Factors Affecting Cost Control

Lesson 10 : Cost Control

Factors Affecting Cost Control

  1. Food Costs Food is the most readily controlled item of expenditure and the factor most subject to fluctuation in the food service budget. If control of food costs is to be effective, efficient methods must be employed in planning the menu, purchasing, storing, preparing and serving food. The expenditure for food varies greatly from one type of institution to another and often for institutions of the same type because of the form of food purchased geographic location and delivery costs.

    Food cost is usually expressed in terms of percent of the income spent for food and may range from 18 to 20% to 70 or 80% of the income. These wide variations are due to many causes and it is difficult to give percentage figures that are typical for any type of organization.

    In luxury restaurants with elaborate service and high overhead costs, only about 18 – 20% of the guest’s food money may be spent for food. In college cooperative residences for students, where much of the labor is provided by the residents and some of the overhead is often paid by the school, the food cost may be as high as 70-80% of income. In spite of the variation in the amounts spent for food, the underlying bases for food cost control are the same for all types of food service units.

    1. Menus: Menu planning is the first and perhaps the most important step in control of food costs. The menu determines what & how many foods must be purchased and prepared. The extent of the no. of choices of each menu also influences food costs. Menu that provide extensive choices require preparation of many kinds of foods, several of which may not be sold in quantities sufficient to pay for their preparation. School food services offering a plate lunch and a limited no. of other foods usually are better able to stay within their limited budget than those that offer a large selection of a la carte items.

      Menus, although made in advance must be adjusted daily according to the inventory on hand and to local market conditions. Waste can be controlled only by wise utilization of available supplies, which helps to keep food costs under control.

    2. Type of service: Offered may be a factor in determining food costs. For example food service using table service will have a higher food and labor cost than a cafeteria style service. Self service helps in savings because each individual can decide the quantity he prefer and thus reduce wastage.
    3. Purchasing methods: Food costs begin at the time of purchase and controlled procedures are an effective step for wise buying.

      Bulk purchasing - rigid set of specification for quality of food to be purchased.

    4. Receiving control: this is another step in controlling food costs. It is the management’s responsibility to make certain that what was ordered is received both in terms of quantity & quality. On large orders, one case of each product must be examined to determine the quality. Weighing of food items on receipt.
    5. Storage & storeroom control: Purchase should be made only of food that can be used at once or stored adequately. Only what is essential should be stored for a limited period because unnecessarily large inventories tend to increase the possibility of loss through spoilage, waste, pilferage or theft.

      Correct temperatures and humidity for optimum storage of various perishable foods are necessary for control of food costs. Storage of canned foods in well ventilated & cool storage of flour with good circulation of air to retain good quality & flavor. Prevention of infestation by rodents, insects reduces waste and helps in cost control.
      Storeroom control can be achieved by making one person accountable or responsible for the food stuffs contained in it. Locking, issues made after receiving written requisition.

    6. Production of foods: Preparation, cooking & left overs control: The quality & form of food purchased has a direct bearing on the amount of waste in the process of preparation & cooking. The actual cost of food is influenced not only by the relationship between amount or weight of the edible portion and that of the waste or inedible portion, but also by the quality of the edible portion. Cutting, training off excess results in waste which cuts into profits and should be avoided. Unskilled personnel, inadequate suppression, lack of proper equipment, over production leads to loss of profit in food service business.
    7. Standardized portions and serving wastes: standardized portions and portion control by using standard cups or dippers prevents the wastage.
    8. Method of pricing: It is the responsibility of the food service manager to determine the specific price of the food. Haphazard methods only lead to financial disaster dissatisfaction of the customer or both. Individual items or a combination of items to be served together must be priced. Mark up factor. All costs must be covered; food, labor, operating & overhead, plus the desired amount for profit.
    9. Employee’s meal costs: Providing meals for employees is necessary and desirable in most food services. This is a means of providing wholesome, nutritionally balanced meals at reduced rates or free of charge as a convenience to employees and helps to build and maintain a healthy & happy and efficient working force.

      Meals may be charged ‘at cost’ or with the addition of a mark up or a discount of a given percentage (30- 50%) of the retail selling price is the basis used to determine the rate. Flat rate may be charged, deduction may be made from the salary for one meal per day.

