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THE AUTHORS PROVIDE AN EXAMPLE OF HOW A RESTAURANT HAS APPLIED A COST VARIANCE FRAMEWORK TO ITS FOOD AND LABOR COSTS. ALTHOUGH APPLYING THESE TECHNIQUES IN A RESTAURANT SETTING POSES UNIQUE PROBLEMS THAT A MANUFACTURING OR SERVICE SETTING DOES NOT HAVE TO FACE, THE FRAMEWORK OFFERS HIGH-QUALITY INFORMATION THAT A RESTAURANT CAN INTEGRATE INTO ITS PROFIT-AND-LOSS REPORTING.
This article is dedicated to the memory of Grace and Albert Milani, Ken's parents, who owned and operated a restaurant for almost 20 years.
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Times are tough in the restaurant industry. Because of the weak economy, the number of people eating out has fallen at the same time that the costs of producing and serving meals have increased. To coax more customers into dining away from home, restaurants are exploring and implementing marketing and promotion efforts. This article, however, will focus on meal costs by examining an integrated cost control analysis.
First, we will explain the traditional cost variance framework, then apply it to the control of labor and food costs in a restaurant operation. Next, we will discuss the considerations in setting cost standards, illustrate calculations of cost variances, and propose possible interpretations of the calculated variances. Throughout the effort, Legends of Notre Dame Restaurant and Alehouse Pub (LEGENDS) serves as the primary example, and there are five supporting examples.
Cost variance analysis begins with the accounting processes of determining theoretical costs, setting cost standards, collecting actual costs, and ending with evaluating performance. Properly determining theoretical costs in the restaurant business involves setting standard recipes and preparation procedures for every menu item. Setting cost standards is the next step in this process. The standard or expected cost is the total cost that should occur for an actual level of activity within the restaurant. An example dealing with Irish Nachos at LEGENDS will reveal in greater detail that standard costs vary from theoretical costs as the result of a certain degree of unavoidable occurrences in the kitchen.
The analysis rounds out with collecting actual costs and evaluating performance evaluation. Expected costs result primarily through analyzing theoretical costs and looking at historical operations. Ideally, this deliberate process involves many people, including purchasing personnel, budget administrators, managers, and possibly kitchen or wait staff....