The various costs may be classified as fixed, variable and semi-variable as follows:-
FIXED COSTS:
The hotel industry has a high protection of fixed costs. Fixed costs are those that do not respond to changes in the volume of sales. Most of the expenses in a hotel are of fixed nature. Examples: – rent, interest, management salaries depreciation.
VARIABLE COSTS:
Variable costs are those that vary in proportion to sales volume. Food and beverage costs are the best examples of variable costs. When the volume of business increases by say 15 percent, there is normally a 15 per cent increase in food and beverage costs and vice versa.
SEMI-VARIABLE COSTS:
Semi -variable costs are those that move in the same direction, but not quite in proportion to the volume of sales. These costs are mixture of fully fixed and fully variable. Examples: cost of telephone, (fixed rent and cost of calls), labour cost in seasonal hotels.
OTHER COSTS:
- Opportunity cost: The opportunity cost may be defined as the expected returns from the second best use of the resources which foregone due to the scarcity of resources. The opportunity cost is also called alternative cost. Had the resource available been unlimited, there would be no opportunity cost.
- Actual Costs: Actual costs are those which are actually incurred by the firm in payment for labor, material, plant, building, etc.
- Business costs: Business costs include all the payments and contractual obligations made by the firm together with the book of costs of depreciation on plant and equipment
- Full Costs: Full Costs includes business costs, opportunity cost and normal profit.
- Explicit costs: are those which fall under actual costs entered in the books of accounts
- Implicit costs: in contrast, there are not costs that do not take the form of cash outlays nor do they appear in the accounting system. Such costs are called Implicit or Imputed Costs.
- Out of Pocket: The items of which involve cash payments, both recurring and non-recurring, are known as out-of-pocket costs
- Book Costs: There are certain actual business costs which do not involve cash payments, but a provision is made in the books of accounts and they are taken into account while making the profit and loss accounts. Such expenses are known as book costs.
- Total costs: Total cost is the total expenditure incurred in the production of goods and services
- Average cost: is not actual cost. It is obtained by dividing the total cost by the total output
- Marginal cost: is the addition to the total cost on account of producing one additional unit of product.
- Short run costs: are costs that vary with variation in output. Short run costs are the same as variable costs
- Long run costs: are costs that are incurred on fixed assets like plant, machinery, etc. It is to be noted that running costs and depreciation of capital assets are included under short run costs
- Incremental costs: are closely related to marginal costs but while marginal refers to the cost of the marginal unit of output, incremental costs refers to the total additional cost associated with the expand in output
- Sunk Costs: are those which cannot be altered, increased or decreased by varying the rate of output
- Historical cost: refers to the cost of an asset acquired in the past.
- Replacement cost: refers to the outlay which has to be made for replacing an old asset.
- Private costs: are those which are actually incurred or provided for by an individual or a firm on the purchase of goods and services from the market. For a firm, all actual costs both explicit and Implicit are private costs.
- Social Costs: refers to the total cost borne by the society due to production of a commodity
DEFINE FOOD COST?
Food cost may be defined as the ratio of the cost of food consumed compared to the revenue received for food sales. The food cost % is a tool to measure the efficiency of food operation/kitchen. The food cost may be calculated on a daily, weekly or monthly basis; depending on when the food inventory is taken. The formula for calculating cost % is
Cost/sales*100 = cost %
Food cost/food sales* 100 = food cost %
Beverage cost/ beverage sales *100 = beverage sales %