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What is Cost Control???

Minimizing costs the company must
expend without sacrificing the end
product (service/food) that the customer
receives.
Revenue and Expense
          Revenue - Expenses = Profit


    Revenue – Desired Profit = Ideal Expense
          Expense
          Revenue =         Expense %
       Revenue (100%)
       - Food and Beverage Cost %
       - Labor Cost %
       - Other Expense %
       = Profit %
A budget is simply a forecast or estimate of
   projected revenue, expense, and profit.

The 28-day-period approach to budgeting divides a year into 13
equal periods of 28 days each. This helps the manager compare
performance from one period to the next without having to
compensate for “extra” days in any one period.
If significant variations with planned results from a budget occur,
management must:
       1.     Define the problem
       2.     Determine the cause
       3.     Take corrective action
Sales Forecasts
         Advantages to Precise Sales
           Forecasts
         1)   Revenue Estimates
         2)   Expense $ Estimates
         3)   Scheduling Workers
         4)   Scheduling Food and Service Production needs
         5)   Proper purchasing of amounts of food for immediate
              use.
         6)   Increased operational efficiency – lower pricing,
              increased benefits for workers.
         7)   Increased dollars for growth
         8)   Increased profit levels and stockholder value
Sales This Year – Sales Last Year = Variance
  Percentage variance indicates the percentage change in sales from one
  time period to the next.
  Sales This Year –Sales Last Year
           Sales Last Year           = Percentage Variance
                                      or
           Variance
           Sales Last Year           = Percentage Variance




 Revenue forecast is calculated using the following formula:
       Forecast =Sales Last Year + (Sales Last Year X %Increase)
Forecasting
 The guest count forecast is determined by multiplying
guest count last year by the % increase estimate, and then
adding the guest count last year.
Guest Count Last Year + (Guest Count Last Year x % Increase
Estimate) = Guest Count Forecast
Or
Guests Last Year x (1.00 + % Increase Estimate) = Guest Count
Forecast
Cost of Food & Bev
•Once you know the average number of people selecting a given menu item, and the total number of
guests who made the selections, you can compute the popularity index, which is defined as the
percentage of total guests choosing a given menu item from a list of alternatives.
Popularity Index =Total Number of a Specific Menu Item Sold
                            Total Number of All Menu Items Sold




     The basic formula for individual menu item forecasting, based on an item’s individual
     sales history, is as follows:


                      Number of Guests Expected x Item Popularity Index
                           = Predicted Number of That Item to Be Sold
Standardized Recipes
The standardized recipe controls both the quantity and quality of what the kitchen will
produce. It consists of the procedures to be used in preparing and serving each of your menu
items. The standardized recipe is the key to menu item consistency, and ultimately,
operational success.


        In general, standardized recipes contain the following information:
       1.        Item name
       2.        Total yield (number of servings)
       3.        Portion size
       4.        Ingredient list
       5.        Preparation/method section
       6.        Cooking time and temperature
       7.        Special instructions, if necessary
       8.        Recipe cost (optional)
Converting Recipes – Factor or Percentage




 Yield Desired
 Current Yield         =      Conversion Factor


Ingredient Weight / Total Recipe Weight = % of Total
                                   then
               % of Total x Total Amount Required
                        = New Recipe Amount
Waste, Yield AP & EP
Yield % = 1.00 - Waste %
AP – Waste (EP)
AP                =   Yield %
EP Required
   Yield %    =   AP Required

