Lecture Food and beverage cost control (5th Edition): Chapter 9 - Dopson, Hayes, Miller

Chapter 9
Analyzing Results Using 
The Income Statement

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Main Ideas











Introduction to Financial Analysis
Uniform System of Accounts
The Income Statement (USAR)
Analysis of Sales/Volume
Analysis of Food Expense
Analysis of Beverage Expense
Analysis of Labor Expense
Analysis of Other Expense

Analysis of Profits 
Technology Tools

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Introduction to Financial Analysis





Documenting and analyzing sales, expenses, and 
profits is sometimes called cost accounting, but 
more appropriately is know as managerial 
accounting to reflect the importance managers 
place on this process.
Recording and summarizing financial data vs. 
analyzing data
Financial reports related to the operation of a 
foodservice facility are of interest to management, 
stockholders, owners, creditors, governmental 
agencies, and often, the general public

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Uniform System of Accounts




The National Restaurant Association has developed 
the Uniform System of Accounts for Restaurants  
(USAR). The USAR seeks to provide a consistent 
and clear manner in which managers can record 
sales, expenses, and overall financial condition.
The uniform systems of accounts are guidelines, not 
a mandated methodology.

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


The Income Statement (USAR)
The Income Statement
 The income statement, referred to as the profit and 
loss (P&L) statement, is a summary report that 
describes the sales achieved, the money spent on 

expenses and the resulting profit generated by a 
business in a specific time period.
 Each operation’s P&L statement will look slightly 
different.

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


The Income Statement (USAR)




The income statement (USAR) can best be 
understood by dividing it into three sections: gross 
profit, operating expenses, and nonoperating 
expenses. 
These three sections are arranged on the income 
statement from most controllable to least 
controllable by the foodservice manger.

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller

Figure 9.1

Joshua’s Income Statement (P&L)
Joshua’s, Inc.
Last Year versus This Year
Last Year

SALES:
Food
Beverage
Total Sales

© 2011 John Wiley & Sons

COST OF SALES:
Food
Beverage
Total Cost of Sales
GROSS PROFIT:
Food
Beverage
Total Gross Profit
OPERATING EXPENSES:
Salaries and Wages
Employee Benefits
Direct Operating Expenses
Music and Entertainment
Marketing

Utility Services
Repairs and Maintenance
Administrative and General
Occupancy
Depreciation
Total Operating
Expenses
Operating Income
Interest
Income Before Income
Taxes
Income Taxes
Net Income
Prepared By: M. Chaplin, CPA
Modified By: L. Dopson, Ed.D.

$1,891,011
415,099
2,306,110

%
82.0%
18.0
100.0

This Year
$2,058,376
482,830
2,541,206

%
81.0%
19.0
100.0

712,587
94,550
807,137

37.7
22.8
35.0

767,443
96,566
864,009

37.3
20.0
34.0

1,178,424
320,549
1,498,973

62.3
77.2
65.0

1,290,933

386,264
1,677,197

62.7
80.0
66.0

641,099
99,163
122,224
2,306
43,816
73,796
34,592
66,877
120,000
41,510
1,245,383

27.8
4.3
5.3
0.1
1.9
3.2
1.5
2.9
5.2
1.8
54.0

714,079
111,813
132,143
7,624
63,530
88,942
35,577
71,154
120,000
55,907
1,400,769

28.1
4.4
5.2
0.3
2.5
3.5
1.4
2.8
4.7
2.2
55.1

253,590
86,750
166,840

11.0

3.8
7.2

276,428
84,889
191,539

10.9
3.3
7.5

65,068
101,772

2.8
4.4

76,616
114,923

3.0
4.5
Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


The Income Statement (USAR)


Each revenue and expense category on the income 
statement can be represented both in terms of its 
whole dollar amount, and its percentage of total 
sales. All ratios can be calculated as a percentage of  
total sales except the following:
–
–
–
–

Food Costs are divided by food sales
Beverage Costs are divided by beverage sales
Food Gross Profit is divided by food sales
Beverage Gross Profit is divided by beverage sales

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


The Income Statement (USAR)



The income statement is an aggregate statement – 
summary.
The details can be found in supporting schedules. 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.2

Direct Operating Expenses Schedule

Type of Expense
Uniforms
Laundry and Linen
China and Glassware

Expense
$ 13,408
40,964
22,475

% of Direct
Operating
Expenses
10.15%
31.00
17.01

Silverware
Kitchen Utensils

Kitchen Fuel
Cleaning Supplies
Paper Supplies
Bar Expenses
Menus and Wine Lists

3,854
9,150
2,542
10,571
2,675
5,413
6,670

2.92
6.92
1.92
8.00
2.02
4.10
5.05

1,803
9,014
3,604
132,143

1.36
6.82
2.73

100.00

Exterminating
Flowers and Decorations
Licenses
Total Direct Operating
Expenses

Notes

Expense is higher than
budgeted because
china shelf collapsed on
March 22.

Expense is lower than
budgeted because the
new wine supplier
agreed to print the wine
lists free of charge.

 
© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Analysis of Sales/Volume



Overall sales increases or decreases can be 
computed using the following steps:
1. Determine sales for this accounting period
2. Calculate the following: this period’s sales minus last 
period’s sales.
3. Divide the difference in #2 above by last period’s sales to 
determine percentage variance.

