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COLLEGE OF HOSPITALITY MANAGEMENT
COST CONTROL 1 & 2
The term “cost” in accounting refers to the
monetary worth of expenses for raw
materials , equipment , supplies, services,
labor and goods among other things . It is
a sum of money that’s documented as a
reduction in the value of an asset to
secure a benefit or gain.
Cost and sales concepts are essential for
effective cost control, as they help
businesses identify, analyze, and manage
expenses while maintaining profitability.
Cost Concepts
1. Fixed Costs
Costs that remain constant regardless of
the level of production or sales.
Examples: Rent, salaries, insurance, and
depreciation.
Control Strategy: Optimize fixed costs by
negotiating better lease terms or reducing
unnecessary expenses.
2. Variable Costs
Costs that vary with the level of
production or sales.
Examples: Raw materials, utilities, and
commissions.
Control Strategy: Monitor usage and
negotiate with suppliers for better
rates.
3. Unit and Total Cost
It also a crucial to understand the
difference between unit and total cost
which is essential in a food and beverage
business . the Unit Cost define as the cost
of one unit of work or piece of food and
beverage business while the cost in terms
of totals are called the Total Cost .
How to get Unit Cost ?
Unit cost = variable cost + fixed cost
Total unit (product)
How to get Total Cost ?
Total cost =Total Unit (product) x Unit
cost
Total Variable Fixed Total Unit
unit cost cost cost cost
1 50 1000 1050 1050
10 50 1000 1050 105
50 50 1000 1050 21
20 60 1000 1060 53
4. Direct Costs
Costs directly associated with the
production of goods or services.
Examples: Labor, raw materials, and
machinery usage.
Control Strategy: Improve process
efficiency to reduce wastage and
increase productivity.
5. Indirect Costs
Costs not directly tied to production but
necessary for operations.
Examples: Administrative expenses,
utilities, and maintenance.
Control Strategy: Streamline support
activities to lower overhead costs.
6. Opportunity Costs
The potential benefits lost when choosing
one alternative over another.
Control Strategy: Make informed
decisions by analyzing alternatives
and their financial impact.
7. Marginal Costs
The cost of producing one additional unit
of a product.
Control Strategy: Use economies of
scale to reduce marginal costs.
Sales Concepts
1. Revenue
Total income generated from sales of goods
or services.
Control Strategy: Focus on increasing
sales volume and price optimization.
2. Gross Margin
The difference between sales revenue and
the cost of goods sold (COGS).
Control Strategy: Increase gross
margin by reducing production costs
or adjusting pricing strategies.
3. Break-even Sales
The sales level at which total revenue
equals total costs, resulting in zero
profit or loss.
Control Strategy: Analyze break-even
points to understand cost structures
and set realistic sales targets.
4. Sales Mix
The ratio of different products or services
sold.
Control Strategy: Shift the sales mix
toward higher-margin products or
services.
5. Net Profit
The final profit after all costs, taxes,
and expenses have been deducted from
revenue.
Control Strategy: Monitor
profitability trends and control
discretionary spending.
COHM RESTAURANT SALES AND COVERS SUNDAY ,
DECEMBER 25, 2024
MENU ITEM QUANTITY SALES TOTAL SALE PER
PRICE SUB CATEGORY
SOUP (PER 3,505.00
CATEGORY )
CRAB AND 6 150.00 900.00
CORN
ASPARAGUS 8 180.00 1,440.00
TOMATO 3 175.00 525.00
CHICKEN 4 160.00 640.00
SALAD (PER
CATEGORY )
MIXED 5 80.00
GREENS
CAESAR 2 125.00
SALAD
BEET SALAD 9 150.00
MEAL
PLATED(PER
CATEGORY )
ROAST BEEF 18 325.00
WITH
VEGETABLES
GRILLED 15 340.00
SALMON
WITH DILL
SAUCE
CHICKEN 22 260.00
CURRY WITH
RICE
DESSERT
(PER
CATEGORY )
LECHE FLAN 17 60.00
BUKO 21 75.00
PANDAN
TOTAL 57
COVERS
TOTAL
SALES
Strategies for Cost Control
1. Budgeting
Create detailed budgets to track and
control expenditures.
Regularly compare actual performance to the
budget to identify variances.
2. Cost-Benefit Analysis
Evaluate the financial impact of decisions
to ensure they provide more value than
their cost.
3. Standard Costing
Use pre-determined cost benchmarks to
measure performance and identify
inefficiencies.
4. Inventory Management
Optimize inventory levels to reduce
carrying costs and prevent overstocking or
stockouts.
5. Lean Practices
Implement lean methodologies to eliminate
waste, improve processes, and maximize
resource utilization.
6. Technology Integration
Use software tools for cost tracking,
analysis, and real-time reporting to
identify cost-saving opportunities.
