food cost control

food control cycle

Control is a process by means which managers attempt to direct, regulate and restrain the actions of people in order to achieve desired goals. An obvious first step is to established goals for the enterprise. Probably the most common goal for all private enterprise is financial success, although this is by no means the only- range goal of business. Others might relate to preserving the environment, promoting better health among the population or etc. To achieve the goals, management must setup any number of sub goals compatible with its long-range plans. These tend to be more specific and
usually more immediate in nature. For example, to achieve the goal of preserving the environment, it would be necessary to make rather immediate plans to process or dispose of waste materials in appropriate ways.

Definition of cost control
The process whereby manager attempt to regulate costs and guard against excessive costs in known as cost control.
It is ongoing process and involves every step in the chain of purchasing, receiving, storing, issuing and preparing food and beverages for sale, as well as scheduling the personnel involved.
Exact methods for cost control will vary from place to place, depending in part on the nature and scope of operation; but the principle behind varying methods will be constant.
The obvious governing power over costs in all areas in order to keep costs within acceptable bounds, to account for revenues properly, and make profits
Two of the principal causes of excessive costs are inefficiency and waste. For example storing food in refrigerators that are not cold enough, or liquor in bottles that are not tightly closed, will lead to spoilage and hence to excessive cost. So will the preparation of an inedible beef stew or an Undrinkable martini. When the stew is thrown into the garbage can or the Martini poured down the drain; costs of operation are increased but sale does not.
Since profit is essentially the difference between sales and costs, it is apparent that any increase in costs that does not lead to corresponding increases in sales can only have the effect of reducing profits.
Clearly, management must take steps to guard against the occurrence of these excessive costs.

Sales control
While cost control is critically important to the profitable operation of any business, it alone will not ensure profitability. Additional steps must be taken to ensure that all sales in appropriate income to the business.

The objective and advantages of food and beverage control
Analysis of income and expenditure: the analysis is solely concerned with the income and expenditure related to food and beverage operations. The revenue analysis is usually by each selling outlet, of such aspects as the volume of food and beverage sales, the sales mix, the average spending power of customers at various times of the day, and the number of customer served. The analysis of costs include departmental food and beverage costs. Portion cost and labour costs. The performance of each outlet can then be expressed in terms of the gross profit and the net margin (i.e. Gross profit minus wages) and the net profit (ie. Gross profit minus wages and all overhead expenses such as rent, rates, insurance, etc).
a)    Establishment and maintenance of standards:  the basic for operation of any food and beverage outlet is the establishment of a set of standards which would be particular to an operation, for example a chain of steak houses restaurants. Unless standards are set no employee would know in detail the standards to be achieved nor could the employee’s performance be effectively measured by management. An efficient unit would have the set standards laid down in manuals often known as SOPs (standard operational procedures) which should be readily available to all staff for reference.
b)    Pricing: an important objective of food and beverage control is to provide a sound basis for menu pricing including quotations for special functions. It is therefore, important to determine food menu and beverage list prices in the light of accurate food and beverage cost and other main establishment costs, as well as general market considerations, such as the average customers spending power, the prices charged by competitors and the prices that the market will accept.
c)    Prevention of waste: In order to achieve performance standards for an establishment, targets are set for revenue, cost levels and profit margins. To achieve these levels of performance it is necessary to prevent wastage of materials caused by such things as poor preparation, over production, failure to use standard recipe etc. this can only be done with an efficient method of control, which covers the complete cycle of food and beverage control, from the basic policies of the organization to the management control after the event
d)    Prevention of fraud: It is necessary for a control system to prevent or at least restrict the possible areas of fraud by customers and staff. Typical areas of fraud by customers are such things as deliberately walking out without paying. Unjustifiably claiming that the food or drink that the food that they had partly or totally consumed was unpalatable and indicating that they will not pay for it, disputing the number of drinks served, making payments by stolen cheques or credit cards. Typical areas of frauds by staff are overcharging or undercharging for items served and stealing of food, drink or cash.
A system of control has an important task to fulfill in providing accurate up to date information for the preparation of periodical reports for management. this information should be sufficient so as to provide a complete analysis of performance for each outlet of an establishment for comparison eith set standards previously laid down (for example, budget standards).

