Chapter 1
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Chapter 1

Cost and Sales Concepts. Principles of Food, Beverage, and Labour Cost Controls, . Second Canadian Edition. Learning Objectives. 1.1. Define types of . costs. ;. fixed, variable, directly variable, .

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Chapter 1




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Chapter 1Cost and Sales Concepts

Principles of Food, Beverage, and Labour Cost Controls,

Second Canadian Edition

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Learning Objectives

1.1 Define types of costs; fixed, variable, directly variable, semivariable, controllable, noncontrollable, unit, total, prime, historical, and planned1.2 Define sales and illustrate monetary and nonmonetary sales concepts1.3 Describe the cost-to-sales relationships, identify cost-to-sales ratios and formulas to compute cost percent and sales price1.4 Describe causes of industry-wide variations in cost percent1.5 Explain the value of comparing current cost-to-sales ratios to previous periods

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Important Concepts

Sales: the amount of dollars you take in.Expenses: the costs of the items required to operate the business.Profit: the amount of dollars that remain after all expenses have been paid.

Sales - Expenses = Profit

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Important Concepts

Sales

- Expenses = Profit

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Cost Concepts

There are four costs a Food Service Manager must concern themselves with.Food costsBeverage costsLabour costsOverhead costs

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Costs

Food costs are the costs associated with actually producing the menu item.Foods are considered “consumed” when they have been used, wastefully or otherwise.

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Costs

Beverage costs are the costs related to the sale of alcoholic beverages, and ingredients necessary to produce these drinks, such as garnishes.

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Costs

Labour costs include the cost of all employees necessary to run the business, and include salaries, wages and benefits

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Costs

Overhead costs include all expenses that are neither food, beverage nor labour, such as utilities, rent, linen, etc.

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Getting Started

Good managers learn to understand, control, and manage their expenses.Percentages are the most common standard used for evaluating costs in the foodservice industry.

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Various Types of Costs

Fixed costs are those unaffected by changes in sales volume.

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Various Types of Costs

Variable costs are related to business volume.

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Various Types of Costs

Semivariable costs have both fixed and variable elements.

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Costs

Controllable costs are those that can be changed in the short term. Variable costs are normally controllable.Noncontrollable costs are those that cannot normally be changed in the short term. These are usually fixed costs.  

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Costs

Unit costs may be food or beverage portions or units of work. Total costs may be the total cost of labour for one period.  

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Costs

Prime cost is the sum of food costs, beverage costs, and labour costs (salaries and wages, plus employee benefits).Historical costs can be found in business records, books of account, and other similar records.Planned costs are projections of what costs will be or should be for a future period.

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Monetary Sales

Monetary terms include total sales and may be given by category (such as total food sales or total beverage sales), by server, or by seat (total dollar sales for a given time period divided by the number of seats in the restaurant).Other monetary terms include sales price, average sale, average cheque (the result of dividing total dollar sales by the number of sales or customers), and average sales per server.

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Nonmonetary Sales

Nonmonetary terms include total number sold (such as number of steaks sold in a given time period) and covers (one diner). Total covers refers to the total number of customers served in a given period.Other nonmonetary terms include seat turnover (the number of seats occupied during a given period divided by the number of seats) and sales mix (a term that describes the relative quantity sold of any menu item compared to other items in the same category).

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Cost-To-Sales Ratio

Costs in dollars compared with sales in dollars

VS

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Cost-To-Sales Ratio: Percents

Food Cost = Food Cost %Food Sales  Beverage Cost = Beverage Cost % Beverage Sales Labour Costs = Labour Cost % Total Sales

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Understanding the Income Statement

A summary that details revenue, expenses and profit, for a given period of time, is called the Income Statement.It lists revenue, food and beverage cost, labour cost, other expenses, and profit (or loss).Illustrates the efficiency and profitability of an operation.

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Simplified Income Statement

Put in another format, the equation looks as follows:

Revenue (100%)- Food & Beverage Cost %- Labour Cost %- Overhead Cost %= Profit %

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Food and Beverage Cost Revenue = Food & Beverage Cost %2. Labour Cost Revenue = Labour Cost %3. Overhead Cost Revenue = Overhead Cost %4. Profit Revenue = Profit %

Common Percentages Used

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Activity

Simplified Profit and LossSales 100%Food Cost 349,725 33%Labour Cost 29%Overhead %Profit 7%

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Industry Variations

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Monitoring

Using history to predict the futureMonday to MondayWeek to Week

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Key Terms

Average cheque, p. 17Average number of covers, p. 19Average sale, p. 17Average sale per server, p. 18Controllable costs, p. 12Cost, p. 9Cost per dollar of sale, p. 21Cost percent, p. 21Cover, p. 19Directly variable costs, p. 11Fixed costs, p. 10Historical costs, p. 14Labour costs, p. 11Noncontrollable costs, p. 12Overhead, p. 23Planned costs, p. 14Prime costs, p. 13Sales, p. 14Sales mix, p. 20Sales price, p. 17Seat turnover, p. 19Semivariable costs, p. 11Total costs, p. 12Total covers, p. 19Total dollar sales by category, p. 15Total number sold, p. 19Total sales, p. 15Total sales per seat, p. 17Total sales per server, p. 17Unit costs, p. 12Variable costs, p. 11

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Chapter Web Links

Food Marketing Institute: www.fmi.orgCanadian Restaurant and Foodservices Association: www.crfa.com

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Copyright © 2014 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.

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