Principles of Food, Beverage, and Labor

Cost Controls, Ninth Edition

Control: Process used by managers to

direct, regulate and restrain the actions of
people so that the established goals of an
enterprise may be achieved
Cost Control: Process used by managers to
regulate costs and guard against
excessive costs
Standards:Rules or measures established
for making comparisons and judgments
Standard cost: Cost of goods and services
identified, approved and accepted by
management

Standard procedures: Procedures that

have been established as the correct
methods, routines and techniques for dayto-day operations
Budget: Realistic expression of
managements goals and objectives
expressed in financial terms
Control system: Collection of interrelated
and interdependent control techniques
and procedures in use in a given food and
beverage operation

The cost/benefit ratio is the relationship between the

costs incurred in instituting and maintaining a single
control or control system, and the benefits or savings
derived by doing so. Benefits must always exceed
costs. Before instituting any new procedures for
control, management should first determine that the
anticipated savings will be greater than the cost of
the new procedures.

- Establishing standards
- Establishing procedures
- Training
- Setting examples
- Observing and correcting employee
actions
- Requiring records and reports
- Disciplining employees
- Preparing and following budgets

1. Establish standards and standard procedures for

operation.
2. Train all individuals to follow established standards
and standard procedures.
3. Monitor performance and compare actual
performances with established standards.
4. Take appropriate action to correct deviations from

Control process
Flexible budget
Operating budget
Procedures
Quality standards
Quantity standards
Sales control
Static budget

The Budget
The budget, or financial plan, will detail the
operational direction of your unit and your
expected financial results.
The budget should not be a static document.
It should be modified and fine-tuned as
managerial accounting presents data about
sales and costs that affect the direction of the
overall operation.

Just as the P&L tells you about your past

performance, the budget is developed to help you
achieve your future goals.
Budgeted Revenue - Budgeted Expense = Budgeted Profit

To prepare the budget and stay within it assures

you predetermined profit levels.
The effective foodservice operator builds his or
her budget, monitors it closely, modifies it when
necessary, and achieves the desired results.

1. Prior period operating results

2. Examine the external environment to assess
any conditions that could affect sales volume
in the coming year
3.Review any planned changes in the
operation that would affect sales volume
4. Determine the nature and extent of changes
in cost levels
5. Have the projections for sales, costs and
profits approved by management

Monitoring the Budget

In general, the budget should be
monitored in each of the following three
areas:
1. Revenue
2. Expense
3. Profit

 As business conditions change, changes in the

budget are to be expected. This is because budgets are
based on a specific set of assumptions, and as these
assumptions change, so too does the budget that
follows from the assumptions.
Budgeted profit must be realized if the operation is to
provide adequate returns for owner and investor.
The primary goal of management is to generate the
profits necessary for the successful continuation of the
business. Budgeting for these profits is a fundamental
step in the process.
John Wiley & Sons, Inc. 2009