A Strong Partner for Sustainable Development

Module in
HMPE 5

COST CONTROL

College of Business and Management

BSHM
 Module No. 1

COST AND SALE CONCEPT

2nd Semester AY 2021-2022

Nifras, Rina Q.
Santiago, Charmae E.

Instructor I

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Table of Contents (Chapter Contents, Page)
Title page ii
Table of Contents iii
Instruction to the User iv
Introduction v
Chapter 1 1
Learning Outcomes 1
Overview 1
Pre-test 2
Lesson 1 3
Activities and Exercise 9
Post test 10
References 11
Privacy Notice and Student information 12
Vision, Mission and Core Values of WPU 13

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INSTRUCTION TO THE USER

This module would provide you an educational experience while

independently accomplishing the task at your own pace or time. It aims
as well to ensure that learning is unhampered by health and other
challenges. It covers the topic about Cost Control.

Reminders in using this module:

1. Keep this material neat and intact.

2. Answer the pretest first to measure what you know and what to be
learned about the topic discussed in this module.
3. Accomplish the activities and exercises as aids and reinforcement
for better understanding of the lessons.
4. Answer the post-test to evaluate your learning.
5. Do not take pictures in any parts of this module nor post it to
social media platforms.
6. Value this module for your own learning by heartily and honestly
answering and doing the exercises and activities. Time and effort
were spent in the preparation in order that learning will still
continue amidst this Covid-19 pandemic.
7. Observe health protocols: wear mask, sanitize and maintain
physical distancing.

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INTRODUCTION

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 Amidst of the pandemic that we are experiencing education shall continue in
or out of our classroom. The advancement of technology makes learning accessible
in any location at any time.
This module will serve as an alternative learning material to that of regular
classroom teaching and learning delivery. It is designed to cater your needs in
making the most out of the new normal created to reach out you away from the
school vicinity
The instructor will facilitate and explain the module to the students to
achieve its expected learning outcomes, activities and to ensure that they will learn
amidst this pandemic

Disclaimer: This module is prepared for instructional purposes only. The

teacher does not claim ownership of this module but patterned the ideas from
different authors.

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Title of the Chapters: Cost and Sale Concept

Learning Outcomes

At the end of this chapter, you can:

1. define the term Cost and Sale

2. explain various types of cost in Hospitality Industry
3. distinguish between monetary and nonmonetary sales concepts
4. discuss factors that cause industry-wide variations in cost percent
5. define each of the Key Terms at the end the chapter

Overview

This module gives readers the means to ensure customer satisfaction and

produce acceptable profit margins. This course offers an introduction to food,

beverages, and labor cost controls, defining a number of key terms and concepts and

providing foundation for the balance of the work as well as some sense of its scope.

It addresses the application of the four-step control process to the primary

phase of foodservice and beverages operation: purchasing, receiving, storing, issuing

and production. It is also including the factor affecting labor cost and labor

percentage, the need for performance standard, training & monitoring performances

taking corrective action.

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Pre-test
Direction: Write True if the statement is correct and F if the statement is False.

_______ 1. Is cost is controlled, you will have success in the food industry.
_______ 2. Food cost is an example of controllable cost.
_______ 3. Fixed cost is the cost that will have the same cost percentage
regardless of sales volume
_______ 4. Total Cost are the total of food & beverage portions served in one
period such as a week or a month or total cost of labor for one
period.

_______ 5. Insurance is an example of controllable cost.

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Lesson 1. Definition of Cost, Controllable and Non-
controllable Unit and Total Cost, Historical and Planned Cost

A. Learning Outcomes

At the end of this lesson, you should be able to:

1. define the terms cost and sales;

2. distinguish between various types of costs; and
3. explain what is control and its significance in food and beverage
management

B. Time Allotment:

3 hours

C. Discussion

THE MANAGER’S ROLE IN COST CONTROL

For any business, particularly restaurant or foodservice

operations, the process of cost control has to take place on a day-
to-day basis. The management team must make a commitment to
incorporate daily, weekly, and periodic routines to control costs.
These involve monitoring and decision making, and represent one
of managers’ primary responsibilities. Focusing on cost
management facilitates profitability, supports development of
strategic menu pricing, allows improved financial analysis, and
maintains growth. In most restaurant or foodservice operations,
managers take personal charge of an operation’s cost control
process. However, the size and scope of an operation will
determine the extent to which its managers exercise direct control or delegate that
responsibility to other staff. Regardless of the type of operation, managers must fully
understand all the costs associated with running the business in order to be effective.
Cost control is not something that can be done once and followed up only
occasionally. Consistency is imperative.

