Sanchith. S - CA Research Final

PES UNIVERSITY
(Established under Karnataka Act No. 16 of 2013)

100-ft Ring Road, Bengaluru – 560 085, Karnataka, India
Research title
‘‘A Study on Cost accounting in the food and beverage industry: specific
challenges and techniques’’
Submitted by
Sagar S (PES1UG23BC182), Sanchith S (PES1UG23BC183), Safiya Syed
(PES1UG23BC185), Sagar Suresh (PES1UG23BC186), Sahana D
(PES1UG23BC188)
12th September, 2024
Submitted to
Prof. Prakruthi Bharadwaj
Assistant Professor
FACULTY OF COMMERCE AND MANAGEMENT

DEPARTMENT OF B. COM
PROGRAM - B. COM
A Study on Cost accounting in the food and beverage industry: specific challenges and techniques 1|Page
ABSTRACT
The research paper titled "Cost Accounting in the Food and Beverage Industry: To extend the
understanding regarding the role of cost accounting for expenses control and enhancement of
the company’s financial performance in the food and beverage industry, the paper “Specific
Challenges and Techniques” continues. It covers various categories of costs, fixed and variable
costs, and it also explains how such organizations as McDonalds’s deal with cost accounting.
The research explores some of the most important cost factors including staff costs, material
costs and overheads and the extent to which they influence profitability. Using the information
on finance envisioned by the research, it is possible to note the relevance of the major
techniques such as process costing, job-order costing, and standard costing in decreasing the
levels of inefficiency and waste.
However, the paper also reveals some of the issues affecting cost accounting implementation
including; complexity in cost structures and high costs for implementation among others.
However, the research highlights the importance of exercising good practices in cost
accounting especially when it comes to decision making, pricing against increasing or
improving the profit margin. This study finally recommends that the food and beverage firms
should adopt cost accounting systems in order to improve their financial control and viability.
TABLE OF CONTENTS
SL. NO CONTENTS PG NO.

CHAPTER 01 - INTRODUCTION TO COST 05 – 09
ACCOUNTING
1.1. What is Cost Accounting? 06

1. 1.2. Objectives of cost accounting 06
1.3. Historical evolution of cost accounting 07
1.4. Types of cost in F & B industry 07
1.5. Importance of cost accounting and its relevance in F & B 08 - 09
Industry
CHAPTER 02 - INTRODUCTION TO STUDY: - 10 – 15
2.1. General introduction & Purpose of the study 11

2. 2.2. Limitations of cost accounting 11 - 12
2.3. Complexity of cost structures in F & B Industry 12 - 15
2.4. Limitations (scope) of the study 15
2.5. Problem analysis 15
3. CHAPTER 03 – REVIEW OF LITERATURE 16 - 19
CHAPTER 4 – METHODOLOGY: - 20 – 21
4. 4.1. Objectives of research 21

4.2. Research design and methods 21
4.3. Data collection instruments 21
CHAPTER 5 – DATA ANALYSIS & 22 – 27

INTERPRETATION
5.
5.1. Outline of the chapter 23
5.2. Presentation and analysis of the data 23 - 27
CHAPTER 6 – FINDINGS & CONCLUSION: - 28 – 30
6.1. Summary of the findings 29

