ProStart Year 2 – Chapter 3

1. What is the one rule that must be obeyed in order for a business to survive?
(147)
Make more money than you spend.
2. Define (147)
Revenue The amount you can spend or make. Your income after
expenses are paid

Cost The price an operation pays out in purchasing and

preparation of its products or the providing of its service
Cost control A business’s efforts to manage how much it spends

3. What does variable or semivariable costs mean? (148)

Cost that are subject to change based on sales

4. Why are variable or semivariable costs controllable costs? (148)

Because they’re subject to change and the operation has a certain amount of control in
how much it spends on these aspects of the operation

5. What does fixed or non-controllable cost mean? (148)

A cost that needs to be paid no matter if the operation is making or losing money

Give 3 examples of fixed or overhead cost.

1. insurance 2. utilities
3. Lease or mortgage

6. How can you control food cost? Give at least 2 examples. (149)
By using standardized recipes or exercising standard procedures for portion control,
menu listing, and pricing. For example, if the price of the chicken increases and
no action is taken, the restaurant’s food cost will increase. Management can
either raise the selling item price or all chicken entrees, reduce portions,
reposition the items on the menu, or eliminate chicken from the menu altogether.
Another example is the hourly wage portion of labor cost.

7. How can you manage labor costs? (149)

By changing the number of hours worked on an employee’s schedule, a manager can
affect labor cost.

8. What is an operating budget? (151)

A financial plan for a specific period of time.

9. What are the three purposes of an operating budget? (151)

 1 analyzing controllable cost needs
2 outlining operating goals and manager’s performance responsibilities
3 Measuring actual performance against anticipated performance

10. Define the following: (152-153)

Forecast A prediction of sales levels or costs
during a specific period of time.
Average Sales Per Customer Total dollar sales/total number of
customers
Sales History A record of the number of portions of
every item sold on the menu
Production Sheet Lists all the menu items that are going
to be prepared for a given date
Moving Average Technique or Also called the Smoothing Method, It
Smoothing is more accurate b/c you use info from
2 or 3 recent and similar periods that
are averaged together.
11. What is a point of sale or POS System? (153)
To helps calculate sales forecast

12. Financially why does is pay to sell alcohol in a restaurant? (154)

It has a greater gross margin and net profit than food items

13. Explain the 3 steps to developing an operating budget (154-155)

Collect all available and demographic data.
Know your potential customers. See what’s needed.
Forcast revenues.
# of customers x Average sale per customer
Forcast costs.
Predict how much the company will spend

14. What are the 4 steps used to forecast sales volume? (155-156)
1 Analyze the sales history
2Account for externalities
3 Predict sales volume
4 Predict sales mix

15. Another way to manage and control costs is by using a profit and loss report.
Please explain how this is done. (156-157)
It shows whether an operation has made or lost money during a time period. It helps the
manager gauge an operation’s profitability as well as compare actual results to
expected goals.

16. List at least six cost control tools (158)

1 Kitchen 4 Programs
 2 Receiving and portion scales 5 Email/internet
3 Cash registers 6 POS systems

17. Food costs must be controlled throughout all seven stages of the food flow
process, explain how this can be done in each stage. (165-166)

Receiving Storing Issuing

Quality and quantity Must be keeps a record of
must be safe/sanitary/efficient what is being used
inspected upon more frequently
receiving
Preparing
Purchasing product should not be
Spend wisely and get wasted to
good quality food minimize food cost

Serving Cooking
Take orders correctly, food must be
no mistakes cooked/portioned
correctly to minimize
food cost

18. Define the following (167)

Food Cost The actual $ value of the food used by an operation
during a certain period
Opening Inventory The physical inventory at the beginning of a given period
Closing Inventory The inventory at the end of a given period.

19. What is the formula for obtaining an actual food cost? (167)
(opening inventory + purchase = total foo available) – Closing inventory = Total food
cost

20. What is food cost percentage? (167)

The relationship between sales and the cost of food to achieve those sales.

