8065-02 Unit 219: Catering operations, costs and

menu planning

Calculations in the
Catering
Industry
Introduction

Hospitality is a diverse industry consisting of

many types of food service operations.
Regardless of whether it is a hotel,
restaurant, café, club, canteen or contract
catering service, there are common
requirements. All of these businesses rely
on making a profit from selling products to
customers.
The business will need facilities, equipment,
staff and commodities to provide the
products.
All of these cost the business money. In
order for the business to be successful, the
balance between money earned (revenue)
and money spent (expenses) must be tightly
controlled.
Elements of Costs

There are many mechanisms for controlling and monitoring the revenue and costs of a business,
such as the following:

➢ Budgets and financial controls

o Menu costs
o Staff costs
o Staffing needs and rostering
o Increasing revenue
o Stocktake
o Audits
o Accountant support

➢ Planning with the catering control cycle

o Menu design and recipes
o Ordering, receipt and storage
o Preparation
o Service and quality control
o Cleaning up and reordering
Budgets

Budgets are the foundation of all business planning. A budget estimates the future income and
expenses of the business.
➢A business budget is based on the income it expects to earn from selling products, etc., against its
expenses (rent, food, staff costs, etc.). The money left over is known as profit
➢Creating a budget for a business is a bit of a guessing game. You will use average spend, predicted
customer numbers and other estimates to predict the amount of revenue. This will influence the
amount of food that needs to be purchased and the number of staff required to provide the service to
the customers.
➢Budgets are generally set for a financial year. The budget is then broken down into monthly periods
within that, with some businesses going into more detail with weekly and/or daily cash budgets
➢It is important to note that budgets do not only cover the dollar figures but also cover the quantities
sold and purchased, e.g. number of covers and average spend. This information is just as useful as
the actual dollar amount, as it enables greater data analysis and understanding of the business
➢Budgets provide direction, motivate staff, coordinates business activities and evaluates business
performance
Budgets

➢ Master budget – the master budget is the budget for the entire business, including projected
cashflow; Profit and Loss; and Balance Sheet budgets
➢ Departmental budgets – each department within a business will have its own budget. Some
departmental budgets will show revenue and expenditure, e.g. F&B, whereas others do not
produce income so will only have an expenses budget, e.g. Administration
➢ Wage budgets – whilst wages will be shown in each Departmental budget, a large business will
also have a combined Wages budget which shows the total wages for the business
➢ Events budgets – these budgets are used for single events such as conferences. When quoting
a potential customer for a conference, it is important to ensure that a profit will be made for the
event
➢ Purchasing budgets – also known as Expense budgets, they show the projected expenditure of
the business. For a kitchen, this would include the food and consumables such as cling wrap
➢ Capital Expenditure budgets – this is a special type of budget used to purchase assets. Some
examples of when a Capital Expenditure (CAPEX) budget would be prepared include a
refurbishment and purchases of equipment such as commercial ovens and dishwashers
Comparing actual figures to the projected budget will show you how the business is performing and
whether there are any variances. Variances can be positive or negative, meaning that your
results may show additional profit or loss. Identifying both is important as it allows you to adjust
your strategies.
Elements of Cost

When running a business, it is important to establish the fixed, variable and semi-variable costs of
the business. Once the details are established you can analyse how variances in revenue and pricing
impact upon the business.
Costs occur across the whole business. Some costs are easily attributed to a specific cost centre
and can be controlled, e.g. the kitchen incurs specific direct costs for the food purchased and it
controls the amount of purchases and the use of the commodities. Staff costs associated with the
kitchen are also directly attributable to this cost centre. Indirect costs such as electricity and
telephone are shared between all of the cost centres within the business. Administration wages are
also an indirect cost that needs to be shared by the whole business.

Fixed Costs Variable Costs Semi-Variable Costs

Expenses within a business that do
not change regardless of the amount
of revenue produced. For example,
whether you have 1 customer or 100
customers, you will have to pay the
same amount of rent.
Expenses that change
depending on the level of
sales and production
activity in the business, e.g.
food costs and other Cost
of Goods (COGS) will
fluctuate with the number of
customers.
Expenses that have a fixed and a variable
component. For example, utilities such as
water and electricity have a fixed cost for
service to the property as well as a
variable portion for the usage of water or
electricity. The level of usage is
determined to a large degree by the sales
volume.
Profit and Budgets

Businesses aim to achieve a set net profit. This can only be achieved if the associated costs in the
business are controlled. Remember the formulas for profit:

Gross Profit: Net Profit: Staff Cost Percentages:

Turnover – Food cost Turnover – Total Overheads Staff Cost ÷ Turnover x

Turnover is generated from 100
Sales also known as Income
and Revenue

Management must control food costs at all points of the Catering Cycle. Staff cost, both direct and
indirect, should also be reflected as a percentage of revenue. All other expenses such as power,
maintenance, repairs are usually grouped under an overall heading of overheads and must also be
monitored.
These costs can be placed as a total percentage to determine the mark up required for all menu
dishes or the menu overall.
Menu price balance is achieved when all dishes within the menu are costed and contribute together
to achieve an overall menu food cost percentage.
This approach has to be utilised for menus offered within the operation from breakfast to lunch and
dinner.
Profit and Budgets