6. 6.2. Conclusion 29
6.3. Recommendations 30
6.4. References 30
KEYWORDS
1. Cost accounting – A method used to find out the various expenses related to a business
during its activities.
2. Profitability – The capacity of a business to make profits as a form of financial return
on investment.
3. Financial performance – It is a measure of how well a companyis using its assets to
generate income.
4. Cost structure – Various types of cost classifications that a business involves, e.g.,
fixed and variable costs.
5. Data analysis – The act of examining and analysing some data to identify and extract
useful information.
6. Income statement – This is one of the financial report of any company which shows
its revenues and expenses for a particular period.
7. Secondary data – It is a information which is gathered beforehand by other researchers
or aythors and used in the analysis.
8. Profit margins – A measure of profitability which is calculated using the formula = net
income/ revenue.
9. Process costing, standard costing, job – order costing – Process costing is used for
mass production of some similar products, standard costing includes setiing
benchmarks for cost for production efficiency, job – order costing allocates expenses to
specific, customized orders and projects.
10. Expense analysis – The valuation done in a company’s expenses to identify areas for
cost reduction and improving efficiency.
CHAPTER – 01
INTRODUCTION TO COST ACCOUNTING
INTRODUCTION TO COST ACCOUNTING
1.1. WHAT IS COST ACCOUNTING?
Cost accounting is the process of tracking and managing costs. It starts when costs are incurred
and ends when they are controlled. This system helps businesses figure out and control the
costs of products, services, or activities.
According to CIMA, London, cost accounting involves recording costs when money is spent
and linking those costs to specific departments or units. It includes gathering data, using cost
control methods, and checking if planned activities were profitable.
1.2. OBJECTIVES OF COST ACCOUNTING: -
i. To Find Out Costs: The main goal of cost accounting is to figure out how much
something costs, like a location, person, or equipment. This is done by using
methods like job costing and process costing. Different industries use different
methods depending on their work.
ii. To Control Costs: Cost accounting helps manage and control costs using
techniques such as budget control, standard costing, and inventory control.
iii. To Help in Decision-Making: Cost accounting gives useful information for
making decisions, like:
a. Whether to make or buy a component
b. Whether to retain or replace an existing machine
c. Whether to process further or not
d. Whether to shut down or continue operations
iv. To Set Selling Price: It helps figure out the selling price of products or services.
During tough times, it helps decide how much to reduce prices to stay competitive.
v. To Find Out Profits or Losses: Cost accounting helps determine whether an
activity is making a profit or loss by comparing the costs and revenues.
1.3. HISTORICAL EVOLUTION OF COST ACCOUNTING: -
In the beginning, cost accounting was mainly used to find out the costs of products or services
based on past data. Over time, as competition increased, controlling costs became more
important than just calculating them. So, cost accounting shifted its focus to cost control.
With advances in technology, cost reduction also became part of cost accounting. Now, it
involves recording, organizing, and summarizing costs to find out product or service costs, as
well as planning, controlling, and cutting costs and helps the management to make decisions.
1.4. TYPES OF COST IN F & B INDUSTRY: -
i. Direct Costs: -
a. Raw materials: Used to cook the meals and beverages offered by describing
the direct cost of the food and drink that is used.
b. Labour: Salaries of cooks, servers, bar tenders and other persons that have
direct contact with the preparation and serving of meals.
ii. Indirect Costs: -
Overhead: Overhead costs are rental, fuel, electricity, wear and tear on the
equipment, and other indirect costs.
iii. Administrative costs: Payroll expenses of management and other staff, including
cost of advertising and other selling expenses, and legal charges.
iv. Variable Costs: These vary depending with the degree of production, for instance,
of foods to be packed, the packaging materials, and energy.
v. Fixed Costs: Such costs do not vary with output, they are fixed costs including
rent, property taxes, and wages of employees who remain employees irrespective
of productivity.
vi. Semi-Variable Costs: Expenses such as electricity, whereby some of it is fixed
(standard rates) while the other is free to be adjusted according to the usage.
1.5. IMPORTANCE OF COST ACCOUNTING AND ITS RELEVANCE IN F & B
INDUSTRY: -
Cost accounting is crucial in the Food & Beverage (F&B) industry as it directly impacts a
business's profitability, efficiency, and decision-making.
i. Cost Control: The F&B industry comes under cost fluctuations as its costs of
ingredients, human resource and energy vary constantly. These expenses are kept,
controlled, and monitored by cost accounting so as not to jeopardize cost efficiency
in business operations. According to the above-discussed factors, F&B can control
expenses to check fluctuating prices in the market and run their business
successfully.
ii. Accurate Pricing: It is crucial to determine the right prices that many be charged
of food and beverages to cover the cost and have profits as well. It offers business
organizations with detailed information on cost of ingredients and the cost of
production with an aim of setting reasonable prices that will favour their sales while
at the same time ensuring they earn reasonable profits. This makes certain that the
price mechanisms do well in meeting market requirements and the well-stipulated
corporate objectives.
iii. Profitability Optimization: With reference to the cost-incurred in the preparation
of each dish or preparation, cost accounting enables F&B organizations to know
which menu sells most lucratively. It also assists in opting the right menu and
decisions concerning the products that should be added, removed or modified in
order to maximize the return on sales.
iv. Waste and Inventory Management: The F&B industry disposes with perishable
products that can cause massive wastage, if product management is not well
handled. By employing cost accounting, one is able to determine the usage of
inventories and keep track of waste to minimize on loss through spoilage. It makes
it possible for business organizations to manage their stocks effectively, reduce on
wastage and increase their general effectiveness.
v. Decision-Making Support: Cost accounting offers the much needed financial that
help the business come up with crucial decisions such as the need to expand, acquire
new machines or change menu. This kind of information is essential in the
evaluation of the financial outcomes of these decisions as well as in decision making
towards the future of the business.
vi. Budgeting and Forecasting: Thus, using cost accounting, F&B companies can
plan the budgets and forecasts following the historical evidence. This is particularly
important in a business hence needs to control the cash in and cash out to ensure
that it is enough during the busy seasons and less during the less busy seasons.
vii. Compliance and Reporting: Cost accounting helps the F&B companies to keep
proper books of accounts for their audits and tax returns besides ensuring they meet
legal requirements. This is important for making the right disclosure to its users as
well as its stakeholders for transparency.
CHAPTER – 02
INTRODUCTION TO STUDY
A Study on Cost accounting in the food and beverage industry: specific challenges and techniques 10 | P a g e
INTRODUCTION TO STUDY
2.1. GENERAL INTRODUCTION & PURPOSE OF THE STUDY: -
This research studies cost accounting issues in the food and vbeverage industry. It covers the
obstacles and criticims of cost accounting (for eg., cost and complexity). From this one can
understand about how other firms can manage costs, reduce waste, and enhance their financial
control, finally emphasizing its role in improving decision making and productivity in
operations.
The main purpose of the study is how cost accounting is done in any food and beverage
industry and further highlighting some challenges faced and techniques used in the cost
accounts of F & B Industry.
2.2. COST ACCOUNTING ISSUES: -

