Principles of Food, Beverage, and Labor Cost

Controls, Ninth Edition

 - Costs can be fixed or variable
 - VC are directly variable
 - Fixed costs are stable
 - Sales prices are constant
 - Sales mix will remain constant
Cost/Volume/Profit Analysis
Each foodservice operator knows that some
accounting periods are more profitable than
others. Profitability, then, can be viewed as
existing on a scale. The midpoint on the scale,
indicated by the zero, is called the break-even
point. At the break-even point, operational
expenses are exactly equal to sales revenue.

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$ $ $ $ $
Losses Profits
CVP calculations can be done either on the dollar
sales volume required to break even or achieve the
desired profit, or on the basis of the number of units
required.
A cost/volume/profit (CVP) analysis helps
predict the sales dollars and volume required to
achieve desired profit (or break even) based on
your known costs.
 Contribution margin for the overall
operation is defined as the dollar amount that
contributes to covering fixed costs and
providing for a profit.
Contribution margin is calculated for as
follows:

Total Sales - Variable Costs = Contribution Margin

 1. Sales = VC + FC + Profit
 2. Variable rate = VC/Sales
 3. Contribution rate = 1 - VR
 Sales = Sales cost + Labor cost + OH + Profit

 $325,000 = $108,875 + $81,250 + 97,500 + $37,375

S = VC + FC + P
 VC = Food & Beverage Cost + Variable LC (40% Total
Labor)
 FC = Fixed LC ( 60% Total Labor) + Overhead
 S ($325,000) = VC ($141,375) + FC ($146,250) +
Profit ($37,375)
 Ratio of variable cost to dollar sales
 Variable rate = VC/Sales
 VR = VC($141,375)/Sales($325,000)
 VR = .435

Contribution Rate
 CR = 1 - VR
 1 - .435 = .565
 CR = .565
 Point at which the sum of all costs equals
sales, thus profit = 0
 BE = Fixed Costs/CR
 BE = $146,250/.565
 BE = $258,849
 $325,000 - $258,850 = $66,150
 Profit = Sales after BE x CR
 $66,150 x .565 = $37,375
To determine sales dollars to achieve the
profit goal, use the following formula:

Fixed Costs + Profit

Contribution Rate = Sales Dollars to Achieve
Desired Profit

To determine break-even point, compute the

following: 
FC + 0
CR = Break-even point
 To determine the dollar sales required to break
even, use the following formula:
Fixed Costs
Contribution Rate = Break-Even Point in Sales
In terms of the number of units that must be
served in order to break even, use the following
formula:
Fixed Costs
Contribution Margin per Unit
= Break-Even Point in Unit Sales
© John Wiley & Sons, Inc. 2009