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.3

Joshua's P&L Sales Comparison

Sales
Food Sales
Beverage Sales
Total Sales

Last Year
$1,891,011
415,099
2,306,110

% of Sales
82.0%
18.0
100.0

This Year
$2,058,376
482,830
2,541,206

% of Sales
81.0%
19.0
100.0

 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Analysis of Sales/Volume


There are several ways a foodservice operation 
experiences total sales volume increases. These are:

1. Serve the same number of guests at a higher check 
average
2. Serve more guests at the same check average
3. Serve more guests at a higher check average.
4. Serve fewer guests at a much higher check average.

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.4

Joshua’s P&L Sales Variance

Sales
Food Sales
Beverage Sales
Total Sales

Last Year
$1,891,011
415,099
2,306,110

This Year
$2,058,376
482,830

2,541,206

Variance
$167,365
67,731
235,096

Variance %
+ 8.9%
+16.3
+10.2

 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Analysis of Sales/Volume
 The procedure to adjust sales variance to include 
menu price increases is as follows:
Step 1.
Step 2. 
Step 3. 

© 2011 John Wiley & Sons

Increase prior period sales (last year) by amount 
of the price increase.
Subtract the result in Step 1 from this period’s 
sales
Divide the difference in Step 2 by the value of 
Step 1. 

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.5

Sales
Food Sales
Beverage
Sales
Total
Sales

Joshua’s P&L Sales Comparison with 5% Menu Price Increase

Last Year
$1,891,011
415,099

Adjusted Sales
(Last Year x
1.05)

$1,985,561.60
435,853.95

This Year
$2,058,376
482,830

Variance
$72,814.40
46,976.05

Variance
%
+ 3.67%
+10.78

2,306,110

2,421,415.50

2,541,206

119,790.50

+ 4.95

 

Figure 9.6

Hot Dog! Sales Data

Total Sales (October)
# of Operating Days
Average Daily Sales

Last Year
$17,710.00
22 days
$805.00

This Year
$17,506.00
21 days
$833.62

Variance
$ -204
1 day
$ 28.62

Variance %
-1.2%
+ 3.6

 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 

Edition
Dopson, Hayes, & Miller


Analysis of Food Expense


A food cost percentage can be computed for each 
food subcategory. For instance, the cost percentage 
for the category Meats and Seafood would be 
computed as follows:

Meats and Seafood Cost
Total Food Sales 

© 2011 John Wiley & Sons

  =       Meats and Seafood Cost %

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.7 Joshua’s P&L Food Expense Schedule
Last Year

Food Sales

% of Food This Year

Sales
$1,891,011
100.0% $2,058,376

Cost of Food Sold
Meats and Seafood
Fruits and Vegetables
Dairy
Baked Goods
Other
Total Cost of Food Sold

$ 297,488
94,550
55,347
16,142
249,060
712,587

15.7
5.0
2.9
0.9
13.2
37.7

$ 343,063
127,060
40,660
22,870

233,790
767,443

% of Food
Sales
100.0%

16.7%
6.2
2.0
1.1
11.4
37.3

 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.8 Joshua’s P&L Variation in Food Expense by Category
Category
Meats and Seafood
Fruits and Vegetables
Dairy
Baked Goods
Other

Total Cost of Food Sold

Last Year %
15.7%
5.0
2.9
0.9
13.2
37.7

This Year %
16.7%
6.2
2.0
1.1
11.4
37.3

Variance
+1.0%
+1.2
-0.9
+0.2
-1.8
-0.4

 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Analysis of Food Expense




Inventory turnover refers to the number of times 
the total value of inventory has been purchased and 
replaced in an accounting period.
The formula used to compute inventory turnover is 
as follows:

Cost of Food Consumed
Average Inventory Value= Food Inventory Turnover

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.9 Joshua’s P&L Average Inventory Values

Inventory Category
Meats and Seafood

Fruits and Vegetables
Dairy
Baked Goods
Other
Total

This Year
Beginning
Inventory
$16,520
1,314
594
123
8,106
26,657

This Year
Ending
Inventory
$14,574
846
310
109
9,196
25,035

Average
Inventory
Value
$15,547

1,080
452
116
8,651
25,846

 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Figure 9.10 Joshua’s P&L Food Inventory Turnover
Inventory Category
Meats and Seafood
Fruits and Vegetables
Dairy
Baked Goods
Other
Total

Cost of Food
Consumed
$343,063
127,060
40,660
22,870

233,790
767,443

Average
Inventory
$15,547
1,080
452
116
8,651
25,846

Inventory
Turnover
22.1
117.6
90.0
197.2
27.0
29.7

 

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller

Analysis of Food Expense


The average inventory value is computed as follows:

Beginning Inventory Value + Ending Inventory Value
2
=   Average Inventory Value 



Be sure that a high inventory turnover is caused by 
increased sales and not by increased food waste, 
food spoilage, or employee theft.

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Analysis of Beverage Expense


Beverage inventory turnover is computed using the 
following formula:

    Cost of Beverages Consumed
  Average Beverage Inventory Value 

= Beverage Inventory Turnover

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller


Analysis of Beverage Expense




If an operation carries a large number of rare and 
expensive wines, it will find that its beverage 
inventory turnover rate is relatively low.
Conversely, those beverage operations that sell their 
products primarily by the glass are likely to 
experience inventory turnover rates that are quite 
high.

© 2011 John Wiley & Sons

Food and Beverage Cost Control, 5th 
Edition
Dopson, Hayes, & Miller