TYPES OF COSTS
Many different types of costs are involved when running a restaurant or foodservice
operation. Managers can classify these costs in different ways. The most common
classifications are as follows:

 Fixed cost
 Variable cost
 Semi-variable
 Controllable cost
 Non-controllable costs
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COST AND SALES CONCEPTS
 Accountants define a cost as a reduction in the value of an asset for the
purpose of securing benefit or gains.

 In F&B Business cost is defined as the expense to a hotel or restaurant of

goods or service when the goods are consumed or the service rendered.

Food and beverage are “Consumed” when they are used, wastefully or otherwise,
and are no longer available for the purpose which they were acquired. (Units: weight,
volume or total value). The cost of labor is incurred when people are on duty,
whether or not they are working and whether they are paid at the end of the shift or
at some later date. (Hourly or weekly or monthly).

• Fixed Cost are those that are normally unaffected by changes in sales
volume. They do not change significantly when sales increase or decreases.
Such as real estate taxes, insurance premiums, depreciation, repairs and
maintenance, rent or occupancy cost, most utility cost, advertisement,
professional services.
For example, if the cost of ensuring the business is P100,000.00 per month, it
will remain at P100,000.00 every month. Even if the establishment has sales
of P10,000.00 one month, P20,000.00 the next month, and 15,000.00 the
following month, the insurance cost will always be P100,000.00 per month.
The cost does not change when sales change.
• Variable Cost are those that are clearly related to business volume. As
business volume increase, variable cost will increase and vice versa.
As sales increase, more food is purchased to replenish inventory. Likewise, as
sales decrease, less food is purchased. If adequate controls are in place and
there is little waste or theft, the amount of food used is in direct proportion to
sales.
Food & Beverage cost are considered directly variable cost.
• Direct Variable Cost are those that are directly linked to volume of business
increase and decrease of volume correspondingly. Ex. Every time restaurant
sales a portion of steak, it incurs cost
• Payroll Cost includes salaries and wages and employee benefits and often
referred as Labor Cost.
• Semi-variable Costs increase and decrease as sales increase and decrease
but not in direct proportion. They are made up of both fixed costs and variable
costs. Labor cost is one example. Managers are normally paid a salary that
remains the same regardless of the operation’s sales volume.
Because labor cost consists of fixed and variable element it is known as
semi-variable cost, meaning a portion should change in short-term
and the other portion remains unchanged.

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 CONTROLLABLE AND NON-CONTROLLABLE COST

Controllable costs are those costs that managers can directly control. One
example of a controllable cost is food cost. Managers can control this cost by using
standardized recipes or exercising standard procedures for portion control, menu
listing, and pricing, or by one of several other restraints. For example, if the price of
chicken increases and no action is taken, the establishment’s overall food cost will
increase.
To respond, managers can either raise the selling price of all chicken entrées,
reduce portions, reposition the items on the menu, or eliminate chicken from the
menu altogether. By taking action, managers have controlled the increased cost of
chicken, resulting in no increase in the establishment’s overall food cost.
Controllable cost is those that can be change in the short term such as Direct
Variable Cost, Wages, Advertising & Promotion, Utilities, Repairs & Maintenance
and Administration and General Expenses.
Non-controllable costs are those costs over which managers have little or no
control. An example of a non-controllable cost is insurance. As noted previously,
once an insurance policy has been negotiated, managers have no control over the
cost of that policy. Another example is license fees. They have no control over the
rate charged for bar or occupation licenses. A final example is the operation’s lease or
mortgage. Once signed, managers have virtually no control over this cost.
Non-Controllable cost are those that cannot normally be changed in short-term
such as fixed cost like Rent, Interest on a mortgage, Real estate taxes, License fee and
Depreciation.

