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CHAPTER 1 INTRODUCTION TO COST CONTROL

The framework of cost control and profitability within the

hospitality industry is changing. Food and beverage costs have
INTRODUCTION risen. Labor costs have increased markedly with a higher minimum
wage and with the elimination of tip credits. The market has also
undergone great changes. Customers' incomes have diminished
while personal income taxes and health care costs have spiraled.
Today, both husband and wife have to work to match the earning
power created by just one person forty years ago.
On top of it all, the foundation on which fine dining has
prospered for 60 years has crumbled. Most restaurants have relied
on the sale of spirits to offset their relatively small profit margin on
food. This formula no longer works, for two reasons: increased
health awareness, and stricter enforcement of drunk driving laws.
Today, alcohol can no longer play the role of profit leader.

These changes underscore the need for quality cost controls

and profit improvement. Most businesses are not managing
expenses in a way that brings dollars to the bottom line. Waste and
theft often frustrate management and destroy good restaurants.
Statistics from the National Restaurant Association rank waste and
theft on management's top ten list of concerns.

This chapter discusses the roles and responsibilities

involved in cost control. This responsibility bridges departments,
coordinating the functions of accounting, purchasing, storage,
issuance, production and even budgeting.
Furthermore this chapter introduces different concepts used
in cost control to students to better have a mathematical foundation
needed in food and beverage cost control such as; cost and sales
concepts, monitoring cost and sales, cost control and the control
process.
LEARNING
OUTCOMES
At the end of each topic, activities will also be given to assess
your understanding of the subject being taught.
At the end of this chapter, you will be able to:
• Define and provide an example with the different concepts of
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costs and sales.
• Describe the significance of monitoring cost and sales
and identify several cost-to-sales ratios important in food and
beverage management.
• Define cost control and explain the significance of the
responsibility in food and beverage operations.
• Enumerate and explain the four steps in the control process.
LEARNING
CONTENTS This unit covers the following topics:
Topic 1 – Cost and Sales Concept
Topic 2 – Monitoring Cost and Sales
Topic 3 – Cost Control
Topic 4 – The Control Process

TOPIC 1 Cost and Sales Concept

Cost concepts
Definition

The term "cost" in accounting refers to the monetary worth of

expenses for raw materials, equipment, supplies, services, labor,
and goods, among other things. It's a sum of money that's
documented as a reduction in the value of an asset to secure a
benefit or gain. Although theoretically valid, such a definition isn't
particularly useful in a fundamental discussion of controls.

In the discussion of cost control in the food and beverage

industry, the cost is defined as an expense to a foodservice
facility for goods or services when the items are consumed or
the services are delivered. Foods and beverages are termed
"consumed" after they have been utilized, whether wastefully or not,
and are no longer accessible for the purposes for which they were
purchased. For example, the cost of a piece of meat is incurred
when it is no longer accessible for the purpose for which it was
purchased, such as after it has been cooked, served, or thrown
away due to spoilage, or even when it has been stolen. When
individuals are on duty, whether or not they are working, and
whether or not they are paid at the conclusion of a shift or at a later
period, the cost of labor is also incurred.

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Costs can be viewed in a variety of ways; any item's cost may be expressed
in a variety of units including weight, volume, or total value. As an example:

Meat costs can be stated as a value per piece, per pound, or per individual
part.

Liquor costs can be represented in terms of a price per bottle, each drink, or
per ounce.

Labor expenses can be stated in terms of value per hour (for example, an
hourly wage) or value per week (a weekly salary). The following are some of
the classifications of costs that are beneficial to be identified before further
discussion:

Fixed and Variable Costs

The two main types of costs that a company faces when producing goods
and services are variable costs and fixed costs.

Fixed costs are typically unaffected by the volume of production or sales;

they remain constant regardless of whether goods or services are produced.
They are said to have little direct relationship to the business volume
because they do not fluctuate dramatically whether the number of sales
increases or falls. Most common examples are real estate taxes, insurances,
lease and rent payments, utilities. Using an example, suppose a company
has a fixed cost of P150,000 per month to rent the machine it uses to
produce bread. If the company does not produce any bread for the month, it
would still need to pay the same amount of P150,000 for the fixed cost of
renting the machine. On the other hand, if it produces more than the usual
monthly production, its fixed cost remains the same.

