Food cost control in catering business
1Q. Write the overview for food cost control?
Food cost control may be summarized as follows:
1. Analysis of Income and Expenditure:
In financial accounts, stress is usually placed on an ascertainment of total quantities e.g. sales, cost of sales, gross profit and net profit. In Food cost control on the other hand, much stress is placed on the analysis of such total quantities as between the various departments of the business. We are thus not satisfied with the ascertainment of the total gross profits of the business as a whole, but attempt to ascertain the cost of the profit on each department and each unit produced.
2. Pricing of Food and Quotations:
Another major objective of food cost control is to provide a sound basis for menu pricing and quotations in respect of banquets and special parties. Whilst often, menu prices are fixed by caterers by reference to prices charged by competitors, the correct approach to the problem is to determine menu and other prices in the light of the main costs and market considerations. Thus in addition to knowledge of prices charged by competitors, the customers spending power etc, it is necessary to take into account the costs of the establishment. This can only be done by installing a sound system of Food Cost Control.
3. Prevention of Waste and Inefficiencies:
As already noted, the purpose of control is to ensure that current results are in accordance with the pre-determined objectives of the business. Invariably, such objectives are expanded in terms of targets for turnover, cost ceilings and profit margins. Clearly, if such targets are to be reached, all possible forms of waste and inefficiencies must be prevented. In order to be effective in preventing waste and inefficiencies, a system of food cost control must cover the whole field of catering operations – from the purchase of the foodstuffs to the sale of the meals. It will be appreciated that as the catering process proceeds along the line along the line, linking the purchase of foodstuffs to the sale of the meals, there are numerous critical areas (e.g.: receipt of the incoming goods, preparation of meals and cash control) at which considerable losses may be incurred. An effective system of food cost control will therefore place particular stress on such critical areas of control and in this way help the establishment to reach its pre-determined targets.
4. Data for Management Reports:
An important function to be fulfilled by the food cost control system is the provision of data for periodical reports on food operations. It is said that the manager is like a judge.
2Q. Explain the concept of food cost control methodology?
Methodology of food cost control
We have defined Food Cost Control, described its objectives and dealt with the difficulties which its application presents. Now, we must deal with the method which should be applied in the development of a system of Food Cost Control.
The development of an effective system of Food Cost Control resolves itself into three distinct phases:
Phase I consists of basic policy decisions in relation to the financial and catering policies of the establishment.
Phase II consists of the necessary routine operation controls revolving around the catering cycle.
Phase III consists of what may be described as control after the event or post operational control.
Phase I Basic Policy Decisions: In some respects, food cost control is a by-product of the interplay of two basic and sometimes conflicting considerations. When one reflects on what most forms of catering are about, the inevitable conclusion is that in the final analysis, only two things finally matter – profitability and the customer. The profitability of the establishment is the ultimate objective whereas the provision of a satisfactory standard of food and service is the means by which the ultimate objective is reached.
Phase II Operational Control : We have now outlined the first stage in Food Cost Control. The second stage consists of a sum total of built in checks (inspection of incoming goods for quality and quantity), technological procedures (yield testing) and clerical procedures (writing out requisitions). These should be planned so as to cover the whole cycle of catering operations. We must therefore deal with operational control in relation to
a. Buying/Purchasing
b. Receiving
c. Storing and Issuing
d. Preparation
e. Sales
Phase III – Control after the Event
The last phase of Cost Control is concerned with three important matters:
1. Food Cost reporting
2. Assessment of Results
3. Corrective Action where appropriate and necessary
3Q. What are the obstacles to food cost control?
Obstacles to food cost control
In many respects food cost control is more difficult than systems of control in operation in other industries. The specific factors which make food cost control relatively more difficult are discussed here:
1. Unpredictability of the Volume of Business: Sales instability is inherent in almost all catering operations. The changes, which occur in the volume of catering, are of several kinds. Firstly, the intensity of demand for food and drink will in most cases vary during the day.
2. Perishability of Food: Food is perishable both as a raw material and in the form of prepared meals. This presents the catering businesses with two major problems. Firstly, when buying perishable foodstuffs it is necessary to ensure that while current supplies are adequate there is no over buying. This applies particularly to highly perishable items such as soft fruits, salads and certain vegetables. Secondly, the quantity of food prepared for each service should be in line with the anticipated demand (forecast). Extra food necessitates re heating and re processing before sale thereby incurring further operating costs.