EP Required =AP Required x Yield %
Calculating Food Cost
Determining Actual Food Expense
   Cost of food sold is the dollar amount of all food actually sold, thrown away, wasted or stolen. It is computed as
    follows:
    Beginning Inventory
    PLUS
    Purchases
    = Goods Available for Sale
    MINUS
    Ending Inventory
    = Cost of Food Consumed
    MINUS
    Employee Meals
    = Cost of Food Sold
Six Column Reporting
Six Column Food Cost % Estimate
       1. Purchases Today
           Sales Today              = Cost % Today
       2. Purchases to Date
           Sales to Date       = Cost % to Date
                   Sales                 Purchases             Cost &
Weekday   Today       To Date      Today      To Date   Today     To Date
Monday        $850.40      $850.40 $1,106.20 $1,106.20    130.08%   130.08%
Tuesday       $920.63    $1,771.03    $841.40 $1,947.60    91.39%   109.97%
Wednesday   $1,185.00    $2,956.03    $519.60 $2,467.20    43.85%     83.46%
Thursday      $971.20    $3,927.23    $488.50 $2,955.70    50.30%     75.26%
Friday      $1,947.58    $5,874.81    $792.30 $3,748.00    40.68%     63.80%
Saturday    $2,006.41    $7,881.22    $286.20 $4,034.20    14.26%     51.19%
Sunday      $2,404.20 $10,285.42        $0.00 $4,034.20     0.00%     39.22%
Calculating Beverage Cost
Beginning Inventory
  PLUS
  Purchases
  = Goods Available for Sale
  Less
  Ending Inventory
  Less
  Transfers from Bar
  Plus
  Transfers to Bar
  = Cost of Beverage Sold
Calculating Sales Mix & Terms

  Item Dollar Sales
 Total Beverage Sales = Item % of Total Beverage
                    Sales

Two-key system
Oxidation
Broken case
Empty for full system of managment
F&B Production

Necessary Components of F&B Production Planning:
 1) Maintain Sales Histories
 2) Forecast Future Sales Histories
 3) Purchase and store needed F&B supplies
 4) Plan daily production schedules
 5) Issue needed products to production areas
 6) Manage the food and beverage production process
Controlling Product Issues
Issues Today
Sales Today         = Beverage/Food Cost Estimate Today

 The six-column form requires only that the manager divide today‟s issues by
 today‟s sales to arrive at the today estimate as follows
                                                            Beverage Cost
                Issues                 Sales                Estimate

Date            Today       To Date   Today     To Date   Today    To Date
        1-Jan         945         945   1450.22   1450.22   65.16%   65.16%
        2-Jan         785        1730    1688.4   3138.62   46.49%   55.12%
        3-Jan       816.5      2546.5   2003.45   5142.07   40.75%   49.52%
        4-Jan       975.4      3521.9   1920.41   7062.48   50.79%   49.87%
        5-Jan        1595      5116.9    5546.5 12608.98    28.76%   40.58%
        6-Jan      1100.2      6217.1   5921.27 18530.25    18.58%   33.55%
        7-Jan        18.4      6235.5     495.2 19025.45     3.72%   32.77%

Total                         6235.5             19025.45               32.77%
Methods of Inventory Control
 A physical inventory is one in which an actual, physical
  count and valuation of all inventory on hand is taken at
  the beginning and close of each accounting period.
 A perpetual inventory system is one in which additions
  to and deletions from total inventory are recorded as
  they occur.
 The ABC system attempts to combine both the physical
  and perpetual inventory systems. It separates inventory
  items into three main categories
ABC Inventory System
o Category A items are those that require tight control and
  the most accurate record keeping. Those are typically
  high-value items, which can make up 70% to 80% of the
  total inventory value.
o Category B items are those that make up 10% to 15% of
  the inventory value and require only routine control and
  record keeping.
o Category C items make up only 5% to 10% of the
  inventory value. These items require only the simplest
  of inventory control systems
Inventory Control Formulas

Cost in Product Category
Total Cost in All Categories   = Proportion of Total Product Cost


Cost as per Standardized Recipes
        Total Sales              =Attainable Product Cost %


 Actual Product Cost
Attainable Product Cost = Operational Efficiency Ratio
Principles of Cost Percentages
 The food cost percentage equation is extremely
 interesting. In its simplest form, it can be represented
 as:

 where
            A = Cost of Goods Sold
            B = Sales
            C = Cost Percentage
                  A
                  B     =C
If costs can be kept constant but sales increase, the cost
percentage goes down.

If costs remain constant but sales decline, cost percentage
increases.

If costs go up at the same rate sales go up, your cost
percentage will remain unchanged.

If costs can be reduced but sales remain constant, the cost
percentage goes down.