  2. Labour Costs Sometimes labor costs may be higher than the food cost percentage. They are less controllable than food costs. Labor is not a fixed expense, because it is influenced by many conditions such as
    1. Type of operation and extent of services offered,
    2. Hours of service,
    3. The menu pattern and the form in which the food is purchased
    4. The physical plant, the size and arrangement of the preparation and serving units and their relation to each other, the amount, kind and arrangement of labor saving equipment, employee selection policy etc. supervision; wage scale & fringe benefits.
    1. Type of service: cafeterias require less number of labour. In Table service the labour requirement is based on the ratio of waiters to guests will vary
    2. Hours of work / service: will determine number of shifts number of meals to be served. In school lunch only one meal whereas hospital food service should provide 4 to 5 meals / day.
    3. Menu pattern: Major controlling factor in determining number of employees required and skill (varies with type of food service org. amt. of built in labour – which is more profitable.
    4. Physical plant: Efficient kitchen arrangement helps in controlling labour cost. Poor planning, arrangement results in inconvenience and waste of human energy additional labour may be required to left, handle & carry or move materials in a poorly arranged kitchen.
    5. Equipment & arrangement: labour saving equipment is related to no. of labour hours required to accomplish a given price of work.
    6. Personnel policies: proper selection and skill increases the productivity which helps in labour cost control. Training
    7. Supervision: helps to achieve better standards greater utilization of labour & equipment, and more compact functioning layouts.
    8. Fringe Benefits: are given to the employees as encouragement to increase the productivity apart from the regular salary. This also includes good share of labour costs. This can be minimized by better scheduling or redistribution of work loads.
  3. Operating and Other Expenses: other items classified as overhead & operating expenses constitute 12 to 18% of the budget such as utilities, laundry, repairs, replacement & maintenance telephone, printing, rent etc.
  4. Recorde: Complete & accurate records are among the basic requirements for control of costs. Records provide information to guide present operations & form basis for future financial planning. Records are useful in evaluating and in improving financial situation of the dept. records are arrangement tool and like all forms of control, vary with the type, size and policies of the institution.

    Computer is utilized today for record keeping and reporting. No records however carefully designed will be of value unless they are kept daily, are accurate and are used by management.

    1. Procurement and Receiving Records:
      1. Purchase order: Written record of items ordered by telephone or by mail. It lists the items, quantities desired & specifications. May contain the price quotations & time of delivery.
      2. Invoices: The delivery slip that accompanies an order is the invoice. Written by the vendor, contain lists of items purchased with no; unit price & total cost. Used for checking against the items supplied.
      3. Receiving record: List of goods received is recorded in a ledger type book under the date received.
      4. Purchase record: A permanent record of date of purchase, vendor from whom goods were purchased, quantity received and price paid for each individual item. This is useful in costing of recipes.
      5. Summary of purchases record: This shows the total amount of each item purchased each month. Helps to quantity the item purchased for a given period of time. Useful in forecasting quantities of food needed for future use.
    2. Storage and storeroom control:
      1. Storage records: Records of goods received and stored in the storeroom.
      2. Storeroom issue or requisition record: No item should be removed from the storeroom except on written order of the concerned manager. This written order of items to be issued from the storeroom to the kitchen is known as storeroom issue or requisition sheet. This will help in keeping the necessary information regarding balance of each item after issue.
      3. Perpetual inventory: Running record of the balance on hand for each item of goods in the store room. The items received are added to the balance on hand and the items issued are subtracted. It may be in the form of index cards, one for each item cardex type drawer file may be used. The total quantity of each item on hand can be ascertained by a quick check of the perpetual inventory file.
      4. Physical inventory: This is an actual count of the goods on hand at the end of the accounting period. Usually one month. This is a better way of keeping control over the storeroom this can be checked against the perpetual inventory. Equipment especially service equipment like china, glassware, silverware needs to be checked regularly and evaluated.
    3. Production and service records:
      1. Menu: Records important for controlling costs in food production are menu, standardized recipes, & a production report.
      2. Standardized recipes: Helps to minimize food costs; and helps managers to keep within the deserved budget
      3. Production schedules: This is a record of amounts of foods to be prepared, the resulting quantities of cooked foods available to be served, and the actual no. of servings obtained from a given amount of food, left over quantities which help in fore casting.
      4. Menu tally: Used in commercial food service to keep a tally of menu items sold. This tally may be checked with the production record of number of servings sold etc. slips may be used.
    4. Dining room and patient count records: Useful in hospital food service. Helps to predict numbers to be served.
      1. Census record: A form of recording the meal count
      2. Special meals record: For food services which provide special meals to special groups in addition to their regular meal service.
    5. Cash Transaction: A permanent record of cash transactions, both from sales or income and from expenditures or disbursements. Helps in financial accountability.
      1. Cash receipts record
    6. Operating & maintenance:
      1. Laundry records: Number of items sent for laundering
      2. Other controllable costs: Record of operating costs. Repairs, maintenance etc.
    7. Personnel cost control records:
      1. Time card – payroll record: To maintain an accurate report of the hours of work spent. Helps to prepare pay rolls.

Budget: has been defined as ‘an estimate of future needs, arranged according to an orderly basis, covering some or all of the activities of an enterprise for a definite period of time’.
Financial planning for the future. Budgeting should also include the number of meals to be served and labour hours required.

Steps in planning budget

  1. Record every source of income
  2. Classify the items of expenses
  3. Study the operations of the department based on previous records.
  4. Set priorities and make decisions
  5. Write the budget for presentation.
  6. Use the budget.
Last modified: Friday, 25 May 2012, 6:46 AM