The following example shows how each course and its offering should be balanced out to contribute
to the overall menu food cost percentage. Double click to open the spreadsheet and scroll through or
right click and open object in excel:

Total
Sales Food Food Food
Menu Items Portion Cost Price Cost% Covers Cost Revenue Cost%

Fish of the day $6.50 $32.00 20.30% 19 $123.50 $608.00 20.30%

Rump steak Café

de Paris $6.90 $34.00 20.30% 18 $124.20 $612.00 20.30%

Prawn satay with

rice $7.20 $32.00 22.50% 17 $122.40 $544.00 22.50%

Chicken
Saltimbocca $4.25 $30.00 14.20% 16 $68.00 $480.00 14.20%
Totals $24.85 $128.00 19.40% 70 $438.10 $2,244.00 19.50%
4 4 4 4 4

Desserts

Sales Food Total Food Food

Menu Items Portion Cost Price Cost% Covers Cost Revenue Cost%
Profit and Budgets

As you could see from the previous example sales prices have to be geared towards the price level
that your customers are prepared to pay. Some dishes will be cheaper to produce and others will be
more expensive.
The management of the revenue and cost impacts through sales mix data allows you to tweak the
menu for maximum performance. The template provided can be expanded to include more menu
items. Combining the trading figures for a week, month or the duration of a menu provides invaluable
feedback and highlights popular dishes which you may want to retain. Menu items are often referred
to with the following terms:

➢Star – a popular item which returns a high profit

➢Puzzle – a high profit item which is unpopular
➢Plough horse – a popular item which returns a low profit
➢Dog – an unpopular item which returns a low profit

When pricing items on a menu, you would aim for an overall food cost percentage of 20-28%. To do
this you must cost each individual dish to establish the food cost percentage.
It is important to have a balance of dishes and prices – some food cost percentages will be high,
some will be low.
Example of Costs

Imagine that your restaurant will break even if it gets 30 customers each night, for which you would
employ 2 chefs. If you get 40 customers each night, your revenue will increase and the 2 chefs can
handle the workload. However, you will have to buy more ingredients and use more gas and
electricity, so those costs go up. If you get 50 customers your revenue would go up even more but
you would need an extra chef, so your staff cost would go up as well. The trick is to get the revenue to
go up more than the additional costs!
Take a look at the following table. You can see that as customer numbers go up, the revenue
increases. Food cost goes up because more food is required and staff cost goes up as more chefs
and waiters are required.
Customer 50 75 100 150 200
numbers
Staffing needs

F&B staff 2 3 4 6 8

Hours each 5.5 5 5 6 6

Kitchen staff 3 3 4 6 7

Hours each 5.5 6.5 6 5.5 6

Wage per hour $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00

Staff cost $ 687.50 $ 862.50 $ 1,100.00 $ 1,725.00 $ 2,250.00

Example of Costs

Customer 50 75 100 150 200

numbers
Average spend $ 40.00 $ 40.00 $ 40.00 $ 40.00 $ 40.00

Revenue $ 2,000.00 $ 3,000.00 $ 4,000.00 $ 6,000.00 $ 8,000.00

Food cost $ 500.00 $ 750.00 $ 1,000.00 $ 1,500.00 $ 2,000.00

Staff cost $ 687.50 $ 862.50 $ 1,100.00 $ 1,725.00 $ 2,250.00

Other costs $ 800.00 $ 820.00 $ 850.00 $ 900.00 $ 1,100.00

Profit $ 12.50 $ 567.50 $ 1,050.00 $ 1,875.00 $ 2,650.00

Food cost % 25% 25% 25% 25% 25%

Staff cost % 34% 29% 28% 29% 28%

Other costs % 40% 27% 21% 15% 14%

Profit % 1% 19% 26% 31% 33%

Scenarios

Complete the following scenarios using the previous data provided:

➢ Due to the upselling skills of your wait staff, you have been able to increase customers’ average
spend. What is the effect of an average spend of $45 on profit? $50?
➢ It is a new year and costs of rent, electricity, gas and other items have increased. Increase each
of the figures in the “Other costs” by 10% and see what the effect is. What about 20%? How
much do you need to increase average spend by to restore the profit?
➢ High-end restaurants often have more staff, who are better paid. Input the following data into the
“Staffing needs” section to see the impact of staff numbers on profit. How much do you need to
increase average spend by to restore the profit?

Information Data

F&B staff 3 4 5 7 10

F&B staff hours 6 6 6.5 7 7

Kitchen staff 4 4 6 8 11

Kitchen staff 6 7 7 7 6
hours
Wage per hour $ 28.00 $ 28.00 $ 28.00 $ 28.00 $ 28.00