If costs increase with no increase in sales, the cost percentage
will go up.
Managing F&B Pricing

 Standard Menu
 Daily Menu
 Cycle Menu
 Value Pricing
 Bundling
Factors Influencing Menu Pricing
1.   Local competition
2.   Service levels
3.   Guest type
4.   Product quality
5.   Portion size
6.   Ambience
7.   Meal period
8.   Location
9.   Sales mix
Selling Price Determination

    Cost of a Specific Food Item Sold
     Desired Food Cost % of That Item

       = Selling Price of That Item
Multiplier Method


        1.00
  Desired Product Cost %   = Pricing Factor


Pricing Factor x Product Cost = Menu Price
Contribution Margin Method

Selling Price – Product Cost = Contribution Margin




 Product Cost + Contribution Margin Desired = Selling Price
Pricing Buffets

Total Buffet Product Cost
   Guests Served            = Buffet Product Cost per
                       Guest


The secret to keeping selling price low for a
salad bar or buffet is to apply the ABC method.
A items should comprise no more than 20% of
the total product available; B items, no more
than 30%; and C items, 50%.
Labor Cost
 Labor Expense includes salaries and wages, but it consists
    of other labor-related costs as well.
   Payroll refers to the gross pay received by an employee in
    exchange for his or her work.
   A salaried employee receives the same income per week or
    month regardless of the number of hours worked.
   Minimum staff is used to designate the least number of
    employees, or payroll dollars, required to operate a facility or
    department within the facility.
   Fixed Payroll refers to the amount an operation pays in
    salaries.
   Variable Payroll consists of those dollars paid to hourly
    employees. Sometimes employees have both a fixed and
    variable element to their pay.
Productivity Standards
 Output
 Input     =Productivity Ratio


     Cost of Labor
     Total Sales   =Labor Cost %


Total Sales
Labor Hours Used = Sales per Labor Hour

Cost of Labor
Guests Served = Labor Dollars per Guest Served
Productivity and Scheduling
                   hour          7.5
Productivity =     covers =    60 = 0.125

Productivity X Forecast Cover = Scheduled Hours

0.125 x 3000 Covers = 375 hours
Factors Influencing Productivity
              10 Key Factors Affecting
               Employee Productivity
1. Employee Selection
2. Training
3. Supervision
4. Scheduling
5. Breaks
6. Morale
7. Menu
8. Convenience vs. Scratch Preparation
9. Equipment
10. Service Level Desired
 A job specification is a listing of the personal
  characteristics needed to perform the tasks
  contained in a particular job description.
 A job description is a listing of the tasks that must
  be accomplished by the employee hired to fill a
  particular position.
 Task training is the training undertaken to ensure
  an employee has the skills to meet productivity
  goals.
Employee Turnover
Employee Turnover Rate =       # of Employees Separated
                               # of Employees in Workforce


A voluntary   separation is one in which the employee made the decision
to leave the organization.
An involuntary separation is one in which management has caused the

employee to separate from the organization.


 Employee Turnover Rate                         =

 Number of Employees Separated
 Number of Employees in Workforce
Managing Other Expenses
 Other expenses are those items that are neither food,
 beverage, nor labor.
 While there are many ways in which to consider other
  expenses, two views of these costs are particularly useful
  for the foodservice manager. They are:
    1.Fixed, variable, or mixed
    2.Controllable or non-controllable
 The following shows how fixed, variable,
and mixed expenses behave as sales volume
increases:
 Expense As a Percentage of        Total Dollars
         Sales
 Fixed   Decreases                 Remains the
 Expense                           Same
 Variable Remains the Same         Increases
 Expense
 Mixed   Decreases                 Increases
 Expense
Financial Analysis
 To ensure that this financial information is presented in a way that
  is both useful and consistent, the uniform systems of accounts
  have been established for many areas of the hospitality industry.
 The USAR can better be understood by dividing it into three
  sections: gross profit, operating expenses, and non-operating
  expenses.
 These three sections are arranged on the income statement from
  most controllable to least controllable by the foodservice manager.
The gross profit section consists of food and beverage sales and costs that
can and should be controlled by the manager on a daily basis.
The operating expenses section is also under the control of the manager but
more so on a weekly or monthly basis (with the exception of wages which you
can control daily).
Nonoperating expenses section is the least controllable by the foodservice
manager. For example, interest paid to creditors for short-term or long-term
debt is due regardless of the ability of the manager to control operations.
The income statement is an aggregate statement. This means that
all details associated with the sales, cost, and profits of the foodservice
establishment are summarized on the P&L statement. Although this
summary gives the manager a one-shot look at the performance of the
operation, the details are not included directly on the statement.
Analysis of Sales/Volume
Overall sales increases or decreases can be
computed using the following steps:
  1.Determine sales for this accounting period.
  2.Determine the difference between this period‟s
  sales minus last period‟s sales.
  3.Divide the difference in #2 by last period's sales
  to determine percentage variance.
 There are several ways a foodservice
  operation experiences total sales (dollar)
  volume increases. These are:
  1. Serve the same number of guests at a
     higher check average.
  2. Serve more guests at the same check
     average.
  3. Serve more guests at a higher check
     average.
The procedure to adjust sales variance for known menu
price increases is as follows:

