Lesson 1 :Cost and Sales Concept

Definition of Cost

1. Defined as the expenses to a hotel or restaurant for good services when the goods are consumed or the services are rendered
2. May be expressed in a variety of units:

• Portion-eg,slices          
• Weight-eg. gm,kg
• Volume
• Per bottle
• Per drink
• Per hour
• Per week

Fixed Cost

1. Normally unaffected by changes in sales volume.
2. has little direct relationship to a business volume because they do not change when the numbers of sales increase or decrease.
3. Example of fixed cost are insurance premium,real estate taxes,depreciation on equipment
4. All fixed cost changes over time ,sometimes increasing and sometimes decreasing
5. However,changes are not normally related to short -term changes in business volume
6. They are sometimes indirectly tied to the long-term volumes changes

Variable Costs

1. Costs that are related to business volume
2. Some example of variable costs are food,beverages and labor
3. Food and beverages costs are considered directly variable cost.
4. Directly variable cost are those that are directly linked to volume of business
5. Labor cost on the other hand are considered semivariable cost
6. Semivariable cost are those that have element of fixed  and variable costs.
7. Labor in the hospitality industry is divided into two category\

• Permanent personnel : The number of personnel will remain the same regardless whether the business volume is high or low.
• Part -time personnel ; The number of personnel increase or decrease based on the business volume

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