Types of cost
On the basis of variability
a)    Fixed cost
b)    Variable cost
c)    Semi variable cost
On the basis of controllability
a)    Controllable cost
b)    Un controllable cost
On the basis of function
a)    Production cost
b)    Administration cost
c)    Selling cost
d)    Distribution cost
On the basis of normality
a)    Normal cost
b)    Abnormal cost
There are various types of cost which are:
Actual Cost
The actual cost is what a cost or expenses actually was. For example, the payroll records and check made out to employees will indicate the actual labor cost for that payroll period.
Budgeted Cost
A budgeted cost is what a cost expected to be for a period time. For example, for an anticipated level of sales for a month, we might budget or forecast what the labour cost should be for that period. Later, that budgeted cost would be compared with the actual labor cost in order to determine the causes of any differences.
Controllable Cost
Are costs that can be changed in the short term. Direct costs are generally more easily controllable than indirect costs. Variable costs are normally controllable. Certain fixed costs are controllable, including advertising, promotions, utilities, repairs, etc.
Non-Controllable Cost
Are those costs that cannot be changed in the short term? These are usually fixed costs. These typically b
Are those that are normally unaffected by changes in sales volume. The term fixed should never be taken to mean unchanging, merely to indicate that any changes that may occur in such costs are related only indirectly to changes in sales volume. Examples: Rent, Utilities, Insurance Premiums
Variable Cost
A variable cost is one that varies on a linear basis with revenue. Are those that are clearly related to business volume. Directly variable costs are those that are directly linked to volume of business, such that every increase or decrease in volume brings a corresponding increase or decrease in cost. The obvious variable costs are food and beverage. The more foods and beverage sold, the more that have to be purchased. If revenue is zero, then the cost should also be zero. As business volume increases, so do these costs. As business volume decreases, so do these costs.
Direct Cost
Direct cost is a cost that is the responsibility of a particular department manager. Most direct costs will go up or down, to a greater or lesser degree, as revenue goes up and down. Because of this, they are considered to be controllable by, and thus the responsibility of, the department to which they are charged. Examples of this type of cost would be food, beverages, wages, operating supplies and services beverages and linen and laundry.
Indirect Cost
An indirect cost is commonly referred to as an undistributed cost or one that cannot easily be identified with a particular department or area, and thus cannot be charge to any specific department. For example, property operation, maintenance and energy cost could only be charged to various departments (such as linen or food and beverage) with difficulty. Even if this difficulty could be overcome, it must still be recognized that indirect costs cannot normally be made the responsibility of an operating department manager. Indirect costs are also sometimes referred to as overhead cost.
Joint Cost
Is a cost shared by and the responsibility of two or more department or area. The cost of dining room waiter who serves both food and beverage is an example. His labor is a joint cost and should be charged to the food department and to the beverage department. Most indirect costs are also
joint costs.
Sunk Cost
A cost that has been incurred and cannot be reversed. Also referred to as "stranded cost." A worn-out piece of equipment bought several years ago is a sunk cost because the cost of buying it cannot be reversed.
Opportunity Cost:
 The cost of not doing something or the profit lost. An organization can invest its surplus cash in marketable securities at 10 percent, or leave the money in the bank at 6 percent. If it buys marketable securities, its opportunity cost is 6 percent. Another way to look at it is to say that it is
making 10 percent on the investment, less the opportunity cost of 6 percent, therefore the net gain is 4 percent.
Standard Cost
A standard cost is what the cost should be for a given volume or level of revenue. For example, a standard cost can be develop by costing the recipe for a given menu item. If ten of these menu items are sold, the total standard cost should be ten item the individual recipe cost. Another illustration would be personnel cost (wages) for cleaning at dining area. If the area attendant is paid RM4.00 an hour, and it takes one half hour to clean the area, the standard labor cost for cleaning the area would be
RM2.00. While, if the service person take 7hours for clean the area, total standard cost would be RM28.
Prime Costs
Is a term used in the food and beverage industry to refer to the cost of materials and labor.
Prime Cost = Food Cost + Beverage Cost + Labor Cost
Historical Costs and Planned Costs
Historical costs are figures that have already happened and can be found In the business records.
Planned costs is made by using historical costs in the present to determine what is likely to happen in a future period to come. These numbers are also used in budgeting.