Step 1. Increase prior period sales (last year) by amount of
the price increase. Ex: if prices were increased 5% on all
menu items, increase the prior period sales by 5%.

Step 2. Subtract the result in Step 1 from this period's sales.

Step 3. Divide the difference in Step 2 by the value of Step
1.
Analysis of Food Cost & Inventory

 A food cost percentage can be computed for each food
 sub-category. For instance, the cost percentage for the
 category Meats and Seafood would be computed as
 follows:



 Meats and Seafood Cost
 Total Food Sales         =     Meats and Seafood Cost
 %
Inventory turnover refers to the number of times the
total value of inventory has been purchased and replaced
in an accounting period.
Cost of Food Consumed
Average Inventory Value= Food Inventory Turnover

 The higher the Food Inventory Turnover number, the
 greater the frequency of orders and typically the
 smaller the inventory size.
Analysis of Profit

Net Income This Period – Net Income Last Period
     Net Income Last Period
     =   Profit Variance %
Profit Planning Strategies
Three of the most popular systems of menu
analysis are:
                     Variables Considered   Analysis Method    Overall Goal


Food Cost %          Food Cost %            Matrix             Minimize overall FC%
                     Popularity

Contribution Margin Contribution Margin     Matrix             Maximize CM
                     Popularity

Goal Value Analysis Contribution Margin % Algebraic Equation   Achieving certain
                     Popularity                                Profit Percentage Goals
                     Selling Price
                     Variable Cost %
                     Food Cost %

A matrix allows menu items to be placed into categories based on whether they
are above or below menu item averages such as food cost %, popularity, and
contribution margin.
When analyzing a menu using the Food Cost Percentage
Method, you are seeking menu items that have the effect of
minimizing your overall food cost percentage.
The characteristics of the menu items that fall into each of the four
matrix squares are unique and thus should be marketed differently

                                          1 – High FC%, Low Popularity %
                                          2 – High FC%, High Popularity %
              1               2           3 – Low FC%, Low Popularity %
FC%                                       4 – Low FC%, High Popularity %



              3               4


              Popularity %
Each of the menu items that fall in the squares
requires a special marketing strategy, depending on
its square location.

                               1 – High CM, Low Popularity %
                               2 – High CM, High Popularity %
           1              2    3 – Low CM, Low Popularity %
CM$                            4 – Low CM, High Popularity %



           3              4


           Popularity %
The selection of either food cost percentage or
contribution margin as a menu analysis technique
is really an attempt by the foodservice operator to
answer the following questions:
     1. Are my menu items priced correctly?
     2. Are the individual menu items
     selling well enough to warrant keeping
     them on the menu?
     3. Is the overall profit margin on my    menu
items satisfactory?
The goal value formula is as follows:
  A x B x C x D = Goal Value
  A = 1.00 - Food Cost % (Contribution Margin %)
  B = Item Popularity
  C = Selling Price
  D = 1.00 - (Variable Cost % + Food Cost %)


                        Food Cost %      Number     Selling   Variable Cost %
     Item             (in decimal form)   Sold       Price    (in decimal form)
     Fajita Plate                   0.38     147     $12.95                 0.28
     Enchilada Dinner               0.35     200         9.95               0.28
     Menudo                         0.25       82        6.95               0.28
     Mexican Salad                  0.30     117         7.95               0.28
     Chalupa Dinner                 0.28     125         8.95               0.28
     Burrito Dinner                 0.33     168         9.95               0.28
     Taco Dinner                    0.26     225         5.95               0.28
     Overall Menu
     (Goal Value)                   0.32     152        8.95               0.28



 Average Goal Value = 0.68 x 152 x 8.95 x 0.40 = 370
The computed goal value carries no unit
designation; that is, it is neither a percent nor a
dollar figure because it is really a numerical target
or score. Anything scoring above the average would
be considered a good item, anything below would
be considered an item that needs some re-thinking.

