COST AND

SALES
CONCEPT
COST
 Reduction in value of an asset for the purpose of
securing benefit or gain (accountant’s viewpoint)
 Expense to a foodservice establishment for goods or
services when the goods are consumed or the services
are rendered.
 F & B are consumed when:

a. they have been used wastefully or not

b. they are no longer available for the purpose they were
acquired
c. They were cooked, served or thrown away because it has
spoiled or it has been stolen
COST
 May be expressed in a variety of units: weight, volume,
or total volume
a. Cost of meat – per piece, per pound, or per portion
b. Cost of liquor – per bottle, per drink or per ounce
c. Cost of Labor – per hour, per week or per month
FIXED VS. VARIABLE COST
 FIXED COST
 Unaffected by changes in sales volume

 Do not change significantly when sales increases or

decreases
 Examples: insurance premiums, real estate taxes,
depreciation on equipment, advertising expense, repairs
and maintenance cost, rent or occupancy cost, utility cost
and cost of professional services (accounting)
 Can also change over time but not normally related to
short term changes in business volume
FIXED VS. VARIABLE COST
 VARIABLE COST
 Related to business volume

 As business volume increases, variable cost will

increase;
 As business volume decreases, variable costs should
decrease as well
 Examples: food and beverage cost and labor cost
FIXED VS. VARIABLE COST
1. DIRECTLY VARIABLE COST
 Directly related to business volume

 Total directly variable cost increase or decrease in direct

proportion to sales volume
 Examples: food and beverage cost

2. Categories of foodservice personnel:

2.a. Fixed cost personnel – manager, bookkeeper, chef and
cashier
 Changes in numbers and cost may change but not
because of short changes in business volume
2.b. Variable cost personnel – includes servers and wait
staff
2.c. Semivariable cost – ex. salaries and wages
FIXED VS. VARIABLE COST
1. DIRECTLY VARIABLE COST
 Directly related to business volume

 Total directly variable cost increase or decrease in direct

proportion to sales volume
 Examples: food and beverage cost

2. Categories of foodservice personnel:

2.a. Fixed cost personnel – manager, bookkeeper, chef and
cashier
 Changes in numbers and cost may change but not
because of short changes in business volume
2.b. Variable cost personnel – includes servers and wait
staff
2.c. Semivariable cost – ex. salaries and wages
CONTROLLABLE VS. NON
CONTROLLABLE COST
CONTROLLABLE COST – can be changed in short term
 example: variable cost like food and beverage cost

Ways of controlling food cost:

a. Change portion size

b. Change ingredients in a recipe

c. Change the quality of products purchased

Ways of controlling labor cost:

d. Hire additional employees

e. Lay off employees

f. Increase or decrease hours of work

g. Increase or decrease wages
CONTROLLABLE VS. NON
CONTROLLABLE COST
FIXED CONTROLLABLE COST
1. Advertising and promotion cost

2. Utilities

3. Repairs and maintenance

4. Administrative and general expenses

a. office supplies
b. postage
c. telephone expenses
NON CONTROLLABLE COST
 Cannot normally be changed in the short term

 Usually fixed costs like rent, interest on mortgage, real estate

taxes, license fees, and depreciation
UNIT COST VS. TOTAL COST
 UNIT COST
Food and beverage portions

Unit of work (hourly rate of employee)

 TOTAL COST
Cost of all food served in one period (week or month)

Cost of labor for one period

Reflected in income statement

EXAMPLE 1:
In the Grandview Bistro where steaks are cut from
strip loins, a strip loin was purchased for $98.25.
However, the cost per portion of the steak depends on
the number of steaks cut from the strip.
If there are 15 servings made from the entire strip,
how much would be the unit cost?
If one entire strip were consumed in one day, how
much will be the total cost?
EXAMPLE 2:
Assume that a restaurant has a fixed cost for rent of
$2000 per month. If 2000 customers were served during
a period of 1 month, the fixed cost rent per customer
will be __________.
If in the succeeding month, the number of customers
increased to 4000, how much would be the fixed cost
per unit? How much would be the total fixed cost?
EXAMPLE 3:
The variable cost for unit of steak in example 1 is
$6.55 per serving. If 240 customers in a given month
ordered steak, the total variable cost would be
____________.
If on the following month, 300 customers , ordered
steak, the variable cost per unit is _________ and the
total variable cost is _______________.
PRIME COST
Refers to costs of materials and labor: food, beverages
and payroll
Sum of food costs, beverage costs and labor costs
(salaries and wages plus employee benefits)
 Note: see income statements

Represents the largest portion of total costs for virtually

all foodservice operations
Can be altered more easily than most fixed cost

Plays a large part in determining whether an

establishment will meet its financial goals
HISTORICAL VS. PLANNED COSTS
HISTORICAL COST
Used to establish unit cost, determine menu prices, and
compare present with past labor cost
Can also be used for planning (budgeting)

