Chapter 8 - Controlling other expenses. This chapter presents the following content: Other expenses; controllable and non-controllable other expenses; fixed, variable, and mixed other expenses; monitoring other expenses; managing other expenses; technology tools.
Chapter 8 Controlling Other Expenses © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Main Ideas Managing Other Expenses Fixed, Variable, and Mixed Other Expenses Controllable and Noncontrollable Other Expenses Monitoring Other Expenses Reducing Other Expenses Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Other Expenses Other expenses are those items that are neither food, beverage, nor labor Other expenses can account for a significant amount of the total cost of operating your foodservice unit You must look for ways to control all of your expenses, but sometimes the environment in which you operate will act upon your facility to influence some of your costs in positive or negative ways © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Other Expenses In the past, serving water to each guest upon arrival in a restaurant was simply SOP (standard operating procedure) for many foodservice operations. The rising cost of energy has caused many foodservice operations to implement a policy of serving water on request rather than with each order Energy conservation and waste reduction are two examples of attempts to control and reduce other expenses © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Other Expenses Each operation will have its own unique list of required other expenses Other expenses can constitute almost anything in the foodservice business If cost groupings are used, they should make sense to the operator and should be specific enough to let the operator know what is in each category Operators can use their own categories, or follow those used in the Uniform System of Accounts for Restaurants (USAR) © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Managing Other Expenses While there are many ways in which to consider other expenses, two views of these costs are particularly useful for the foodservice manager. They are: Fixed, variable, or mixed Controllable or noncontrollable © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Fixed, Variable, and Mixed Other Expenses A fixed expense is one that remains constant despite increases or decreases in sales volume Figure 8.1 Jo Ann's Fixed Rent Month January February March April May June 6-Month Average For Period: Rent Expense $8,000 8,000 8,000 8,000 8,000 8,000 8,000 Sales $121,000 120,000 125,000 130,000 164,000 156,000 136,000 1/1 - 6/30 Rent % 6.61% 6.67 6.40 6.15 4.88 5.13 5.88 © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Fixed, Variable, and Mixed Other Expenses A variable expense is one that generally increases as sales volume increases, and decreases as sales volume decreases Figure 8.2 Jo Ann's Variable Rent For Period: Month January February March April May June 6-Month Average Sales $121,000 120,000 125,000 130,000 164,000 156,000 136,000 Rent % 5.00% 5.00 5.00 5.00 5.00 5.00 5.00 1/1 - 6/30 Rent Expense $6,050 6,000 6,250 6,500 8,200 7,800 6,800 © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Fixed, Variable, and Mixed Other Expenses A mixed expense is one that has properties of both fixed and variable expenses Figure 8.3 Jo Ann's Mixed Rent For Period: Month January February March April May June 6-Month Average Sales $121,000 120,000 125,000 130,000 164,000 156,000 136,000 Fixed Rent Expense $5,000 5,000 5,000 5,000 5,000 5,000 5,000 1% Variable Rent Expense $1,210 1,200 1,250 1,300 1,640 1,560 1,360 1/1 - 6/30 Total Rent Expense $6,210 6,200 6,250 6,300 6,640 6,560 6,360 © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Fixed, Variable, and Mixed Other Expenses The following shows how fixed, variable, and mixed expenses behave as sales volume increases. Expense As a Percentage of Sales Decreases Total Dollars Variable Expense Remains the Same Increases Mixed Expense Decreases Increases Fixed Expense © 2011 John Wiley & Sons Remains the Same Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Monitoring Other Expenses Increasingly, foodservice managers are finding that creative “Green” initiatives benefit their operations in many ways, including those that reduce other expenses. “Trayless dining” is just such an example Trayless operations experience a 3050% reduction in food and beverage waste Without trays to wash, water consumption is also decreased, resulting in a decrease in other expenses such as water, utilities, and cleaning products © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing Other Expenses It is useful to break down other expenses into four categories: food and beverage, labor, facility maintenance, and occupancy when devising strategies to lower costs In general, fixed costs related to food and beverage operations can only be reduced when measuring them as a percent of total sales. This can be done only by increasing the total sales figure. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 8.9 Sales $ 1,000 3,000 9,000 10,000 15,000 Igloo's Fixed and Variable Other Expenses Fixed Expense $ 150 150 150 150 150 Variable Expense (10%) $ 100 300 900 1,000 1,500 Total Other Expense $ 250 450 1,050 1,150 1,650 Other Expense Cost % 25.00% 15.00 11.67 11.50 11.00 © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing Other Expenses Labor related expenses can also be considered partially fixed and partially variable To reduce costs related to labor, it is necessary to eliminate wasteful laborrelated expenses However, if an operator attempts to reduce costs too much he or she may find the best workers employed elsewhere Reducing employee benefits while attempting to retain a wellqualified workforce is simply management at its worst © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing Other Expenses A properly designed and implemented preventative maintenance program can go a long way toward reducing equipment failure and thus decreasing equipment and facilityrelated costs Proper care of mechanical equipment prolongs its life and reduces operational costs © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 8.10 Typical Energy Usage Pattern Cooking 32% Heating (building) 19% Cooling (building) 18 % Heating (water) 13% Refrigeration 11% Lighting 6% Administrative 1% Total 100% Restaurant Energy Consumption 35% 30% 25% 