INTRODUCTION OF FOOD COSTING

Every business needs to obey one basic principle in order to survive: it must make more money
than it spends. In other words, its sales, or revenue, must be higher than its costs. Revenue is the
income from sales before expenses, or costs, are subtracted.
What is cost?
Cost is the price an operation pays out in purchasing and preparing products or providing
services. Cost control is the process by which an operation tries to keep its costs as low as
possible.
What is food cost?
It can be described as the expense to a hotel or restaurant for goods or services when the goods
are consumed or services rendered.
Food cost determines a restaurants profitability. It is what a plate is being sold for on a menu
verses what it costs to prepare the plate. Most businesses want their food cost to be at or below
30%.
Chefs and restaurant managers use cost control to keep track of the history of sales in order to
predict the future of sales. The past records of seasonal activity may give a better picture of
future seasonal activities in order for chefs and managers to order the correct amount of food and
beverages and thereby avoid over ordering and food wastage. If the restaurant has too much food
on hand, the quality of products will suffer and money will be lost. As in most, if not all,
businesses, cost control is an intrinsic part of day-to-day operations that is necessary to ensure
the restaurant's profitability. Financial statements, inventory lists, purchasing and history of sales
are all important components of cost control.
Types of costs
Fixed costs
Variable costs
Semi variable costs
Fixed Costs
1. Fixed costs are the costs which remain the same whatever the volume of sales. These are
usually non controllable cost.
2. These costs have to be incurred by an operation and it increases with time. Examples are
advertising, rents, rates, insurance, salaries.
Variable Costs
1. These are costs which increase directly in proportion to the volume of sales.
2. As sales increase these costs increase at the same rate. Example costs of food, beverage
etc.
Semi-Variable Costs
1. These costs are defined as costs which increased with volume of sales, but not in direct
proportion to them.
2. These costs increase with the sales but not at the same rate. Example are fuel, cleaning,
laundry, HLP
Importance of food cost control
Simple Food Costing Tool is like a heart monitor for your business. Sometimes youre not aware
of issues until its too late. By monitoring your costs, which is basically when you got high blood
pressure, you need a heart monitor to monitor.
There are many benefits to food costing including:
Meeting goals
Delegated task being carried out
Identifies where problem is occurring.

 Helps in identifying mistakes and lead to actions to correct the mistakes.