Controlling Costs: Chapter 4

Front 1

menu, offerings and prices have a large influence on what?

Back 1

an operation's profit

Front 2

the selling price of an item is based on what costs?

Back 2

food cost
labor
overhead

Front 3

one of the most important ways managers use a menu as a cost control device is to determine if items are . . .

Back 3

priced appropriately

Front 4

what is a markup?

Back 4

difference between actual cost of producing an item and the price on the menu

Front 5

what is a pro forma income statement?

Back 5

income statement prepared before the fact

an estimate of what management expects to happen

Front 6

when are pro forma income statements used?

Back 6

when opening a new operation and when preparing budgets

Front 7

what do pro forma income statements serve as for a new operation?

Back 7

standard for the restaurant

Front 8

what is the menu price calculation method that best reflects the direct relationship between profit and selling price?

Back 8

Texas Restaurant Association markup method

Front 9

what does the TRA method use to make its calculations?

Back 9

a formula for menu cost markups that takes into account:

sales
costs
profit

Front 10

What are the TRA method steps?

Back 10

1. add labor expenses in %, all other expenses except food cost in %, and profit in % (represent in decimal format)
2.subtract total from 1.00. result is the divisor
3. divide standard portion cost of menu item by divisor to get selling price

Front 11

where do you get numbers for labor expenses, all other expenses, and profit from?

Back 11

from the pro forma income statement

Front 12

what does "1.00" stand for on the TRA method?

Back 12

100% of sales (or in case of a single item, selling price for item)

Front 13

what is the advantage of using the TRA method?

Back 13

it can be modified to meet changing circumstances

Front 14

What is the factor method?

Back 14

a popular formula used to determine menu price based on standard food cost %

Front 15

What is the formula for the factor method?

Back 15

1.00 divided by standard food cost % = factor

factor x menu item cost = selling price

Front 16

what is the markup on cost method?

Back 16

very popular in industry - another method used to determine menu selling price based on standard food cost %

Front 17

what is the formula for markup on cost method?

Back 17

menu item cost divided by standard food cost % = selling price

Front 18

TRA method takes into account all expenses and profit, so if a cost line goes awry . . .

Back 18

corrections can be made in the formula to restore profit

Front 19

at times the only way to keep profit in line is to . . .

Back 19

increase selling price

Front 20

alternations to menu selling prices are made for 3 reasons . . .

Back 20

competition
price-value relationship
markup differentiation

Front 21

competitive pricing is rarely used in what kind of establishments?

Back 21

fine dining

Front 22

what is price-value relationship?

Back 22

connection between selling price of an item and its worth to the customer

Front 23

price-value relationship is not what?

Back 23

a static formula; it means different things to different people

what does the average person want/expect?

Front 24

what is markup differentiation?

Back 24

different categories get different markups

Ex: beverages, steaks

Front 25

the rule of thumb is, the lower the cost, the higher the what?

Back 25

markup

Front 26

in order to be profitable, a menu must produce what?

Back 26

standard food cost percentage

Front 27

what is the menu product mix?

Back 27

a detailed analysis showing:

quantities sold of each menu item
their selling price
standard portion cost

Front 28

what is the menu product mix used to determine?

Back 28

composite food cost percentage

Front 29

what is the composite food cost percentage?

Back 29

a weighted average food cost percentage for all items sold

Front 30

the menu product mix allows management to see what?

Back 30

how each item contributes to overall sales and cost-effectiveness of a menu

Front 31

markup of each item on a menu tells management what?

Back 31

where the item stands in relation to the overall product mix and the food cost percentage

Front 32

what is menu engineering?

Back 32

takes into account an item's contribution margin (difference between selling price and food cost) and its popularity

Front 33

when monitoring menu-related controls, there are 3 factors to consider . . .

Back 33

standard food cost %

composite food cost % based on menu product mix

actual food cost % from income statement

Front 34

if menu-related controls don't match, there are problems. You'll know if it's related to what . . .

Back 34

related to the menu

or actual activities

Front 35

to see if the problem is with the menu, compare composite food cost % to

Back 35

operation's standard food cost %

identify any variance from the standard

Front 36

if the variance is equal to the difference between the standard or budgeted food cost and the actual food cost, do what?

Back 36

adjust menu pricing structure

Front 37

product mix and standard food cost must do what to achieve standard on the income statement?

Back 37

must match

Front 38

standard food cost % minus composite food cost % = what?

Back 38

variance

Front 39

standard food cost (on budget) minus actual food cost (on income statement) = what?

Back 39

variance

Front 40

if variances equal each other, the problem of high food cost is in the menu pricing. Solutions?

Back 40

increase prices
eliminate high-cost/low-sell items
replace with low-cost items with higher sales potential
evaluate portion size

Front 41

if considering increasing prices, remember not to exceed what?

Back 41

perceived price-value relationship


changing portion sizes to reduce them may also impact price-value relationship

Front 42

if composite food cost % = standard food cost %, but the budget compared to the income statement shows a variance between standard food cost % and actual food cost, the variance is usually caused by . . .

Back 42

operational problem

Front 43

for a restaurant to be profitable, it must sell goods at the correct price from whose perspective?

Back 43

the customer's perspective

Front 44

the average on the composite food cost % is what must meet the operation's standard food cost %, true or false?

Back 44

true

Front 45

the standard food cost % is what?

Back 45

the expected food cost percentage based on the approved operating budget

Front 46

what is the weighted food cost percentage?

Back 46

the composite food cost percentage.

The percentage that results from actual food sales, derived from the product mix

Front 47

actual food cost percentage is reported where?

Back 47

on the income statement

Front 48

If actual % & composite % are higher than standard %, you have what kind of problem?

Back 48

menu

Front 49

if actual is higher than composite and standard, you have what kind of problem?

Back 49

operational