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Basic Elements of Costs

The chef or business owner is responsible to ensure that expenses are met by income, irrespective of whether the operation is a profit orientated food
© International Culinary Studio

The chef or business owner is responsible to ensure that expenses are met by income, irrespective of whether the operation is a profit orientated foodservice unit or not. Several elements are used in the overall cost base.

Costs

A cost is an expense incurred for goods or services when the goods are consumed, or the services rendered. There are various types of costs:

Fixed Costs:

  • Are those that are NORMALLY unaffected by changes in sales volume. For example, insurance premiums, real estate taxes and depreciation on equipment.
  • Other: repairs & maintenance, rent or occupancy costs, most utility costs, and the costs of professional services such as accountants (agency fees).

Variable Costs:

  • Are those that are clearly related to business volume.
  • As business volume increase, variable costs will increase or vice versa.
  • Food costs are considerate directly variable costs. Directly variable costs are those that are linked to business volume.

Controllable Costs:

  • Controllable costs are those that can be changed in the short term.
  • Variable costs are normally controllable.
  • Cost of food or beverage can be changed.

Non-controllable Costs:

  • That cannot be changed in short term.
  • They are usually fixed costs.
  • Examples include rent, interest on a mortgage, real estate taxes and licence fees.

Activity

If you had a food cost is 36%, your labour cost 25%, overheads 22%, how much is your net profit?

Click here for the answer

© International Culinary Studio
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How to Manage Food Costing in the Catering and Restaurant Industry

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