21. What is the formula for determining food cost percentage? (168)
Total food cost/sales = food cost percentage

22. What a standard portion cost? (169)

The exact amount that one serving or portion of a food item should cost when prepared
according to the item’s standardized recipe.
23. What is the difference between as purchased (AP) and edible portion (EP)?
(170-171)

* Edible portion (EP) is the portion of food that will be served to a customer after the
food has been cut and cooked.
* As purchased (AP) is the portion of food that is in the raw state before any cutting,
processing, or cooking has occurred.

24. What is a recipe yield? (171)

The process of determining the number of portions that a recipe produces.

25. What are the 5 steps for changing a recipes yield? (173)
1 Decide how many servings you need
Use the following formula: Desired yield ÷ Original yield = Conversion factor
3. Multiply each ingredient amount by the conversion factor. This keeps all the
ingredients in the same
proportion to each other as they were in the original recipe.
4. As needed, convert answers to logical, measurable amounts. Think about
the equipment you will use
for measuring. For example: 6/4 cups fl our = 1½ cups; 12 tablespoons brown
sugar = ¾ cups.
5. Make any necessary adjustments to equipment, temperature, and time.
The depth of food in a pan

26. How does using a standard portion size affect a restaurant’s cost and profits?
(174)
some staff in the kitchen may believe that they have a “feel” for exact
portion sizes, it is important that staff use portion-control devices rather than
guessing. Without using portioning equipment, staff may be serving portions
that are bigger than the menu price has been calculated for, which will result
in the operation losing money. On top of that, inconsistent portioning can lead
to inconsistent products.
27. Explain the 4 ways to determine menu pricing. (177-178)
Contribution Margin Straight Markup Method
A contribution margin is the portion of In the straight markup pricing method,
dollars that a particular menu item multiply raw food costs by a
contributes to overall profits. To use predetermined fraction. For example,
the contribution margin method of if an operation pricing a menu item
pricing a menu, an operation must with a raw
know the portion costs for each item food cost of $0.63 uses a straight two-
sold. thirds markup, the menu is calculated
This is why recipe portion cost cards as
are so important. Then an operation follows:
can $0.63 × 2/3 = 0.42
determine the average contribution 0.42 + $0.63 = $1.05
margin needed to cover overhead
and yield
a desired profit at an expected level
of sales volume

Average Check Method Food Cost Percentage **

With the average check method, the
total revenue is divided by the
number of
seats, average seat turnover, and
days open in one year. The average
check gives
managers an idea of the price range
of items on the menu. Use this
range, along
with an approximate food cost
percentage, to determine each item’s
selling
price.
As discussed earlier in the chapter,
the food cost percentage is equal to
the food
cost divided by food sales. If an
operation projects monthly food costs
to be
$18,000 and monthly food sales to be
$62,000, the food cost percentage will
be
29 percent ($18,000 / $62,000).
Based on this figure, an operation can
price all
food items on the menu. For example,
if an item costs $1.12, determine its
selling price using this pricing formula:
Item cost ÷ Food cost percentage =
Price
$1.12 ÷ 0.29 = 3.86 (which can be
used to price the item at $3.86, or
rounded up to $4.00)

28. Why is labor cost semivariable? (185)

It tied to sales but not directly. Its subject to change because you don’t have the same
workers everday.
29. Explain what happens if an operation spends too much on labor? (186)
The operation would be losing profit instead of making it. They would be paying more
staff than needed.

What if they spend too little on labor? (186)