Variable costs, oppositely, are associated to the number of goods or

service produced, or the business volume. As business and production
volume increases, variable costs will increase; as volume decreases,
variable costs should decrease as well. These costs are generally different
between industries because their product output isn't comparable, it's best to
compare the variable costs between businesses that operate in the same
industry. Some obvious examples of variable costs are food, beverages,
packaging (raw materials for production), and labor/commissions. Suppose
a company produces bread for a cost of P50 a pack of bread. If the
company produces 5,000 packs, its variable cost will be P250,000.

However, if the company does not produce any pack, it will not have any
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variable costs for producing the bread. Similarly, if the company produces
8,000 packs, the cost will rise to P400,000.
However, there are significant differences in how each of them
manages costs. Food and beverages are considered directly variable
costs since they are directly connected to business volume, therefore
every change in volume correlates to a change in cost. For each time a
restaurant sells a burger, it incurs a cost for the meat, similarly, each sale
of a can of soda results in a cost for the drink. Total directly variable costs,
then, either increase or decrease - in direct proportion to sales volume. On
the other hand, companies may have what is called semi-variable costs,
which consist of a combination of both variable and fixed costs, such as
payroll or labor costs.
Employees in the foodservice industry can be classified into two
groups: those whose numbers will remain constant despite normal
fluctuations in business volume, and those whose numbers, and thus total
costs, will logically vary with typical fluctuations in company volume. The
first category includes such personnel as the manager, bookkeeper, chef,
and cashier. They are fixed-cost workers according to the preceding
criteria. Their numbers and costs may fluctuate, but not due to fluctuations
in company volume.
The servers, often known as wait staff, fall into the second category.
As the size of a company grows or shrinks, its numbers and total costs are
likely to vary as well. In some specialized circumstances, payroll can be
entirely made up of either fixed-cost or variable-cost employees. For
example, at some restaurants, the entire staff is paid on an hourly basis.
In these circumstances, the number of hours worked and the costs
associated with them are nearly entirely determined by the volume of the
company. In certain smaller restaurants, meanwhile, all employees may
be paid on a regular basis, in which case labor costs are deemed fixed.
Controllable and Non-controllable Costs
Controllable and non-controllable costs are also terms used to label
costs. Costs that can be changed in the short term are known as
controllable costs. These are normally variable costs such as cost of food
or beverages, or cost of labor. They can be adjusted by changing portion
size, changing ingredients or quality of recipe and products purchased; in
addition, increasing or decreasing the hours of work, number of
employees, and amount of wages may also be changed only based if the
decision to incur resides with one person. Moreover, some fixed costs,
such as advertising and promotion, utilities, repairs and maintenance, and
administrative and general expenses, are controllable. Owners or

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managers have the ability to make decisions that influence any of these in
the short term.
When a choice is made by a group of individuals, the cost is not
controllable from the perspective of a single person. Furthermore, a cost
imposed on an organization by a third party (such as taxes) is not
considered controllable. In most cases, non-controllable costs cannot be
changed in the short term. These are frequently fixed costs, such as rent,
mortgage interest, real estate taxes, license fees, and depreciation,
Managers and owners typically do not have the capacity to adjust any of
these costs promptly.