                     Food Cost %      Number   Selling    Variable Cost %
  Item             (in decimal form)   Sold     Price     (in decimal form) Goal Value
  Fajita Plate                   0.62     147   $12.95                  0.40      472.1
  Enchilada Dinner               0.65     200    $9.95                  0.40      517.4
  Menudo                         0.75       82   $6.95                  0.40      171.0
  Mexican Salad                  0.70     117    $7.95                  0.40      260.4
  Chalupa Dinner                 0.72     125    $8.95                  0.40      322.2
  Burrito Dinner                 0.67     168    $9.95                  0.40      448.0
  Taco Dinner                    0.74     225    $5.95                  0.40      396.3
  Average                        0.68     152 $    8.95                  0.4      370.0
Contribution margin for the overall operation
is defined as the dollar amount that contributes to
covering fixed costs and providings for a profit.
This is different than the C.M. for a menu item in
that it takes into account both important variable
costs – food and labor.

Total Sales - Variable Costs = Contribution Margin

C.M. % = Contribution Margin $/ Total Sales $

C.M. per Guest = Contribution Margin $ / Guests
To determine the dollar sales required to break
 even, use the following formula:
     Fixed Costs
Contribution Margin % = Break-Even Point in Sales
  In terms of the number of guests that must be
  served in order to break even, use the following
  formula:
            Fixed Costs
  Contribution Margin per Unit (Guest)
        =     Break-Even Point in Guests Served
 Minimum Sales Point (MSP) is the dollar sales volume
  required to justify staying open for a given period of time.
 The information necessary to compute MSP is as follows:
   1. Food cost %
   2. Minimum payroll cost for the time period
   3. Variable cost %
 Fixed costs are eliminated from the calculation because
  even if volume of sales equals zero, fixed costs still exist
  and must be paid.
Minimum Operating Cost = FC% +VC%
MSP =      Minimum Labor Cost
        1 – Minimum Operating Cost
Or it could be written as:


MSP =          Minimum Labor Cost
             1 – (FC% + VC%)
Budgeting

Developing the Budget
 To establish any type of budget, you need to have the following
  information available:
  1. Prior period operating results
  2. Assumptions of next period operations
  3. Goals
  4. Monitoring policies
 annual budget
 achievement budget
To determine a food budget, compute the
 estimated food cost as follows:

1. Last Year’s Average Food Cost per Meal     = Last
   Year’s Cost of Food / Total Meals Served
2. Last Year’s Food Cost per Meal
   + % Estimated Increase in Food Costs
   = This Year’s Food Cost per Meal
3. This Year’s Food Cost Per Meal             x
   Number of Meals to Be Served This Year     =
   Estimated Cost of Food This Year
 Todetermine a labor budget, compute the
estimated labor cost as follows:

1. Last Year‟s Labor Cost per Meal                  =
   Last Year‟s Cost of Labor / Total Meals Served
2. Last Year‟s Labor Cost per Meal                   +
   % Estimated Increase in Labor Cost          = This
   Year‟s Labor Cost per Meal
3. This Year’s Labor Cost per Meal             x
   Number of Meals to Be Served This Year      =
   Estimated Cost of Labor This Year
Yardstick Method
 Some operators elect to utilize the yardstick method
 of calculating expense standards so determinations
 can be made as to whether variations in expenses are
 due to changes in sales volume, or other reasons such
 as waste or theft. The yardstick method helps you
 identify specific problems quickly and accurately.
Break-Even Analysis
Defined:
Break-even analysis examines the cost tradeoffs
 associated with demand volume.
Overview:
 Break-Even Analysis
 Benefits
 Defining Page
 Getting Started
 Break-even Analysis
   Break-even point
   Comparing variables
 Algebraic Approach
 Graphical Approach
Benefits and Uses:
 The evaluation to determine necessary levels of
 service or production to avoid loss.