Elements of cost
1.    Direct Materials Cost : In case of food industry the food cost is termed as direct material cost and includes all food articles either used in the raw form or in semi cooked or cooked form in order to finish the dish and sell. In case a part of the dish is cooked in other kitchen then the cost at which the dish / portion is prepared is debited by making an inter-departmental requisition. For example the butchery prepares the standard steak and then it is transferred to the Continental Kitchen to complete the dish.

2. Direct Wages : Direct wages / salaries are the wages which can be allocated to cost centre or cost unit. Payment of direct wages and in some cases payment of indirect wages fall within the definition of direct wages. Direct wages include labour charges paid for altering the condition, conformation or composition of the product. Some times indirect labour may be treated as direct labour like wages of foremen, charge hands, inspectors, etc ace not direct labour cost but are included in the direct wages. The direct wages may include the following:
1. Labourers engaged in altering the condition, conformation and composition of the product.
2. Inspectors, analysts, etc. specifically required for the production of the product.
3. Wages paid to foremen, charge hands, etc. is termed as direct wages.

3. Direct Expenses : The direct expanses other than the direct materia! Cost and direct wages which can be identified with and allocated to cost centre or cost unit are termed as direct expenses. It includes the following
a)    Cost of special designs, drawings or layout.
b)    Hire of special tools or equipments for a specific job.
c)    Maintenance costs of tools and equipments used in production.

4. Production Overhead: Production overhead includes all indirect material cost, indirect wages and indirect expenses incurred for the production of goods in a unit or business house. The expenses for the purpose of production overhead Include expenses from the receipt of the order until the completion of order for dispatch of goods. It includes the following groups of indirect items:
a)    Indirect Material : The material which cannot be traced in the finished products but is a part of the material used for production of goods. Usually this indirect material is of such a small nature that it is not included in the direct expenses and includes lubricants, waste cotton, grease, oils, nails, threads, glue, etc.
b)    Indirect Wages: The wages which are not charged directly to direct wages are termed as indirect wages. The emoluments paid to foremen, supervisors, charge-hands, inspectors, general labour, maintenance labour, works clerical staff, security guards, etc. are generally included in the indirect wages. Idle time wages, free food and conveyance allowance paid to staff doing overtime, night shift allowance and other fringe benefits are included r the indirect wages.
c)    Indirect expenses; all expenses other than indirect material and indirect wages and not charged directly to production are included In indirect expenses. The rent, rates, factory insurance, depreciation, power and fuel, repairs of machinery and building and other sundry expenses like first aid, welfare, etc are treated as indirect expenses,

5. Administrative overhead
it includes all indirect material cost, indirect wages and indirect expenses incurred in the direction, control and administration of a production house of unit Printing and stationery, salaries paid to administrative directors, secretaries, accountants, managers, cash collection, treasurers, fighting, heating and cleaning of administrative  block, legal charges, audit fee. etc. are included in the administrative overhead.
6.Selling Overhead:
It includes all indirect material cost, indirect wages and indirect expenses incurred in the promotion of sales and retentions of customers. It includes printing and stationery, mailing literature, catalogues, price lists, salaries paid to sales managers and sales department's personnel and rent, insurance premium paid for showrooms and sales .offices. It also includes bad debts and collection charges, cash discount allowed, after sales services, etc.
7.Distribution Overhead:
It includes all indirect material cost, indirect wages and indirect expenses incurred with making the packed product available for dispatch and ends with making the re-conditioned returned empty packages available for .reuse. It includes packing cases, maintenance and up keep of delivery vehicles, wages of packers, van drivers, dispatch clerks, etc. It also includes carriage and freight outwards, rent, rates, depreciation and insurance of vehicles, warehouses, etc.