PLANNED COST – makes use of historical cost to

develop projections of what costs will be or should be
for a future period.
SALES
CONCEPTS
SALES
Revenue resulting from the exchange of
products and services for value

There are two basic groups of terms normally

used in food and beverage operations to express
sales concepts : MONETARY AND NON-
MONETARY
MONETARY TERMS
1. TOTAL SALES
 Refers to the total volume of sales expressed in
peso or dollars
 May be for any given time period (week,
month or year)
 Ex. Total sales in income statement means the
total amount of sales in a given year
MONETARY TERMS
2. TOTAL SALES BY CATEGORY
 Refers to the total volume of sales for all items
in one category
 Example: total food sales or total beverage sales

3. TOTAL SALES PER SERVER

 Total volume of sales for which a server has
been responsible in a given time period (meal
period, day or week)
 Compares the performance of 2 or more
employees)
MONETARY TERMS
4. TOTAL SALES PER SEAT
 Total dollar sales for a given time period
divided by the number of seats in the restaurant
 Normally applicable in 1 year period

5. SALES PRICE
 Refers to amount charged to each customer
purchasing one unit of a particular item
MONETARY TERMS
6. AVERAGE SALE – determined by adding
individual sales to determine a total and then
dividing that total by the number of individual
sales.
 examples: average check

average sale per server

a. Average Check – result of dividing total sales
by the number of sales or customers
= Total sales__________
Total number of covers
MONETARY TERMS
a. AVERAGE SALE
 Used by foodservice operators to compare the
sales performance of one employee with that of
another, to identify sales trends and compare
the effectiveness of various menus, menu
listing or sales promotion
b. Average Sale per server
= Total sales of server A____
# of customers of server A
MONETARY TERMS
b. Average Sale per server
 Better indicator of the sales ability of a
particular individual because it eliminates
differences caused by variations in the number
of persons served
Example: If the Grandview Bistro had four
servers on duty and Jim, one of the servers had
30 customers and total dollar sale of $565 on
the Saturday night of February 13, compute the
average sale of Jim.
NONMONETARY TERMS
1. Total Number Sold
 Refers to the total number of menu items sold
in a given time period
 Used to identify unpopular menu items in order
to eliminate such items from the menu
 Useful for forecasting sales
 Help in making decisions about purchasing and
production
 Check inventory
NONMONETARY TERMS
2. Cover
 Describe one diner regardless of the quantity of
food he or she consumes
3. Total cover
 Refers to total number of customers served in a
given period (an hour, meal period, day, week etc)
4. Average Cover
 Helps the manager to determine efficiency of
service in the dining room, effectiveness of
promotional campaign and effectiveness of server
NONMONETARY TERMS
Total cover
Covers per hour = _______________________
# of hours of operation

Total cover
Covers per day = _______________________
# of days of operation

Total cover
Covers per server = _______________________
# of servers
NONMONETARY TERMS
5. Seat Turnover – aka turnover or turns
 Refers to the number of seats occupied during
a given period (# of customers served during
that period) divided by the number of seats
available
 Often calculated for a given meal period

Example: A restaurant with 75 seats served 140

customers one Saturday night. Calculate the
seat turnover for that meal period.
NONMONETARY TERMS
5. Sales Mix – describes the relative quantity sold
of any menu item as compared with other
items in the same category
Example:
Menu Item # Sold Sales Mix
Strip Steak 13
Tournedos Steak 10
Roasted Duck Breast 5
Lamb Chops 8
Total 36
COST TO SALES
RATIO: COST
PERCENT
COST PERCENT
Food Cost
1. Food Cost % = ______________ x 100
Food Sales

Beverage Cost
2. Beverage Cost % = ______________ x 100
Beverage Sales

Labor Cost
3. Labor Cost % = ______________ x 100
Total Sales
COST PERCENT
 Useful to managers in two ways:
1. Provide a means of comparing costs relative to
sales for two or more periods of time.
2. Provide a means of comparing two or more
operations
*comparisons are valid only if the operations are
similar.
Example: compare food cost % of The Grandview
Bistro and A taste of Tuscany
COST PERCENT FORMULA
Cost
Cost % = ______________
Sales

Cost
Sales = _______________
Cost %

Cost = Sales x Cost %

COST PERCENT FORMULA
Example 1:
Suppose a banquet manager has been directed
by her boss to ensure that all banquet functions
operate at 30% food cost percentage and sales
price of $15.00, how much should be the cost
of the food to be served?
COST PERCENT FORMULA
Example 2:
A restaurant with an established food cost of
30% pre-arranges a function that will happen
in six months time. With the current cost of
$4.00 and 5% inflation rate on the price of its
ingredients, how much should the sales price
be quoted to avoid loss?
OVERHEAD COST
 Includes all other costs than prime cost
 Consist of all the fixed costs associated with
operating the business

