A Strong Partner for Sustainable Development

Module
in
HMPE 105

COST CONTROL

COLLEGE OF BUSINESS AND MANAGEMENT

Bachelor of Science in Hospitality
1
Management
WPU-QSF-ACAD-82A Rev. 00 (09.15.20)
 Module No. 1

COST AND SALE CONCEPT

1st Semester 2021-2022

Prepared by:

Cabarles, Roy B
Nifras, Rina Q.
Santiago, Charmae E.
Instructor I

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 TABLE OF CONTENTS

Title Page
Table of Contents 3
Instruction to the User 4
Introduction 5

CHAPTER I
Overview…………………………………………………………………………………………6
Learning Outcomes………………………………………………………………………….6
Time Allotment……………………………………………………………………………….7
Discussion…………………………………………………………………..………………….8
References………………………………………………………………………...………….15
Student’s Information……………………………………………………………………16
Vision, Mission and Core Values……………………………………………………..17

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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 Multicultural
Diversity in Workplace for the Tourism Professional.

Reminders in using this module:

1. Keep this material neat and intact.

2. Answer the pre-test 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.

Hi! I’m Blue Bee, your WPU

Mascot.

Welcome to Western Philippines University!

Shape your dreams with quality learning experience.

STAY SAFE AND HEALTHY!

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INTRODUCTION

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 is designed to cater the needs of students making the most out of the

new normal created to reach out students away from the school vicinity.

The main objective is that at the end of the module the students will learn the

importance of cost control in the food service and lodging operation to earn income

while providing guest satisfaction and employees’ satisfaction which is the main goal of

every hospitality establishment.

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 CHAPTER I

INTRODUCTION

Successful restaurant personnel, including Chefs, Restaurant Managers, Food

and Beverage Controllers, Dining Room Managers, And Stewards have the ability to

keep costs at predetermined levels. They understand that successful operations require

that costs be carefully established and monitored so that profit will result.

Food, beverage, and labor costs generally represent between 60% and 70% of the

total costs of a restaurant operation. If these costs are not carefully established and

monitored, they can gradually increase until profit is eliminated and losses are

sustained.

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 includes the factor affecting labor cost and labor percentage, the

need for performance standard, training & monitoring performances taking corrective

action.
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COURSE OBJECTIVES:

At the end of the 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. Perform various calculation using cost percent formulas
5. Discuss factors that cause industry-wide variations in cost percent
6. Define each of the Key Terms at the end the chapter

TIME ALLOTMENT

4 hours, 3 sessions

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 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 (see Exhibit 1.1). 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 costs • Controllable costs
• Variable costs • Non-controllable costs
• Semi-variable costs

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.

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 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 increases 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 insuring 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 incur 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 consist 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 are 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.

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 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.

HISTORICAL AND PLANNED COSTS

Historical cost are 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
products (Food & Beverage) and service (Waiter) for value.
The sales concept in F&B operation usually can be express as: Monetary and Non-
Monetary.

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 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.
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.

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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 customers served in a given period.
Help to make judgment & comparisons.

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 • 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.

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

2. Covers per Day = Total Covers / No. of Days of Op.
3. Covers per Server = Total Covers / No. of Servers

Seat Turnover or simply turnover or turns refer to the number of seats occupied
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.

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

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

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D. Activities and Exercises

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E. Evaluation/ Post Test

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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

REFERENCES

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1. Dopson, L., Hayes, D. (2015)John Wiley & Sons Inc,, Food and Beverage 6th
Edition, , New York United States,
2. Pearsons (2013) Controlling Service Costs, 2nd edition, National Restaurant
Association
3. Hayes, D., Miller, J., (1993) Basic Food and Beverage Cost Control 1st Edition

Congratulations for completing this

module!

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Privacy Notice for Module:

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 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.

Core Values (3CT)

Culture of Excellence
Commitment
Creativity
Teamwork

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