Food and Labor Costs

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Food, Beverage, and Labor Costs
Control means to exercise authority over, regulate, verify or check some function through a method, device or system (Sanders). In the hospitality and food industry the term cost control is used more often to refer to the overall control of all items of income and expense as well as to control the flow of products and services provided (Sanders). To best control all aspects of the foodservice operation the owner/operator should very carefully dissect and determine the food, beverage, and labor costs of the operation. Food cost is the actual cost of purchasing raw food products used to generate dining room sales; it is measured by specific periods (weekly, monthly, annually) and always expressed as a percentage (Sanders). Beverage cost is similar to food costs while the handling and policies are much different. Beer, wine, liquor, garnish and anything involved in serving and making alcoholic drinks. Labor cost is much simpler being defined as the amount of money that’s spent on labor (Sanders). While all the costs associated to operate a foodservice operation are important food, beverage, and labor costs are what can make or break a restaurant. Food costs can be controlled in many different ways. Forecasting, budgeting, and menu pricing are a few things that will factor into an operations food costs. Forecasting, the process of estimating or predicting future expenses and revenues, is important because it will allow the restaurant to predict how much food they will go through on a particular night (Ojugo). Estimation is the most commonly used method in the food industry for forecasting while it’s subjective it benefits from historical data (Ojugo). Along with minimizing food wastage forecasting can also eliminate staffing problems by allowing the manager to effectively schedule employees resulting in eliminating both the excess cost of overstaffing and employee-patron dissatisfaction from understaffing (Keiser). Forecasting improves an operations efficiency. A budget is “an organized plan of operation for a specified period of time that forecasts activity and income, determines expenses and other disposition of funds, and concludes with an estimate of an overall financial position at the end of the specified period” (Keiser). Budgeting is essential to run a successful food operation. Budgeting is a control device that provides a basis for comparing actual operations with planned or desired results (Keiser). There are many different kinds of budgets. Operating budgets will forecast, for example, sales activity and expense categories such as food and beverage. Cash budgets keep track of the amount of funds on hand, such as petty cash. Equipment budgets let an operation know when it’s feasible to purchase more equipment while a renovation, remodeling, and repair budget is surprisingly for renovation, remodeling and repairs (Keiser). Not all budgets are limited to dollar expressions. A labor budget may be express in terms of hours, workdays, as well as labor dollar costs (Keiser). Budgets show many advantages. Providing a goal, providing a control device, establishing a yard stick, coordinating an organization, providing responsibility, helping in planning, and solving the problem are the main advantages one can gain from budgeting. A menu is an itemized list of different foods that can be served at a meal (McVety). Menu pricing is very important in a foodservice operation. Too-high prices can deter customers, and too-low prices will limit the operations profit potential (Keiser). Competition will also benefit from prices being too high. Food costs and labor cost can just eat up the bottom line if prices are too low also. The main goal of any foodservice operation is to plan, prepare, and serve attractive, appropriate, sales at a reasonable cost for the type of operation (Keiser). The contribution margin is what effects the menu pricing. Defined as the amount that remains after the product...
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