Some people who oppose cost accounting, argue against using it in factories for the following
reasons:
1) It is too costly: They say it involves a lot of work to analyse, allocate, and divide costs,
which requires a lot of clerical effort.
2) Confusing result: The numbers from cost accounting do not always match those from
financial accounting, so extra work is needed to reconcile the two, which adds to the
workload.
3) It does not help: They believe that a good management team can control costs without
needing a costing system, making it unnecessary.
4) It is unnecessary: Some people think it leads to doing the same work twice. They point
out that many successful companies manage fine without using any cost accounting system.
5) It is too expensive: Installing and maintaining a cost accounting system adds extra costs
to the business.
6) It does not work for all industries: Cost accounting is not suitable for every type of
industry, so its usefulness is limited.
7) It sometimes fails: In certain businesses, cost accounting systems have not worked
successfully.
These arguments are not strong. If the system is set up with proper planning and advice
from experienced people, it will not be as expensive as claimed. Also, cost accounting helps
reduce waste and control costs at all stages, making it a worthwhile investment. So, calling
it costly is not fair.
2.3. COMPLEXITY OF COST STRUCTURES IN F & B INDUSTRY: -
This makes F&B functions to be complex because of the various activities, products, and
services offered in operations. Here are some key aspects that contribute to this complexity:
i. Diverse Cost Categories: -

a. Direct Costs: All expenses that are directly associated with the production
process including acquiring the raw materials, labour and packaging costs differ
with various meals and drinks.
b. Indirect Costs: Such expenses are rent, electricity, water, telephone,
advertising, and any equipment that will be used in this restaurant such as tables,
chairs, etc. which require proper division between the restaurant such as the
kitchen, dining section, etc.
ii. Fluctuating Raw Material Prices: -

a. Seasonal variability: Raw materials for freshly produced foods like fruits and
meats are sensitive to factors such as season and climatic changes hence cause
great variance in their prices.
b. Global supply chains: Complexity is also introduced by the factors such as
exchange rates for the foreign currency, tariffs, and the cost of transporting
materials that maybe sourced from other countries.
iii. High Labor Costs: -

a. Skill-dependent costs: Employees in F&B include cooks, bakers, waiters,
baristas, and other personnel including managerial and sub managerial
personnel have different wage structures and different levels of skills regarding
the provision of services.
b. Variable shifts: This means that fixed labour costs vary with the times of the
day being higher during peak time and low during off peak time. Business has
to roster employees in a way that optimizes the staffing levels in order to keep
up with the set standard.
iv. Inventory and Waste management: -
a. Perishability: Perishable goods which food ingredients fall under have reduced
shelf life and this makes the process of managing the inventories for improved
efficiency proved to be very tricky due to high chances of having most of the
foods becoming obsolete due to expiring before use.
b. Waste and shrinkage: Expenses because of spoilage, excess production, and
theft make one more cost factor that businesses must incorporate in waste
minimization techniques.
v. Multiple revenue systems: -

