AboutLeo Lingham Expertise In Managing a business, I can cover all aspects of running
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Experience 18 years of working management experience covering such areas
as business planning, business development, strategic planning,
marketing, management services, personnel administration.
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24 years of management consulting which includes business planning, strategic planning, marketing, product management, training, business coaching etc.
Question QUESTION: Respected sir ,I wish to clear my doubts .Assume that my company plans to give a 50% percent discount to all executives & employee on food and beverage available on menu i.e. seafood, meats included, provides free meals to employees, and also has a fixed plan of vegetable or non vegetable (excluding seafood) combo meal to visiting executives. how should I calculate my actual cost food & beverage I am currently reflecting it as -- beginning inventory, add+ purchases, subtract -food cost free meals,& subtract food cost of food given on discount( considered as employee benefit) , thus giving us the food cost percentage to sale. Correct me if I am wrong...Please!!!
Secondly if I had to prepare the p & l will the discounted menu items “sale price” collected be projected in total sales and also be included in employee benefit i.e. included in labour cost and shown as labour cost % err..! am I confusing thing here ..in short I wish to know how good is my p& l statement be considering above judgements. Thanking you for your time and patience. Trevor L C
ANSWER: TREVOR,
COULD YOU PLEASE CLARIFY,
-if the 50% of the cost IS--- of the material / labor cost= cost of goods
or
-if the 50% IS of the menu price.
thanks
regards
LEO LINGHAM
---------- FOLLOW-UP ----------
QUESTION: yes sir the 50% is of the menu price and i also missed the subtraction of month ending stock for calculating food cost. the issue i face is how to get it in monthly p & l reports
ANSWER: TREVOR,
HERE IS SOME USEFUL MATERIAL.
REGARDS
LEO LINGHAM
======================================
-with your formula, you are deceiving yourself.
-this will inflate the profit.
=============================================
I have shown the income /expense/profit / loss of a general /standard
format used universally for restaurants.
We can use it for your case /situations.
FIRST,
YOUR TOTAL SALES
which is sales to outside customers + sales value of
free meals/ foods at 50% discount.
SO, YOUR TOTAL NET SALES = RS 55 MILL.
========================================
SECOND,
COST OF GOODS= cost of material goods + labor cost[ wages of chef+cooks+kitchen hands]
COST OF MATERIAL GOODS =[opening+purchases -[losses+ damages] - closing ]
[take the cost as it is, and do not reduce by 50%, as you have already
used the material for making dishes
and you have already reduce the sales price by 50%]
APPLYING THIS, TO THE EXAMPLE
COST OF GOODS =MATERIAL[ RS 18 MILL] +LABOR [RS 2 MILL]=RS 20 MILL.
==============================================================
I have provided the figures based on a very general standard restaurant.
The costings varies with
-the nature of food serviced.
-the type of cooking
-the time taken for cooking
etc etc.
-------------------------------------------------
The breakdown of waiter and kitchen varies with
the services offered.
--------------------------------------------------------
=========================================
STANDARD FORMAT
INCOME / EXPENSES/ PROFIT/ LOSS
Income
Total net sales $___[100]_%______
Costs of sales $___[35]%_______
Gross profit $____[65]_%_____
Expenses
Fixed Expenses
Rent $__________
Utilities $__________
Equipment leases $__________
Depreciation $__________
Insurance $__________
License/permits $__________
Loan payments $__________
Miscellaneous $__________
Total Fixed Expenses $___[10_] %______
Controllable Expenses
Salaries/wages $__________
Payroll expenses $__________
Supplies $__________
Advertising $__________
Dues/subscriptions/fees $__________
Legal and accounting $__________
Repairs/maintenance $__________
Total Controllable Expenses $__[40] %________
Total Expenses $____[50_]_%____
Net profit (Loss) $__________
Before taxes $___[15_]_%_____
Taxes $__________
Net Profit (Loss) After Taxes $__________
==============================================================
I HAVE APPLIED THE FORMAT TO YOUR CASE
INCOME / EXPENSES/ PROFIT/ LOSS
Income
Total net sales RS_55_MILL_[100]_%
Costs of sales $_20MILL__[36.5]%
Gross profit $_35_MILL__[63.5]_%
------------------------------------------------------
Expenses
Fixed Expenses
Rent $__________
Utilities $__________
Equipment leases $__________
Depreciation $__________
Insurance $__________
License/permits $__________
Loan payments $__________
Miscellaneous $__________
Total Fixed Expenses RS 5.5 MILL[10_] %
Net profit RS _7.5 MILL_______
Before taxes $_RS 7.5 MILL __[13.5]_%
Taxes $__________
Net Profit (Loss) After Taxes $__________
===============================================================
AS YOU GIVE OUT MORE FREE FOOD/ DISCOUNTED FOOD,
YOUR PROFIT WILL GO DOWN.
###########################################################
---------- FOLLOW-UP ----------
QUESTION: thank you sir, your reference is truly very helpful my main concerned area has been justified rightly. but there is yet another query arising that is though sales value of discounted menu items is considered as sales and if i am not getting a revenue from free meals would it be legitimate to consider it in TOTAL SALES (referred as sale value of free meal)which is sales to outside customers + sales value of
free meals/ foods at 50% discount.primarily concerning its value is been subtracted in
COST OF MATERIAL GOODS =[opening+purchases -[losses+ damages] - closing ]
Hence been accounted for as expense(revenue-expense=profit
Answer TREVOR,
COST OF MATERIAL GOODS =[opening+purchases -[losses+ damages] - closing ]
Hence been accounted for as expense(revenue-expense=profit
COST OF GOODS= cost of material goods + labor cost[ wages of chef+cooks+kitchen hands]
COST OF MATERIAL GOODS =[opening+purchases -[losses+ damages] - closing ]
THIS IS THE MATERIAL YOU USED FOR COOKING MEALS
FOR ALL [ CUSTOMERS/ EXECUTIVES/ EMPLOYEES]
THE SUPPLIERS DID NOT GIVE YOU SPECIAL PRICE
FOR FEEDING EXECUTIVES/ EMPLOYEES.
HE CHARGES THE SAME COST FOR ALL MATERIALS.
IS THE SAME , WHETHER IT IS EATEN BY CUSTOMERS,
EMPLOYEES OR EXECUTIVES.
THAT IS WHY THE COST OF GOODS IS NOT AFFECTED.
if the menu price for the dish =200 RS
the cost of goods in the dish = 70 RS
GROSS PROFIT = 130 RS.
[ if you sell to the customer, you make gross profit =130 rs
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if the menu price for the dish = 0 RS
the cost of goods in the dish = 70 RS
GROSS loss = 70 RS.
[ if you give the employee free, you make gross loss = 70 rs
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if the menu price for the dish =100 RS
the cost of goods in the dish = 70 RS
GROSS PROFIT = 30 RS.
[ if you offer the executives[ 50% of menu price, you make gross profit =30 rs only
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