Quality of employee’s work will decrease because there’s to few staff members
30. Explain how the following factors affect labor costs (187-189)
Business Volume or the amount of sales an operation is doing for a
given
time period, impacts labor costs. When business
volume increases, the fixed
elements (salaried employees such as managers) of
labor cost decrease by a
percentage. The variable elements of labor cost go up
and
down in direct relation to sales volume. An increase in
sales means more hours
needed; a decrease in sales means fewer hours.
Staffing needs to correspond to
the given need of the operation for it to function
efficiently and cost effectively.
Employee Turnover is the number of employees hired to fill one position in
a
year’s time. It directly impacts labor cost. Typically, the
higher the turnover rate
of a given operation, the higher the labor costs. This
results primarily from the
training costs involved in bringing on new staff. For
example, an operation’s
current employees are often responsible for teaching
and tutoring new trainees;
at the same time, the new trainee is getting paid for
very little or no productivity while learning the ins and
outs of the operation. Every time an operation
hires someone, labor costs go up because it takes a
new employee a period of
time to achieve the productivity level of an
experienced employee.
Quality Standards Quality
standards are the specifications of the operation with
regard to products and
service. The type of operation and the type of menu it
has determine the number of staff and the skill level
required of that staff to meet the operation’s needs.
For example, a fine-dining operation might have
higher menu prices and higher
 service specifications than a quick-service restaurant.
Employee skill levels will
then need to be higher, which will require more
training, more experience, and,
consequently, higher labor costs.
Operational If an employee does not prepare a product that meets
Standards the operation’s standards, the item must be redone.
This costs money, not only
in terms of wasted product that increases food cost,
but also in terms of productivity that increases labor
cost. If a line cook at a fine-dining steakhouse, for
example, overcooks one steak priced at $30.00 on the
menu, all of that potential
revenue is wasted. Likewise, if a quick-service line
cook overcooks an entire
batch of fries, that would yield 10 servings at $3.00 a
serving, $30.00 in potential revenue is lost. The quality
standards for these establishments are likely
different, but the operational standards for each were
not met, resulting in lost
revenue and, ultimately, increased labor costs to
compensate for mistakes made

31. Explain the difference between a master schedule and a crew schedule. (190-
191)
Master schedule It is a template, usually a
spreadsheet, showing the number of people needed in each position to run the
restaurant or foodservice operation for a given time period. List no names on
the master schedule, simply the positions and the number of employees in those
positions.

Crew schedule - is a chart that shows employees’ names and the days and times they
are to work.

32. Scheduling employees is important to controlling costs in an operation. Things

don’t always go as planned. You might need a contingency plan…what three things
should be included?
1 Cross training employees
2 Identifying shift leaders
3 Having on-call employees

33. What is one way in which quality standards help with cost control for each of the
following aspects of foodservice? (199-203)

Purchasing: Prior to ordering, receiving, and storing quality products, consider

where the products were grown or produced. Even the best receiving and storing
policies and procedures cannot make a poor-quality product better after it is in the
establishment. So, choosing a credible supplier is key. Those with purchasing
responsibility should seek suppliers who are considered to be ethical, reliable, and
financially stable or deemed to be part of an approved supplier list, based on food
safety, product quality, and price.

Receiving: Once purchase orders have been made, the next step is to receive
the item in the most efficient, safe, and effective way possible. Deliveries should be
designated to times when the operation is slow. An operation does not want staff to
worry about receiving and putting away products at the same time they are serving
customers. Proper delivery timing can only be accomplished by establishing a good
relationship with vendors so that an operation can count on them to consistently deliver
food when wanted.

Storing: After purchasing and properly receiving orders, safely store them. Poor
storage procedures and facilities can greatly increase food costs due to waste and
increased labor costs, so it’s critical that operations create quality standards for proper
storage.

34. Why is it important to compare the purchase order to the invoice? (201)
To make sure you have everything you’ve ordered and make sure everything I correct
35. Define the following physical inventory. (204)
It means counting and recording the number of each item in the storeroom
36. Explain the 4 methods of taking closing inventory (205-206)

Latest purchase price Actual purchase price

Multiply the number of units of each Multiply the number of units of each
item by the most recent price paid for item by the price actually paid for
the item. each unit.

Weighted average purchase price Last in, first out

Multiply the number of units of each Multiply the number of units of each
item in the opening inventory and later item by the earliest price paid for the
purchases by the price actually paid item
for each unit, add the prices all
together, and divide by the total
number of items

Test Review Questions (214-215)

1. C 6. D
2. A 7. C
3. D 8. B
4. B 9. B
5. A 10. A