Unit and Total Costs

It's also crucial to understand the difference between unit and total
costs which is essential in a food and beverage business. The unit costs
can be defined as the cost of one unit of work, or piece of food or
beverage; while the costs in terms of totals is called the total costs. Cost of
per unit may be food or beverage portions such as one piece of a part of
chicken, or a glass of blue lemonade, or hourly rate of work of an
employee. For example, a restaurant cuts a chicken to 8 pieces, the whole
chicken was purchased for P160.00, then the cost per unit would be
P20.00 per piece. However, the cost per unit would depend on the number
of pieces cut from the whole chicken, it is most likely to vary since it is not
possible for a butcher to cut all chickens the exact same number and size.
The cost in terms of totals can be the food served in one period, such as
week or a month, or the total cost of labor for a period of time. If 500 whole
chicken were consumed in one month, the total cost would be P80,000, but
it may also vary depending on the sales of the product. In the food and
beverage business, the costs on a statement of income are all total costs,
rather than unit costs, and they commonly deal with average unit costs
than actual unit costs. The basic procedure for calculating the unit and total
cost from a similar category is to divide the total cost by the total number of
units produced to get the unit cost. In the meantime, multiply the units
purchased by the unit cost to get the total cost.
It's necessary to recognize unit costs in order to set menu prices and
determine unit profitability. Total costs, including those in income
statements, are typically employed for a variety of purposes, including
assessing the relationship between total expenses and total revenues, as
well as determining overall operational profitability. Remember, as
business volume changes, total and unit costs are affected in distinct ways.
The table below illustrates the cost behavior as business volume increases
or decreases.

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Table 1.1 Source 9th edition principles of food, beverage and labor cost
control.
Unit cost Total cost
Fixed cost Changes Does not change
Variable cost Does not change Changes

The following examples distinguish between now unit and total

costs are influenced when business volume changes. Assume that a
restaurant has a fixed cost for rent of P15,000 per month. If 1,200
customers were served during a period of one month, the fixed cost of
rent per customer would be P12.5. If, in the succeeding month, the
number of customers increased to 1,500, the total fixed cost for rent
would not change, but the fixed cost per unit (customer) would be
reduced from P12.5 to P10.

Similarly, an example with variable costs may be explained with the

succeeding sentences. The variable cost for the chicken described earlier
is P20.00 per piece. If 1,000 customers in a given week order chicken,
the total variable cost would be P20,000, at P20.00 average unit cost per
piece. If, in the following month, 1,200 customers order chicken, the
variable cost per unit should remain at $20.00, whereas the total variable
cost for 1,200 pieces of chicken increases to P24,000.
It is important to highlight that this relationship is not always true.
Some variable expenses have tendency to drop as volume increases.
This is especially true in the case of variable labor costs, because
workers become more productive as their time is used more efficiently.
Food can be acquired in larger quantities for less money, lowering
variable costs, and many more possible instances.
Prime Cost

Prime costs are the expenses incurred by a corporation that are directly
tied to the materials and labor employed in the manufacturing process. In
the food and beverage industry, the term refers to the costs of a
manufactured/produced product, which include the expenses of materials
and labor: food, beverages, and payroll, all of which are determined to
assure a company's best profit margin. The prime cost is the sum of the
direct costs of raw materials and labor used in the production of a
product, excluding indirect expenditures such as advertising and
administration. The formula for calculating a company's prime cost is
"Direct raw materials + Direct labor = Prime cost."

A prime cost is the whole direct costs of producing a saleable item,

which might be fixed or variable. Businesses use prime costs as a way to
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calculate the overall cost of the manufacturing inputs required to
produce a given output. A corporation can set prices that provide
targeted profits by analyzing its prime expenses. A corporation can
enhance its profit or undercut its competitors' prices by cutting its prime
costs. Furthermore, unlike most fixed costs, management can usually
change these expenses more easily. As a result, most owners and
managers are primarily concerned about prime cost. The amount and
control of prime cost have a big role in whether or not a business can
accomplish its financial targets. For example:

The prime costs for creating a cake includes direct labor and raw
materials, such as flour, eggs, sugar, and other ingredients, as well as
the electricity, gas, and other necessary machines needed for the
production. The materials directly contributing to the cake's production
cost P350.00. The baker charges P100 per hour for labor, and this
cake takes three hours to complete. The prime cost to produce the
cake is P650.00 (P350 for the raw materials + P300.00 in direct labor).
To generate a profit, the table's price should be set above its prime
cost.

Consider the same baker who made and sold a freshly baked
cake for P800.00. The cost of the raw materials was $350.00, and it
took him three hours to bake. Without regard to labor costs, the baker
realized a gain of P150.00. If his direct labor costs were P100.00 per
hour, he realized a modest gain of P150.000. Therefore, it is especially
important for business owners and entrepreneurs to employ the prime
cost method when determining what price to set for their goods and
services.

