Costing

What is cost?

It can be described as the expense to a

hotel or restaurant for goods or services
when the goods are consumed or services
rendered.

The cost of any item is expressed in a

variety of units: weight, volume or total
value.

Types of costs

Fixed costs

Variable costs

Semi variable costs

Fixed Costs

Fixed costs are the costs which remain the

same whatever the volume of sales.

These costs have to be incurred by an

operation and it increases with time.

Examples are rents, rates, insurance, salaries,

depreciation of equipment.

Variable Costs

These are costs which increases directly in

proportion to the volume of sales.

As sales increase these costs increase at the

same rate.

Example costs of food, beverage, tobacco etc.

Semi-Variable Costs

These costs are defined as costs which

increased with volume of sales, but not in direct
proportion to them.

These costs increase with the sales but not at

the same rate.

Example are fuel, cleaning, laundry, HLP

Cost concepts

Historical

Planned

Cost control

Cost control means to guide and regulate the

cost of operating an undertaking so that they
are in accordance with the pre-determined
objective of business.

Cost may be labeled as controllable and non

controllable.

Controllable Cost

Controllable costs are those that can be

changed in short term.

Variable costs are normally controllable.

Food and beverage costs for example are

controllable.

Certain fixed costs are also controllable such

as advertising, R&M, A&G.

Non controllable Cost

Are the costs that cannot be changed in the

short term perspective.

These are usually fixed costs.

Importance of Control Process

Meeting goals
Delegated task being carried out
Assess the effect of changes necessitated by
the economy
Identifies where problem is occurring.
Helps in identifying mistakes and lead to
actions to correct the mistakes.

Considerations in Designing a
Control System

Accuracy
Timeliness
Objectivity
Consistency
Priority
Cost
Flexible
Acceptability

Five Standard Cost Tools

Standard purchase specifications

Standard recipes

Standard yields

Standard portion size

Standard portion cost

Purchase specifications

A purchase specification is a concise description of the

quality, size, weight, count and other quality factors
desired for a particular item.

Advantage

Fewer products being acquired.

Reduced purchase cost.
Easier to source out vendors.
Have competitive prices.

Purchase Specifications
Disadvantages
Time to create .
Time to monitor.
Specification establishes the minimum quality
expected, which may over time become the
max./Best quality being purchased.

Standard Recipe

A Standard recipe is a formulae for producing

a food or beverage item.

Summary of :
Ingredients
Quantity
Preparation procedures
Portion size
Garnish

Standard Recipe
Advantages
Standardized preparation.
Less supervision.
Scheduling production is easier.
Disadvantages
Loss of creativity.

Standard Yields

Yield means the net weight or the volume of food

item after it has been processed and made ready
for the sale s to the guest.
Yield %=(servable wt./Original wt.)*100
Cost per servable kg.= A.P price/yield %
Cost factor= cost per servable kg/a.P price.
Adjustment factor=desired portion/org. Portion.

Standard portion size: helps in achieving

consistency and hence value for money.

Standard portion cost : it is the cost of

preparing and serving one portion of food or
one drink item according to the standard
recipe.

Costs

Costs are calculated as Unit cost and Total cost.

Unit costs help to calculate total cost of items. It is

usually expressed in numbers/portions.

It helps in calculating prices and determining

profitability.

Total costs establish broader relationship between

Total Costs vs Total Sales for overall profitability of
the department.

Costs

All costs are expressed as a percentage to

sales.

Once the costs are established, they are used

to calculate at what sales volume the operation
starts to make a profit.

This is done by margin or break even chart.

Break- Even Point

It is defined as a point when the turnover is just

sufficient to cover all costs without resulting
either in a profit or a loss.

It is expressed as a volume of business.

It depicts relationship between Total sales,

Total costs and profits.

Break- Even Point

It ascertains the following

The

level of sales for a business to break

even

Profit

or loss made by the establishment at

different levels of sales.

Example

Average spend Rs 100

Fixed costs Rs 7500
Variable costs Rs 9500
No of covers 300
Prepare a break even chart

30000

25000

Net Profit
Total expenses

20000

Total sales

15000

BEP
10000

Loss

Fixed expenses

5000

100

200

300

No Of Covers

400

500

600