1. Controlling Costs;
The processes….
Gilbert Noussitou 2006

2. Question: Answer: Food Cost % What Should the Food Cost % be?
The difference between the Contribution Margin and the Selling Price
Selling Price – all costs – profit = Food Cost
Gilbert Noussitou 2006

3. Food Cost % Ratio of product cost compared to selling price
Portion Cost
Selling Price
Cost Markup
also known as the cost factor
100
Cost %
Cost Markup =
Selling Price
Portion Cost or
Gilbert Noussitou 2006

4. Food Cost %: What should it be?
Staff Costs
32%
Operating Expenses
18%
Occupancy Costs
11%
Desired Profits
12%
Total Contribution Margin
73%
Sales
100%
Food Cost
27%
Gilbert Noussitou 2006

5. Potential Profitability
More important than food cost is profitability.
Every menu item must generate its share of income to paid for all other costs and profit.
Referred to as: contribution margin or gross profit
Contribution Margin is the difference between the product cost & the selling price.
Gilbert Noussitou 2006

6. Profitability
The larger the contribution margin is, the larger the amount of funds available to operate the business & the larger the net profit will be
Regardless of the food cost %, items with the largest contribution margin are the most profitable
Sales – Cost of Sales = Gross profit
Gross Profit = Contribution Margin (C.M.)
Gilbert Noussitou 2006

7. Contribution Margin Item Food Cost Selling Price F.C. % C.M. Chicken
Sandwich
$1.25
$4.65
27%
$3.40
Fish
Burger
$2.20
$6.50
34%
$4.30
Steak
Sandwich
$3.10
$7.75
40%
$4.65
Gilbert Noussitou 2006

8. The Profit Myth
In most peoples mind;
Revenue – Expenses = Profit
In other words, profits are what ever is left after expenses have been paid.
Profits should be treated as a must be paid item just like rent is.
Then the formula becomes:
Revenue – Required Profits = Allowable Expenses
In this case, the only way to survive is to manage expenses properly!!!
Gilbert Noussitou 2006

9. The BUDGET
A budget is a plan for operating a business expressed in financial terms or a plan to control expenses and profit in relation to sales.
A budget is a tool used with performance reports to coordinate, evaluate and control operations in accordance with the goals specified in the BUDGET plan.
Cont…
Gilbert Noussitou 2006

10. The Budget (cont.)
Budgeting provides and organized procedure for planning and for development of standards of performance in numerical terms.
Planning, coordination and control are the three primary objectives of Budgeting.
Budgets provide basis for control but they must be planned and implemented by all operational personnel within the organization.

11. Steps in Planning a Budget
1st Step: Budget Sales
2nd Step: Budget Expenditures
3rd Step: Budget Cash Flow
4th Step: Budget Capital Expenditures
5th Step: Compile Forecast Income Statement
Gilbert Noussitou 2006

12. Control Point Flow Chart
Menu Planning 
Purchasing
Receiving
Storing
Issuing
Preparing
Cooking
Holding
Serving
  
☺ Guest Satisfaction & Profit Target☺
Control Point Flow Chart
Control the processes,
not the end result!!!
Gilbert Noussitou 2006

13. Establish standards: (Standards = expected level of performance)
COST CONTROL PROCESS
Establish standards: (Standards = expected level of performance)
Measure actual results of operation
Compare actual results to standards
Identify corrective action
Select corrective action
Review corrective action
Gilbert Noussitou 2006

14. There are five main standards related to cost control
Food Cost Controls
There are five main standards related to cost control
Standard Product Specifications
Standard Recipes
Standard Yields:
Ratio of useable product to total weight before processing
Standard Portions
Count – ladle – scoop – bowl – weigh – etc.
Standard Portion Cost
Always resulting from the 4 previous standards!!!
Gilbert Noussitou 2006

15. Yield & Cost Calculations
Effective Standards:
are an accurate reflection of desired results based on market expectations
encouraging excellence
are reasonable & challenging
are specific & measurable
allow slight flexibility to encourage creativity & challenge
include feed back (in control system)
Gilbert Noussitou 2006

16. PROBLEM: FOOD COST IS TOO HIGH!?
POSSIBLE SOLUTIONS:
Reduce dollar value of food in each sale
Increase revenue from each sale
Reduce inefficiency in handling food
Change (review) the menu
Gilbert Noussitou 2006

17. Cost Controls Use of Leftovers
Normal waste is costed and sold
Abnormal waste is used but not sold
Proper planning is essential
THE BEST WAY TO USE LEFT-OVERS IS……
NOT TO HAVE ANY!
What is the best way to use leftovers?
EVERYTHING YOU BUY MUST BE SOLD 
Gilbert Noussitou 2006

18. Is that a cost control measure?
Taking Inventory;
Is that a cost control measure?
Gilbert Noussitou 2006

19. THE FORMULA FOR FOOD COST CALCULATION
OPENING INVENTORY $11,000.00
PLUS
PURCHASES (less credits) + $40,000.00
MINUS
CLOSING INVENTORY - $9,000.00
EQUALS
COST OF FOOD SOLD (or used) = $42,000.00
Sales are $120,000
Food Cost % = (cost) $42, x 100 = 35%
(Sales) $120,000.00
Gilbert Noussitou 2006

20. Example #1
January
February
March
Opening inventory
$5,779.97
$5,897.13
$5,247.91
Purchases
+ $9,749.31
$8,999.19
$8,191.18
TOTAL COST (available for sale)
= $15,529.28
$14,896.32
$13,439.09
Closing Inventory
- $5,897.13
$4,697.98
FOOD COST (used)
= $9,632.15
$9,648.41
$8,741.11
Cash sales
$18,992.89
$16,707.84
$14,838.86
Staff meals (sold)
+ $1,997.99
$1,679.13
$1,571.99
Charges (sold to other departments)
+ $1,421.13
$1,213.97
$903.06
TOTAL SALES
= $22,412.01
$19,600.94
$17,313.91
Food cost percentage
42.98%
(43)
49.22%
(49)
50.49%
(50)
Gilbert Noussitou 2008

21. Example #2
January
February
March
Opening inventory
$5,779.97
$5,897.13
$5,247.91
Purchases
+ $9,749.31
$8,999.19
$8,191.18
TOTAL COST (available for sale)
= $15,529.28
$14,896.32
$13,439.09
Closing Inventory
- $5,897.13
$4,697.98
TOTAL COST OF FOOD (used)
= $9,632.15
$9,648.41
$8,741.11
Staff meals (sold at cost)
- $1,997.99
$1,679.13
$1,571.99
Charges (inter-departmental & Mgmt)
- $1,421.13
$1,213.97
$903.06
TOTAL FOOD COST (actually sold)
= $6,213.03
$6,755.31
$6,266.06
SALES
$18,992.89
$16,707.84
$14,838.86
Food cost percentage
32.71%
(33)
40.43%
(40)
42.22%
(42)
Gilbert Noussitou 2008