restaurant cost control overview

7/30/2019 Restaurant Cost Control Overview

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Food and BeverageAccounting


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Table of Contents

Basic Accounting Tools

Forecasting Sales

Analyzing Expenses

Department Budget


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Basic Accounting Tools

The Accounting Factors

The purpose of this classification:

To list the exact areas for auditingTo ensure the accuracy of record.

Importance of food cost analysis:

Inaccurate records - wasting of timeDamaging - if decisions are made on misleading

results.


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Any undetected error in the following areas is

considered a factor that will distort food cost

results and create unexplained variances.

Accordingly, every area should be audited,

making corrections if neededand confirming

that the records in each area are accurate.


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Mixing up billings between periods.

The cutoff date between accounting periods is

very important.

Processing a food invoice in January that wasactually purchased and delivered in February will

produce an inaccurate food cost percentage for

both January and February.

Types of records:


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Over-billing. i.e: i. Undetected errors on the suppliers

invoice, such as the wrong quantity, unit, price per

unit, or an arithmetic error would affect your foodcost analysis.

Others: receiving two jars of apple sauce and

processing an invoice for two cases of apple saucewill obviously inflate the cost of food if not caught

and corrected.

Types of records:


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Coding error.Any wrong posting to the food cost account will

affect your analysis. It is possible that the light

bulb invoice was coded by accident as food orthe beer bottle refund was credited to food cost,

etc.

Types of records:


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Inventory inaccuracy.

Inaccuracy of the closing or the opening

inventory will affect the food cost result for the

period.The inaccuracy could be in the inventory count,

the unit, the price per unit, and/or the extension.

Types of records:


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Transactions from and to food.

Inaccurate transactions between the food as a

profit center and other profit centers could affect

the food cost results

for example, transactions such as food to bar,

beverages for cooking, food for mix, officeusage, house promotion, etc.

Types of records:


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Accruals inaccuracy.Error in food accruals for current or last period,

defined as the cost of food that was ordered and

received but the invoice has not beenprocessed, will affect food cost results.

Types of records:


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Accounting treatment inconsistency. Inconsistency in the accounting treatment from

one period to another will have an effect on food

cost.For example, the accounting treatment for a food

delivery charge, the cost of staff meals, or the

method of pricing the inventory must beconsistent from one period to another or food

cost results will reflect such variances.

Types of records:


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House use unaccounted for.

There is always the possibility that ingredients or

prepared food was legitimately issued to or used

by the house but no record was made or kept as

a result of a weak internal control.

Such unaccounted for house use, regardless ofthe intention, will affect the food cost.

Types of records:


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Giveaways not recorded.Giveaways such as fruit baskets or any

complimentary food item issued to a guest or

potential guest which was not recorded oraccounted for will have an effect on the food cost

results if not caught and corrected during the

period.

Types of records:


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Inaccurate sales records.

Regardless of the intention, food sales

understated, and/or overstated will have animpact on the food cost percentage.

Types of records:


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Forecasting Sales


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Sales Forecast is a prediction of future sales,

based mainly on past sales performance.

Sales forecasting takes into account the

economic climate, current sales trends, company

capacity for production, company policy, andmarket research.

A sales forecast can be a good indicator of

future sales in stable market conditions, but maybe less reliable in times of rapid market change.


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A sales forecast enables an organization to

proactively prepare for actual salesmanagement.

Based on the forecast, the organization can

design and allocate sales territories, determinethe strength of the sales force and formulate

effective sales compensation strategies.

Market potential, sales potential and consumerbuying power index are the three factors which

determine the sales forecast.


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Analyzing Expenses


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How to Analyze Your Performance in

the Food Cost Area

The amount of time and effort required to do the

monthly food cost analysis will depend mainly on

the type of information (system and equipment)available and the experience of the people

involved.

The following are the steps to be taken toanalyze the performance in the food cost area.


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Ensure that the targeted food cost

percentage for the period is more than just

wishful thinking.

The target must be the calculated food cost

potential.


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Check the accuracy of your records.

It is quite possible that the alarming food cost

percentage is nothing more than a clerical errorin accounting factors such as the value of the

inventory or the accruals.


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3. Prepare a comprehensive and precise list of

all the factors (reasons) that can affect the food

cost percentage in your operation.

4. Determine which of these factors affected the

food cost percentage during the period.


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5. Quantify (measure) the effect of each factor

on the total food cost in dollar terms or

percentage.

6. List these factors in groups that can make

your analysis more meaningful, and easier to

read and prepare.


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7. Prepare your monthly report and write your

comments, including the type of corrective

actions to be taken to improve performance.


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Food cost analysis is more meaningful, productive,and useful, the main factors that affect the food

cost percentage must be identified.