UNIT AND TOTAL COST

Unit cost may be food & beverage portion as in the cost of one item or hourly
unit of work. In F&B business unit cost are commonly in average unit cost rather
than actual unit cost.
Total Cost are the total of food & beverage portions served in one period such as
a week or a month or total cost of labor for one period.

THE IMPORTANCE OF PRIME COST

Prime cost is an operation’s total food cost, beverage cost, and labor costs for a
specific time period, usually a week or a month. In calculating labor costs, include
salaries, hourly staff wages, payroll taxes, benefits, workers’ compensation, and all
other payroll-related expenses. All three areas (food cost, beverage cost, and labor
costs) create opportunities for losses through waste, spoilage, theft, and poor
scheduling. Unfortunately, a problem in any of the three areas of prime cost can be
very expensive.
There are a number of factors that frequently contribute to the
underperformance and often the eventual failure of many operations. These include
poor location, undercapitalization, and a poor concept. However, operating with a
high prime cost is also one of the main contributing factors. Food, beverage, and
labor costs normally represent well over half of the operation’s total costs, and nearly
90 percent of the costs that managers have any real control over.
Prime cost is one of the best indicators of restaurant and foodservice
profitability and how well the operation is managed day-to-day.
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 HISTORICAL AND PLANNED COSTS

Historical cost is all cost are historical - that is, that they can be found in business
records, book of account, financial statements, invoices, employees’ time card and
other similar records. It is used for establishing unit cost, determining menu prices
and comparing present with past labor cost.
Planning among the most important functions of management, and, in order to plan
effectively, manager use historical costs to develop planned cost – projection of what
will be or should be for a future period.

SALES CONCEPT

In general, the term Sales is defined as revenue resulting from the exchange for a
product (Food & Beverage) and service (Waiter) for value.
The sales concept in F&B operation usually can be express as: Monetary and
Non-Monetary.

MONETARY TERMS

Total Sales is a term that refers to the total volume of expressed in currency (Peso)
term for instant any given period, such as a week, a month or a year. For example,
total dollar sales for the Grandview Bistro was expressed as P1,049,043.50 for the
year ending December 31, 2020.
By Category. Total Peso volume of sales by category are total food sales or total
beverage sales. Or total steak sales or seafood sales.
By Server. This is total dollar volume of sales for which a given server has been
responsible in a given period. This is to help the management to make judgment on
employee’s performance.
By Seat. Usually for a year period. Total Dollar sales divided by the number of seats
in the restaurant.
Sales Price refers to the amount charged each customer purchasing one unit of a
particular item. It can be a single meal or entire meal.
The sum of all sales prices charged for all items sold in a given time period will be
total Peso sales for that time period.
Average Sale in business is determine by adding individual sales to determine a
total and then dividing that total by the number of individual sales.
Two types of commonly calculated averages are: average sale per customer and
average sale per server.

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Per Customer is the result of dividing total sales by the number of customer.
Per Server is total dollar sales for an individual server divided by number of
customer served by that individual.

Average Sale

The Average Sale is determined as follows:

Average check = Total dollar sales ÷ Total number of covers

Total sales of P3, 902.30 and 140 covers. Thus,
Average sale = P3, 902.30 ÷ 140
= P27.87
For Example:
Yasser, one of the servers, had 30 customers and total Peso sale of P565 on the
Saturday night of February 13, average sale per server for Jim would be calculated as
follows:
Average sale = Total sales for Yasser ÷ No. of customers for Yasser
= P565 ÷ 30
= P18.83

NON-MONETARY TERMS

• Total Number Sold refers to the total number of menu item sold in a given
time period. This is useful to identify unpopular menu items in order to
eliminate such items from the menu. It is also useful for forecasting sales,
making decision about purchasing and production. Purchasing steward could
track items and can eliminate items in menu could be done if the items
calculated appeared to be unsold in a given period of time.
• Cover is the term used to describe one diner regardless of the quantity of
good the person consumes.
• Total Cover refer to the total number of customer served in a given period.
Help to make judgment & comparisons.
• Average Covers is determined by dividing the total number of cover for a
given period by some other number such as hour of operation, day of
operation or numbers of server.