MONITORING COSTS AND SALES
Cost alter with business volume to
some extent , but when expressed in
relation to that quantity do they
become significant .
This is how we get our cost per peso
of sale
Cost / Sales = Cost per peso of sale
it would result in a decimal answer, so by
multiplying it by 100 and adding the
percent sign (%), you get so called cost
percent, the result times 100, would also
be the same a simply moving the decimal
point two places to the right .
COSTING TRIANGLE Cost
Cost
Sales
percent
THE costing triangle illustrated is very
useful when solving cost percent formulas .
Example : to get the cost per peso of sales
of COHM company with a food costing of
₱43,779.58, which ultimately resulted in
sales of ₱113,598.00 , youhave to determine
the percentage of sales represented by cost
as we divide cost by sales , as in
preceding formula , and multiply the
resulting decimal answer by 100 in order to
convert it to percentage , Its worth
nothing that the costing triangle can be
utilized to solve for the cost percent ,
cost and sales .
When solving for sales , the cost becomes
over the cost percent number , hence cost
divided by cost percent (before conversion
to decimal) equals sales .
COHM COMPANY
FOOD COSTING : ₱ 43, 779.51
SALES : ₱113, 594.99
FORMULA :
COST PERCENT : (COST/SALES)X
100
=38.54%
COST PERCENT:(₱43,779.58/₱113,
594.99)X100
FORMULA :
SALES :[COST/(COST
PERCENT/100)] =₱113,594.9
SALES 9
:[₱43,779.51/(38.54/100)]
FORMULA
COST: COST BEFORE CONVERTING TO
DECIMAL X SALES =₱43,779.51
COST : 0.3854 X ₱113, 594.99
3RD YEAR COMPANY
FOOD COSTING : ₱ 50,021.11
SALES : ₱255,470.43
FORMULA :
COST PERCENT : (COST/SALES)X
100
=19.58%
COST PERCENT:
(₱50,021.11/₱255,493.10)X100
FORMULA :
SALES :[COST/(COST
PERCENT/100)] =₱255,470.
SALES :[₱50,021.11/(19.58/100)] 43
FORMULA
COST: COST BEFORE CONVERTING TO
DECIMAL X SALES =₱50,021.1
COST : 0.1958 X ₱255,470.43 1
MAKAN KEN MAINUM COMPANY
FOOD COSTING : ₱ 43,000.00
SALES : ₱149,982.56
FORMULA :
COST PERCENT : (COST/SALES)X
100
=28.67%
COST PERCENT:
(₱43,000.00/₱150,000.00)X100
FORMULA :
SALES :[COST/(COST
PERCENT/100)] =₱149,982.
SALES :[₱43,000.00/(28.67/100)] 56
FORMULA
COST: COST BEFORE CONVERTING TO
DECIMAL X SALES =₱43,000.0
COST : 0.2867 X ₱149,982.56 0
COST CONTROL
The method through which managers
limit costs and prevent againts
excessive costs is known as cost
control . it is a continous process
that includes purchasing , receiving ,
storing issuing and preparing food and
beverages for sale , as well as
training and scheduling of the workers
involved .
Cost control is vital to the
profitable functioning of any business
, it will not guarantee profitability
on its town . additional procedures
must be made to ensure that all sales
generate adequate revenue for the
company (sales control).
For example
If meal displayed on the menu for
₱350.00 is sold to customer for
₱285.00, or if a drink marketed at
₱120.00 is sold for ₱70.00, or if food
and drink are given away , profits
will decline. As a result , its
critical that eacg employee precisely
documents each sales
The Control Process
The control process under cost control
involves a series of steps to ensure that
project or operational costs remain within
the approved budget
1. Establishing a Cost Baseline
Define the total budget, cost
estimates, and expected
expenditures.
Break down costs into categories
(labor, materials, overhead, etc.).
Use historical data and forecasting
methods to set realistic budgets.
2. Measuring Actual Costs
Track expenses in real-time or
periodically.
Collect financial data through
accounting systems, invoices, and
purchase records.
Use cost management software to
maintain accurate records.
3. Comparing Actual Costs with
Budgeted Costs
Perform variance analysis to
compare actual spending with
planned spending.
Identify any deviations (overages
or savings).
Assess whether cost variations are
acceptable or require corrective
action.
4. Analyzing Variances
Determine the root causes of cost
overruns or savings.
Identify if changes in scope,
resource allocation, or
inefficiencies are affecting costs.
2 types
A. Positive variance
B. Negative variance
5. Implementing Corrective Actions
Adjust plans, reallocate resources,
or improve efficiency to align
costs with the budget.
Negotiate better terms with
suppliers or subcontractors.
Improve process efficiency to
reduce waste.
6. Continuous Monitoring and
Reporting
Establish regular cost review
meetings.
Use dashboards and reports to
provide transparency to
stakeholders.
Ensure ongoing adjustments to stay
within budget.