3. Daily Variations in Food Production: In addition to changes in volume of sales there is continual change in the assortment of meals produced by catering units. The assortment of meals will change from one meal to another during the working day.
4. Short Cycle of Operations: Another characteristic feature of catering establishments, which presents an acute control problem, is the short cycle of operations.
5. Multiplicity of Low Value Transactions: The spending power of customers will vary from one type of organization to another. Even when the customer spending power is high, the total amount spent by the customer consists of a number of small payments for the individual items comprising his meal
4Q. How to calculate overheads in food business?
Calculation of overhead allocation rates:
The costs of manufacturing overhead to any inventory items that are classified as work-in- process or finished goods. Overhead is not allocated to raw materials inventory, since the
operations giving rise to overhead costs only impact work-in-process and finished goods inventory.
Overhead Calculation
The typical procedure for allocating overhead is to accumulate all manufacturing overhead costs into one or more cost pools, and to then use an activity measure to apportion the overhead costs in the cost pools to inventory. Thus, the overhead allocation formula is:
Cost pool / Total activity measure = Overhead allocation per unit
You can allocate overhead costs by any reasonable measure, as long as it is consistently applied across reporting periods. Common bases of allocation are direct labor hours charged against a product, or the amount of machine hours used during the production of a product. The amount of allocation charged per unit is known as the overhead rate.
The overhead rate can be expressed as a proportion, if both the numerator and denominator are in Rupees. For example, ABC catering Company has total indirect costs of Rs.100,000 and it decides to use the cost of its direct labor as the allocation measure. ABC incurs Rs.50,000 of direct labor costs, so the overhead rate is calculated as:
Rs.100,000 Indirect costs / Rs.50,000 Direct labor
The result is an overhead rate of 2.0.
periodical percentage analysis/Forecasting:
Forecasting can be done using a simple calculation of percentage index, which helps to forecast items to be prepared for a meal period or a day. The forecast is based on the previous day's or sales records which should be maintained accurately. The calculation is done in two steps:
Where As is the numbers of item A that is forecasted for sale.
5Q. How to control the labour cost in catering business?
Control of Labour cost:
Once the payroll contracts of staff have been finalized and the methods of payment and benefits to be provided to staff decided upon, control can be exercised by ensuring that the payments are suitably authorized. All payments made to staff require to be signed to indicate that remuneration has been received. Payroll payments are more or less fixed as per time rates or contracts of employment cannot be controlled, as can bonus payments or awards linked with productivity and efficiency, incentive costs.
Labour cost control is thus a matter of efficient utilization of the abilities of staff to perform maximally. Some basic tools for control of staff costs have been developed and used by managers ha on time and energy management. A few examples are presented to guide managers in the develop in of better versions suitable to their particular working environment. The methods of control suggested are based on maintenance of:
- Accurate records of time and work
- Supervision in relation to job descriptions
- Analysis and accounting for wages
Time Keeping:
Time-keeping refers to the recording of time periods during which each N member of a department is present and available for work, and the manner in which the time is s Different methods are used for recording an employee’s punctuality of arrival and the time when leaves the work place.
Meals:
According to the policy of the establishment, a subsidy is generally given for staff meals, and therefore not subject to change in the short run unless the policy changes. The subsidy is worked out on the basis of average costs.
Medical facilities:
Every establishment has to provide medical facilities for their staff. Some may provide the facility reimburse the costs to employees when they need medical
Insurance and pension
These costs are relatively fixed and worked out on the basis of salaries. The area of control is therefore
Bonus: The payment of bonuses is directly related to productivity and therefore profits. Establishments will be able to pay bonus to staff as they will earn in only in proportion to sales revenue earned. Management control on bonus payments is limited as it is negotiated by staff unions.
Uniforms: The cost of uniforms to an establishment varies with its policy. Where employees are paid uniform Allowance the costs can be easily determined, but where establishments take on the responsibility of Wing uniforms, the costs will vary with the market prices of cloth and tailoring. These costs are and management control. The costs of laundry are also usually borne by the establishment with the policy on uniforms.