A. Cover per Hour = Total Covers / No. of Hours of Op.

B. Covers per Day = Total Covers / No. of Days of Op.
C. Covers per Server = Total Covers / No. of Servers

Seat Turnover or simply turnover or turns refer to the number of seats occupied
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during a given period (or number of cover) divided by the number of seats available.

For example: 140 customers served during that one Saturday meal. The restaurant
has 75 seats, so seat turnover would be calculated as follows:
Seat turnover = Number of customers served ÷ Number of seats
=140 ÷ 75
=1.87 turns

INDUSTRY-WIDE VARIATIONS IN COST PERCENTS

Cost percentage vary considerably from one foodservice operation to other. This is
due to many possible reasons. Basically, there are two types of foodservice operation.

 Those that operate at low profit margin and depends on relatively high business
volume.

 Those that operate at relatively high profit margin thus does not require high
business volume.

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 D. Activities and Exercises

Consider the Cost

Read this! Answer the questions below!

‘’I’m feeling pretty good about our cost management efforts’’ said
Rachel. ‘’ Our labor cost is higher than our food cost.’’
‘’I’m pleased with our efforts too’’. Said Julie. “our food is higher than our
labor cost’’
That’s great, Julie’’ said Joseph. ‘’ I just calculated our monthly costs, and our
food and labor expenses are just about equal. Sounds like we are all doing well.’’
Rachel, Julie, and Joseph had all attended hospitality school together.
Each had taken a job in the same large city, so they often got together over
coffee to talk about their businesses and their jobs. Ones manage “Chez Paul’s,”
a fine dining French-style restaurant know for impeccable services. Another
manages “Fuby’s,” a family-style cafeteria known for its tasty, home-style
cooking, and one had taken a job with “Gardinos,” a national restaurant chain
that offered mid-prices Italian food in a beautiful Tuscan-style décor.

1. Which foodservice operation do you think Rachel manages? Why?

2. Which foodservice operation do you think Julie manages? Why?
3. Which food service operation do you think Joseph manages? Why?

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 Part 1. Multiple Choice

1. Controlling costs is something that a manager should consider:

a. daily b. monthly c. yearly

2. Costs that remain the same regardless of sales volume are known as
a. payroll cost b. fixed cost c. variable cost

3. What do you call to the expense to a hotel or restaurant of goods or service

when the goods are consumed, or the service rendered?
a. payable b. cost c. liabilities

4. Which of the following refers to the total number of menu item sold in a
given time period?
a. Set turnover b. Total number sold c. Total over

5. It is the result of dividing total sales by the number of customers.

a. Average sale per b. Average sale per c. Average sale
customer server

Part 2. Answer the question:

1. Explain the following and give example in each type of costs.

 Fixed costs

 Variable costs

 Semi-variable costs

 Controllable costs

 Non-controllable costs

Evaluation/ Post Test

REFERENCES
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1. Dopson, L., Hayes, D. (2015) John Wiley & Sons Inc, Food and Beverage 6 th
Edition, New York United States,

2. Pearsons (2013) Controlling Service Costs, 2nd edition, National Restaurant

Association

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 Congratulations for completing this
module!

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WPU-QSF-ACAD-82A Rev. 00 (09.15.20)

 Vision 2020
WPU: the leading knowledge center for
sustainable development of West
Philippines and beyond.

Mission
WPU commits to develop quality human resource and
green technologies for a dynamic economy and
sustainable
development through relevant instruction, research
and extension services.

3 Core Values
Culture of Excellence
Commitment Creativity
Teamwork

WPU-QSF-ACAD-82A Rev. 00 (09.15.20)