20% 15% 10% 5% 0% © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 8.11 Ten Commonsense Energy Tips for Restaurateurs Turn It Off Turn off lights, cooking equipment, and exhaust fans when they are not being used Activate the standby mode for office equipment, in-house computers, and printers to effectively put these pieces of equipment “to sleep” when not in use Keep It Closed Keep refrigerator doors closed Keep back doors, if any, to the kitchen closed to minimize heat and cooling loss Turn It Down Set air-conditioning units at 76°F (24.5°C) for cooling Set heating systems at 68°F (20°C) for heating Reduce the temperature of your hot water heater (where appropriate) Adjust heating/cooling temperature settings when you close your operation for the night Vent It Use ceiling fans to help recirculate dining room air Retrofit exhaust hoods with both low and high speed fans, in dishroom areas and in food preparation and cooking areas Change the Bulbs Replace incandescent bulbs with fluorescent They use 75% less electricity and last 10 times as long Install photocell light sensors (motion detectors) where appropriate (storage areas and the like) to activate lighting only when needed © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 8.11 Ten Commonsense Energy Tips for Restaurateurs (continued) Watch the Water Run dishwashers only when they are full Replace/repair leaking faucets immediately Insulate all hot water pipes Install “water-saver” spray nozzles in dish areas Cook Right Stagger preheat times for equipment to minimize surcharges for high energy use Bake during off-peak periods Idle cooking equipment (between meal periods) at reduced temperatures where appropriate Seal It Caulk and weatherstrip cracks and openings around doors, windows, vents, and utility outlets Check freezer, refrigerator, and walk-in seals and gaskets for cracks or warping Replace as needed Maintain It Change air filters on a regular basis (monthly during peak heating and cooling seasons) Clean grease traps on ventilation equipment Clean air-conditioner and refrigeration condenser/evaporator coils at least every three months Oil, lube, clean, and repair equipment as needed to maximize operating efficiency 10 Get Help Take advantage of any advisory services offered by your local utility company and governmental agencies Talk to your heating, ventilation, and air-condition (HVAC) repair person for tips on minimizing energy and maintenance costs with your particular HVAC system It’s like getting a free energy management consultant! © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing Other Expenses One way to help ensure that costs are as low as possible is to use a competitive bid process before awarding contracts for serviced you require In the area of maintenance contracts, for areas such as kitchen or mechanical equipment, elevators, or grounds, it is recommended that these contracts be bid at least once per year. Airconditioning, plumbing, heating and refrigerated units should be inspected at least yearly, and kitchen equipment should be inspected at least monthly for purposes of preventative maintenance. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Figure 8.12 Equipment Inspection Report Unit Name: Your Restaurant Time Period: 1/1 - 1/31 Inspection Date Inspected By A Refrigerator #6 1/1 D H Replace gasket B Fryer 1/7 D H Inspected, no maintenance needed C Ice Machine 1/9 D H Drain, de-lime Item Inspected Action Recommended D E © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Reducing Other Expenses Occupancy costs refer to those expenses incurred by the foodservice unit that are related to the occupancy of and payment for the physical facility it occupies For the foodservice manager who is not the owner, the majority of occupancy costs will be noncontrollable. The owner should find ways to control occupancy costs such as rent and interest on debt, if possible If occupancy costs are unrealistically high, no amount of effective cost control can help “save” the operation’s profitability © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Depending upon the specific food service operation, these costs can represent a significant portion of the operation’s total expense requirements. As a result, controlling these costs is just as important as controlling food and laborrelated costs Software and hardware that can be purchased to assist in this area include applications that relate to: © 2011 John Wiley & Sons Assessing and monitoring utilities cost Minimizing energy costs via the use of motionactivated sensors Managing equipment maintenance records Tracking marketing costs/benefits Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools Menu and promotional materials printing hardware and software Analysis of communications costs (telephone tolls) Analysis of all other expense costs on a perguest basis Analysis of all other expense costs on a “cost per dollar sale” basis Comparing building/contents insurance costs across alternative insurance providers 10 Software designed to assist in the preparation of the income statement, balance sheet, and the statement of cash flows 11 Income tax management 12 Income tax filing © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Technology Tools At the minimum, most independent operators should computerize their records related to taxes at all levels to ensure accuracy, safekeeping, and timeliness of required filings. © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller Summary Managing Other Expenses Fixed, Variable, and Mixed Other Expense Controllable and Noncontrollable Other Expenses Monitoring Other Expenses Reducing Other Expenses Technology Tools © 2011 John Wiley & Sons Food and Beverage Cost Control, 5th Edition Dopson, Hayes, & Miller ... 1,263. 28 $ 145.50 345.60 762. 68 762. 68 1,000.19 1,106. 18 1,106. 18 1,263. 28 823 751 902 489 499 375 250 84 1 4,930 To Date 82 3 1,574 2,476 2,965 3,464 3 ,83 9 4, 089 4,930 Cost per Guest Today $0. 18 0.27... 355,500 Linen Cost $ 2,720 2,7 58 2,772 2,753 2 ,81 2 13 ,81 5 Cost % 4.00% 3.94 3 .85 3 .85 3 .80 3 .89 Figure 8. 6 Month January February March April May Total Chez Scot Linen Cost per Guest Linen Cost $... 6-Month Average For Period: Rent Expense $8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 8, 000 Sales $121,000 120,000 125,000 130,000 164,000 156,000 136,000 1/1 - 6/30 Rent % 6.61% 6.67 6.40 6.15 4 .88