Chapter 8 Planning and Monitoring Usage

Abstract

This chapter aims to show how costs can be planned and their usage controlled through ‘standard costing’. In Chapter 4 we looked at the monitoring of costs and in Chapter 5 at pricing. Here we will consider how to plan spending the correct amount on raw materials. This can be fairly complex in terms of recipes, and a loss of standards can easily cause significant cost variances.
We will then look at identifying deviations from these standards – what is due to variances in price, and what is due to variances in quantity used. We will also consider the specific problems of food and beverage materials, which can cause them to be so difficult to manage.
Standard costing techniques can also be used in other areas. We discussed the management of labour cost earlier, but you can also use the technique to monitor labour cost where a flexible workforce is employed and where productivity is important to the profitability of the business. A further use for the technique is in identifying variations in revenue and considering whether these differences are due to volume or price (or both).
By the end of this chapter you will, therefore, be able to:
- Identify the features of food and beverage raw materials that affect their controllability
- Discuss briefly the process for costing recipes
- Calculate variances according to volume and price
- Use the procedure for labour and other cost variances
- Identify differences in revenues, also due to volume and price.