The Basic Calculation of
Operating Costs
Fixed Costs
A fixed cost does not vary in relation to sales. A typical fixed cost is rent. In most cases,
the cost of rent does not vary from month to month in response to how many meals you
serve. Rent tends to be a constant cost for the length of the lease agreement signed by the
restaurant and the landlord of the building. Property taxes, insurance premiums, and
equipment depreciation are all fixed costs.
Some labour costs are often considered to be fixed. Those staff who are paid regardless
of the amount of business being generated have a predictable cost that remains constant
during the life of the contract or understanding you have with the employees. Such staff
often includes full-time cashiers, managers, the head chef, and bookkeeper. Janitorial
services are considered a fixed cost. The cost of staff who are hired as a result of an
increase in business, technically, should not be considered a fixed cost.
To a certain extent, basic energy costs such as heat and light are fixed in that it is
possible to determine a minimum level of need for energy regardless of the number of
sales. Costs above the minimum level should reflect an increase in business and so often
are not considered fixed, but in these examples, energy costs will be considered fixed
costs.
Fixed costs themselves can be categorized as controllable and non-controllable.
A controllable cost is one that can be changed in the short term. For example, even
though janitorial cost has been budgeted as a constant cost, it may be possible (if there is
no ironclad contract with a janitorial service) to reduce the service and the cost on short
notice. Advertising and promotion are also controllable fixed costs as a decision to
change the amount of money spent can be made very quickly.
Non-controllable fixed costs are those costs that cannot be changed quickly by
management. The most common non-controllable fixed cost is rent or lease payments
and depreciation.
In most basic calculations, the only truly fixed costs are overhead costs, those ongoing
expenses required to operate the business that are not direct costs of producing the food
or presenting the service.
Variable Costs
Variable costs are directly related to sales. For example, the use of napkins or linen often
varies due to an increase or decrease in sales. Other variable costs include food,
beverages, and some labour costs. Usually, the major variable cost is food and most of
the labour.
Variable costs are controllable. Less expensive ingredients can be purchased, portion
sizes can be changed, and some workers can have their hours reduced usually on short
notice.
In most basic calculations, the only variable cost used is food cost.
Semi-variable Costs
Labour costs are sometimes categorized as semi–variable because some are fixed but
many are variable. In most situations labour cost is fully controllable. That is, you are in