* High volume restaurants generally tend to have

lower overhead cost percentage than
restaurants with lower volume of sales
INDUSTRY WIDE VARIATIONS IN
COST PERCENTS
• Cost percents vary from one food
establishment to another depending on
type of service, location, price structure
and type of menu.
2 BASIC TYPES OF FOODSERVICE
OPERATION
1. Those that operate at a low margin of
profit per item served and depend on
relatively high business volume
2. Those that operate at a relatively high
margin of profit per item and therefore
do not require such high business
volume
COST ANALYSIS OF TYPICAL LOW
MARGIN RESTAURANT
Cost of food and beverages 40%
Labor Cost 20
Other controllable & non
controllable costs 30
Profit before income taxes 10
________
100%
COST ANALYSIS OF TYPICAL HIGH
MARGIN RESTAURANT
Cost of food and beverages 25%
Labor Cost 35
Other controllable & non
controllable costs 30
Profit before income taxes 10
________
100%
1. Calculate the cost percentage
a. Sales – $700.00 ; Cost – $ 178.50
b. Sales – $800.00; Cost – $ 216.80
c. Sales – $450.00; Cost – $127.80

2. Calculate cost given the following figures for cost percent and sales
d. Cost percent – 31.6%; Sales – $1,065.00

e. Cost percent – 29.7%; Sales – $790.00

f. Cost percent – 21.2%; Sales – $4100.00

3. Calculate sales given the cost percent and cost

g. Cost percent – 27.3%; Cost – $1300.40

h. Cost percent – 25%; Cost – $88.20

i. Cost percent – 34.8%; Cost – $1,113.60

4. The present cost to Lil’s Restaurant for one a la carte steak is $3.20.
This is 40% of the menu sales price.
a. What is the present sales price?

b. At an annual inflation rate of 5%, what is the steak likely to cost

one year from today?
c. Using the cost calculated in b, what should the menu sales price be
for this item in one year if the the cost percent at that time is to be
38%?
5. At the Loner Inn, total fixed costs for November were
$28,422.80. In that month, 14,228 covers were served.
d. What was the fixed cost per cover for November?

e. Assume the fixed costs will increase by 2% in December.

Determine the fixed cost per cover if the number of covers
decreases by 10% in December.
4. Joe’s Restaurant purchases domestic red wine at Php 220 per bottle.
Each bottle contains 3 liters, the equivalent of 101 ounces. The wine
is served in 5- ounce glasses and management allows for 1 ounce of
spillage per 3 liter bottle.
a. What is the average unit cost per drink?

b. How many servings of wine can 1 bottle yield?

c. What is the total cost of the wine bottle based on the total number
of servings?
5. Sales record for a luncheon in Emilia’s Restaurant for the recent week
were:
Item A – 196
Item B – 72
Item C – 142
Item D – 502
Item E – 726 . Compute the sales mix
6. Calculate the average check from the following data:
a. Sales – Php 75, 250; Number of customers – 329

b. Sales – Php 3, 110; Number of customers – 90

c. Sales – Php 18, 250; Number of customers – 24

Assignment # 2
1. The following table indicates the number of covers served and the
gross sales per server for the one three-hour period in Sally’s
restaurant. Determine: (a) the average number of covers served per
hour per server, and (b) the average sale per server for the three
hour period

Server Covers Served Sales per Server

A 71 Php 2370.50
B 66 2639.75
C 58 1882.00
Assignment # 2
2. Use the information about Sally’s Restaurant to compute the
following
a. Average check

b. Seat turnover for the three hour period if there are 65 seats in the
restaurant
Assignment # 2
3. The financial records of the Colonial Restaurant reveal the
following figures for the year ending December 31, 20xx.
Depreciation: Php 25,000
Food Sales: Php 375,000
Cost of Beverages Sold: Php 30,000
Other Controllable Expenses: Php 60,000
Salaries and Wages: Php 130,000
Beverage Sales: Php 125,000
Employee benefits: Php 20,000
Cost of food sold: Php 127,500
Occupancy cost: Php 55,000
a. Following the form illustrated in Figure1.1, prepare a statement for
the business
Assignment # 2
b. Determine the following percentages

1. Food cost percent

2. Beverage cost percent
3. Labor cost percent
4. Combined food and beverage cost
5. Percentage of profit before income taxes

c. Assuming the restaurant has 75 seats, determine food sales per

seat for the year.
d. What is the prime cost and the prime cost percentage relative to
total sales