a. Diverse menu offerings: With today’s F&B establishments providing
customers with a spectrum of dishes and beverages, and providing set
experiences, the profitability always varies, meaning that some may be very
profitable while others may not be profitable at all.
b. Special events & catering: Off-site catering is also common among F&B
businesses, which means that they need additional costs for transportation and
people in charge of the catering service, as well as products peculiar to the
occasion.
vi. Economies of scale: -

a. Batch size variance: That is, costs are highly sensitive to batch sizes.
Economies of scale reduce the cost on per unit while variable costing increases
the cost of the product on per unit basis.
b. Volume discounts: With focus on the ingredients, one is able to acquire them
in bulk hence incurring lesser expense, although small businesses often have to
bear high expense as they lack the buying power.
vii. Variable customer demand: -

a. Unpredictable demand: Customers’ tastes and preferences can at times be very
erratic depending on the contemporary vogue, the seasonal changes, or even the
fluctuated weather conditions in the day.
b. Menu changes: Fluctuations in menu that are usually dictated by the
preferences of the customers or fresh produce availability also cause variations
in costs and therefore an ongoing process of cost analyses and adaptations.
viii. Compliance and Regulatory Costs: -

a. Health and safety regulations: Other costs include pasteurization and compliance
to local health code, safety regulation, and environmental standard in controlling
food borne health diseases and management of human waste.
b. Taxes and licensing: While selecting locations, F&B businesses must consider
taxes, alcohol licenses and other fees that differ in accordance with the location and
size of a business.
ix. Cost allocation challenges: -

a. Activity-based costing (ABC): Applying ABC in F&B industry is somewhat difficult
especially, when it comes to struggling overheads such as utilities, rent, and
maintenance overheads needs to be absorbed based on the product or service provided
in organization.
b. Shared resources: Expenses that are related to common services produced by the
organization (for example, kitchen utensils, personnel) have to be properly assigned
between direct product lines like in-restaurant sales, take away, and catering services.
x. Technology and Automation: -

a. Point-of-Sale (POS) systems: Contemporary F&B firms incorporate sophisticated
systems to monitor sales, stocks and customer preferences through POS systems which
are costly at first instance but significant benefits are obtained.
b. Automation investments: While large chain outlets can adopt automation in either
food preparation or customer relations as a long-term cost saver this often entails
substantial capital outlay and recurrent expenses.
xi. Geographic Variations: -

a. Location-specific expenses: Rent, utilities and wages are peculiar expenses, which
significantly depend on the geographic location, which means that the level of costs
will be different for the urban and rural area.
b. Local market conditions: Customer tastes and their competitors also vary depending
on the geographical locations this in turn affects the market pricing and cost of
production.
2.4. LIMITATIONS (SCOPE) OF THE STUDY: -
The following are the limitations of the research study on cost accounting in F &B Industry: -
a. Focuses on single company: The study does not represent the whole food and beverage
industry because it mainly focuses on McDonald’s financial information
b. Time frame: The study does not cover long-term trends or changes because the
collected data has been limited to financial data for the year 2021 to 2023 only.
c. Techniques: Only certain cost accounting techniques or methods are focused in this
research, where all other methods used in the industry are not considered.
d. Generalizability: Results of this study will not be applicable to other F & B industries
because of differences in size, market and operations.
e. External economic factors: There are external factors affecting the cost accounting of
the industry that were not considered in the study, for example, changes to the economy
in the period under analysis.
2.5. PROBLEM STATEMENT: -
In this research paper’s problem statement, the challenges associated with the cost accounting
in the food and beverage industry are mentioned. It also highlights issues such as – high costs,
complexity, financial accounting, etc. The goal of the study is to highlight practical methods
for managing these challenges, thereby improving operational decisions and building up
financial control.
CHAPTER – 03
LITERATURE REVIEW
1. “Study related to the food and beverage industry in Saudi Arabia” by Dr. H. Sharafi,
August 2021: -
A study in Saudi Arabian food and beverage industry examined the mediating role
of Supply Chain Management (SCM) in the relationship between Total Cost (TC)-based
processes and TC implementation. Primary Data from 184 executives and managers was
analysed using the Rasch Measurement Model and Structural Equation Modelling.
However, the study acknowledges limitations and suggests future research on a single
industry.
2. “Factors Affecting Accounting Conservatism for Food and Beverage Sub Sector
Between 2016-2020 Period” by Novi Nugrahani, Fita Setiati, and Siti Amerieska,
2021: -
This research paper utilizes secondary data from companies listed on the
Indonesia Stock Exchange, analysing factors like debt covenants and financial distress,
ultimately revealing significant influences on accounting conservatism in the sector.
3. “Using Material Flow Cost Accounting to determine the impacts of packaging waste
costs in alcoholic beverage production in an alcoholic beverage company in Durban”
by Omolola Ayobamidele Tajelawi, February 2016: -
The study focuses on evaluating packaging waste costs and increasing production
efficiency using primary and secondary data in the Material Flow Cost Accounting
(MFCA) technique. The development of MFCA in environmental management, mainly in
Germany and Japan, is part of the historical backdrop. This study shows that major losses
were underestimated when using conventional costing techniques, supporting the use of
MFCA to improve cost-saving tactics through precise tracking and waste reduction.
4. “Advances in International Interdisciplinary Business and Economics” by Prof. Dr.

