Managing - Costing

It is important to know the exact cost of each process and every item produced. In order to be able to achieve this a system of cost analysis and cost information is essential.

The advantage of an efficient costing system are:

• It discloses the net profit made by each section of the organisation and shows the cost of each meal produced.
• It will reveal possible sources of economy and can result in a more effective use of stores, labour, etc
• Costing provides information necessary for the formation of a sound price policy.
• Cost records provide and facilitate the speed quotations for all special functions, e.g. special parties, wedding receptions, etc.
• Enables the caterer to keep to a budget.

No one costing system will automatically suit every catering business, but the following guide lines may be helpful.

(a) The co-operation of all departments is necessary and essential.

(b) The costing system should be adapted to the business and not vice versa. If the accepted procedure in an establishment is altered to fit a costing system then there is danger of causing resentment among the staff and as a result losing their co-operation.

(c) Clear instructions in writing must be given to staff who are required to keep records. The system must be made as simple as possible so that the amount of clerical labour required is kept to the minimum. An efficient labour and time saving mechanical calculator should be provided.

To calculate the total cost of any one item or meal provided it is necessary to analyse the total expenditure under several headings. Basically the total cost of each item consist of three main elements:

• Food or material cost
• Labour
• Overheads (rent, rates, heating, lighting, equipment, repair and maintenance)

It is usual to express each element of cost as a percentage of the selling price. This enables the caterer to control his profits.

Gross profit or kitchen profit is the difference between the cost of the food the selling price of the food.
Net profit is the difference between the selling price of the food (sales) and total cost (cost of food, labour and overheads).

• Sales - Food cost = Gross profit (kitchen profit)
• Sales - Total cost = Net profit
• Food cost + Gross profit = Sales

Example:

If food sales for 1 month = £ 4000
And food cost for 1 month = £ 1760
Labour and overhead for 1 month = £ 1720
Then total costs for 1 month = £ 3480
Gross profit (kitchen profit) = £ 2240
Net profit = £ 520

£ 4000 - £ 1760 = £ 2240
£ 4000 - £ 520 = £ 3480
£ 1760 - £ 2240 = £ 4000

Profit is always expressed as a percentage of the selling price.
The percentage profit for the month was

(Net profit / Sales) x 100 = £ (520 x 100) / 4000 = 13 %

A breakdown shows:

Percentage of sales
Food cost £ 1760 = 44%
Labour £ 1000 = 25%
Overheads £ 720 = 18%
Total £ 3480
Net profit £ 520 = 13%
Sales £ 4000