If the same baker desired a labor wage of P120.00 per hour and
a profit of P200.00, the prime cost and price would be P710.00
(P350.00 for materials and P360.00 for labor) and P910.00 (prime cost
+ desired profit), respectively.

In this module, we therefore focus on those controllable costs

that are most essential in determining profit: food cost, beverage cost,
and labor cost.

Historical and Planned Costs

For individuals seeking to understand cost control, there are two

additional cost ideas that are vital: historical costs and planned costs.
Historical costs can be found in business records, books of account,
financial statements, invoices, time cards, and other comparable
documents. These costs are useful for a variety of things, including
calculating unit costs, deciding menu prices, and comparing current
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and previous labor expenses. The value of historical expenses, on the
other hand, is not restricted to these few uses. Cost records from the
past are very useful for planning - determining what is likely to happen in
the future already. Managers use historical costs to develop planned
costs estimates of what spending will be or should be for a future period.
Planning is one of the most critical management roles. As a result,
historical costs are necessary for effective planning.

Sales Concepts

Definition

Generally, the term "sales" can be defined as the exchange of

money for goods, services, or other property in a transaction between
two or more parties. These are the exchange of products and services in
any food and beverage service enterprise such as a restaurant, bar, or
other establishment that obtains operational income by selling items and
rendering services. Therefore, the following paragraphs define the term
and examine some of the many applications it has in the sector.
Although there are different options and situations, sales are usually
stated in monetary terms. The terms monetary and nonmonetary are the
two fundamental sets of terms commonly used in food and beverage
operations to convey sale concepts.

Monetary Terms

! Total Sales - refers to the total amount of all invoices for a specific
time period, such as a week, month, or year, before any adjustments
such as customer discounts, refunds, or returns. It's simply the total of
all transactions, like as: total sales for Company ABC for the year ending
December 2020 was P56,209,837.

! Total Sales by Category - these are total sales reported for a

certain time period, broken down by product category and sub-category,
such as total food sales or total beverage sales, referring to a total
volume of sales for all items in a single category.

! Sales Price - refers to the amount charged per unit of a particular

item. Depending on how a restaurant distributes and prices its products,
a unit could be a single item like a dessert, an appetizer, or a full meal
plate.
! Average Sale - it is calculated by adding individual sales to arrive
at a total and then dividing that total by the number of sales. Average
check and average sale per server are two popular averages used in the
food and beverage industry.

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The table below displays the sales pricing for each food item on a
menu in a certain restaurant or food establishment. Total sales for a
certain time period are the sum of all prices charged for all things sold
during that time period. It depicts the sales on a specific Sunday, for
example. Sales for soup, salad meal plate, desserts, etc. is shown as
P24,770.00.

Company ABC Daily Sales and Covers, Sunday, December 18,

2020
Menu Item Quantity Sales Total Sales (per sub-
Price category)

Soup (per category) P 3,505.00

Crab and corn 6 150.00 900.00
Asparagus 8 180.00 1,440.00
Tomato 3 175.00 525.00
Chowder 4 160.00 640.00

Salad (per category) P 2,000.00

Mixed greens 5 80.00 400.00
Beet salad 2 125.00 250.00
Caesar salad 9 150.00 1.350.00

Meal plate (per category) P 16,670.00

Roast beef with vegetables 18 325.00 5,850.00
Grilled salmon with dill sauce 15 340.00 5,100.00
Chicken curry with rice 22 260.00 5,720.00

Dessert (per category)

Leche flan 17 60.00 1,020.00
Buko pandan 21 75.00 1,575.00

Total covers 57
Total sales P 24, 770.00

! Total Sales per Server - this is the total volume of sales for
which a particular server is accountable during a certain time period. It
may be beneficial for management to detect and make judgments
about different employees' relative performance.

! Total Sales per Seat - the overall sales of a business divided by

the number of seats in the establishment over a specific time period.
Chain operations typically utilize it to compare sales results from one
unit (franchises, similar food locations) to those from another.