Cihan Cobanoglu and Prof. Dr. Serdar Ongan, May 2015: -
The conference proceedings centre on business and economics interdisciplinary
research. A combination of primary and secondary data from different papers are used in
this study. It offers information on various research topics, such as the effects of wage rates,
CO2 emissions, and organizational health, while emphasizing the use of cutting-edge
approaches in international business settings.
5. “Traditional Cuisine and Its Spatial Effects: The Immigrant Experience; Case Study
of İdrisyayla Village” by Betül Ekimci, 2015: -
The historical background looks at how immigration from Rumelia affected
Eskişehir, Turkey. Primary data from surveys, observations, and photographic
documentation are used in the study. It examines the cultural and spatial relationship that
exists between architecture and cooking in İdrisyayla Village, emphasizing the village's
efforts to preserve its traditional homes and food.
6. “Food and Beverage Cost Control” by Jack E. Miller, David K. Hayes, and Lea R.
Dopson, 2002: -
It offers a thorough manual on cost control for the foodservice sector, with an
emphasis on primary data and lots of useful examples, calculations, and administrative
tools. The study emphasizes labour, food, and beverage cost control, and it provides
strategies to strike a balance between profit and operational efficiency in the field of
hospitality management.
7. “An Adjusted Material Flow Cost Accounting Framework for Process Waste-
Reduction Decisions in the South African Brewery Industry” by Michael Bamidele
Fakoya, March 2014: -
The study uses case studies and primary data to investigate the environmental
impact of the beer industry. It suggests modifying the accounting system to improve
industry waste-reduction tactics.
8. “A Study on Cost Cutting & Control in Food & Beverage Service Department” by
Abhimanyu Awasthi, Akshay Nain, and Abhishek Roy, February 2020: -
The study explores cost-cutting strategies in the Delhi/NCR food and beverage
industry, focusing on profitability, staff behaviour, and guest perception. It uses primary
and secondary data to identify revenue-generating segments for new entrants and highlights
the importance of staff training and talent retention for cost control and profit maximization.
9. “Environmental Management Accounting Practices: A Case Study Analysis with
Special Reference to Food and Beverage Industry in Sri Lanka” by J.P.S.N.
Samaranayake, D.H.S.W. Dissanayake, and M.O.S. Mendis, 2021: -
It uses primary data through interviews and observations, summarizing the
drivers, practices, and challenges of implementing environmental management accounting
in Sri Lanka's food and beverage sector.
CHAPTER – 04
METHODOLOGY
METHODOLOGY
4.1. RESEARCH DESIGN AND METHODS: -
This research study utilizes a theoretical and analytical research design. The study talks about
the challenges and techniques in the Food and beverage industry, by this we can understand
that the research design for this study is descriptive. The analysis is based on the secondary
data, particularly the McDonald’s consolidated income statements which was obtained from
the company’s official website, covering the period 2021 to 2023. This approach gives a
detailed view of profitability analysis, cost structure/ proportion analysis and other cost
accounting techniques in McDonald’s.
4.2. DATA COLLECTION INSTRUMENT: -
The consolidated income statement from McDonald’s official financial reports which covers
the period from 2021 – 2023, is used as a major data collection tool. This secondary data shows
readers a detailed overview of McDonald’s revenue, operating costs and expenses, and
profitability, allowing for the analysis of financial performance and cost management
techniques during this period.
4.3. PROCEDURES USED FOR ANALYZING THE DATA: -
The data analysis procedures consist of calculating key financial metrics such as profit margins
and cost proportions, with the help of consolidated income statement. Profit margins help us in
identifying in which year from 2021 to 2023 McDonald’s managed costs and profits at its best.
Proportion analysis determines the percentage contribution of each cost element to total cost
and expenses, indicating their impact on overall operating costs.
CHAPTER – 05
PRESENTATION AND DATA ANALYSIS
5.1. A BRIEF OUTLINE OF THE CHAPTER: -
This research aims to find out solutions for analysis of McDonald’s financial performance
focusing on profitability and cost structures over the year 2021 – 2023. It gives us an overview
of the key cost elements and their contribution to total expenses for items including food, paper,
pay roll, occupancy and selling expenses. It also deals with profitability analysis which
calculates the net profit margins for each of the three years to assess the company’s efficiency
in cost analysis and for generating profits. Further, it explores various costs accounting
techniques related to McDonald’s operations such as process costing, job – order costing, and
standard costing which helps to recognize discrepancies and controlling connected issues
which arises out of this study.
5.2. PRESENTATION AND ANALYSIS OF THE DATA: -
Analysing the McDonalds Consolidated statement of income: -
1. PROFITABILITY ANALYSIS: -
Profit Margins: -
Formula for calculating Net Profit Margin = (Net Income / Total Revenue) x 100
• Net Profit Margin (2023): (8,468.8 / 25,493.7) x 100 = 33.2%