Three important group factors:

Accounting factors,

Controllable factors, andUncontrollable factors


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How to Become Efficient in the Food

Cost Area

It is important to emphasize that efficient

performance in the food cost area does not

mean blindly cutting costs regardless of theeffect it might have on the quality and quantity of

the food served.

In fact, this will most likely end up having anegative impact on the food cost, especially in

the long run.


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The only way to actually achieve an efficient

operation in the food cost area is by

implementing the following cycle:


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Planning.

In this stage, the decision makers will choose

after studying the market, the clientele, the type

of skills, and equipment available what type ofmenu will be served.

Target goals are then set in each of the four

variables, namely menu prices, calculating thefood cost potential, the dollars to be spent on

labor, and all the other expenses.


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How to plan food cost target?

a recipe sheet is prepared to identify and calculate

the type and amount of ingredients required to

produce every item on the menu.

Management will cost and price these items,

then calculate the food cost potential.


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=

The food cost potential

(prices, expenses, people skills,

equipment, etc.)

END PRODUCTS

(purchasing, receiving, storing,

issuing, producing, and serving)desired return on investment


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In other words, a plannedfood cost percentage is that

which will produce, with the

other factors, the desired

results for the operation.

Staff training and several

other issues are covered in

this stage.


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Control.

Once the operation starts, management needscontinuous feedback about the performance, not

only in the food cost area, but also in all other

activities.only possible with good internal controls which

can be defined as "all the measures taken by

the operation such as policies, procedures,and systems, etc. to safeguard the resources

against error, fraud, and inefficiency.


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Example:-

Policies and procedures such as the use of

daily quotations and order forms are a must,

all food suppliers must be approved in advance,

buying should be within the approved

specifications,

the executive chef must sign all food purchase

orders or requisitions,

items received should be checked, counted, and

weighed, etc.


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The system should produce steady, timely, and

accurate data about performance as well.

Amount and type of controls will depend on:

size of the establishment,

the experience of the people involved,

type of system and

equipment in use.

i.e: small operation: - owner or the manager can

rely on visual supervision (there is no need forcostly and complicated controls).

Larger operation: - more sophisticated controls


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Analysis.

Sometimes the type of information produced by

the system is either not enough or needs to be

broken down further.

Sometimes the data needs to be measured in

relation to other data.

During this stage, management will be able to

identify the problem, its size, what caused it, and

ultimately how to rectify it.


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Corrective Actions.

Management must act as soon as the feedback

reveals any inefficiency.

It must take the necessary steps to tightencontrol over the operation and improve efficiency

by reinforcing desirable performances and

eliminating the unacceptable ones.


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Department Budget


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What is department budget?

is aprofit plan and a control toolfor a foodservice business that addresses all revenue and

expense items appearing on the business s

income statement.

Annual department budget are commonly

divided into monthly plans.


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These monthly plans become standards against

which management can evaluate the actual

results of operations each month.

Department budget enables management to

accomplish two of its most important functions:planning and control.


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Who is responsible for budgeting?

Heads of Department or

a budget committee that will

review each departments income and expense

plans a property wide budget is approved.


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As a Profit PlanThe department budget is developed by :

projecting revenue,

determining profit requirements andestimating expenses for each month of the

upcoming fiscal year.


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These monthly plans are then combined to formthe operations budget for the year.


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Revision of operations budgets is done through

the budget year.

This re-forecasting is necessary only when

actual results begin to vary significantly from the

operations budget due to changes that occur

after the budget has been prepared.


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Projecting RevenueRevenue is projected by forecasting food and

beverage sales for the budget period.

Sales histories and past monthly income

statements are the basic sources of information

that managers use to project revenue.


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Other factors for consideration:

New competition and other activities over which

the operation has little or no conditionsPredicted increases in inflation or

Changing lifestyles within the community


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Estimating Expense LevelsMany expenses are directly related to sales

volume and will vary as sales volume changes.

For example, food costs and beverage costs

increase as sales increase because more food

and beverage products must be purchased.


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Expenses can be estimated by:

comparing past expenses with projected sales

level.

Other types of expenses do not fluctuate with

sales volume and therefore are much easier to

estimate.

These expenses often referred to as fixed costs

include rent, depreciation, insurance, license

fees etc.


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*As Control ToolDeveloping a thorough operations budget

reminds managers of the extent to which they

are responsible for meeting revenue, profit and

expense goals.

The department budget helps to identify

responsibility and encourages managers to use

the budget as a control tool.


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The process of budgetary control identifies andanalyzes significant variances between

budgeted figures and actual results of

operations.

Variance analysis may include that additional

investigation by management is required todetermine the exact causes of significant

variances.


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Once these causes have been identified ,management is able to take whatever actions

are necessary.

In order for budgets to be used effectively forcontrol purposes, reports are generally prepared

on a monthly basis.

These reports are useful only when they aretimely and relevant.


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Exercises

Define Cost Control?

What is the main purpose of having a good cost

control?

restaurant cost control overview

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