ACCTG 2 WEEK 3 BASIC FOOD COST CONTROL Control is a process used by managers to direct, regulate, and restrain the

e actions of people so that the established goals of an enterprise may be achieved. Cost control is defined as the process used by managers to regulate costs and guard against excessive costs. It is an ongoing process and involves every step in the chain of purchasing, receiving, storing, issuing, and preparing food and beverages for sale, as well as training and scheduling personnel involved. Sales control while cost control is critically important to the profitable operation of any business, cost control alone will not ensure profitability. Additional steps must be taken to ensure that all sales result in appropriate income to the business. It is important to require that each employee record each sale accurately. Standard cost is defined as the cost of goods or services identified, approved, and accepted by management. Standard costs are useful in measuring the effectiveness of operations in food and beverage establishments. Comparing standard costs with actual costs can help determine how effectively food and beverage materials and labor resources are being used in day-to-day operations. CONTROL TECHNIQUES 1. Establishing standards Standards - rules or measures established for making comparison and judgments. Quality standards - used to define the degree of excellence of raw materials, finished products, and by extension, work Quantity standards measure of weight, count or volume used to make comparison and judgment 2. Establishing procedures Procedures are the methods employed to prepare products or perform jobs Standard procedures are those that have been established as the correct methods, routines, and techniques for day-to-day operations 3. Training is a process by which managers teach employees how work is to be done, given the standards and standard procedures established. Each of the employees must be trained to produce portions of the standard size at his workstation, using the correct equipment and supplies provided for doing so. 4. Setting examples In many instances, standards are established in a very informal way: employees in an operation begin to follow the examples set by the manager the managers behavior, manner, responses to questions, and even a failure to speak or take action in some situations. 5. Observing and correcting employee actions if any of the employees are failing to follow the standards, it is a managers responsibility to correct their performance to the extent necessary at the appropriate time. 6. Requiring records and reports no manager can be in all places at all times to observe employees action. The larger the establishment, the more likely it is that managements observations must be indirect rather than direct. Their observations must be abstracted and inferred from a variety of records and reports 7. disciplining employees discipline is defined as action taken to admonish, chastise, or reprimand an employee for work performance or personal behavior incompatible with established behavior. Discipline would be called for only if corrective action failed. If so, managers commonly resort to some words or actions that employees normally regard as punishing in the broadest sense of that term 8. Preparing and following budgets - A budget is defined as a financial plan and may be described as a realistic expression of managements goals and objectives expressed in financial terms. The Control Process 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 standards The Control Systems is the term used to describe that collection of interrelated and interdependent control techniques and procedures in use in a given food and beverage operation.

Example of an operating budget: In the current year, the manager of the Downtown Restaurant has been following the operating budget reproduced below: Sales: Food P 630,000 Beverage 140,000 Total Sales P 770,000 Cost of Sales: Food P 252,000 Beverage 35,000 Total Cost 287,000 Gross Profit P 483,000 Controllable Expenses: Salaries and wages 173,250 Employee benefits 45,045 Other controllable expenses 82,000 Total controllable expenses 300,295 Income before occupancy costs, interest, Depreciation and income taxes 182,705 Occupancy cost 64,000 Income before interest, depreciation and income tax 118,705 Interest 10,000 Depreciation 28,500 38,500 Restaurant Profit P 80,205 ========

For the coming the year, the following changes are expected: a. Food sales will increase by 10% b. Beverage sales will increase by 6% c. Food cost percent and beverage cost percent will remain the same d. Fixed salaries and wages P69,300 for this year will increase by P8,000. Variable salaries and wages will be 16% of expected food sales e. Employee benefits will remain the same percentage of salaries and wages f. Controllable expenses will increase by P12,000 g. Occupancy costs will increase by P5,000 h. Interest and depreciation will remain the same Given these anticipated changes, prepare an operating budget for the Downtown Restaurant for the coming year.