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Food and Beverage Cost Control

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Food and Beverage Cost Control

  2. 2. INTRODUCTION 2 •Successful restaurant personnel, including chefs, restaurant managers, food and beverage controllers, dining room managers, and stewards have the ability to keep costs at predetermined levels. They understand that successful operations require that costs be carefully established and monitored so that profit will result. •Food, beverage, and labor costs generally represent between 60% and 70% of the total costs of a restaurant operation. If these costs are not carefully established and monitored, they can gradually increase until profit is eliminated and losses are sustained.
  3. 3. Learning Objectives 3 1. Define the terms cost and sales . 2. Define and provide an example of the following types of costs: fixed, directly variable, semi variable, controllable, non controllable, unit, total, prime, historical, and planned. 3. Provide several examples illustrating monetary and nonmonetary sales concepts. 4. Describe the significance of cost - to - sales relationships and identify several cost - to - sales ratios important in food and beverage management. 5. Identify the formulas used to compute cost percent and sales price. 6. Describe factors that cause industry wide variations in cost percentages. 7. Explain the value of comparing current cost - to - sales ratios with those for previous periods.
  4. 4. Cost Concepts 4 •Accountants define a cost as a reduction in the value of an asset for the purpose of securing benefit or gains. •In F&B Business cost is defined as the expense to a hotel or restaurant of goods or service when the goods are consumed or the service rendered. •Food and beverage are “Consumed” when they are used, wastefully or otherwise, and are no longer available for the purpose which they were acquired.(Units: weight, volume or total value) •The cost of labor is incurred when people are on duty, whether or not they are working and whether they are paid at the end of the shift or at some later date. (Hourly or weekly or monthly)
  5. 5. Cost Concept 5 •Fixed Cost (FC) and Variable Cost (VC) are used to distinguished between those cost that have no direct relationship to business and those that do. •Fixed Cost are those that are normally unaffected by changes in sales volume. Such as = real estate taxes, insurance premiums, depreciation, repairs and maintenance, rent or occupancy cost, most utility cost, advertisement, professional services. The term fixed should never taken to mean static or unchanging but merely to indicate that any changes that may occur in such cost are related only indirectly or distantly to changes in business volume.
  6. 6. Cost Concept 6 •Variable Cost are those that are clearly related to business volume. As business volume increase, variable cost will increase and vice versa. •Food & Beverage cost are considered directly variable cost. Direct Variable Cost are those that are directly linked to volume of business increase and decrease of volume correspondingly. •Payroll Cost includes salaries and wages and employee benefits and often referred as Labor Cost. Because labor cost consist of fixed and variable element it is known as semi-variable cost, meaning a portion should change in short-term and the other portion remains unchanged.
  7. 7. Cost Concept 7 CONTROLLABLE AND NON-CONTROLLABLE COST •Controllable cost are those that can be change in the short term such as Direct Variable Cost, Wages, Advertising & Promotion, Utilities, Repairs & Maintenance and Administration and General Expenses. •Non-Controllable cost are those that cannot normally be changed in short-term such as fixed cost like Rent, Interest on a mortgage, Real estate taxes, License fee and Depreciation.
  8. 8. Cost Concept 8 •Unit Cost may be food & beverage portion as in the cost of one item or hourly unit of work. In F&B business unit cost are commonly in average unit cost rather then actual unit cost. •Total Cost are the total of food & beverage portions served in one period such as a week or a month or total cost of labor for one period.
  9. 9. Cost Concept 9 •Prime Cost is a term used in the Hotel Industry refer to the cost of materials and labor. (Food, Beverage and Payroll) •Historical and Planned Costs •Historical cost are all cost are historical - that is, that they can be found in business records, book of account, financial statements, invoices, employees’ time card and other similar records. It is used for establishing unit cost, determining menu prices and comparing present with past labor cost. •It will be used for planning and determining the future to develop planned costs - projections of what cost will be or should be for a future period. It is often called as Budgeting.
  10. 10. Industry-wide Variations in Cost 10 Cost percentage vary considerably from one foodservice operation to other. This is due to many possible reasons. Basically there are two types of foodservice operation. • Those that operate at low profit margin and depends on relatively high business volume. • Those that operate at relatively high profit margin thus does not require high business volume.
  11. 11. Sales Concept 11 Sales Defined In general, the term sales is defined as revenue resulting from the exchange for a products (Food & Beverage) and service (Waiter) for value ($$). The sales concept in F&B operation usually can be express as: monetary and non-monetary.
  12. 12. Monetary Terms 12 •Total Sales is a term that refers to the total volume of expressed in dollar term for instant any given period , such as a week, a month or a year. By Category. Total dollar volume of sales by category are total food sales or total beverage sales. Or total steak sales or seafood sales. By Server. This is total dollar volume of sales for which a given server has been responsible in a given period. This is to help the management to make judgment on employees performance. By Seat. Usually for a year period. Total Dollar sales divided by the number of seats in the restaurant.
  13. 13. Monetary Terms 13 •Sales Price refers to the amount charged each customer purchasing one unit of a particular item. It can be a single meal or entire meal. •Average Sale in business is determine by adding individual sales to determine a total and then dividing that total by the number of individual sales. Two types of commonly calculated averages are: average sale per customer and average sale per server. Per Customer is the result of dividing total dollar sales by the number of sales or customer. Per Server is total dollar sales for an individual server divided by number of customer served by that individual.
  14. 14. Average Sale  This average is determined as follows: Average check = Total dollar sales ÷ Total number of covers Total sales of $3,902.30 and 140 covers. Thus, Average sale = $3,902.30 ÷ 140 = $27.87  Yasser, one of the servers, had 30 customers and total dollar sale of $565 on the Saturday night of February 13, average sale per server for Jim would be calculated as follows: Average sale = Total sales for Yasser ÷ No. of customers for Yasser = $565 ÷ 30 = $18.83
  15. 15. Non-Monetary Terms 15 •Total Number Sold refers to the total number of menu item sold in a given time period. •Cover is the term used to describe one diner regardless of the quantity of good the person consumes. •Total Cover refer to the total number of customer served in a given period. Help to make judgment & comparisons •Average Covers is determined y dividing the total number of cover for a given period by some other number such as hour of operation, day of operation or numbers of server. 1. Cover per Hour = Total Covers / No. of Hours of Op. 2. Covers per Day = Total Covers / No. of Days of Op. 3. Covers per Server = Total Covers / No. of Servers
  16. 16. Non-Monetary Terms 16 Seat Turnover or simply turnover refer to the number of seats occupied during a given period (or number of cover) divided by the number of seats available. 140 customers served during that one Saturday meal. The restaurant has 75 seats, so seat turnover would be calculated as follows: Seat turnover = Number of customers served ÷ Number of seats = 140 ÷ 75 = 1.87 turns
  17. 17. Non-Monetary Terms Sales Mix is a term used to describe the relative quantity sold of any menu item compared to other items in the same category. Sales Mix For the Sugar & Spice Restaurant August 20xx Menu Item Portion Sales Sales Mix Strip steak 1,000 12.5% Ginger shrimp 1,200 15.0 Lamb chop 1,800 22.5 Vege buritto 2,400 30.0 Chicken chop 1,600 20.0 Totals 8,000 100.0%
  18. 18. The Cost-to-Sales Ratio 18 Foodservice establishment calculate cost in dollars and compare those cost to sales in dollars. This enable them to discuss the relationship between cost and sales or the cost per dollar of sale. Cost ÷ Sales = Cost per dollar of sale decimal answer, and any decimal can be converted to a percentage if one multiplies it by 100 and adds a percent sign (%). Cost ÷ Sales x 100 = Cost% $ 312,090 ÷ $ 891,687 = .35 and .35 x 100 = 35.0 % Food cost ÷ Food sales x 100 =Food cost% Beverage cost ÷ Beverage sales x 100 = Beverage cost% Labor cost ÷ Total sales x 100 = Labor cost%
  19. 19. The Cost-to-Sales Ratio 19 The formula also can be use to determine the Sales price if the cost% is known. Cost ÷ cost% = Sales(or Sales Price) If the given cost percentage were 30.0 percent and the food cost for the item were $3.60, the appropriate sales price would be $12.00, illustrated here 30.0 % ÷ 100 = 0.3 $ 3.60 ÷ 0.3 = $12.00
  20. 20. The Cost-to-Sales Ratio 20 The formula also can be use to determine the cost if the spending power and cost% is known. Suppose this banquet manager is dealing with a group willing to spend $15.00 per person for a banquet, and the same given 30.0 percent cost percent is to apply. Calculation of the maximum permissible cost per person is facilitated by rearranging the formula once again: Sales x Cost % ( expressed as a decimal ) = Cost Sales X Cost % = Cost So the cost per person can be calculated as $4.50: 30.0 % ÷ 100 = 0.3 $ 15.00 X 0.3 = $ 4.50
  21. 21. TUTORIAL 22 1. Given the following information, calculate cost percentages. Round your answers to the nearest tenth of a percent. a. Cost, $200.00; Sales, $500.00 b. Cost, $150.00; Sales, $500.00 c. Cost, $178.50; Sales, $700.00 d. Cost, $216.80; Sales, $800.00 2. Calculate cost, given the following figures for cost percent and sales: a. Cost percent, 28.0%; Sales, $500.00 b. Cost percent, 34.5%; Sales, $2,400.00 c. Cost percent, 24.8%; Sales, $225.00 d. Cost percent, 31.6%; Sales, $1,065.00 3. Calculate sales, given the following figures for cost percent and cost: a. Cost percent, 30.0%; Cost, $90.00 b. Cost percent, 25.0%; Cost, $500.00 c. Cost percent, 33.3%; Cost, $1,000.00 d. Cost percent, 27.3%; Cost, $1,300.40
  22. 22. TUTORIAL 23 4. Sales records for a luncheon in the Zalika’s Restaurant for a recent week were: Given this information, calculate the sales mix. Item A, 196 Item B, 72 Item C, 142 Item D, 24 Item E, 112 Item F, 224 Item G, 162 5. Calculate the average check from the following data: a. Sales, $1,000.00; Number of customers, 125 b. Sales, $1,300.00; Number of customers, 158 c. Sales, $8,720.53; Number of customers, 976
  23. 23. TUTORIAL 24 6. The following table indicates the number of covers served and the gross sales per server for one three - hour period in Asyikin’s Restaurant. Determine: (a) the average number of covers served per hour per server (b) the average sale per server for the three - hour period. Server Covers Served Gross Sales Per Server Fadhli 71 $237.40 Azuan 66 $263.95 Nadia 58 $188.25 7. Use the information about Asyikin’s Restaurant identified in Question 6 to complete the following: a. Calculate the average check. b. Calculate the turnover for the three - hour period if there are 65 seats in the restaurant.
