For example, the use of napkins or linen often varies due to an increase or decrease in sales. Variable costs are directly related to sales. 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. The most common non-controllable fixed cost is rent or lease payments and depreciation. Non-controllable fixed costs are those costs that cannot be changed quickly by management. Advertising and promotion are also controllable fixed costs as a decision to change the amount of money spent can be made very quickly. 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. 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.įixed costs themselves can be categorized as controllable and non-controllable.Ī controllable cost is one that can be changed in the short term. 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. The cost of staff who are hired as a result of an increase in business, technically, should not be considered a fixed cost. Janitorial services are considered a fixed cost. Such staff often includes full-time cashiers, managers, the head chef, and bookkeeper. 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. Some labour costs are often considered to be fixed. Property taxes, insurance premiums, and equipment depreciation are all fixed costs. Rent tends to be a constant cost for the length of the lease agreement signed by the restaurant and the landlord of the building. In most cases, the cost of rent does not vary from month to month in response to how many meals you serve. Budget and Business Planning 21 The Basic Calculation of Operating Costs Fixed CostsĪ fixed cost does not vary in relation to sales.
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