Unit 1: Revenue control in food and beverage (F&B) department
A. Cost (Elements and classification)
• Cost: In the F&B context, cost refers to the reduction in the value of an asset to
obtain benefit or gain, including the price of goods and services when consumed
or rendered.
• Elements of Cost:
o Material Cost (Food & Beverage Cost): The direct cost of ingredients used
to prepare dishes and beverages, notes ihmnotessite.com. This includes
the cost of food and beverage consumed and the cost of additional items
like tobacco.
o Labor Cost: This refers to the compensation given to employees who
process raw materials into finished products or provide services to
guests, including salaries, wages, bonuses, and benefits, according to
HUFOCW.
o Overhead Cost (Expenses): All other costs aside from labor and material
costs incurred in F&B operations, such as rent, insurance, fuel, advertising,
and depreciation, says ihmnotessite.com.
• Classification of Cost:
o Fixed Costs: These remain constant regardless of the sales volume.
Examples include rent, rates, insurance, and management salaries.
o Variable Costs: These costs vary directly in proportion to the volume of
sales. Food and beverage costs are prime examples.
o Semi-Variable Costs: These costs fluctuate with sales but not in direct
proportion. They contain both fixed and variable elements, like fuel or
telephone costs (fixed rental plus variable call charges).
o Direct Costs: Directly identifiable and traceable to a particular product or
service (e.g., ingredients for a specific dish, wages of a chef for a
particular dish).
o Indirect Costs (Overheads): Costs that cannot be directly identified with a
particular department or unit (e.g., rent, depreciation).
o Prime Costs: The sum of direct material costs and direct labor costs,
representing the most significant expenses.
o Opportunity Cost: The expected returns from the best alternative use of
resources that are foregone when a specific decision is made.
o Sunk Costs: Costs already incurred and irreversible, not affected by future
decisions.
B. Labor control
• Concept: Managing labor effectively to ensure optimal staffing levels, maximize
productivity, and minimize labor costs while maintaining service quality.
• Establishing Standard Staffing Guidelines:
o Factors to Consider: Restaurant layout, guest capacity, menu complexity,
type of service, staff skills, peak hours, and seasonal variations.
o Tools: Historical data, sales forecasts, productivity standards (e.g., covers
per server per hour).
o Examples: A general guideline might suggest one waiter for every 20
covers, but this is adjusted based on service style (fine dining vs. casual)
and specific needs.
• Preparing Work Schedules:
o Assessment: Analyze demand patterns (peak hours, special events,
holidays), staff availability, and required skill sets for each shift.
o Fairness and Efficiency: Balance business needs with staff preferences,
follow labor laws, and distribute duties fairly, rotating assignments to
prevent monotony.
o Flexibility: Incorporate flexibility for last-minute changes, shift swaps, or
staff shortages.
o Tools: Manual rotas or advanced scheduling software can be used.
• Analyzing Labor Cost:
o Calculation: Total labor cost includes wages, salaries, bonuses, payroll
taxes, benefits, overtime, and training costs.
o Metrics:
▪ Labor Cost Percentage of Sales: (Total Labor Cost / Total Revenue)
x 100.
▪ Labor Cost Percentage of Operating Costs: (Total Labor Cost /
Total Operating Costs) x 100.
▪ Labor Cost per Hour Worked: Segmenting staff into groups (e.g.,
kitchen, service) and calculating the cost per hour for each group
helps identify where expenses are highest.
▪ Productivity Metrics: Covers served per server per hour, sales per
labor hour.
o Benchmarking: Compare labor cost percentages against industry
averages (e.g., 20-30% for QSRs, 30-40% for full-service restaurants) to
assess efficiency.
o Identifying Areas for Improvement: Analyzing labor costs helps identify
inefficiencies, optimize staffing levels, and make informed decisions to
reduce expenses without compromising service quality.
C. Costing, pre and post P&L (Profit & Loss) analysis
• Costing: The process of determining the total cost of producing a dish or
beverage, including food, beverage, and labor costs, notes hmhub.
• Purpose: To ascertain the food and beverage cost of each menu item, ensure
accurate pricing, disclose purchasing or storage inefficiencies, prevent waste
and pilferage, and ultimately ensure profitability.
• Methods:
o Standard Costing: Uses estimated (standard) costs for activities or
products and then compares these with actual costs to identify variances
and facilitate control.
o Menu Costing: Involves calculating the cost of each item on the menu and
using that to determine selling prices, often adding a percentage to cover
wages, overheads, and profit.
o Portion Costing: Specifically calculating the cost per serving, particularly
important for buffets and cafeterias, considering ingredients, yield, and
serving size.
o Prime Costing (Simple & Specific):
▪ Simple Prime Cost Method: Averages labor costs across all menu
items and adds it to the food cost per portion to determine the
selling price based on a target prime cost percentage.
▪ Specific Prime Cost Method: Separates menu items into categories
(e.g., extensive vs. non-extensive preparation) to more accurately
allocate labor and ingredient costs, using multipliers to determine
the final menu price.
• Pre & Post P&L Analysis:
o Profit & Loss (P&L) Statement: A financial statement summarizing
revenues, costs, and expenses incurred during a specific period, showing
the net profit or loss.
o Key Components: Sales, Cost of Goods Sold (COGS), Gross Profit,
Operating Expenses (fixed and variable), and Net Profit (or Loss).
o Pre-P&L Analysis (Budgeting and Forecasting):
▪ Forecasting: Predicting future sales and costs based on historical
data, market trends, and upcoming events.
▪ Budgeting: Creating a detailed financial plan outlining expected
revenues and expenses for a future period.
▪ Purpose: Set financial goals, allocate resources, and guide
operational decisions before the period begins.
o Post-P&L Analysis (Performance Evaluation):
▪ Actual vs. Budgeted: Comparing actual revenues and costs against
the predetermined budget to identify variances.
▪ Ratio Analysis: Calculating key ratios (e.g., food cost percentage,
labor cost percentage, gross profit margin) to assess performance
and efficiency.
▪ Purpose: Evaluate the F&B operation's financial health, identify
areas of strength and weakness, inform future adjustments, and
ensure profitability.
Expected and important subjective questions (marks-wise)
5-mark questions
1. Differentiate between Fixed Costs and Variable Costs in a food and beverage
operation, providing examples of each.
2. Explain the concept of 'Prime Cost' in F&B management. Why is it a crucial metric
for restaurants?
3. Outline the key elements of cost in food and beverage operations.
4. Briefly discuss the significance of establishing standard staffing guidelines in the
F&B department.
5. What are the main components included when calculating 'Total Labor Cost' in a
restaurant?
6. Explain the purpose of a P&L statement in the F&B industry.
7. Differentiate between pre-P&L and post-P&L analysis.
8. Briefly describe any two methods used for calculating portion cost in F&B
operations.
9. Why is analyzing labor cost essential for managing a profitable food and
beverage establishment?
10. Define 'Costing' in the context of F&B. What are its primary objectives?
10-mark questions
1. Discuss the various elements and classifications of costs relevant to a food and
beverage department. How does understanding these help in effective revenue
control?
2. Explain the process of 'Labor Control' in a restaurant. Detail how standard
staffing guidelines are established and work schedules are prepared, considering
various operational factors.
3. Elaborate on the different methods used for costing menu items in a food and
beverage operation. How do these methods help in accurate pricing and
profitability?
4. Describe the process of analyzing labor cost in the F&B department. Explain the
key metrics used and how this analysis can lead to optimizing operational
efficiency and profitability.
5. Discuss the importance of pre and post-P&L analysis for the F&B department.
How do budgeting and performance evaluation contribute to achieving financial
goals?
6. Explain how food and beverage operations can leverage technology, such as
Point of Sale (POS) and scheduling software, to enhance revenue control and
labor management
