Chapter 1
Cost and Sales
Concepts
Principles of Food, Beverage, and Labour Cost Controls,
Canadian Edition
Learning Objectives
• After reading this chapter, you should be able to:
• 1.1 Define costs and provide an example of the following types of
costs: fixed, variable, directly variable, semivariable, controllable,
noncontrollable, unit, total, prime, historical, and planned.
• 1.2 Define sales and provide several examples illustrating monetary
and nonmonetary sales concepts.
• 1.3 Describe the significance of cost-to-sales relationships and
identify several cost-to-sales ratios and the formulas used to compute
cost percent and sales price.
• 1.4 Describe factors that cause industry-wide variations in cost
percents.
• 1.5 Explain the value of comparing current cost-to-sales ratios with
those for previous periods.
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
Cost Concepts
• There are four costs a Food Service Manager
must concern themselves with.
• Food costs are the costs associated with
actually producing the menu items. In most
cases, food costs will make up the largest or
second largest expense category you must
learn to manage.
Costs
• Beverage costs are those related to the sale of
alcoholic beverages. Costs of a non-alcoholic
nature are considered an expense in the Food
Costs category. Alcoholic beverages accounted
for in the Beverage Costs category include beer,
wine, and liquor. It may also include the costs of
ingredients necessary to produce these drinks,
such as cherries, lemons, olives, limes, mixers
like carbonated beverages and juices, and other
items commonly used in the production and
service of alcoholic beverages.
Costs
• Labour costs include the cost of all employees
necessary to run the business, including taxes
and benefits. In most operations, labour costs
are second only to food costs in total dollars
spent.
• Overhead costs include all expenses that are
neither food, beverage nor labour, such as
utilities, rent, linen, etc.
• Good managers learn to understand, control,
and manage their expenses. Numbers can be
difficult to interpret due to inflation. Therefore,
the industry uses percentage calculations.
• Percentages are the most common standard
used for evaluating costs in the foodservice
industry.
• Food Cost = Food Cost %
• Food Sales
• Beverage Cost = Beverage Cost %
• Beverage Sales
• Labour Costs = Labour Cost %
• Total Sales
• Percent (%) means “out of each hundred.”
• There are three (3) ways to write a percent:
• Common Form
• In its common form, the "%" sign is used to
express the percentage, as in 10%.
• Fraction Form
• In fraction form, the percent is expressed as the
part, or a portion of 100, as in 10/100.
• Decimal Form
• The decimal form uses the (.) or decimal point to
express the percent relationship, as in 0.10.
• Fixed costs are those unaffected by changes in
sales volume.
• Variable costs are related to business volume,
every increase or decrease in cost.
• Semivariable costs have both fixed and
variable elements.
• 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.
• Unit costs may be food or beverage portions or
units of work.
• Total costs may be the total cost of labour for
one period.
• 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.
• 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.
• 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).
• A simplified statement 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
expense, and profit.
• The income statement is important because it
describes the efficiency and profitability of an
operation.
• Put in another format, the equation looks as
follows:
Revenue (100%)
- Food & Beverage Cost %
- Labour Cost %
- Overhead Cost %
= Profit %
• The primary purpose of preparing an income
statement is to identify revenue, expenses, and
profits for a given time period.
1. Food and Beverage Cost
Revenue = Food & Beverage Cost %
2. Labour Cost
Revenue = Labour Cost %
3. Overhead Cost
Revenue = Overhead Cost %
4. Profit
Revenue = Profit %
Simplified Profit and Loss
• Sales 100%
• Food Cost 349,725 33%
• Labour Cost 29%
• Overhead %
• Profit 7%
Key Terms
• Average cheque, p. 18 • Sales, p. 16
• Average number of covers, p. 20 • Sales mix, p. 21
• Average sale, p. 18 • Sales price, p. 17
• Average sale per server, p. 19 • Seat turnover, p. 20
• Controllable costs, p. 13 • Semivariable costs, p. 12
• Cost, p. 10 • Total costs, p. 13
• Cost per dollar of sale, p. 22 • Total covers, p. 20
• Cost percent, p. 20 • Total dollar sales by category, p. 16
• Cover, p. 20 • Total number sold, p. 14
• Directly variable costs, p. 12 • Total sales, p. 16
• Fixed costs, p. 11 • Total sales per seat, p. 17
• Historical costs, p. 15 • Total sales per server, p. 16
• Labour costs, p. 12 • Unit costs, p. 13
• Noncontrollable costs, p. 13 • Variable costs, p. 12
• Overhead, p. 25
• Planned costs, p. 15
• Prime costs, p. 14
Chapter Web Links
• Food Marketing Institute: [Link]
• Canadian Restaurant and Foodservices Association:
[Link]
Copyright