• Net Profit Margin (2022): (6177.4 / 23,182.6) x 100 = 26.6%
• Net Profit Margin (2021): (7545.2 / 23,222.9) x 100 = 32.4%
Note - A greater profit margin suggests that the company is better at managing costs and
creating profits.
2. COST STRUCTURE / PROPORTION ANALYSIS: -
To determine the proportion of various costs to total expenses, we must calculate the
percentage contribution of each cost factor to the overall operating costs and expenses:
Cost Element 2023 % 2022 % 2021 %
Food & Paper 21.94 % 19.81% 24.06 %
Payroll & Employee Benefits 20.84 % 18.95% 20.80 %
Occupancy & Other Operating Expenses 16.60 % 14.67 % 17.66 %
Franchised Restaurants - Occupancy Expenses 17.87 % 17.01 % 18.14 %
Other Restaurant Expenses 1.67 % 1.77 % 2.02 %
Selling, General & Administrative Expenses 20.34 % 20.72 % 21.04 %
Other Operating (Income) Expense, Net 0.70 % 7.04 % -3.75 %
INTERPRETATION: -
1. Food & Paper: The cost of raw materials used here are the food ingredients and
packaging. The proportion dropped in 2022 but greatly increased in 2023. The increase
in expenses in 2023 suggests the rise in cost of raw materials and packaging because of
inflation or supply chain concerns. The lesser value for 2022 means a time to manage
cost control or lowered material costs.
2. Payroll & Employee Benefits: This is related to wages, benefits, and other
remuneration for employees. The cost has raised slightly in 2023 than in 2022, which
can also be due to the need of staff or increase in salaries.
3. Occupancy & Other Operating Expenses: These types of expenses include rent,
lighting, power, and maintenance. The cost increased in 2023, after decrease in 2022.
Occupancy costs in 2023 refers to greater rental / operating expenses because of
economic conditions or development.
4. Franchised Restaurants - Occupancy Expenses: These types of costs include rent
and other facility charges. This cost factor has remained stable but shows a slight
increase in 2023, which would primarily be additional property or operating costs
carried by franchised enterprises.
5. Other Restaurant Expenses: Restaurant’s miscellaneous expenses which cannot be
take into consideration in any other categories are included in this type of expenses.
The constant decrease suggests better control over various operating costs or greater
efficiency in handling less or unneeded costs.
6. Selling, General & Administrative Expenses (SG&A): Marketing, administrative
overhead and management expenses will come under this type of expense. From the
last three years the percentage has slightly declined due to low reduction in
administrative and selling expenses
7. Other Operating (Income) Expense, Net: One – time or irregular income expenses
(E.g., asset sales or restructuring fees) will be considered under this expense. The major
increase in 2022 shows an unusual one – time expense, but the less percentage in 2023
shows a return to its routine operations.
Major Cost Drivers and Cost-Saving Areas: -
According to the analysis, the F & B industry’s main cost drivers are:
• Cost of Food: Some methods to reduce food costs includes securing better prices from
the suppliers, reducing food waste and optimizing portion sizes.
• Labor expenses: Labour expenses can be brought down by improvising the
productivity, automating processes controlling workforce levels.
• Occupancy costs: One can save occupancy expenses by focusing at other locations or
getting other favourable lease terms and conditions.
These cost proportions and profitability measurements even if not very precise, could be
helpful in analysing the financial performance, finding areas for improvement and make data-
driven decisions to enhance its operations and profitability.
3. COST ACCOUNTING TECHNIQUES: -
a. Job – order costing: This technique can be useful to McDonald’s because it helps to
tack the cost of products or events, such as new menu items and special promotions/
campaigns. For example, the expenses of labour, food, and marketing, are recorded
especially for each new burger or meal package that is released in the market. This idea
can be used to incorporate inventory management software which promises that the
costs incurred are in accordance with actual usage. Overhead costs such as cost of
cooking, serving, preparing utensils and equipment can also be determined and
implemented in process refinement by using the Activity Based Costing (ABC)
technique.
b. Process costing: This is much relevant to McDonald’s as it consists of ongoing
manufacturing processes which produces large number of goods like fries, burgers and
beverages besides averaging out costs across outlets. Batch costing can be one of the
useful techniques as it is helpful in identifying inefficiencies and cost accurately for
specific production runs. Further, precise and timely data for accurate cost calculations
can be acquired through real-time data capturing mechanisms such as IoT (Internet of
Things) devices to monitor labour hours and ingredient usage, finally improving overall
production efficiency.