! Average Check it is the result of dividing total currency sales by

the number of sales or customers. This is also known as covers in the
foodservice business. Later in this chapter, the term "cover" is defined
in greater detail. The formula for calculating this average is as follows:
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Average check = Total sales / Total number of covers

Foodservice operators use the average peso sale to compare one

employee's sales performance to that of another, to uncover sales
trends, and to analyze the effectiveness of different menus, menu
listings, or sales promotions. The average sale, as computed by average
checking, in this case is:

Average sale = P24,770.00 / 57 = P434.56

This calculation is only for food and excludes beverages. When

determining average sale per customer, many establishments split food
and beverage sales. Managers who are likely to be tracking business
developments will be interested in this figure. If the average sale falls
over time, management will most likely look into why the customer's
spending patterns have changed. A decline in service standards,
customer discontent with meal quality, insufficient sales promotion, and
variations in portion sizes are all possibilities.

! Average Sale per Server - refers to the total sales of an individual

server divided by the number of customers served by that individual.
This, too, is a figure used for comparative purposes, and it is usually
considered a better indicator of the sales ability of a particular individual
because, unlike total sales per server, it eliminates differences caused
by variations in the numbers of persons served.

For example, if Company ABC had ten servers on duty, and Clyden, one
of the server, had 20 customers and total dollar sale of P4,892.00 on the
Sunday of December 18, average sale per server for him would be:

Average sale per server = Total sales of Server A / Number of customers for Server A

= P4,892.00 / 20

= P244.6

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Clyden's average sale per server would be compared to that of
other servers. If Clyden's average sale per client was significantly
lower than that of other servers, management might investigate and
decide to instruct Jim in the selling aspects of service.

Nonmonetary Terms

! Total Number Sold - is the measured total number of burger,

iced tea, or other menu items served in a specific time period.
Foodservice managers, for example, utilize total number sold to
identify unpopular menu items and remove them from the menu.
Furthermore, past sales information of total numbers of certain things
sold can be used to forecast sales. These projections are useful in
making purchase and production decisions. The total quantity of a
certain item sold is a figure used to make judgments regarding
inventory numbers and sales records.

The term "cover" is used in the industry to designate a single diner,

regardless of how much food he or she consumes. Each person who
orders a dessert in a restaurant is counted as one cover. Another
person at the same restaurant orders a complete course that includes
soup, appetizer, main course, and dessert results to one cover. Two
covers are counted for these two diners.

! Total Covers - refers to the total number of customers served in

a specific time frame, such as an hour, a meal period, a day, a week,
or another time frame. Managers are usually particularly interested in
these numbers, which are compared to figures from previous periods
so that conclusions about business patterns can be drawn. Average
Covers - determined when the total number of covers for a given time
period is divided by some other value. Among many other possibilities,
that number could be the number of hours in a meal period, the
number of days the establishment is open per week, or the number of
servers on duty during the time period.

! Seat Turnover - refers to the number of seats occupied (or the

number of customers served) over the number of seats available at a
certain period. For example:

Seat turnover = Number of customers served / Number of seats

= 57/12
= 4.75 turns

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In other words, each seat in the restaurant was occupied an
average of 4.75 times during that Sunday.
! Sales Mix - is used to describe the relative quantity sold of any
menu item as compared with other items in the same category. The
relative quantities are normally percentages of total unit sales and
always total 100 percent.

Company ABC Daily Sales Mix, Sunday, December 18, 2020

Menu item Quantity Sales mix %
Crab and corn 6 4.62 %
Asparagus 8 6.15 %
Tomato 3 2.31 %
Chowder 4 3.08 %
Mixed greens 5 3.85 %
Beet salad 2 1.54 %
Caesar salad 9 6.92 %
Roast beef with 18 13.85 %
vegetables
Grilled salmon with dill 15 11.54 %
sauce
Chicken curry with rice 22 16.92 %
Leche flan 17 13.08 %
Buko pandan 21 16.15 %

TOPIC 2 MONITORING COSTS AND SALES

Costs alter with business volume to some extent, but only when
expressed in relation to that quantity do they become significant.
Managers assess costs in terms of money before comparing them to
sales. This allows them to discuss the cost-to-sales ratio, which is also
known as the cost per peso of sales, the cost-to-sales ratio, or simply
the cost-to-sales ratio. The basic formula for obtaining it is as follows:

Cost/Sales = Cost per peso of sale

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It would result in a decimal answer, so by multiplying it by 100
and adding the percent sign (%), you get the so-called cost percent.
The result, times 100, would also be the same a simply moving the
decimal point two places to the right.
Costing Triangle

COST

COST SALES
PERCENT

Figure 1.1
th
9 Edition Principles of Food, Beverage, and Labor Cost Controls

The costing triangle illustrated in Figure 1.1 is very useful when

solving cost percent formulas. For example, to get the cost-to-sales
ratio of Company ABC with a food costing of P43,779.58, which
ultimately resulted in sales of P113,598.00, you have to determine the
percentage of sales represented by cost as we divide cost by sales, as
in the preceding formula, and multiply the resulting decimal answer by
100 in order to convert it to a percentage. It's worth noting that the
costing triangle can be utilized to solve for the cost percent, cost and
sales.

When solving for sales, the cost becomes over the cost percent
number, hence cost divided by cost percent (after conversion to a
decimal) equals sales. Finally, when utilizing the costing triangle to
solve for cost, the cost percent and sales figures should be placed next
to each other and multiplied to get the unknown cost.
Company ABC Costing Triangle
Food Costing: P43,779.58
Sales: P113,598.00
Cost Percent: = 38.54.%
(P43,779.58/P113,598.00) x 100
Sales: [P43,779.58/(38.54... / 100)] = P113,598
Cost: 0.3854... x P113,598.00 = P43,779.58

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As a result, we find that Company ABC's food cost percent, or
food cost-to-sales ratio, has been 38.54 percent for the past month.
This means that 38.54 percent of the revenue from food sales was
used to cover the cost of the food throughout the course of the month.
We can also argue that the cost of food per peso of sale is 0.3854,
because the cost of food comprises P0.3854 of every P1.00 in sales.

Cost percent are valuable to managers in at least two ways: (1)

they allow them to compare expenses to revenues over multiple time
periods, and (2) they allow them to compare two or more businesses.
It's vital to remember that when comparing cost percent for two or more
operations, the comparisons are only relevant if the methods are
identical. If, on the other hand, Company XYZ spends a total of
P87,437.29 on food costing and makes a total of P241,085.00 in sales,
it may be useful to compare the costs and sales of these two similar
businesses.

Comparison of Cost and Sales, Company ABC and

Company XYZ
Company Company XYZ
ABC
Food Sales P113,598.00 P 241,085.00

Cost of Food P 43,779.58 P 87,437.29

Sold
Cost per peso of P 0.3854 P 0.3627
sale
Food cost 38.54% = 32.67% = 33%
percent 39%

It is only at this point that the figures can begin to have real
meaning and that meaningful comparisons can be made. It is
noteworthy that a principal difference between the two restaurants is
that one's food cost per peso of sale is P.0227 greater. In other words,
Company ABC's food cost-to sales ratio is 2.27 percent greater. We
can see how assessing the relationship between food cost and sales
might be useful in tracking the business's progress. There is no
effective way to compare raw peso figures until they have been
converted to this format. It demonstrates how Company XYZ would
earn more than Company ABC due to lower costs and a higher sale.

If a foodservice business is to be profitable, total revenue must

clearly surpass entire costs. If costs continue to outpace sales for a
lengthy period of time, the company may face bankruptcy. The
manager's role and the cost controller's duty, if there is one, is to stay
on top of the business's running expenses and keep them below the
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level of sales.

The cost and sales data used to compute these ratios must be
from similar time periods. Comparisons are usually made for specific days
of the week; sometimes, like weeks in two separate places are compared.
Those who track these ratios from week to week might sometimes spot
trends. However, cost and sales data are still infrequently examined, and
ratios are infrequently calculated in many businesses. If this is the case, it
should be clear that management is willing to take a significant risk.
Establishments that collect cost and sales data only on a longer basis
may not be able to take effective corrective action since the data is not
current enough to illuminate present issues.

