• Refrigerator, freezer
& storeroom shall all
kept closed & locked
to avoid pilferage.
• Stored items shall be
marked with the
delivery date.

40
• Chef has to fill a form to issue
needed items from storeroom.
• Storeroom is open at specified
time for a limited period.
• Storage areas has to be inspected
by restaurant management on a
regular basis.

42
Food Production Control
• Standard portion size:
– Weight
Example: Steak 0.200 kg
Cucumber 0.010 kg
– Volume
Example Milk 0.250 L
– Count
Example: Cheese 1 slice
Egg 1 pc

43
• The weight portion size is the most
common.
• Portion size is essential for making recipes

44
• Importance of standard portion size:
– Uniformity of meals served.
– Reduce argument between front of the house
& kitchen.
– Reduce cost of excessive quantity.
– Food & beverage cost control.

45
• Standard recipe ensures
the consistency of quality.
• Standard recipes has to be
posted on the bulletin to
avoid human error.
• Standard recipe will help in
cost control.

46
• Cost of each ingredient in the recipe has
to be calculated.
• Standard portion cost=
Purchase price per unit
Number of portions per unit.

47
• Standard portion cost:
Example: suppose that 1 egg is needed to make
omelet, what is the portion cost of egg?
Purchasing price of case = 1.8 JD
Number of portions per case = 24 eggs
so, Standard portion cost = 1.8/24
= 0.075 JD

48
• Yield: is the cost of standard portion.
• Yield percentage =
Number of portions X Portion size
Quantity

49
• Sales Forecasting: using data
to predict the upcoming sales.
• Sales forecasting:
– Avoid purchasing unnecessary
quantities.
– Arrange enough portions for
production.
– Control the number of
employees needed.

50
• Sales forecast:
– First step: predict the total sales expected for
the next week according to historical data.
Take weather & special events into
consideration.
Example: To forecast the sales of Monday
4th Dec 2006, it can be compared
with Monday 27th Nov 2006.

51
– Second step: predict the sales
volume for each item. Compare
the selling percentage of one
item with all other items for easy
calculations.
– Third step: forecast has to be
reviewed by the manager & his
assistant.
– Fourth step: review the forecast
on a daily basis & make
amendments needed.

52
• Inspecting production
problems:
– Check void sheet &
reason for
cancellation.
– Check portion
inventory (number of
portions used) &
compare it with
number of meals sold.
– On-site supervision.

53
• Employees’ meals:
– Not to be added to food cost.
– Each day has a prescribed
amount of money.

54
Monthly Inventory & Monthly
Food Cost

55
Monthly Inventory & Monthly Food
Cost
• Monthly, the manager
shall make a Physical
Inventory.
• Physical Inventory:
counting the actual
numbers on hand.
• Actual amount
available has to be
converted into money.

56
Cost
• Example of a physical inventory:
Opening inventory 30/11/2006 10 cans X 1 JD = 10 JD
+
Purchase during the month 60 cans X 1 JD = 60 JD
=
Total available 70 cans X 1 JD = 70 JD
-
Closing inventory 31/12/2006 20 cans X 1 JD = 20 JD
=
Units sold 50 cans X 1 JD = 50 JD

57
Cost
• Monthly food cost:
Opening inventory
+
Food purchase during the month
=
Total available
-
Closing inventory
=
(units sold) Cost of food
• Cost % = Cost of food
Sales of food

58
Cost
• Food cost during the day:
– It has to be checked frequently.
– Causes for any more or less food cost has to
be recorded on a daily basis.
– Corrective action has to be taken on the spot.
– Preventive measures taken to avoid
reoccurrence.

59
Cost
• Inventory turnover: How often food inventory
is consumed by restaurant during an
accounting period.
• Used to evaluate the adequacy of stored
products.

60
Cost
• To calculate inventory turnover:
– Average Inventory = Opening inventory + Closing inventory
2
– Inventory turnover = Food cost .
Average inventory

61
Cost
• Example of inventory turnover:
opening inventory 15 JD
closing inventory 20 JD
food cost 35 JD
Average inventory = 15 + 20 = 17.5 JD
2
Inventory turnover = 35 = 2
17.5
Inventory turnover is 2 times during the month.

62
Cost
• Not all items turnover twice a month but
this is average.
• It will be done at the end of the month.

63
Cost
• Daily food cost:
– Food cost has to monitored daily.
– Daily food cost = Cost of food consumed – Cost of employee meals
– Food Cost% = Food cost
Food sales
– Food Cost% to date= Food cost to date
Food sales to date

64
Cost
• Cost of each group has to be monitored on
a daily basis.
• Actual food cost has to be very close to
standard food cost (± 1% accuracy).
• Potential saving: difference between the
standard & actual food cost.

66
Labor Cost Control
• Labor trunover: number of
employees departing compared
with total number of employees.
• Higher employee turnover means
more cost:
– Cost of advertising
– Cost of hiring
– Cost of orientation
– Cost of training

67
Labor Cost Control
• Reducing turnover:
– Scheduled training
– Pleasant work
environment
– Assign responsibility
– Recognition

68
Labor Cost Control
• Employee scheduling:
– Weekly.
– Adjust one day before.
– Better done by line supervisor.
– No more employees, no less.

69
Labor Cost Control
– Scheduling is according to:
• Difficulty of task done
• Skills & knowledge of employees
• Sales forecast
• Station
• Preparation needed
• Hours of operation (breakfast, lunch, or dinner)
• Weather
• Availability of management
– Total number of employees in a shift has to be
adjusted according to sales forecast

70
Labor Cost Control
• Part time employees has to be employed & used
smartly.
• Duties of employees will be calculated in hours.
• More training results in highly skilled employees,
results into less number of employees in a shift,
results into less labor cost.

72
Power Saving
• Electricity:
– Check pulps & lamps
regularly.
– Put off all unused machines.
– Check meters periodically.
– Monitor consumption & find
potential saving.

74
Water Consumption
– Follow procedures of cleaning & sanitization.
– Monitor irresponsible use of water.
– Check pipes for any leakage.
– Make sure aerators are installed.

76
Telephone
– It is not allowed to use the company
telephone (land line nor mobile) for personal
use.
– Make your business calls short & direct to the
point.
– Use the mobile to call on mobile.

78
Handling Equipment
– Handle each machine or utensil according to
procedures & manufacturers’ directions.
– Unused machines & utensils has to be stored
properly.
– Corrective maintenance has to be done by
technician in case of any problem.
– Make sure of the adherence to preventive
maintenance schedule.

79
Food cost
Beverage cost
Labor cost
Electricity
Water
Telephone
Maintenance
Quality of food
Quality of service
Speed of service
Value of food
Cleanliness
food Safety

Prepared by
Hisham Zamil
Managing Director
National Food Company
Amman, Jordan
hisham_zamil@yahoo.com
2015
80

Cost control in restaurants

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