Chapter 3: Cost Control

3.1: Introduction to
Cost Control

© Copyright 2011 by the National Restaurant Association Educational Foundation (NRAEF)

and published by Pearson Education, Inc. All rights reserved.
Cost Control Overview
Cost control is a business’s efforts to manage how much it spends.

▪ Every business needs to make more money than it

spends in order to survive. That is, its sales, or revenue,
have to be higher than its costs.

3.1 Chapter 3 | Cost Control 2

Revenue vs Cost

▪ Revenue is the income from sales

before expenses, or costs, are
subtracted.

◼ Cost is the price an operation pays out in

the purchasing and preparation of its
products or the providing of its service.

3.1 Chapter 3 | Cost Control 3

Types of Costs
◼ A successful restaurant or foodservice operation needs to
manage and control many costs:
▪ Food costs
▪ Beverage costs
▪ Labor costs
▪ Overhead costs

All of which can fall under the categories of:

▪ Variable costs
▪ Semi-variable costs
▪ Controllable costs
▪ Fixed or non-controllable costs

3.1 Chapter 3 | Cost Control 4

Types of Costs
◼ Variable or semi-variable costs can
change based on sales.
▪ These are controllable costs because the
operation has a certain amount of control in
how it spends on these aspects of the
operation.
▪ Food costs, beverage costs, and labor costs
each have components that are related to sales
levels.

3.1 Chapter 3 | Cost Control 5

Types of Costs

◼ Overhead cost is a fixed or non-controllable

cost, meaning it needs to be paid regardless of
whether the operation is making or losing
money.
▪ Fixed costs do not change based on the operation’s
sales.
▪ List some fixed costs a restaurant will always be
responsible for

3.1 Chapter 3 | Cost Control 6

Operating Budgets
An operating budget is a financial plan for a
specific period of time.

3.1 Chapter 3 | Cost Control 7

Forecasting Operating
Budgets
◼ A forecast is a prediction of sales levels or costs that will
occur during a specific time period.

◼ Most forecasting techniques rely on having accurate

historical data for the operation.

◼ The most common foodservice revenue forecasting

techniques are based on the number of customers and
average sales per customer.

3.1 Chapter 3 | Cost Control 8

Forecasting Operating Budgets
▪ Average sales per customer
▪ If an establishment has a yearly sales of $224,640 with an
estimated 80 diners each day, open 6 days a week and 52
weeks each year, what is the average sale per customer?
▪ How many diners are we working with?
● 80 * 6 * 52 =
⚫24,960 patrons
▪ Divide yearly sales by total # of customers
● $224,640 / 24,960 =

⚫$9

3.1 Chapter 3 | Cost Control 9

Forecasting Operating Budgets
▪ A sales history is a record of the number of
portions of every item sold on a menu.

▪ Most operations can run historical sales and

production reports from their point-of-sale
(POS) systems.

3.1 Chapter 3 | Cost Control 10

Forecasting Operating Budgets
▪ Moving Average Technique:
▪ “Smoothing Technique”
▪ Uses sales information for 2 or 3 similar periods averaged
together
▪ More likely to be accurate since it isn’t solely based on one
time period

3.1 Chapter 3 | Cost Control 11

Profit-and-Loss Report
A profit-and-loss
report (P&L) is a
compilation of sales
and cost
information for a
specific period of
time.

3.1 Chapter 3 | Cost Control 12

Profit-and-Loss Report
◼ A P&L shows whether an operation has made or lost money
during the time period covered by the report.

◼ Helps managers gauge an operation’s profitability as well as

compare actual results to expected goals.

◼ Helps determine areas where adjustments must be made to

bring business operations in line with established financial
goals.

◼ For an operation to be profitable, sales must exceed costs.

3.1 Chapter 3 | Cost Control 13

Other Terms for Profit-and-Loss

◼ P & L Reports also known as Income Statements

◼ Net income - also referred to as the bottom line

3.1 Chapter 3 | Cost Control 14

 Pro Formal vs.
Profit-and-Loss Report

A pro forma is A profitand

what you
loss report
estimate income
shows actual
and expenses to
income and
be over a period
expenses over a
of time.
period of time.

© Copyright 2014 by the National Restaurant Association Educational

3.12 Foundation (NRAEF) All rights reserved. 15
The Pro Forma Profit and Loss
Net Sales
+ tax
- Cost of goods sold
= Gross Profit
- - Controllable Costs
- Uncontrollable Costs
= Profit/Loss
Total food, beverage sales,
merchandise, & catering less sales
Cost of all the food products sold
less any free food
Net sales minus the cost of selling
the goods and services
Operating costs such as labor,
uniforms, shrinkage, utilities, etc.
Operating costs such as rent,
insurance, licenses, overhead, etc.
Profit/loss after total operating costs
have been deducted from gross
profit and before taxes

© Copyright 2014 by the National Restaurant Association Educational

3.10 Foundation (NRAEF) All rights reserved. 16
Technology & Cost Control
◼ Advances in technology have drastically increased the
number of options available to operations in controlling costs.

3.1 Chapter 3 | Cost Control 17

Technology & Cost
Control
◼ Software programs can be used to complete the calculations
required in cost planning, controlling sales, controlling
inventory, and focusing on the menu.

◼ Provide better access to information, more accurate and

convenient collection of information, and improved analysis
of that information.

◼ If used effectively, technology can help in running an

operation more efficiently and helping to reduce and
effectively control costs.

3.1 Chapter 3 | Cost Control 18

Technology & Cost
Control
◼ Full-Line Suppliers:
▪ One Stop Shops
▪ Offers equipment, food, and supplies
▪ Helps control costs and maintains consistency

3.1 Chapter 3 | Cost Control 19

Section 3.1 Summary
◼ Every business needs to obey one basic principle to
survive: it must make more money than it spends.
◼ Food costs, beverage costs, and labor costs each have
components that are related to sales levels.
◼ An operating budget is a financial plan for a specific period
of time. It lists the anticipated sales revenue and projected
costs and gives an estimate of the profit or loss expected
for the period.
◼ A profit-and-loss report is a compilation of sales and cost
information for a specific period of time that shows whether
an operation has made or lost money.

3.1 Chapter 3 | Cost Control 20

Assignment

◼ Profit & Loss Statement Information Worksheet

▪ Individually

◼ Pg 163 #1:
▪ Working with 1 or 2 others, think of a quick-service
restaurant of which you are familiar. Begin to create an
operating budget for that establishment.
▪ Highlight the top 5 factors you would need to consider
and explain your rationale for using them.
▪ Refer to pg 154-155
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