TOPIC 3 COST CONTROL

The method through which managers limit costs and prevent

against excessive costs is known as cost control. It is a continuous
process that includes purchasing, receiving, storing, issuing, and
preparing food and beverages for sale, as well as training and scheduling
of the workers involved. Inefficiency and waste are two of the most
common causes of excessive costs. Food stored in freezers that aren't
cold enough or bottled beverages kept in a warm, sunny room, for
example, will rot and cost a lot of money. Preparing an inedible meal or
an unappealing drink will do the same. The costs of operation rise when
food is thrown away or drinks are poured down the drain, but sales do
not. Because profit is basically the ratio between sales and costs, any
cost increases that do not result in equivalent increases in sales can only
have one result: a decrease in profits. Clearly, management must take
precautions to avoid such high expenditures.

The specific methods for cost control differ from one establishment
to the next, based in part on the type and scope of operations, but the
concepts that underpin these strategies remain consistent. The obvious
goal is to eliminate excessive food, beverage, and labor costs in all areas
so that the business can function profitably. - to establish some control
over

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Although cost control is vital to the profitable functioning of any
business, it will not guarantee profitability on its own. Additional procedures
must be made to ensure that all sales generate adequate revenue for the
company (sales control). For example, if a meal displayed on the menu for
P350.00 is sold to a customer for P285.00, or if a drink marketed at
P120.00 is sold for $70.00, or if food and drink are given away, profits will
decline. As a result, it's critical that each employee precisely documents
each sale.

TOPIC 4
THE CONTROL PROCESS

As previously stated, control in the food and beverage industry is

described as the process through which managers strive to direct,
regulate, and constrain people's behavior to achieve goals.

The control process consists of the following steps:

In every aspect of food and beverage operations, there is an

obvious requirement for control. Control is one of the most important
aspects of good food and beverage management, and it must be
developed in order to achieve success. Establishing control, according to
industry experience, entails implementing the four-step method depicted in
the diagram above.

1. Establish standards and standard procedures for operation.

In business, standards are the rules or measures established by the

management and are used for judging the extent to which results meet
expectations. Several types of standards are useful in establishing control
over food and beverage operations.

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• Quality standards are used to determine the level of excellence in
raw materials, completed goods, and, by extension, work. Establishing
quality standards is a grading process in some ways. The majority of
food items are assessed on their level of excellence, and management
should set quality criteria for each food item to be purchased. Quality
criteria are also required for beverage items. To ensure consumer
satisfaction, beverage operations management must evaluate whether
beverage items are of appropriate quality. Workforce quality
requirements must also be established. For the preparation and service
of sophisticated menu items in some hotels and fine restaurants, higher
levels of skill are required. Lower levels of skill would probably be
acceptable in the average roadside diner.
• Quantity standards - specified as measures of weight, count, or
volume, are used to create comparisons and conclusions. Several
quantity standards must be established by management. Simple
examples include standard portion sizes for food and beverage products
and work output norms. Quantity requirements are frequently used to
keep labor expenses under control. It's helpful to know how many tables
or chairs a server can cover in a given timeframe or how many burgers a
pantry worker can make per hour when organizing staff schedules.
• Standard cost - described as the cost of goods or services
established, approved, and accepted by management. For a variety of
reasons, standard costs are used. They can be compared to actual costs
in order to make cost judgments, and they can also be used as a basis
for determining pricing. In the food and beverage industry, standard costs
are helpful in determining the efficiency of operations. When standard
costs are compared to real costs, it's possible to see how efficiently food
and beverage commodities and human resources are used in day-to-day
operations. Standard costs are especially valuable in cost control
because they allow management to evaluate what is actually happening
in a company with what should be happening based on the operational
standards.

Procedures are the steps taken to prepare products or complete

tasks. Standard procedures are those that have been established as the
correct methods, routines, and techniques for day-to-day operations.

