Chapter 1

Cost and Sales

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

Learning Objectives

1.2 Define sales and illustrate monetary and nonmonetary

sales concepts
1.3 Describe the cost-to-sales relationships, identify cost-tosales 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

1.1 Define types of costs; fixed, variable, directly variable,

semivariable, controllable, noncontrollable, unit, total, prime,
historical, and planned

 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.

Sales - Expenses = Profit

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Important Concepts

Sales - Expenses = Profit

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

Important Concepts

Cost Concepts

Food costs
Beverage costs
Labour costs
Overhead costs

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

There are four costs a Food Service Manager

must concern themselves with.

 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

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

Costs

Costs

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Labour costs include the cost of all employees

necessary to run the business, and include
salaries, wages and benefits

Costs

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Overhead costs include all expenses that are

neither food, beverage nor labour, such as
utilities, rent, linen, etc.

 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

Good managers learn to understand, control,

and manage their expenses.

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Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Fixed costs are those unaffected by changes in

sales volume.

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Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Variable costs are related to business volume.

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Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Semivariable costs have both fixed and variable

elements.

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 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

Controllable costs are those that can be

changed in the short term. Variable costs are
normally controllable.

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 Total costs may be the total cost of labour for

one period.

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Unit costs may be food or beverage portions or

units of work.

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 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

Prime cost is the sum of food costs, beverage

costs, and labour costs (salaries and wages,
plus employee benefits).

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 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

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).

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 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

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.

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

Cost-To-Sales Ratio
Costs in dollars compared with sales in dollars

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Beverage Cost = Beverage Cost %

Beverage Sales

Labour Costs = Labour Cost %

Total Sales

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Food Cost = Food Cost %

Food Sales

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 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

A summary that details revenue, expenses and

profit, for a given period of time, is called the
Income Statement.

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Revenue (100%)
- Food & Beverage Cost %
- Labour Cost %
- Overhead Cost %
= Profit %

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Put in another format, the equation looks as

follows:

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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

1. Food and Beverage Cost

Revenue
= Food & Beverage Cost %

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Activity

Sales
Food Cost
Labour Cost
Overhead
Profit

349,725

100%
33%
29%
%
7%

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Simplified Profit and Loss

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High labour &

Ingredient cost
Low labour &
High Ingredient
cost

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Industry Variations

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 Using history to predict the future

Monday to Monday
Week to Week

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Monitoring

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Average cheque, p. 17
Average number of covers, p. 19
Average sale, p. 17
Average sale per server, p. 18
Controllable costs, p. 12
Cost, p. 9
Cost per dollar of sale, p. 21
Cost percent, p. 21
Cover, p. 19
Directly variable costs, p. 11
Fixed costs, p. 10
Historical costs, p. 14
Labour costs, p. 11
Noncontrollable costs, p. 12
Overhead, p. 23
Planned costs, p. 14

Prime costs, p. 13
Sales, p. 14
Sales mix, p. 20
Sales price, p. 17
Seat turnover, p. 19
Semivariable costs, p. 11
Total costs, p. 12
Total covers, p. 19
Total dollar sales by category, p. 15
Total number sold, p. 19
Total sales, p. 15
Total sales per seat, p. 17
Total sales per server, p. 17
Unit costs, p. 12

Variable costs, p. 11

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Key Terms

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Chapter Web Links

Food Marketing Institute: www.fmi.org

Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Canadian Restaurant and Foodservices Association:

www.crfa.com

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Principles of Food, Beverage, and

Labour Cost Controls, Second
Canadian Edition

Copyright

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