c. Standard costing: This technique includes allocating expected costs to food and
labour, and any discrepancies are found by comparing the expected and actual costs.
This helps in proper cost control and pricing of products and services. These cost
standards are often updated with supplier prices and market conditions, which makes
the result more accurate. Variance analysis also helps in identifying cost differences,
and corrective actions can be taken to address the problems which are affecting the
operation’s financial stability.
CHAPTER – 06
FINDINGS AND CONCLUSION
6.1. SUMMARY OF THE FINDINGS: -
i. Importance of cost management – The study tells us about the necessity of cost
accounting in the F & B industries in order to handle costs and reduce waste and
overall improvement in their financial performance.
ii. Challenges rectified – The idea that cost accounting is not useful for effective
management, high cost for implementing cost accounting, and difficulties in
comparing cost accounting with financial data are the challenges to cost accounting.
iii. Data analysis – The efficiency of McDonald’s is revealed by examining the
profitability and proportion analysis.
iv. Techniques of cost accounting – Some techniques like job – order costing, process
costing and standard costing are useful for recognizing any discrepancies and
control costs.
v. Decision – making support: From the findings one can understand that cost
accounting provides useful information helpful for management in making
necessary decisions related to pricing, production and operations.
6.2. CONCLUSION: -
In conclusion, this study brings into view the importance of cost accounting in the food and
beverage industry, mainly for the improvement of financial performance and operational
efficiency. The research presented here studies the cost structures and profitability of
companies such as McDonald's and demonstrates that effective cost management results in
better decision-making with improved profitability. Discussed the cost accounting techniques,
such as process costing and standard costing, which are some of the important ways businesses
measure costs and, therefore, curb unnecessary expenditure and achieve full-scale
performance.
However, this study also points to several significant challenges facing the industry, including
high costs of implementation of cost accounting systems and difficulty in reconciling financial
data. But despite all those challenges, the advantages of adopting robust cost accounting
practices are obvious: It allows the company to see through operational transparency, enhance
financial control, and ultimately attain growth. In this regard, food and beverage companies
should welcome such practices for better sustainability in the competitive environment.
6.3. RECOMMENDATIONS: -
i. Adopt Cost Accounting Systems: The food and beverage companies should employ
cost accounting in order to have better controls on their existing cost. This will assist
them in ascertaining some of the categories that they can reduce costs hence enhance
the levels of profitability.
ii. Train Staff on Cost Management: A number of steps need to be taken in order to
ensure effective cost management and here it is crucial to train employees about aspects
of cost accounting. This will make certain that all the employees understand how they
can control expenditure and ensure the company’s profitability.
iii. Regularly Review Financial Data: Individuals working in firms should often consult
their financial records and outlook their costs in order to remain aware of the company’s
status. This will assist them in proper and timely decision making and also adjust in a
bid to enhance efficiency and profitability.
6.4. REFERENECES: -
▪ Sharaf-Addin, H. H. H. (2021). Implementation of target costing in the Saudi Arabian food and
beverages industry: the mediating role of supply chain management. Management &
Accounting Review (MAR), 20(2), 85-115.
▪ Jack E, M., David K, H., & Lea R, D. (2008). Food and beverage cost control. Joh Wiley And
Sons.
▪ Tajelawi, O. A. (2016). Using Material Flow Cost Accounting to determine the impacts of
packaging waste costs in alcoholic beverage production in an alcoholic beverage company in
Durban (Doctoral dissertation).
▪ Nugrahani, N., Setiati, F., & Amerieska, S. (2021). FACTORS AFFECTING ACCOUNTING
CONSERVATISM FOR FOOD AND BEVERAGE SUB SECTOR BETWEEN 2016-2020
PERIOD. FINANCIAL: JURNAL AKUNTANSI, 7(2), 198-206.
▪ Awasthi, A., Nain, A., & Roy, A. (2020). A study on cost cutting & control in food & beverage
service department. International Journal of Scientific & Technology Research, 9, 1717-1719.
▪ Fakoya, M. B. (2014). An adjusted material flow cost accounting framework for process waste-
reduction decisions in the South African brewery industry (Doctoral dissertation, University of
South Africa).
▪ Cobanoglu, C., & Ongan, S. (2018). PROCEEDINGS: Advances in International
Interdisciplinary Business and Economics Volume 7. ANAHEI Publishing, 2(23725885), 6.