• Ordering and purchasing procedures - must be standardized to

ensure that ingredients used to manufacture food and beverage items
are obtained at the right time, in the right quantities, at the best price, and
of the right quality for their intended use.
• Receiving procedures - must be standardized so that all items
received match the order in terms

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• Standard storing procedures - must be used to prevent both rotting
and theft, both of which will result in excessive expenditures.
• Issuing - must be standardized in order to ensure that food and
beverage items are used in the sequence in which they are received,
avoiding deterioration and the accompanying high expenses. To further
protect against spoiling and theft, food and beverage quantities must be
connected to precisely calculated production demands.
• Production procedures - must be standardized for several reasons.
Every time an item is served, it should be prepared in the same way and
with the same ingredients. It should also be supplied in the same quantity
every time, partially to ensure that regular clients receive the same
amount every time they request the dish, and partly to keep costs
consistent.

2. Train all individuals to follow established standards and standard

procedures. - Although defining standards and processes is essential for
control, it is only the first step in the process. None of the standards are of
any significance unless employees are aware of them, and employees will
not become aware of the standards unless management is prepared to
undertake the staff for training.

• Training personnel - is a process in which management teach

employees how to conduct their jobs according to set standards and
procedures. Furthermore, each employee must be educated to make
standard-size servings at his or her workstation, using the appropriate
equipment and materials. Standards are utterly useless if all employees
are unaware of the appropriate standards and procedures created for
their work, and are not trained to follow them. Controlling components of
the manager's job become difficult at best, and impossible at worst, if
personnel are not properly trained to follow specified standards and
processes.

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• Disciplining employees is defined as action taken to admonish,
chastise, or reprimand an employee for work performance or personal
behavior that is incompatible with established standards. Foodservice
managers generally prefer to avoid the need for discipline by improving
the hiring practices in their organizations. The number of people who
require some amount of discipline can be reduced to a bare minimum by
picking the proper people for the various positions - those with the
experience, talent, and personal traits that meet the work needs. Every
manager, however, must accept the fact that an individual employee must
be disciplined from time to time. Numerous food and beverage
enterprises use discipline as a control strategy, and it can take many
forms. If applied correctly and sparingly, it is a valuable technique.
Observing and addressing employee behavior is not the same as
discipline; it is the next step. Managers are likely to have attempted,
however unsuccessfully, to correct an employee's conduct before
resorting to discipline. Only if corrective intervention has failed is
discipline required. It's important to remember that the goal of discipline is
to change or modify workers' job performance or personal conduct to
enhance performance so that work is completed in accordance with the
standards and procedures that management has chosen as the most
likely to help the organization accomplish its goals and objectives.

3. Take appropriate action to correct deviations from standards.

• Requiring records and reports - no manager can be everywhere at

once, observing and teaching employees' behaviors. Employee behaviors
can be observed significantly more closely by the owner/manager of a
small business than by the manager of a larger business. The statement
of income, which summarizes cost and sales data for a specific time, is
an example of such a report. The statistics in the income statement can
be utilized to establish various cost-to-sales ratios. These are typically
compared to ratios from earlier periods, and decisions about operations
are made based on the results of these comparisons. If the comparisons
are acceptable to management, it means that employee performance has
been acceptable during the period covered by the statement in general. If
the comparisons aren't up to grade, it's likely that some or all of the
criteria and processes haven't been followed. Opportunities for corrective
action may be lost if timely records and reports are not available.

• Setting examples - the process of developing standards and

processes is not always as formal as the preceding discussions might
suggest. In many cases, standards are formed on an individual basis:
employees at a company follow the manager's lead - his or her behavior,
demeanor, responses to questions, and even a failure to speak or act in a
certain situation. Individuals in a group's behavior is generally influenced
by the actions, remarks, and attitudes of their leaders. During the course
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of a workday, a manager's attitudes and work habits are observable as he
or she performs numerous tasks. The manager's actions will have an
impact on how employees carry out their duties. Any manager must be
consistent in setting examples, leading, regulating, and restricting
personnel and their behavior.

4. Monitor performance and compare actual performances with

established standards.

• Observing and correcting employee actions - one of a manager's most

significant responsibilities is to constantly observe all employees as they
go about their daily tasks, measuring their behavior against the standards
and procedures established for their work. If any employees are not
adhering to the standards, it is the obligation of the management to modify
their performance as needed and at the right time. If a manager observes
a receiving clerk failing to verify that the quantity of food supplied matches
the quantity on the invoice and does not correct the employee, the
employee may never be aware that his or her performance is poor.

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