Cost Control in Foodservice Operations

David K. Hayes, PhD, has taught hospitality courses at Purdue University, Texas Tech University, The University of Houston, and Lansing Community College. He has served as the Vice President of Broadcast and Video Training for the American Hotel & Lodging Educational Institute. Jack D. Ninemeier, PhD, is an Emeritus Professor in the School of Hospitality Business at Michigan State University. He has many years’ experience developing and providing training and resource materials for commercial and non-commercial foodservice operations. He has also written several hundred articles for trade journals and created training monographs. Part of Wiley’s Foodservice Operations: The Essentials series.

• Preface ixBook Features xiInstructional Resources xiiiAcknowledgments xvDedication xvii1 Cost Control in Foodservice Operations 1The Importance of Cost Control 2The Foodservice Profit Formula 3The Uniform System of Accounts for Restaurants (USAR) 4The Process of Effective Cost Control 6Responsibility for Cost Control 8Owner’s Responsibilities 9Manager’s Responsibilities 9Production Staff Responsibilities 10Service Staff Responsibilities 10Essential Cost Control Tools 11The Operating Budget 12Standardized Recipes 16The Income Statement 18Sales (Revenue) 19Total Cost of Sales 21Labor 22Prime Cost 23Other Controllable Expenses 24Non-Controllable Expenses 25Income Before Income Taxes (Profit) 262 Sales Forecasts 31The Importance of Accurate Sales Forecasts 32Sales Histories 34Fixed Averages 37Rolling Averages 38Average Sale Per Guest 40Sales Variance 44Sales Forecasts 47Forecasting Future Sales 47Forecasting Future Guest Counts 49Forecasting Future Average Sale Per Guest 513 Cost Control in Purchasing 56The Importance of Controlling Costs in Purchasing 57Objectives of Professional Purchasing 57Steps in the Professional Purchasing Process 57Determining Needed Products 60Determining Needed Product Quantities 64Forecasting Menu Item Sales 65Establishing Inventory Levels 67Placing the Purchase Order 71Choosing Suppliers 72Understanding Suppliers 73Recording Purchases 754 Cost Control in Receiving 80The Importance of Controlling Receiving Costs 81Receiving Essentials 83Proper Location 83Proper Tools and Equipment 84Proper Delivery Schedules 85Key Areas of Product Verification 86Weight 86Quantity 87Quality 90Price 93Receiving Records 95Supplier-Produced Delivery Records 965 Cost Control in Storage and Issuing 103The Importance of Cost Control in Storage and Issuing 104Storage Essentials 105Quality Concerns 105Security Concerns 111Valuing Product Inventories 112Issuing and Restocking Product Inventories 116Issuing 117ABC Inventory Control 120Restocking Product Inventories 1226 Cost Control in Food and Beverage Production 128The Importance of Cost Control During Production 129Managing Costs in Food Production 129Managing Costs in Beverage Production 134Controlling Cost Through Standardized Recipes 135Adjusting Standardized Recipe Yields 136Costing Standardized Recipes 140Calculating Actual Cost of Sales 145Calculating Actual Cost of Food Sold 145Calculating Actual Cost of Beverage Sold 149Calculating Actual Cost of Sales with Transfers 1507 Cost Control in Food and Beverage Service 156The Importance of Cost Control in Food and Beverage Service 157Challenges in Professional Service Delivery 159The Guest’s View of Quality Service 162The Operator’s View of Quality Service 167Controlling Service Costs 169Controlling Indoor Dining Service Costs 170Controlling Outdoor Dining Service Costs 170Controlling Drive-thru Delivery Service Costs 171Controlling Guest Pick-up Service Costs 172Controlling Operator Direct Delivery Service Costs 173Controlling Third-party Delivery Service Costs 174Managing Service Recovery and Recovery Costs 178On-Premises Service Recovery 179Off-Premises Service Recovery 1808 Labor Cost Control 185The Importance of Labor Cost Controls 186Total Labor Costs 186Factors Affecting Total Labor Costs 188Managing and Controlling Total Labor Costs 194Types of Labor Costs 194Controlling Total Labor Costs 195Assessment of Total Labor Costs 199Sales per Labor Hour 200Labor Dollars per Guest Served 202Labor Cost Percentage 2039 Control of Other Operating Expenses 211The Importance of Controlling Other Operating Expenses 212Controllable and Non-controllable Other Expenses 213Fixed, Variable, and Mixed Other Expenses 216Monitoring and Controlling Other Expenses 217Food and Beverage Operations 217Equipment Maintenance and Repair 219Technology-related Costs 222Occupancy Costs 227Calculating Other Expense Costs 227Other Expense Cost Percentage 228Other Expense Cost Per-guest 22810 Profitable Pricing 233Pricing for Profits 234The Importance of Price 235The Operator’s View of Price 235The Guest’s View of Price 236Factors Affecting Menu Pricing 238Economic Conditions 239Local Competition 239Level of Service 240Type of Guest 240Product Quality 241Unique Alternatives 242Portion Size 242Delivery Method 243Meal Period 244Location 244Bundling 245Methods of Food and Beverage Pricing 246Cost-based Pricing 247Contribution Margin-based Pricing 250Evaluation of Pricing Efforts 252Menu Engineering 252Menu Modifications 25611 Cash and Revenue Control 260The Importance of Revenue Control 261External Threats to Revenue Security 262Internal Threats to Revenue Security 263Developing a Revenue Security Program 268Objectives of Internal Revenue Control Systems 268Elements of Internal Revenue Control Systems 270Implementing and Monitoring a Revenue Security Program 272Verification of Receivable Revenue 273Verification of Guest Charges 275Verification of Sales Receipts 275Verification of Sales Deposits 276Verification of Accounts Payable (AP) 27812 Budgeting and Analyzing Operating Results 282The Importance of Operating Budgets 283Types of Operating Budgets 283Advantages of Operating Budgets 284Creating an Operating Budget 285Revenue Forecasts 288Expense Forecasts 290Monitoring the Operating Budget 295Comparing Planned Results to Actual Results 297Modifying the Operating Budget 307Glossary G-1Index I-1