1. Chapter 1 Cost and Sales Concepts
Principles of Food, Beverage, and Labour Cost Controls,
Second Canadian Edition

2. Learning Objectives
1.1 Define types of costs; fixed, variable, directly variable, semivariable, controllable, noncontrollable, unit, total, prime, historical, and planned
1.2 Define sales and illustrate monetary and nonmonetary sales concepts
1.3 Describe the cost-to-sales relationships, identify cost-to- sales ratios and formulas to compute cost percent and sales price
1.4 Describe causes of industry-wide variations in cost percent
1.5 Explain the value of comparing current cost-to-sales ratios to previous periods
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

3. Sales - Expenses = Profit
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.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition
Sales - Expenses = Profit

4. Sales - Expenses = Profit
Important Concepts
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition
Sales - Expenses = Profit

5. Cost Concepts
There are four costs a Food Service Manager must concern themselves with.
Food costs
Beverage costs
Labour costs
Overhead costs
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

6. Costs
Food costs are the costs associated with actually producing the menu item.
Foods are considered “consumed” when they have been used, wastefully or otherwise.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition
The cost for a piece of meat is incurred when the piece
is no longer available for the purpose for which it was purchased, regardless of
whether it has been cooked, served, thrown away, spoiled, or even stolen.

7. Costs
Beverage costs are the costs related to the sale of alcoholic beverages, and ingredients necessary to produce these drinks, such as garnishes.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition
Non-alcoholic beverages are considered an expense in the food cost category.

8. Costs
Labour costs include the cost of all employees necessary to run the business, and include salaries, wages and benefits
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition
The cost of labour is incurred when people are on paid duty, salary or hourly, whether or not they are working and whether they are paid at the end of a shift or at some later date, regardless of whether a sale is made.

9. Costs
Overhead costs include all expenses that are neither food, beverage nor labour, such as utilities, rent, linen, etc.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition
Overhead normally consists of all the fixed costs associated with operating the business.

10. Getting Started
Good managers learn to understand, control, and manage their expenses.
Percentages are the most common standard used for evaluating costs in the foodservice industry.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

11. Various Types of Costs
Fixed costs are those unaffected by changes in sales volume.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

12. Various Types of Costs Variable costs are related to business volume.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

13. Various Types of Costs
Semivariable costs have both fixed and variable elements.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

14. Costs
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.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

15. 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.  
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

16. Costs
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.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

17. Monetary Sales
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.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

18. Nonmonetary Sales
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).
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

19. VS Cost-To-Sales Ratio Costs in dollars compared with sales in dollars
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

20. Cost-To-Sales Ratio: Percents
Food Cost = Food Cost %
Food Sales 
Beverage Cost = Beverage Cost %
Beverage Sales
Labour Costs = Labour Cost %
Total Sales
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

21. Understanding the Income Statement
A summary 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 expenses, and profit (or loss).
Illustrates the efficiency and profitability of an operation.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

22. Simplified Income Statement
Put in another format, the equation looks as follows:
Revenue (100%)
- Food & Beverage Cost %
- Labour Cost %
- Overhead Cost %
= Profit %
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

23. Common Percentages Used
Food and Beverage Cost
Revenue = Food & Beverage Cost %
2. Labour Cost
Revenue = Labour Cost %
3. Overhead Cost
Revenue = Overhead Cost %
4. Profit
Revenue = Profit %
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

24. Activity Simplified Profit and Loss Sales 100% Food Cost 349,725 33%
Labour Cost %
Overhead %
Profit %
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

25. High labour & Ingredient cost
Industry Variations
High labour & Ingredient cost
Low labour &
High Ingredient cost
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

26. Using history to predict the future
Monitoring
Using history to predict the future
Monday to Monday
Week to Week
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition
Establishments that gather cost and sales information only monthly, quarterly, or annually may not be able to take effective and immediate remedial action, because the information is not sufficiently timely to shed light on current problems. Costs, once incurred, cannot be recouped.

27. Key Terms Average cheque, p. 17 Prime costs, p. 13
Average number of covers, p. 19
Sales, p. 14
Average sale, p. 17
Sales mix, p. 20
Average sale per server, p. 18
Sales price, p. 17
Controllable costs, p. 12
Seat turnover, p. 19
Cost, p. 9
Semivariable costs, p. 11
Cost per dollar of sale, p. 21
Total costs, p. 12
Cost percent, p. 21
Total covers, p. 19
Cover, p. 19
Total dollar sales by category, p. 15
Directly variable costs, p. 11
Total number sold, p. 19
Fixed costs, p. 10
Total sales, p. 15
Historical costs, p. 14
Total sales per seat, p. 17
Labour costs, p. 11
Total sales per server, p. 17
Noncontrollable costs, p. 12
Unit costs, p. 12
Overhead, p. 23
Variable costs, p. 11
Planned costs, p. 14
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

28. Chapter Web Links Food Marketing Institute: www.fmi.org
Canadian Restaurant and Foodservices Association:
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

29. Copyright
Copyright © 2014 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.
Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition