Foundations of cost control by daniel traster chapter11

chapter 11 Labor Management and Control Class Name Instructor Name Date, Semester Foundations of Cost Control Daniel Traster Opening Questions • For current workers, how you know how much gross (pre-tax) income you should earn each week? • How much money would you earn if you worked 40 hours this week? 45 hours? • Are you ever scheduled for a certain number of hours only to find that by week’s end you’ve worked more or fewer hours? Calculating Labor Costs Using a work schedule and a list of each employee’s hourly wages or annual salary, a manager can calculate a department’s weekly standard labor cost Standard = budgeted Actual = the cost based on the real hours actually worked Labor Cost for Hourly Workers Preliminary Labor Cost = Hours Scheduled (or worked) X Hourly Rate • Preliminary means before benefits • Using scheduled hours yields standard cost • Using worked hours yields actual cost Example 11a Employee earns $11.75/hour and is scheduled for 45 hours this week What is preliminary standard labor cost? Note: Overtime earns 1.5 times the regular rate Preliminary Labor Cost =(40 hours X $11.75) + (5 hours X $11.75 X 1.5) = $470 + $88.13 = $558.13 Salaried Workers • Get the same size paycheck each week no matter how many hours or days they work • Annual salaries can be divided into daily salaries by dividing by 365 days per year Labor Cost for Salaried Workers Preliminary Daily Labor Cost = Annual Salary ữ 365 days Preliminary Labor Cost for any period of time is the daily cost X the number of days in the period EXAMPLE: Preliminary Weekly Labor Cost = Preliminary Daily Labor Cost X 7 Example 11b Salaried worker earns $40,000 per year What is the weekly labor cost before benefits? Pre Daily Labor Cost = $40,000 ÷ 365 = $109.59 Pre Weekly Labor Cost = $109.59 X = $767.12 Accounting for Benefits All workers have some benefits cost, even if just for social security and workers’ comp Benefits and costs may differ between employees Benefits cost typically calculated as a percent of wages or salary Standard (or Actual) Labor Cost = Preliminary Labor Cost X (1 + benefits percent) Example 11c Employee is scheduled for 39.5 hours at $9.50/hour Benefits cost is 13.8% What is the employee’s standard labor cost? Pre Labor Cost = 39.5 h X $9.50/h = $375.25 Standard Labor Cost = $375.25 X (1 + 0.138) = $427.03 10 Example 11g During 4-hour dinner service, restaurant earns $8,425 in sales cooks and dishwashers all work the full 4-hour shift Calculate sales per person-hour for this team Person-hours = workers X hours = 20 Sales per person-hour = $8,425 ÷ 20 personhours = $421.25/person-hour 22 Covers per Person Covers per person measures the number of customers served by each server; comes from POS Servers who handle more customers are more valuable Covers for a Period Covers per Person-Hour= Person-Hours in a Period 23 Example 11h Team of cooks and dishwasher work from 11:00 – 2:00 for lunch service and serve 295 covers What is this team’s covers per person-hour? Person-hours = workers X hours = 12 Covers per person-hour = 295 covers ÷ 12 person-hours = 24.6 covers/person-hour 24 Sales and Covers per Person-Hour • Sales per person-hour and covers per personhour are meaningless in an absolute sense Measure to set a baseline and then improve efficiency from there • They help interpret labor cost numbers, which are impacted somewhat by varying wage rates of the employees scheduled 25 Errors per Cover Errors per cover measure quality of worker performance Error or Void is a mistake that results in an unsellable dish (dropped, burned, customer-rejected, etc.) 26 Errors per Cover (cont.) Errors in a Period Errors per Cover = Covers in Same Period • Errors per cover should always be a decimal well below • Errors per cover should not change with business volume, or management must act to improve employee work quality 27 Example 11i Restaurant served 417 guests during dinner but had 13 food “errors.” What is this restaurant’s errors per cover rate? Errors per cover = 13 errors ÷ 417 covers = 0.031 errors/cover 28 Factors that Impact Performance and Labor Cost Turnover Training Scheduling Motivating and Managing Employees Effectively Facility Layout Equipment Menu Outsourcing Forecasting Accurately Reducing Injuries and Illness 29 Prime Cost Labor Cost and Food Cost sometimes work together Cutting labor by buying pre-fab ingredients can increase food cost and leave profit stagnant 30 Example 11j Weekly cost of goods sold is $1,730; labor cost for same week is $1,589 What is prime cost for that week? Prime Cost = cost of goods sold + labor = $1,730 + $1,589 = $3,319 31 Prime Cost Percent Prime Cost Prime Cost % = Sales 32 Example 11k Café has prime cost of $3,319 during same week it has sales of $5,720 What is café’s prime cost percent? Prime Cost % = prime cost÷ sales = $3,319 ÷ $5,720 = 58.0% 33 Prime Cost (cont.) • Reducing prime cost % (by reducing food, beverage, or labor cost without increasing the others) usually leads to higher profits • Prime cost % must not be cut at the expense of the business’s quality standards or longterm revenue and profit may suffer 34 Example 11l • Restaurant budgets $18,430 for cost of goods sold and $21,070 in labor cost for January • Sales are forecast to be $70,000 • At month’s end, actual figures are ―$16,590 for cost of goods sold ―$19,962 for labor cost ―$64,800 in sales Compare restaurant’s standard and actual prime costs and prime cost percents 35 Example 11l (cont.) Standard prime cost = $18,430 + $21,070 = $39,500 Actual prime cost = $16,590 + $19,962 = $36,552 Standard PC% = $39,500 ÷ $70,000 = 56.4% Actual PC% = $36,552 ÷ $64,800 = 56.4% 36 Costs were controlled very well in a month that ... salaries by dividing by 365 days per year Labor Cost for Salaried Workers Preliminary Daily Labor Cost = Annual Salary ữ 365 days Preliminary Labor Cost for any period of time is the daily cost. .. Labor cost percents compare labor cost to total sales 15 Labor Cost Percent Formula Labor Cost % Labor Cost ($) = Sales ($) • Labor Cost and Sales must cover same time period • Standard labor cost. .. relates to Profit Fixed costs not change with business volume, so higher sales beyond budget should generate greater profits if management controls variable costs Profit (not labor cost) is the