  25. 25. The Control Process 26 Introduction The control in the F&B industry really means controlling people action. These are the factors:- •Food does not disappear by itself, without help •Excess quantity of food and beverage into the plate and glass. •Employees’ wages calculation are not base on the wrong numbers of hours unless someone gives the wrong information. •Food are not consumed by pest unless made available by human •Customer seldom leave without paying unless make possible.
  26. 26. Managing Income & Expenses 27 Food Service Management It is important that the foodservice manager must be a talented individual. These criteria are true: The person must be able to grab opportunities & profit oriented A unique sales person Good personality with the guest Hard working person and most important The person is the controller or regulator of the operation to achieved maximized profits and minimize costs.
  27. 27. Managing Income & Expenses 28 INCOME Income can be managed in may ways thus to insure profit. Increasing income can be done by increasing the number of guest and the amount of money they spent. This goal can be achieved by suggestive selling, creative menu pricing and discount. Our main goal in this course is not to sale but controlling expenses. EXPENSES There are four major expense categories that must be controlled by management. They are… FOOD COST, BEVERAGE COST, LABOR COST & OTHER EXPENSES
  28. 28. The Control Process 29 1.Definition of Control Control is a process used by managers to direct, regulate and restrain the actions of people so that the established goals of an enterprise may be achieved. 2.Cost Control Defined Cost Control defined as the process used by managers to regulate cost and guard against excessive costs. It is an ongoing process throughout the operation. Two principle of the principal causes of excessive cost are inefficiency and waste.
  29. 29. The Control Process 30 3. Sales Control Sales Control is important to ensure that all sales results in appropriate income to the business. Therefore, it is important to require that each employees record each sales accurately. (Checks, duplicates, bills or etc.) 4. Responsibility For Control Responsibility is clearly falls onto the management, but the task on controlling differ due to the nature of the establishment. Small establishment the control responsibility usually taken by the management but for larger establishment it is delegated to the assistant manager or controller.
  30. 30. The Control Process 31 5. Instituting Control Food & beverage establishment usually involves process of raw material purchased, received, stored and issued for the purpose of manufacturing products for sale and services. At each stage of operation, it is necessary to institute control in order to stop pilferage or problems. Each control must be suitable to each of the operation, depends on the nature of material and service requiring control and on the degree of difficulty inherent (fundamentals) in instituting the control.
  31. 31. The Control Techniques 32 1. Establishing Standard •Standard are defined as rules or measures established for making comparisons and judgments. •Quality Standards are used to define the degree of excellence of raw materials, finished products and by extensions, work performed. •Quantity Standard are defined as measures of weight, count or volume used to make comparisons and judgment. •Standard Cost is defined as the cost of goods or services identified, approved and accepted by management in order to make judgment and comparisons of the effectiveness of the operation. Thus standard cost must be calculated as accurately as possible.
  32. 32. The Control Techniques 33 2. Establishing Procedures Procedures are the method employed to prepare products or perform jobs. Standard Procedures are those that have be established as the correct methods, routines and techniques for day-to-day operations. Example: Production procedures must be standardized for several reasons. One of the most important of these is customer satisfaction. Any given item should be produced by the same method and with the same ingredients every time it is served. It should also be served in the same quantity each time, partly so that regular customers will be given the same quantity each time they order the item, and partly to maintain cost standards.
  33. 33. The Control Techniques 3. Training Training is a process by which managers teach employees how work is to be done, given the standards and standards procedures established. Example; if management has established a standard 4 - ounce portion size for hamburgers, then all employees responsible for producing portions of hamburgers must be made aware that 4 ounces is the correct portion size.
  34. 34. The Control Techniques 35 4. Setting Example Employees in an operation follow the examples set by the manager — the manager ’ s behavior, manner, responses to questions, and even a failure to speak or take action in some situations. The behavior of individuals in a group tends to be influenced by the actions, statements and attitudes of their leaders. Work Habits, attitudes, behavior, spirit of a manager are the evident. If the manager who has occasion to help employees plate food for the dining room serves incorrect portion sizes, employees will be more likely to do the same when the manager is not there. Similarly, if a manager is inclined to wrap parcels of food to take home for personal use, employees will be more likely to do so.
  35. 35. The Control Techniques 36 5. Observing and Correcting Employee Actions One of a manager ’ s important tasks is to observe the actions of all employees continually as they go about their daily jobs, judging those actions in the light of the standards and standard procedures established for their work. If any employees are failing to follow the standards, it is a manager’s responsibility to correct their performance to the extent necessary at the appropriate time.
  36. 36. The Control Techniques 37 6. Requiring Records and Reports Recording and reports is an important element in control as these information helps in decision making, judgment & comparisons of the operations. One such report is the statement of income. Example; it is important to recognize that managers need timely information to determine whether primary goals and sub goals are being met. If timely records and reports are not available, opportunities for taking corrective action may be lost.
  37. 37. The Control Techniques 38 7. Discipline Employees Discipline is defined as action taken to give a warning, punish or telling off an employee for work performance or personal behavior incompatible with established standards It is seldom practice but only used as a deterrent or if corrective action failed. By selecting the right people for the various jobs — those with the experience, skill, and personal characteristics that match the job requirements the number of individuals requiring some level of discipline can be reduced to a bare minimum. However, every manager must face the fact that, at times, an individual staff member must be disciplined.
  38. 38. 39 8. Preparing and Following Budgets Preparing and following budgets may be the most common technique for controlling business operations Budget is defined as a financial plan and may be describe as a realistic expression of management’s goals and objectives expressed in financial terms. (Cash flow budget, capital equipment budget and advertising budget.) Operation Budget is the most important budget for F&B manager. It is a forecast of sales activity and an estimate of cost that will be incurred in the process of generating those sales. The Control Techniques
  39. 39. 40 PREPARING AN OPERATING BUDGET 1. An operating budget is normally prepared using historical information from previous budget and other financial records. 2. The second step is to calculated the percentage and analysis of the previous records. 3. Then making assumption or judgment base on all the influencing factors that might effect the business operation during the forecasted period, and computing into the new budget. Flexible budget normally prepared for levels of business volume above and below the expected level. (See Illustration) PREPARING AN OPERATING BUDGET
  40. 40. 41 Golden Dragon Restaurant Statement of Income for the year Ended December 20XX SALES RM % of Sales Food 786,250 85.0% Beverage 138,750 15.0% Total Sales 925,000 100.0% COST OF SALES Food 275,187 35.0% Beverage 34,688 25.0% Total Cost of Sales 309,875 33.5% GROSS PROFIT 615,125 66.5% CONTROLLABLE EXPENSES Salaries and Wages 185,000 20.0% Employee Benefits 46,250 5.0% Other Controllable Expenses 138,750 15.0% Total Controllable Expenses 370,000 40.0% INCOME BEFORE FIXED EXPENSES 245,125 26.5% OCCUPANCY COST 78,625 8.5% INTEREST EXPENSES 13,875 1.5% DEPRECIATION 46,250 5.0% RESTAURANT PROFIT/LOSS 106,375 11.5%
  41. 41. The Control Process 42 Consist of the following four steps: 1. Establish standard and standard procedures for operation. 2. Train all individual to follow established standards and standard procedures. 3. Monitor performance and compare actual performance with established standards. 4. Take appropriate actions to correct deviations from standards.
  42. 42. TUTORIALS 43 1. What is the purpose of cost control? Of sales control? 2. Define: Flexible budget Standard cost Operating budget Standard procedures Procedures Standards Quality standards Quantity standards Training Sales control Budget Control system Control Cost control Control process
  43. 43. 44 3. The following information has been prepared by the manager of the Market Restaurant. Using this information, prepare an operating budget for the Market Restaurant for the coming year, following the illustration provided in this chapter. Food sales: $820,000 Beverage sales: $290,000 Cost of food: 36 percent of food sales Cost of beverages: 24 percent of beverage sales Salaries and wages: $102,000 Employee benefit: 25 percent of total salaries and wages Other controllable expenses: $95,000 Depreciation: $65,500 Interest: $55,000 Occupancy costs: $56,000
  45. 45. Cost/Volume/Profit Relationship 46 Introduction The Key to understand cost/volume/profit relationship lies in understanding that fixed costs exist in an operation regardless of sale volume and that it is necessary to generate sufficient total volume to cover both fixed and variable costs as well as desired profit. It should be apparent that relationship exist between and among sales, cost of sales, cost of labor, cost of overhead and profit. In fact these relationship can be expressed as follows: Sales = Cost of sales + Cost of labor + cost of overhead + profit.
  46. 46. Cost/Volume/Profit Relationship 47 The relationship formula Because cost of sale is variable, cost of labor includes fixed and variable elements and cost of overhead is fixed, one should restate this equation as follows: S = VC + FC + P In fact this is the basic equation of cost/volume/profit analysis S = Sales VC = Variable Cost FC = Fixed Cost P = Profit.
  47. 47. Cost/Volume/Profit Relationship 48 Three guideline of references to remember 1. Within the normal range of business operations, there is a relationship between variable costs and sales that remains relatively constant. That relationship is a ratio that is normally expressed either as a percentage or as a decimal point. 2. By Contrast, fixed costs tend to remain constant in dollar terms, regardless of changes in dollar sales volume. Consequently, whether expressed as a percentage or as decimal, the relationship between fixed costs and sales changes as sales volume increase or decrease. 3. Once acceptable levels are determined for costs, they must be controlled if the operation is to be profitable.
  49. 49. S=VC+FC+P 50 Step (1). Determine total variable cost Total variable cost consists of food cost, beverage cost, and the variable portion of labor cost. We will assume that labor cost is $81259.00 40% variable and 60% fixed. Food Cost $96,678.00 Beverage Cost 12,188.00 Variable labor Cost (40%) 32,503.60 Total Variable Cost 141,369.60
  50. 50. S=VC+FC+P 51 Step (2) Determine total fixed cost Fixed labor Cost (60%) $48,755.40 Other Controllable Exp. 46,750.00 Occupancy Cost 29,500.00 Interest 5,000.00 Depreciation 16,250.00 Total Fixed Cost 146,255.40 Profit desired is $37,375.00 The basic cost/volume/profit equation at the level of sales is: S=VC(141,369.60)+FC(146,255.40)+P(37,375) S=$325,000.00
  51. 51. Variable Rate & Contribution Rate 52 Variable Rate is the ratio of variable cost to dollar sales. It is obviously determined by dividing variable cost by dollar sales and is expresses in decimal form. Variable Rate (VR) = Variable Cost / Sales or VR = VC / S VR= VC (141,375) / S (325,000) VR=.435 43.5 percent of dollar sales is needed to cover the variable costs, or that $0.435 of each dollar of sales is required for that purpose.
  52. 52. 53 If 43.5% of dollar sales is needed to cover VC, then the remainder 56.5% is available for other purpose: 1. Meeting Fixed Costs 2. Providing Profit Thus, $0.565 of each dollar of sales is available to contribute to covering fixed costs and providing profit. This percentage (or ratio, or rate) is known as the Contributing rate or CR. # The contributing rate is determined by subtracting the variable rate from 1. CR = 1 - VR = 1 - .435 = .565 Variable Rate & Contribution Rate
  53. 53. Breakeven Point 54 No business can be termed profitable until all of the fixed cost have been met. • if sales cannot cover both variable cost & fixed cost it is operating at a loss • if sales can cover both variable cost & fixed cost exactly but insufficient to provide any profit. (I.e, profit = 0) the business is said to be operating at the breakeven point (BE) Changing the Breakeven Point Two ways to change Breakeven point is by 1. Increase menu price 2. Reduce Variable cost
  54. 54. Calculate CVP 55 Gather all the information that have been calculated Sales = 325,000.00 VC = 141,375.00 FC = 146,250.00 Profit = 37,375.00 VR = .435 CR = .565 Sales = or This formula can be used to determine the level of dollar sales required to earn any profit that one might choose to put into the equation. Fixed Cost + Profit Contribution Rate S= FC + P CR 146,250 + 37,375 .565 Sales = 325,000 Sales =
  55. 55. Calculate Breakeven Point 56 By using the same formula, we can actually can determine the Breakeven point, a which profit would be equal to zero dollar Sales = $146,250 + 0 .565 S = FC + P CR Sales = $258,849.55 rounded as = $258,850.00 At this level VC is 43.5% of sales = 112,599.75 or 112,600.00 (S)$258,850 = (VC)$112,600 + (FC)$146,250 +(P)$0.00
  56. 56. Breakeven Analysis 57 The Graduate Restaurant achieved sales level of $325,000, which was $66,150 beyond BE. At this level, beyond BE, there are no more fixed cost to be cover for each dollar of sales but have variable cost. Variable Cost can be determined by multiplying S (Sales) by VR (Variable Rate) = .435 VC = S X VR (VC) $28,775 = (S) $66,150 X (VR) .435 If $28,775 in VC is subtracted from sales of $66,150 the result $37,375 is equal to profit (P). It consist of $0.565 of each dollar sales beyond BE. (P) $37,375 = (S) $66,160 x (CR) .565
  57. 57. Contribution Margin 58 Each dollar of sales, may also be divided in two portions. 1. That which must be used to cover variable cost associated with the item sold. 2. That which remains to cover fixed costs and to provide profit. The dollar amount remaining after VC have been subtracted from the sales dollar is defined as the Contribution Margin (CM). Contribution Margin must go to cover all fixed and variable cost until breakeven is reached, after breakeven is reached, contribution margin becomes profit. Sales - Variable Cost = Contribution Margin
  58. 58. Cost/Volume/Profit Analysis 59 Certain assumptions that need to be understand in C.V.P analysis are: 1. Cost is a particular establishment can be classified as fixed and variable with reasonable accuracy. 2. Variable cost are directly variable 3. Fixed cost are relatively stable and will remain so within the relevant range of business operations 4. Sales prices will remain constant for the period covered by the analysis 5. The sales mix in the restaurant will also remain relatively constant for the period.
  59. 59. CVP Analysis 60 The questions that we want to answer through CVP analysis are likely to be: •What profit will be established earn at a given sales level? •What level of sale will be required to earn in given profit? •How many sales (or cover) will be required in order to reach the breakeven point? The question that con be sort into the different categories: 1. Those requiring answer stated in term of money 2. Those requiring answer stated in term of number of sales.
  60. 60. Dollar Formulas & Calculation 61 Formula # 1 Formula to determining the dollar sales level required to earn any planned or targeted profit, given a dollar total of fixed cost and an expected variable rate (VR) This formula can also be use to determine BE by P = 0 Formula # 2 CR = FC + P/S Formula # 3 P = (S X CR) – FC Formula # 4 FC = (S X CR) – P S = FC + P 1 -VR (or CR)
  61. 61.  the total of the contribution margins for all sales is used to cover fixed costs and provide a profit. If one knows the average contribution margin per sale and the dollar figure for fixed costs, it is then possible to calculate the number of sales, or customers, needed to cover fixed costs and the desired profit.  For example, if the financial records of a small restaurant indicated  sales of $48,000 and variable costs of $18,000 in a period when 3,000 customers were served, then: 48,000 sales ÷ 3,000 customers = $ 16.00 average sales 18,000 variable costs ÷ 3,000 customers = $ 6.00 average variable costs NUMBER OF CUSTOMER TO BREAK EVEN
  62. 62.  determine average contribution margin Average S $16.00 - Average VC 6.00 = Average CM $10.00  BEP in Customers = FC ÷ Average CM  to determine the number of customers required to achieve a given profit, one simply adds profit to fixed cost and divides by average contribution margin.  Number of Customers = FC + Profit ÷ Average CM  Assume that fixed cost for the period was $30,000 Number of Customers = $30,000 ÷ $10 3,000 customers
  63. 63. 1. Given the following information, determine total dollar sales: a. Cost of sales, $46,500; cost of labor, $33,247; cost of overhead, $75,883; profit, $3,129. b. Cost of sales, $51,259; cost of labor, $77,351; cost of overhead, $42,248; loss, $41,167. 2. Given the following information, find contribution margin: a. Average sales price per unit, $13.22; average variable cost per unit, $5.78 b. Average sales price per unit, $14.50; average variable rate, .36 c. Average sales price per unit, $16.20; average contribution rate, .55
  64. 64. 3. Given the following information, find variable rate: a. Sales price per unit, $19.25; variable cost per unit, $6.70 b. Total sales, $164,328; total variable cost, $72,304.32 c. Sales price per unit, $18.80; contribution margin, $10.72 d. Sales price per unit, $16.37; total fixed costs, $142,408; total unit sales, 19,364; total profit, $22,952.80 4. Given the following information, find contribution rate: a. Sales price per unit, $18.50; contribution margin, $10.08 b. Sales price per unit, $17.50; variable cost per unit, $6.95 c. Total sales, $64,726; total variable cost, $40,130.12
  65. 65. 5. Given the following information, find break - even point in Number of Customers: a. Fixed costs, $113,231.64; contribution margin, $2.28 b. Sales price per unit, $17.22; fixed costs, $215,035.68; variable cost per unit, $6.98. 6. Given the following information, find number of customers: a. Fixed costs, $58,922; profit, $9,838; contribution margin per unit, $3.82 b. Variable cost per unit, $5.30; profit equal to 18 percent of $211,000; sales price per unit, $16.30; fixed costs, $86,609
  66. 66. Food Costs RM188,625 Variable Labor Costs RM61,200 Occupancy Costs RM55,500 Interest RM20,025 Depreciation RM33,750 Beverage Costs RM 42,750 Fixed Labor Costs RM85,575 Other Controllable Expenses RM 76,500 a) What is the establishment’s profit or loss if sales are RM595500? b) Calculate the variable rate? c) Calculate the contribution rate? d) Calculate the breakeven point in dollar sales e) What level of dollar sales is required in order to earn a profit of RM75000 f) If the establishment operated at a loss of RM33375 last year, what was its level of dollar sales?
  68. 68. Food Purchasing Control 69 Responsibility for Purchasing The responsibility of purchasing can be delegate to any one in the foodservice operation depending on organizational structure and management policies. Control Process and Purchasing Four steps in the control process apply here: 1. Requiring that standards and standard procedures be established 2. That employees be trained to follow those standards and standard procedures 3.That employee out-put be monitored and compared to established standards 4. Remedial action be taken as needed
  69. 69. Food Purchasing Control 70 Perishable and Non-perishable Perishable are those items, typically fresh foods, that have a comparatively short useful life after they have been received. Should be purchased for immediate use only as they deteriorate quickly. Non-perishable are those food items that have a longer shelf life. Often referred to as groceries or staple. They may be stored in the containers in which they are received, stored on shelf at room temperature for weeks or months. They do not deteriorate quickly.
  70. 70. Developing Standards & Standard Procedures 71 Establishing control over purchasing ensure a continuing supply of sufficient quantities of the necessary foods, with each of quality appropriate to its intended use and purchase at the most favorable price. Standard must be develop for: 1. The quality of food purchased 2. The quantity of food purchased 3. The price at which food is purchased
  71. 71. Establishing Quality Standards 72 •It is important first to determine which perishable & non-perishable food is required in order to produce products of consistent quality. •Thus it is important to draw up the list of all food items to be purchased, including those specific and distinctive characteristic that best describe the desired quality of each in written description also known as standard purchase specifications. •It is usually base on federal grading or common market grading.
  72. 72. Establishing Quality Standards 73 Through Standard Purchasing Specification : 1. To determine exact requirement in advance for any products 2. To purchased according to specification to prepare several different items on the menu. 3. They eliminate misunderstanding 4. To have standard competitive bidding 5. They eliminate for detail verbal description 6. To facilitate checking food as it is received.
  73. 73. Establishing Quantity Standard 74 •Quantity standard for purchasing are subjected to continual review and revision, often on a daily basis. •Perishable Item .The correct amount must be purchased to avoid wastage. •A basic requirement of the purchasing routine is to take daily inventory of perishable. •The routine requires that determinations be made of anticipate total needs for each item, base on future menus and often on experience as well.
  74. 74. Establishing Quantity Standard 75 Non-perishable items does not present the problem of rapid deterioration, the do represent considerable amount of money invested in material in storage. The goal here is to avoid excessive quantities on hand. Through proper planning. The ways to maintain inventories of non perishables at appropriate levels, most are variations on two basic methods: 1. Periodic order method 2. Perpetual inventory method
  75. 75. Periodic order method  A method for ordering food or beverages based on fixed order dates and variable order quantities. The calculation of the amount of each item to order is comparatively simple: Amount required for the upcoming period -Amount presently on hand + Amount wanted on hand at the end of the period to last until the next delivery =Amount to order
  76. 76. Periodic order method orders for non perishables are placed every two weeks, one of the items ordered is crushed tomatoes, purchased in cans, packed 6 cans to a case. The item is used at the rate of 7 cans per week, and delivery normally takes five days from the date an order is placed. If the steward in this establishment found 9 cans on the shelf, anticipated a use of 14 cans during the upcoming period of approximately two weeks, and wanted 10 cans on hand at the end of that period, the calculation would be: 14 cans required - 9 cans on hand +10 cans to be left at the end of the period (desired ending inventory) = 15 cans to be ordered on this date
  77. 77.  Both delivery time and daily usage for the period must be used to determine the DEI. Furthermore, it is advisable to include some additional quantity to serve as a safety factor, just in case the normal delivery is delayed or business volume is higher than expected in the coming period. For the example given, the calculations for DEI would be as follows:  Daily usage X Number of days in delivery period = Normal usage  Normal usage + Safety factor (50%) =DEI  14 cans per week ÷ 7 days = 2 cans per day  2 cans per day X 5 days in delivery period = 10 cans normal usage  10 cans normal usage + 50% safety factor =15 cans DEI  This is known as the Reorder Point in the Perpetual Order Method
  78. 78. Establishing Quantity Standard 79 Perpetual Inventory Method 1. To ensure that quantity purchase are sufficient not excessive 2. To provide effective control on stored item for the future. The reorder point is quite simply the number of units to which the supply on hand should decrease before additional orders are placed. The Par Stock means simply the maximum quantity of a given item that should be on hand. This helps to 1. Storage space 2. Limits on total value of inventory 3. Desired frequency of ordering 4. Usage 5. Purveyors’ minimum order requirements
  79. 79. Establishing Quantity Standard  Reorder point is calculated in the following manner. If normal usage is 14 cans per week and it takes five days from date of order to get delivery, then the basic number of cans needed is 10. However, because delivery may be delayed, because usage may increase for unforeseen reasons, or because both of those possibilities may occur at once, it is advisable to increase that amount somewhat.  The amount of the increase is a matter for management to decide. For our purposes, we will use 50 percent for all calculations. If that were so in this case, the reorder point would be set at 15 cans. Under the periodic method, the DEI would similarly be calculated as 15 cans. Par stock 20 -Reorder point 15 =Subtotal 5 +Normal usage until delivery 10 =Reorder quantity 15 80
  80. 80. Establishing standard for Price 81 The availability of sources of supply varies considerably from one location to another. It depends on ownership policy, availability of supplies and general market condition, supplies can be choose from: •Wholesalers •Local producers •Manufactures •Packers •Local farms •Retailers •Cooperative association Perishable because prices for perishable often fluctuate daily it is necessary to find the price from different supplier through telephones. Non-Perishable normally with fewer suppliers with lowest price and consistent quality, small quantity & delivery wise.
  81. 81. Centralized Purchasing 82 This is usually used in chain operations and occasionally established by small groups of independent operator with similar needs/ Advantage. •Purchased at lowest price because of volume •Desired quality as agent has greater choice •Obtain exact specification •Larger inventory ensuring reliable supply •Dishonest greatly reduced. Disadvantage •Little freedom for its particular needs •No advantage on local specials at reduce price •Limiting changes of menu.
  82. 82. Food Receiving Control 83 INTRODUCTION The primary objective of receiving control is to verify that quantities, qualities and price of food delivered conform to orders placed. The person that usually responsible for this job is given the job title as “receiving clerk’. Establishing standard for receiving Established standards to govern the receiving process are: • The quantity delivered should be the same as the quantity listed on order forms and also should be identical as the quantity listed on the invoice or delivery bill. •The quality of item delivered should conform to the establishment’s standard purchase specification for that item •The prices on the invoice should be the same as those stated on the order form
  83. 83. Establishing standard for receiving 84 THE INVOICE A bill from a vendor for good or services, often presented as the goods are delivered or the services performed. Quantity Unit Description Unit Price Amount 30 biji Durian 8.50 255.00 10 kg Striploin 12.35 123.50 INVOICE. Gunasemula Company. 230 Kampung Saya To:The Sugar & Spice Café Jalan HajiTaha. Date: June 12th Received By:___________________ Date: ___________
  84. 84. Establishing Standard Procedures for receiving 85 Example of Standard procedure for receiving 1. Verify that the quantity, quality and price for each item delivered conforms exactly to the order place 2. Acknowledge that quantity, quality and price have been verified by stamping the invoice with the rubber invoice stamp provided for that purpose 3. List all invoices for foods delivered on a given day on the Receiving Clerk’s Daily Report for that day, and complete the report as required, or enter appropriate information directly into a computer terminal 4. Forward complete paperwork to proper personnel 5. Move food to appropriate storage areas.
  85. 85. Establishing Standard Procedures for receiving 86 INVOICE STAMP rubber stamp used by a receiver to overprint a small form on an invoice for the purpose of recording the data on which goods were received, as well as the signature of the several individuals verifying the accuracy of data on the invoice. 1. Verification of the date on which food was received 2. The signature of the clerk receiving the food who vouches for the accuracy of quantity, quality and price. 3. The steward’s signature, indicating that the steward knows the food has been delivered 4. The food controller’s verification of the arithmetical accuracy of the bill. 5. Signatory approval of the bill for payment by an authorized individual before a check is drawn.
  86. 86. Sample of a Invoice Stamp 87 INVOICE STAMP Date: Received by: (Receiving Clerk) Steward: Price and Extensions Verified: (F & B Cost Controller) OK for Payment: (Account Department)
  87. 87. Listing Invoices on Receiving Clerk’s Daily Report 88 Receiving Clerk’s daily Report is an important accounting documents. Food is divided into at least two categories: •Item Purchase for immediate use – direct (extremely perishable nature that are purchased more or less daily basis for immediate use) – and will become the cost immediately. •Item Purchase to be kept in inventory – store (Meat, cans, bottles and boxed) – and will become the cost when the item is issued for production. The Receiving Clerk’s Daily Report is prepared by receiving clerk, who merely copies data from each invoice to appropriate columns on the reported and then enters the total for each invoice into one of the three columns under the general heading “Purchase Journal Distribution” – Food Direct, Food Stores or Sundries.
  88. 88. Receiving Clerk’s Daily Report Receiving Clerk’s Daily Report No. 1 Date: June 11, xxxx QTY Unit Description √ Unit Price Amount Total Amount Purchase Journal Distribution Direct Food Food Stores Sundries Market Price Meats 30 lbs Strip Steak √ 7.95 238.50 10 lbs Breast of veal √ 4.65 46.50 285.00 285.00 Jong’s Farm 10 kg Crocodile Meat √ 2.50 25.00 25.00 25.00 Kau Pun Farm 1 Kg Daun Kucai √ 5.00 5.00 2 Bdl Pucuk Paku √ 2.00 4.00 9.00 9.00 319.00 319.00 9.00 310.00 89
  89. 89. TUTORIALS 1. List 10 items considered perishable and 10 considered nonperishable in the foodservice industry. 2. Nestor ’ s Restaurant uses the periodic order method, placing orders every two weeks. Determine the quantity of canned peaches to order today, given the following: a. Normal usage is one case of 24 cans per week. b. Quantity on hand is 10 cans. c. Desired ending inventory is 16 cans. 3. Harvey ’ s Restaurant uses the periodic order method, ordering once a month. Determine the proper quantity of tomato juice to order today, given the following: a. Normal usage is one case of 12 cans per week. b. Quantity on hand is 6 cans. c. Desired ending inventory is 18 cans. d. The coming month is expected to be very busy, requiring 50 percent more tomato juice than normal.
  90. 90. TUTORIALS 4. The Midtown Restaurant uses the perpetual order method. One of the items to be ordered is canned pears. Determine reorder point and reorder quantity, given the following: a. Normal usage is 21 cans per week. b. It takes four days to get delivery of the item. c. Par stock is set at 42 cans. d. Cans come packed 12 to a case. 5. The Last Chance Restaurant uses the perpetual order method. One of the items in the inventory is canned green beans. Determine reorder point and reorder quantity, given the following: a. Normal usage is two cans per day. b. It takes five days to get delivery of the item. c. Par stock is 29 cans. d. Cans come packed six to a case.
  92. 92. Food Storing & Issuing Control 93 STORING CONTROL: ESTABLISHING STANDARDS AND STANDARD PROCEDURES FOR STORING In general, the standard established for storing food should address five principal concerns: 1. Condition of facilities and equipment 2. Arrangement of Food 3. Security of Storage areas 4. Location of Storage Facilities 5. Dating and pricing of stored food
  93. 93. Factor 1. Condition of facilities and equipment 94 The factor that involves in maintaining proper internal conditions include:  Temperature (Key factors in storing food especially for perishable item)  Food life can be maximized when food is stored at the correct temperature and at the proper level of humidity. Fresh meats: 34 – 36 ° F (1-2 °C) Fresh produce: 34 – 36 ° F (1-2 °C) Fresh dairy products: 34 – 36 ° F (1-2 °C) Fresh fish: 30 – 34 ° F (-1 to 1°C) Frozen foods: 10 – 0 ° F (-23 to -18°C)
  94. 94.  Storage Container (Appropriate container especially for staple food, fresh food and cooked or processed food)  Shelving (Shelving should be slatted to permit maximum air circulation for perishable material and solid steel shelving for non-perishable, and raised a few inches above the floor level)  Cleanliness (Absolute cleanliness) Factor 1. Condition of facilities and equipment
  95. 95. Factor 2: Arrangement of Foods 96  Factors involved in maintaining appropriate internal arrangement of food include: 1. Keeping the Most-Used item readily available. (Kept most used item closest to the entrance tend to reduce the time required to move needed foods from storage to production and thus tends to reduce labor costs.) 2. Fixing definite location (Each particular item should always be found in the same location, and attention should be given to ensuring that new deliveries of the item are stored in the same location.) 3. Rotation of Stock (FIFO system) (storing new deliveries of an item behind the quantities already on hand, thus ensuring that older items will be used first. This reduces the possibilities for spoilage.)
  96. 96. Factor 3: Location of Storage Facilities 97  the storage facilities for both perishable and nonperishable foods should be located between receiving areas and preparation areas, preferably close to both. A properly located storage facility will have four effects: 1. Speeding the storing and issuing of food 2. Maximizing security 3. Reducing labor requirements 4. Minimizing infestation of rodents and other unwanted creatures
  97. 97. Factor 4: Security 98  Food should never be stored in a manner that permits pilferage. That is another reason for moving foods from the receiving area to storage as quickly as possible.  Employees should not be permitted to remove items at will. Typically, a storeroom is kept open at specified times for specified periods well known to the staff and is otherwise closed to enable the storeroom clerk to attend to other duties.  When the storeroom is closed, it should be locked, and the single key should be in the storeroom clerk ’s possession. In such cases, one additional emergency backup key is usually kept by the manager or in the office safe.
  98. 98. Factor 5: Dating and Pricing 99  It is desirable to date items as they are put away on shelves, so that the storeroom clerk can be certain of the age of all items and make provisions for their use before they can spoil.  all items should be priced as goods are put away, with the cost of each package clearly marked on the package. Following this procedure will greatly simplify issuing, because the storeroom clerk will be able to price requisitions with little difficulty.
  99. 99. Food Storing & Issuing Control 100 ISSUING CONTROL: ESTABLISHING STANDARDS AND STANDARD PROCEDURES FOR ISSUING There are two elements in the issuing process: (1) The physical movement of foods from storage facilities to food preparation areas Physical Movement of Food from storage facilities is the movement of food from the storage facilities to the preparation area. Practices for doing this varies from one establishment to other establishment due to the management policies and procedures and priority
  100. 100. Issuing Control: Establishing Standard and Standard Procedure for Issuing 101 (2) The record keeping associated with determining the cost of the food issued. DIRECT Direct are charge to food cost as they are received directly on assumption that these perishable item have been purchased for immediate use. Figures in “FOOD DIRECT” column in Receiving Clerk’s Daily Report will be calculated directly into the particular day food cost.
  101. 101. Issuing Control: Establishing Standard and Standard Procedure for Issuing 102 (2) The record keeping associated with determining the cost of the food issued. STORES The food category known as stores was previously described as consisting of staples. When purchased, these foods are considered part of inventory until issued for use and are not included in cost figures until they are issued. Therefore, it follows that records of issues must be kept in order to determine the cost of stores. For control purposes, a system must be established to ensure that no stores are issued unless kitchen personnel submit lists of the items and quantities needed.
  102. 102. Issuing Control: Establishing Standard and Standard Procedure for Issuing 103 (2) The record keeping associated with determining the cost of the food issued. The Requisition is a form filled in by a member of the kitchen staff. It lists the items and quantities of stores that the kitchen staff needs for the current day ’ s production. Each requisition should be reviewed by the chef, who should check to see that all required items are listed and that the quantity listed for each is accurate. If the list of items and quantities is correct, the chef signs and thus approves the requisition.
  103. 103. Requisition Form Date: 9th Mar 2XXX Department: Main Kitchen Quantity Description Unit Cost Total Cost 6 #10 Cans Green Peas $2.79 $16.74 50 Lbs. Sugar 0.39 19.50 40 Lbs. Ground Beef 2.59 103.60 6 Loin Pork (108 lbs. per tag) 3.39 258.12 TOTAL $397.96 Charge to: FOOD Department ___________ Requested by The Requisition Form
  104. 104. Food & Beverage Transfer 105  F&B Transfer means the transfer of item intended for a section to another section that requires it.  Intra-unit Transfer are food and beverage transfers between departments of a food and beverage operation. They include transfers of food and liquor between the kitchen and bar, and between kitchen and kitchen in those larger operations that have multiple feeding facilities. Between Bar and Kitchen Many kitchens use beverage items such as wine, cordials, brandy, and even ale to produce sauces, parfaits, certain baked items, and rarebits. Occasionally, these beverages are purchased by the food department for use in the kitchen, kept in a storeroom until needed, and then issued on requisitions directly to the kitchen
  105. 105. Food & Beverage Transfer 106  Inter-unit Transfer are transfers of food and beverage between units in a chain. The two examples that follow illustrate inter unit transfers and the effect of such transfers on food costs. In some instances, small chains produce some items (e.g., baked goods) in only one unit and then distribute those items to other units in the chain. If the ingredients for the baked goods come from that particular unit ’ s regular supplies, then some record must be made of the cost of the ingredients used.
  107. 107. Food Production Control I. Portions  The standards and standard procedures for production control are designed to ensure that all portions of any given item conform to management ’ s plans for that item and that, as far as possible, each portion of any given item is identical to all other portions of the same item.  Portion for any given menu should be identical in 4 respect. 1. Ingredients 2. Proportions of ingredients 3. Production methods 4. Quantity  To achieved the 4 respected areas we need to have 1. Standard Portion Size 2. Standard Recipe 3. Standard Portion Cost
  108. 108. Standard Portion Size 109  One of the most important standards that any foodservice operation must establish is the standard portion size , defined as the quantity of any item that is to be served each time that item is ordered. In effect, the standard portion size for any item is the fixed quantity of a given menu item that management intends to give each customer in return for the fixed selling price identified in the menu. It is possible and desirable for management to establish these fixed quantities in very clear terms. Every item on a menu can be quantified in one of three ways: by weight, by volume, or by count.  Every item on a menu can be quantified in one of the three way:  By Weight Can be expresses in ounce or grams used to measure portion sizes for a number of menu items.  By Volume Is used as the measure for portion of many menu items usually that of liquid in nature, Milk, soup, juices of coffees  By Count Used to identify portion size, such as sausage, eggs and shrimps
  109. 109. Standard Portion Size 110  Many devices are available to help foodservice operators standardize portion sizes. Among the more common are the aforementioned scoops and slotted spoons, as well as ladles, portion scales, and measuring cups. Even the number scale or dial on a slicing machine, designed to regulate the thickness of slices, can aid in standardizing portion size: A manager may stipulate a particular number of slices of an item on a sandwich and then direct that the item be sliced with the dial at a particular setting  Advantages for practicing Standard Portion Size  It helps reduce customer discontent as the customer cannot compare his or her portion unfavorably with that of other customer and feel dissatisfied or cheated.  It help to eliminate animosity of miscommunication between the kitchen staff and the server over the portion size that lead to delay in the serving of food.  It help to eliminate excessive costs of over portioned menu.  Price on the menu is usually fixed, thus it will also reflect the portion size of the menu. If the portion size is constantly change then it will dissatisfied the customer and server.
  110. 110. Standard Recipe 111  Another important production standard is the recipe. A recipe is a list of the ingredients and the quantities of those ingredients needed to produce a particular item, along with a procedure or method to follow. A standard recipe is the recipe that has been designated the correct one to use in a given establishment.  Standard recipes help to ensure that the quality of any item will be the same each time the item is produced. They also help to establish consistency of taste, appearance, and customer acceptance.  the same ingredients are used in the correct proportions and the same procedure is followed, the results should be nearly identical each time the standard recipe is used, even if different people are doing the work. In addition, returning customers will be more likely to receive items of identical quality.  Standard recipes are also very important to food control. Without standard recipes, costs cannot be controlled effectively. If a menu item is produced by different methods, with different ingredients, and in different proportions each time it is made, costs will be different each time any given quantity is produced
  111. 111. Standard Portion Cost 113  A standard portion cost can be calculated for every item on every menu, provided that the ingredients, proportions, production methods, and portion sizes have been standardized as previously discussed. In general, calculating standard portion cost merely requires that one determine the cost of each ingredient used to produce a quantity of a given menu item, add the costs of the individual ingredients to arrive at a total, and then divide the total by the number of portions produced.  Standard portion cost is defined as the dollar amount that a standard portion should cost, given the standards and standard procedures for its production. The standard portion cost for a given menu item can be viewed as a budget for the production of one portion of that item. There are several reasons for determining standard portion costs. The most obvious is that one should have a reasonably clear idea of the cost of a menu item before establishing a menu sales price for that item
  112. 112. CALCULATING STANDARD PORTION COSTS  There are several methods for calculating standard portion costs: 1. Formula For many (perhaps even for a majority) of the menu items prepared in foodservice establishments, determining standard portion cost can be very simple. For a large number of items, one may determine portion cost by means of this formula: Standard portion cost = Purchase price per unit Number of portions per unit For example, consider an establishment serving eggs on the breakfast menu, with two eggs as the standard portion. One can determine the standard cost of the portion of the eggs by dividing the cost of a 30 - dozen case of eggs — say, $ 41.40 — by the number of two - egg portions it contains (180) to find the standard portion cost of $ 0.23. Standard portion cost = 41.40 purchase price per case 180 std. portion per case = $0.23
  113. 113. CALCULATING STANDARD PORTION COSTS  There are several methods for calculating standard portion costs: 2. Recipe detail and cost card For menu items produced from standard recipes, it is possible to determine the standard cost of one portion by using a form known as a recipe detail and cost card .
  114. 114. CALCULATING STANDARD PORTION COSTS  There are several methods for calculating standard portion costs: 3. Butcher test When meat, fish, and poultry are purchased as wholesale cuts, the purchaser pays the same price for every pound of the item purchased, even though, after butchering, the resulting parts may have entirely different values. If, for example, a particular cut of beef is approximately half fat and half usable meat, the two parts clearly have different uses and different values, even though they were purchased at the same price per pound because both were part of one wholesale cut. Among other purposes, the butcher test is designed to establish a rational value for the primary part of the wholesale piece.
  115. 115. CALCULATING STANDARD PORTION COSTS  There are several methods for calculating standard portion costs: 4. Cooking loss test The primary purpose for the cooking loss test is the same as that for the butcher test: determining standard portion cost. The cooking loss test is used for those items that cannot be portioned until after cooking is complete. With these items, one must take into account the weight loss that occurs during cooking. Therefore, one cannot determine the quantity remaining to be portioned until cooking is completed and portion able weight can be determined. Cooking loss varies with cooking time and temperature, and it must be taken into account in determining standard portion costs.
  116. 116. Using the Yield Percentage 119  Or yield factor is defined as the percent of a whole purchase unit of meat, poultry or fish that is available for portioning after any required in-house processing has been completed.  Quantity = Number of portions X portion size (as a decimal) /Yield percentage Number of portions = Portion size = Yield percentage = Quantity xYield percentage Portion size Quantity xYield percentage Number of portions Number of portions x Portion size Quantity
  118. 118. PROBLEMS  Assume that control has been established over individual portions and will shift our focus to the number of portions produced for each item on a menu for a given day or meal. After all, if the cost of a portion of some item is controlled at, say, $ 4.50 per serving, and the establishment produces 100 portions but sells only 40, there will be 60 portions unsold. These may or may not be salable on another day. Even if they are salable, these portions are likely to be of lower quality than when they were first produced. It is also possible that they cannot be sold in their original form, but must be converted into some other item that will be sold at a lower sales price. Sometimes, if none of these possibilities are feasible, it may be necessary to throw the food away. In any case, there is excessive cost — either the cost of the food or the cost of additional labor that would not have been required if the establishment had produced 40 portions rather than 100. Such excessive costs can be reduced or eliminated by applying the four - step control process to the problem of quantity production.
  119. 119. 122 Food Production Control II: Quantities This topic will look into the planning of how many is enough when producing. The quantity of each production will also need to be control as to help in reducing excessive cost though wastage if overproduction or customer dissatisfaction if it is underproduction. Factor need to be considered are: 1. Maintaining sales history 2. Forecasting portion sales 3. Determining production quantities
  120. 120. Maintaining Sales History A sales history is a written record of the number of portions of each menu item sold every time that item appears on the menu. It is a summary of portion sales. the best decisions on the nature of the sales history are based on the need for information that can be used to improve operations. Unless the information is useful in leading to better control over costs, its maintenance cannot be justified. the basic information is incorporated into the sales history, it is necessary to understand the two methods used for recording customers ’selections: manual and electronic.
  121. 121. Portion sales records Regardless of whether the portion sales records are stored manually or electronically, they are likely to be arranged in one of three ways: 1. By operating period, such as one week or month, so that all sales records for an entire operating period can be viewed together on one page, card or screen. 2. By day of the week , so that all sales records for a given day (e.g.Tuesday) for a period of several weeks can be compared. 3. By entrée item, so that the degree of popularity of a given item can be seen over time.
  122. 122. Popularity Index  Popularity index is defined as the ratio of portion sales for a given menu item to total portion sales for all menu items  The popularity index is calculated by dividing portion sales for a given item by the total portion sales for all menu items and then multiplying by 100 in order to convert to a percentage.The index may be calculated for any time period, even for a single meal.When calculated for a single meal, the index is usually referred to as the sales mix,  Popularity index = portion sales X 100 Total portion sales for all menu items 188 X100 1937  0.09706 and 0.09706 100 9.706%
  123. 123. Other Information in Sales Histories Sales histories often include provisions for recording additional relevant information — internal and external conditions that may shed light on sales data. One of the most common of these conditions is the weather. Most foodservice operators find that weather conditions have a noticeable impact on sales volume. Special events can decidedly influence sales and are often included in sales histories.The occurrence of a national holiday on a particular day or the presence of a particular convention group in a hotel can affect sales considerably. So can such varied conditions as faulty kitchen equipment, street construction in front of the restaurant, or a major sale at a nearby
  124. 124. Forecasting Portion Sales 127  Forecasting is a process by means of which managers use data and intuition to predict what is likely to occur in the future.  It is a principal element in cost control as accurate prediction will make purchasing and production more accurate.  Steps in forecasting are: 1. Gather sales volume for particular time (Sales History) 2. External factors affecting the sales 3. Predict anticipated volume 4. Anticipate the sales for each menu item (Popularity Index) 5. Acquire management’s consent.
  125. 125. Determining Production Quantities 128  A production sheet is a form on which one lists the names and quantities of all menu item that are to be prepared for a given date.  It varies from one establishment to another.  Usually submitted to the Chef as many days earlier as possible.  Late adjustment can be made immediately before the forecasted date or the night before. Usually minor adjustment.
  126. 126. Production Sheet PRODUCTION SHEET DAY : Tuesday DATE : 7 Feb 20xx MEAL : Dinner VOLUME FORECAST: 305 Menu item Forecast Adjusted forecast Portion size Production Method Portions on Hand Needed Production Total Available Left over L 75 80 6 oz. Recipe#62 - 80 80 0 M 60 65 8 oz. Recipe#4 5 60 65 5 N 20 20 4 oz. Recipe#19 - 20 20 0 O 150 165 12 oz. Grill 20 145 165 6 Total 305 330 129
  127. 127. Sale Forecast Vs Actual Sales DAY : Wednesday DATE : 8 Feb 20XX MEAL : Dinner Item Sales Forecast Actual Sales Difference L 80 85 + 5 M 65 60 -5 N 20 20 -0- O 165 159 -6 Total 330 324 -6 130 The purpose of monitoring quantity production: 1. To determine whether the sales forecast has been reasonably accurate in predicting both the total number of customers and their individual preferences for particular menu item 2. To judge how closely the chef has followed the production standards established on the production sheet.
  128. 128. Void Sheet VOID SHEET DAY : Tuesday DATE : 7 Feb 20XX Check # Waiter # Item Reason for Return Authorization Sales value 11031 6 O Too well done SJC 7.95 11034 6 M Dropped on floor SJC 6.95 11206 4 O Too well done SJC 7.95 11227 3 O Too well done SJC 7.95 131 Void Sheet is to record all the sale that are not being done because of the reasons stated. The return on each of the item must be authorized by the supervisor or the manager in charge.
  129. 129. Portion Inventory and Reconciliation  This approach effectively requires that one follow a series of logical steps. First, each menu item should be listed on the form before kitchen production begins. Next, an inventory is taken of any portions left over from previous meals that may be used again. Reusing leftovers in this way is common in some establishments, but unacceptable in others.  If leftovers are to be used, the number of portions on hand is deducted from the quantity scheduled for production, and only the difference is prepared.That number is written in the “ Portions Prepared ” column. 132
  130. 130. Portion Inventory and Reconciliation PORTION PRODUCTION DAY: Wednesday DATE: 8 Feb 20XX Item Opening Inventory Portion Prepared Additional Preparation Total Available Closing Inventory Portions consumed AB - 180 180 15 165 BH 5 60 65 5 60 CJ - 110 10 120 14 106 DZ 20 145 165 8 157 SALES RECONCILIATION Item Portion Sold Portion Void Total Consumed (From Above) Difference Comment AB 165 - 165 165 BH 58 2 60 60 CJ 103 1 104 106 2 2 missing check DZ 156 1 157 157 PREPARED BY:_____________________ REVIEWED BY _______________ Food Controller Manager 133
  132. 132. Introduction 135  The monthly accounting procedures provides information that can be useful for assessing the various control procedures established for the operation.  To make these determinations, it is necessary to take a number of steps aimed at measuring performance.  The first step is the physical inventory
  133. 133. Valuing the Physical Inventory 136  There are at least five possible ways of assigning values to units of products in a physical inventory. 1. Actual Purchase Price Method 2. First-In First-Out Method (Latest Prices) 3. Weighted Average Purchase Price Method 4. Latest Purchase Price Method (Most Recent Price) 5. Last-In, First-Out Method (Earliest Prices)
  134. 134. Monthly Food Cost Determination Opening Inventory + Purchases =Total Available - Closing Inventory = Cost of Food Once the cost of food is known, food cost percent can be determined using the formula identified in the earlier chapter. 137
  135. 135. Adjustment of Cost of Food Issued 138  Transfer  Intra-Unit (Cooking Liquor/Food to Bar-Direct)  Inter-Unit  Grease Sales (Sales of Item Out to other buyers especially item such as fats or oil. Usually will be debited as Other Income – Salvage and Waste Sales)  Steward Sales (Sales to employees may be done if permitted)  Gratis To Bars (Light food to customer as gives away such as hors d’ oeuvres)  Promotion Expenses (Entertainment Purposes)
  136. 136. Determining Cost of Food Consumed 139 Opening Inventory + Purchases =Total Available for Sale -Closing Inventory =Cost of Food Issued + Cooking Liquor +Transfers from Other Units - Food to Bar (Directs) - Transfer to Other Units - Grease Sales - Steward Sales - Gratis to Bars - Promotion Expenses = Cost of Food Consumed Cost of Food Issued Cost of Food Consumed
  137. 137. Additional Information to get proper Food Cost 140  To get the proper Food Cost we also need to deduct the cost of employees’ meals from the cost of food consumed  Cost of meals can be calculated in four ways 1. Cost of separate issues 2. Prescribed amount per meal per employee 3. Prescribed amount per period 4. Sales value multiplied by cost percent
  138. 138. Determining Cost of Food Sold 141 Opening Inventory + Purchases =Total Available for Sale -Closing Inventory =Cost of Food Issued + Cooking Liquor +Transfers from Other Units - Food to Bar (Directs) - Transfer to Other Units - Grease Sales - Steward Sales - Gratis to Bars - Promotion Expenses = Cost of Food Consumed - Cost of Employees’ Meal = Cost of FOOD SOLD Management Report 1.Frequency 2.Timelines
  139. 139. Inventory Turnover 142  Excessive Stock can brought about 1. Excessive Food Cost due to the spoilage of food stored too long 2. Excessive amount of cash tied up in inventory 3. Excessive labor cost to receive and store foods 4. Excessive space required for storage 5. Unwarranted opportunity for theft Total Inventory = Opening Inventory + Closing Inventory Average Inventory = Inventory Turnover = Total Inventory 2 Food Cost Average Inventory
  141. 141. Daily Food Cost 144  The major problem of monthly food cost alone in the length of time between reports.  It cannot reveal any problems promptly and corrective action also cannot be taken promptly  To avoid this delay and to make more timely figures available on day-to-day operation basis, daily food cost calculation is required.  This will help the management to identified any situation promptly and can act with the situation immediately without needing to wait until the end of the month. This may be too late already.
  142. 142. Determining Daily Food Cost 145 Cost of direct (from the receiving clerk’s daily report) + Cost of store (from requisition and meat tags, depending on the procedures followed) + Adjustment that increase daily cost (transfers from bar to kitchen; transfers from other units) - Adjustments that decrease daily cost (transfer from the kitchen to the bar; food to bar (directs); gratis to bar; Steward sales; grease sales; promotion expenses) = Cost of food consumed - Cost of employees meals = Daily cost of food sold Food Cost Food sales = Food Cost % Food cost to date Food sales to date = Food cost % to date
  143. 143. Daily Cumulative Cost Record 146 Date Directs Meat Store Adjustment Total Cost Total Sales Food Cost % Food Inventory Balance BeveragetoFood FoodtoBeverage Today ToDate Today ToDate Today ToDate Purchases Issue
  144. 144. Daily Report 147  The main purpose of daily report are 1. Shows food costs, food sales and food cost % for any one specific day and for all the days to date in the period 2. Compares these figures to those for a similar period
  145. 145. Report to Management Description Today Same Day Last Week To Date This Week Last Week Food Sales Food Cost Food Cost % Cost Breakdown Direct Store Meat Groceries $3,600 $745 20.7% $80 $665 $525 $140 $2,000 $300 15.0% $90 $210 $105 $105 $15,750 $4,990 31.7% $2,170 $2,800 $2,115 $685 $12,600 $4,200 33.3% $1,665 $2,495 $1,765 $820 148
  146. 146. Daily Food Cost Report Day: Saturday Date: OCT 20 20xx REF:waq12 Description Today This Week To Date Same Week, Last Month Food Sales Food Cost Food Cost % 3,600 745 20.7% 15,750 4,990 31.7% 12,600 4,200 33.3% Item Vegetable Fruits Dairy Bakery Total Direct This Week Last Week 850 675 575 450 505 325 240 215 2,170 1,665 13.8% 13.2% Item Beef Poultry Provisi ons Other Total Meat Total Store This Week Last Week 1,100 925 960 465 230 245 95 80 2,115 1,675 13.4% 13.3% 687 820 4.3% 6.5% Item Cooking liquor Food to bar (Directs) This Week Last Week 165 95 145 45 149
  148. 148. MENU ENGINEERING AND ANALYSIS  A very useful technique for analyzing menu sales and providing helpful information for evaluating every item on the menu relative to its present contribution to bottom - line dollars  It provides a means for monitoring the effectiveness of efforts to maximize gross revenue in a menu.
  149. 149. Controlling Food Sales  Sales control merely means revenue control, a collection of activities designed to ensure that each order placed by a customer result in appropriate revenue for the enterprise. It is the most important element in any enterprise but it is also one part of the sales control.  There are three principles goals of sales control: 1. Optimizing number sales(to increase the number of sales volume) 2. Maximizing profit Pricing 3. Controlling revenue.(Proper control of the revenue received) 153
  151. 151. Controlling Food Sales  Sales control merely means revenue control, a collection of activities designed to ensure that each order placed by a customer result in appropriate revenue for the enterprise. It is the most important element in any enterprise but it is also one part of the sales control.  There are three principles goals of sales control: 1. Optimizing number sales(to increase the number of sales volume) 2. Maximizing profit Pricing 3. Controlling revenue.(Proper control of the revenue received) 155
  152. 152. Optimizing Number of Sales 156  The most productive efforts are made by those who understand the determinants of customer selection of restaurants. The following eight factors are the most important for most people: 1. Location 2. Menu item differentiation 3. Price acceptability 4. Lighting and decor 5. Portion sizes 6. Product quality 7. Service standards 8. Menu diversity
  153. 153. Maximizing Profit 157  There are two principal means for maximizing profits: 1. Pricing products properly • Cost • Price Sensitivity • Pricing Policies 1. Matching Competitors’ price 2. Calculating desired contribution margins to portion cost percentage 3. Adding desired contribution margins to portion cost Factors to consider
  154. 154. Maximizing Profit 158 2. Selling those products effectively.  The menu  Layout and design  Variety  Item arrangement and location  Descriptive language  Kitchen personnel and equipment  Sales Techniques  Up-selling  Menu knowledge  Costumer service
  155. 155. Controlling Revenue 159  Establishing standards and standard procedures for revenue control  Documenting Food Sales 1. Help servers remember the specifics of guests’ orders 2. Give itemized bills to guest 3. Maintain written records of portion sales to add to a sales history 4. Proven the accuracy of cashier works 5. Verify the accuracy of prices changed 6. Provide the record required for tax purposes  Using Numbered Checks (Padded / unpadded)  Checking and Verifying Food Sales  Recording Revenue
  156. 156. Menu Analysis 160  Result definition  Star is a menu item that produce both high contribution margin and high volume. These are the item that foodservice operators prefers to sell when they can  Dog is a menu item that produces a comparatively low contribution margin and accounts for relatively low volume. These are probably the least desirable item to have on the menu.  Plowhorse is a menu item that produces a low contribution margin but accounts for relatively high volume. These items have broad appeal to customer, but contribution comparatively little profit per unit sold.  Puzzle is a menu item that produces a high contribution margin but accounts for comparatively low sales volume.
  157. 157. Menu Engineering & Analysis A B C D E F G H L P R S Menu item name No. sold (MM) Menu mix% Item food cost Item sales price Item CM (E-D) Menu Cost (D*B) Menu R’venu (E*B) Menu CM (F*B) CM CAT MM CAT Menu item Classifi Broil Steak Shrimp Scrod Lobster Veal Roast Chops Salisbur N I J M COL TOTAL 100% K = I/J O = M/N Q = (1/no.of item) x 70% 161
  159. 159. Beverage Production Control • To ensure that all drinks are prepared accordingly to management’s specifications • To guard against excessive costs that can develop in the production process 163
  160. 160. Establishing Standards and Standard procedures for production 164  Standard must be established for the: Quantity of the ingredients used Proportion of the ingredients used Drink sizes  To have some reasonable assurance that a drink will meet expectations each time it is ordered.  If drinks are served accordingly to the formula and in standard portion, then the cost for each portion to sales should be the same.
  161. 161. Establishing Quantity Standard and Standard Procedures 165 1. Devices for Measuring Standard Quantities  Four measuring devices are commonly used by bartenders: Shot Glasses (Plain and lined) Jiggers (Double ended stainless steel Measuring device that resembles the shot glass) The pourer (Fitted on top of a bottle) The automated Dispenser (predetermined measures of liquor)  Free pour from own judgment or eyesight
  162. 162. Establishing Quantity Standard and Standard Procedures 166 2. Glassware
  163. 163. Establishing Quality Standards and Standard Procedures 167  Standard Recipes  Establishing Standard Portion Cost  Straight Drinks (formula)  Mixed Drinks and Cocktails (Detail Recipe)
  164. 164. Controlling Revenue 168 Possible control of problems  Working with the cash drawer open  Under-ringing sales  Overcharging customer  Undercharging customer  Over pouring  Under pouring  Diluting bottle contents  Bringing one’s own bottle into the bar  Charging for drinks not served  Drinking on the job
  165. 165. Beverage Sales Monitoring 169  The Cost Approach Cost Percentage Methods  Monthly Calculation  Daily Cost Calculation  Cost Calculation by Category Standard Cost Method (Actual – Standard Cost)  The Liquid Measure Approach Ounce-Control Method (Quantity stock taking daily)  The Sales Value Approach Actual Sales Record (Recipe Detail Comparison) Average Sales Value Method (Per-bottle value) Standard Deviation Method (Statistical EDP)  Inventory Turnover
  166. 166. Monitoring Production Performance and Taking Corrective Action 170  A manager can personally observe bar operations on a regular basis  A designated employee, such as a head bartender, can observe others working at the bar and report unacceptable performance and problems to management  Individual unknown to the bartenders can be hired to patronize the bar, observe the employees, not problems and report to management  Closed-circuit television systems can be installed to permit observation of bartenders and bar operations from some remote location.