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Hospitality and Tourism Management
HTM 2030

HTM*2030 Principles of Food, Beverage, and Labor Cost Controls Chapter One: -cost: expense to a food service establishment for goods or service when goods are consumed or the services are rendered -fixed costs: normally unaffected by changes in sales volume -variable costs: clearly related to business volume -directly variable costs: directly linked to volume of business, so that every increase or decrease in volume brings a corresponding increase or decrease in cost -semi-variable costs: has both a fixed element and a variable element eg. Labor costs-includes salary,wages, and employee benefits -a portion of it should change with short-term changes in business volume and another portion should not -controllable costs :can be changed in short term -usually include variable costs -non-controllable costs : cannot normally be changed in the short term -usually include fixed costs -unit costs: may be food or beverage portions, or units of work such as in the hourly rate of an employee -important for purposes of establishing menu prices an determining unit in profability -total costs: normally used for broader purposes including the determination of the relationship between total costs and total sales COST BEHAVIOUR AS BUSINESS VOLUME CHANGES Unit cost Total cost Fixed cost -changes -doesnt change Variable cost -doesnt change -changes ***this relationship does not always hold true prime cost: the cost of materials and labour; food, beverages, and payroll historical cost: all costs are historical and can be found in records - are of particular value for planning planned costs: projections of what costs will be or should be for a future period -often referred to as budgeting sales: revenue resulting from the exchange or products and services for value total sales: total volume of sales expressed in dollar terms total sales by category: are total food or total beverage sales total sales per server: total dollar volume of sales for which a given server has been responsible in a given time period, such as meal period, week or day total sales per seat: total sales in given time period number of seats in restaurant sales price: amount charged each customer purchasing one unit of a particular item average sales : in business is determined by; sum of individual sales (covers) total # of individual sales -average sale/customer -average sale/server -average sale/bill total number sold: total number of any menu item sold over a given time period covers: term used to describe one diner regardless of the amount of food he/she consumes total covers: total number of customers served in a given period average covers: total number of covers given time period seat turnover: number of seats occupied number of seats available sales mix: the relative quantity sold of any menu item as compared with other items in the same category COST-to-SALES RATIO: COST % Cost/sales = cost per dollar of sale Cost/sales x 100% = cost % Food cost/food sales x 100% = food cost % Beverage cost/ beverage sales x 100% = beverage cost % Labor cost/total sales x 100%= labor cost % Overhead cost: remaining costs - fixed costs associated with operating the business cost/sales = cost % cost/cost% = sales sales x cost% = cost low margin restaurant: fast food -relatively lower menu price, higher food cost % -hire unskilled personnel -pay lower wages, # employees = a minimum -require more customers to reach given dollar volume high margin restaurant: fine dining -higher menu prices, lower food cost % -more skilled personnel -food purchased in raw form Chapter 2: The Control Process Control: in food and beverage business control is a process used by managers to direct, regulate and restrain actions of people so that the established goals of an enterprise may be achieved Cost control- the process used by managers to regulate costs and guard against excessive costs Sales control: must ensure all sales result in appropriate income to business - it is important to ensure each employee records each sale accurately Responsibility for control: management> delegate some work to subordinates CONTROL TECHNIQUES 1- establish standards: quality, quantity, costs 2- establish procedures: standard procedure 3- training: standard training 4- setting examples: manager influences their employees method of work 5- observing+correcting employee action: manager ensures standards are met 6- requiring records+reports: help manager observe employees when theyre not actually present 7- disciplining employees: reprimand employee for not working up to standards set/incompatible personal behavior to standards 8- preparing+ following budgets: following set/ standard budgets budget: a financial plan and may be describe as a realistic expression of managements goals and objectives expressed in financial terms operating budget: forecast of sales activity and an estimate of costs that will be incurred in the process of generating sales(stated in dollar terms) static budget: prepared for only one level of business activity for the period CONTROL PROCESS 1- establish standards and standard procedures for operation 2- train all individuals to follow established standards and standard procedures 3- monitor performance and compare actual performances with established standards 4- take appropriate action to correct deviations from standards control systems: describe that collection of interrelated and interdependent control techniques and procedures are in use cost/benefit ratio: the relationship between the costs incurred in instituting and maintaining a single control system, and the benefits or savings derived by doing so Chapter 3: Cost/Volume/Profit Relationships COST/VOLUME/PROFIT ANALYSIS -costs can be fixed or variable -VC are directly variable -FC are stable -sales prices are constant -sales mix will remain constant CVP analysis: helps predict the sales dollars and volume required to achieve desired profit (or break even) based on your known costs Contribution margin: dollar amount that contributes to covering fixed costs and providing a profit C.M. = total sales variable costs
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