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PES UNIVERSITY

(Established under Karnataka Act No. 16 of 2013)

12th September, 2024

FACULTY OF COMMERCE AND MANAGEMENT

levels of inefficiency and waste.

accounting especially when it comes to decision making, pricing against increasing or

SL. NO CONTENTS PG NO.

1.1. What is Cost Accounting? 06

CHAPTER 02 - INTRODUCTION TO STUDY: - 10 – 15

2.1. General introduction & Purpose of the study 11

3. CHAPTER 03 – REVIEW OF LITERATURE 16 - 19

4. 4.1. Objectives of research 21

CHAPTER 5 – DATA ANALYSIS & 22 – 27

CHAPTER 6 – FINDINGS & CONCLUSION: - 28 – 30

6.1. Summary of the findings 29

during its activities.

2. Profitability – The capacity of a business to make profits as a form of financial return

3. Financial performance – It is a measure of how well a companyis using its assets to

fixed and variable costs.

its revenues and expenses for a particular period.

7. Secondary data – It is a information which is gathered beforehand by other researchers

or aythors and used in the analysis.

mass production of some similar products, standard costing includes setiing

specific, customized orders and projects.

cost reduction and improving efficiency.

1.1. WHAT IS COST ACCOUNTING?

1.2. OBJECTIVES OF COST ACCOUNTING: -

1.4. TYPES OF COST IN F & B INDUSTRY: -

2.1. GENERAL INTRODUCTION & PURPOSE OF THE STUDY: -

2.2. COST ACCOUNTING ISSUES: -

2.3. COMPLEXITY OF COST STRUCTURES IN F & B INDUSTRY: -

i. Diverse Cost Categories: -

ii. Fluctuating Raw Material Prices: -

iii. High Labor Costs: -

v. Multiple revenue systems: -

vi. Economies of scale: -

vii. Variable customer demand: -

viii. Compliance and Regulatory Costs: -

ix. Cost allocation challenges: -

x. Technology and Automation: -

xi. Geographic Variations: -

2.4. LIMITATIONS (SCOPE) OF THE STUDY: -

2.5. PROBLEM STATEMENT: -

4. “Advances in International Interdisciplinary Business and Economics” by Prof. Dr.

4.1. RESEARCH DESIGN AND METHODS: -

4.2. DATA COLLECTION INSTRUMENT: -

4.3. PROCEDURES USED FOR ANALYZING THE DATA: -

5.2. PRESENTATION AND ANALYSIS OF THE DATA: -

• Net Profit Margin (2023): (8,468.8 / 25,493.7) x 100 = 33.2%

2. COST STRUCTURE / PROPORTION ANALYSIS: -

Cost Element 2023 % 2022 % 2021 %

Food & Paper 21.94 % 19.81% 24.06 %

Payroll & Employee Benefits 20.84 % 18.95% 20.80 %

Occupancy & Other Operating Expenses 16.60 % 14.67 % 17.66 %

Franchised Restaurants - Occupancy Expenses 17.87 % 17.01 % 18.14 %

Other Restaurant Expenses 1.67 % 1.77 % 2.02 %

Selling, General & Administrative Expenses 20.34 % 20.72 % 21.04 %

Other Operating (Income) Expense, Net 0.70 % 7.04 % -3.75 %

3. COST ACCOUNTING TECHNIQUES: -