Chapter 1 Flashcards
Percent
1. Common Form “%” sign is used, as in 10% 2. Fraction Form the part, or a portion of 100, as in 10/100 3. Decimal Form the decimal point (.), as in 0.10
Profit: The Reward for Service
Revenue - Expenses = Profit
- Revenue is the amount of dollars an operation takes in.
- Expenses are the costs of the items required to operate the business.
- Profit is the amount of dollars that remain after all expenses have been paid.
Profit
- If management focuses on controlling costs more than on properly servicing guests, problems will certainly result.
- Managers should never feel that “low” costs are good and “high” costs are bad. That is not true.
- Improvements in business operations should yield more customers which, in turn, will yield greater operational expense.
- Efforts to reduce costs that result in unsafe conditions for guests or employees are never wise.
- The question is not whether costs are too high or low, but whether costs are too high or too low, given management’s view of the intended value to be delivered.
Desired profit
Profit that the owners of a business want to achieve based on an estimated quantity of revenue.
Ideal Expense
Management’s view of the correct or appropriate amount of expense necessary to generate the same estimated quantity of revenue.
Revenue varies with
- number of guests served.
2. amount of money spent by each guest.
Operators can increase revenue by
- increasing the number of guests served.
- increasing the amount spent by each guest.
- increasing the number of guests served and the amount spent by each guests
Four Major Foodservice Expense Categories
- Food Costs
- Beverage Costs
- Labor Costs
- Other Expenses
Food Costs
- Costs associated with actually producing menu item 2. Largest or second largest expense category
Beverage Costs
- Costs related to the sale of alcoholic beverages
2. May also include ingredients, mixers and garnishes
Labor Costs
- Cost of paying all employees, including payroll taxes
- Labor costs are usually second only to food costs in total dollars spent in a foodservice operation
- Some operations include the cost of management in this category. Others may prefer to place the cost of managers in the Other Expenses category.
Other Expenses
Includes all expenses that are neither food, beverage nor labor; examples include utilities, rent, and advertising
Percent
=Part/ Whole
Expense Percentage
=Expense/ Revenue
Profit percentage
=Profit/ Revenue
Modified profit formula
Revenue - (Food and Beverage Cost + Labor Cost +Other Expenses) = Profit
Profit Percentage
=Revenue (100%)- Food and Beverage Cost %- Labor Cost %- Other Expense %
Income(Profit and Loss) Statement
- The P&L is important because it indicates the efficiency and profitability of an operation.
- Managers are often evaluated on the basis of their ability to meet established P&L targets.
- A profit and loss statement (P&L) lists revenue, food and beverage cost, labor cost, other expenses, and profit.
- The accounting tool managers use to report an operations’ revenue, expenses, and profit for a specific time period is called the Statement of Income and Expense.
A Uniform System of Accounts
is used to ensure consistency in reporting operating results for a business.
Uniform System of Accounts for Restaurants (USAR)
is used to report financial results in most foodservice units. The USAR is published by the National Restaurant Association (NRA).
Food and Beverage Cost %
Food and Beverage Cost/ Revenue
Labor Cost %
Labor Cost/ Revenue
Other Expense %
Other Expense/ Revenue
Total Expense %
Total Expense/ Revenue