 Comparing different variables to determine best
 case scenario.
Defining Page:
 USP      = Unit Selling Price

 UVC      = Unit Variable costs

 FC       = Fixed Costs

Q         = Quantity of output units
 sold (and manufactured)
Defining Page:
 Cont.
 OI     = Operating Income

 TR     = Total Revenue

 TC     = Total Cost

 USP    = Unit Selling Price
Getting Started:
 Determination of which equation method to use:
   Basic equation
   Contribution margin equation
   Graphical display
Break-even analysis:
 Break-even point
 John sells a product for $10 and it cost $5 to
 produce (UVC) and has fixed cost (FC) of $25,000
 per year

 How much will he need to sell to break-even?


 How much will he need to sell to make $1000?
Algebraic approach:
 Basic equation

Revenues – Variable cost – Fixed cost = OI
 (USP x Q) – (UVC x Q) – FC     = OI
       $10Q - $5Q – $25,000     = $ 0.00
                           $5Q = $25,000
                             Q = 5,000

What quantity demand will earn $1,000? $10Q - $5Q -
 $25,000 = $ 1,000
                            $5Q = $26,000
                              Q = 5,200
Algebraic approach:
 Contribution Margin equation

  (USP – UVC) x Q = FC + OI
                  Q = FC + OI
                       UMC
                  Q = $25,000 + 0
                           $5
                  Q = 5,000
What quantity needs sold to make $1,000?
                   Q   = $25,000 + $1,000
                               $5
                   Q   = 5,200
Graphical analysis:
Dollars
70,000
60,000           Total Cost Line
50,000
40,000
30,000
20,000
                            Total Revenue Line
10,000                                Break-even point
     0
          1000 2000 3000 4000 5000 6000
                      Quantity
Graphical analysis:
Cont.
Dollars
70,000
60,000           Total Cost Line
50,000
40,000
30,000
20,000
                            Total Revenue Line
10,000                                   Break-even point
     0
          1000 2000 3000 4000 5000 6000
                      Quantity
Scenario 1:
 Break-even Analysis Simplified
 When total revenue is equal to total cost the process
 is at the break-even point.

                TC = TR
Break-even Analysis:
  Comparing different variables
 Company XYZ has to choose between two
 machines to purchase. The selling price is $10 per
 unit.

 Machine A: annual cost of $3000 with per unit cost
 (VC) of $5.

 Machine B: annual cost of $8000 with per unit cost
 (VC) of $2.
Break-even analysis:
 Comparative analysis Part 1
 Determine break-even point for Machine A and
 Machine B.

 Where: V =     FC
                 SP - VC
Break-even analysis:
 Part 1, Cont.
Machine A:
             v = $3,000
               $10 - $5
               = 600 units
Machine B:
             v = $8,000
                 $10 - $2
               = 1000 units
Part 1: Comparison
 Compare the two results to determine minimum
 quantity sold.

 Part 1 shows:
   600 units are the minimum.
   Demand of 600 you would choose Machine A.
Part 2: Comparison
Finding point of indifference between Machine A and Machine
  B will give the quantity demand required to select Machine B
  over Machine A.

 Machine A       =   Machine B
    FC + VC      =      FC + VC
$3,000 + $5      Q     = $8,000 + $2Q
              $3Q= $5,000
                Q= 1667
Part 2: Comparison
 Cont.
 Knowing the point of indifference we will choose:


 Machine A when quantity demanded is between
 600       and 1667.

 Machine B when quantity demanded exceeds 1667.
Part 2: Comparison
Graphically displayed
Dollars
21,000
18,000                Machine A
15,000
12,000
 9,000                              Machine B
 6,000
 3,000
     0
          500 1000 1500 2000 2500 3000
                      Quantity
Part 2: Comparison
Graphically displayed Cont.
Dollars
21,000
18,000                      Machine A
15,000
12,000
 9,000                                  Machine B
 6,000
 3,000        Point of indifference
     0
          500 1000 1500 2000 2500 3000
                      Quantity
Exercise 1:
 Company ABC sell widgets for $30 a unit.


 Their fixed cost is$100,000


 Their variable cost is $10 per unit.


 What is the break-even point using the basic
 algebraic approach?
Exercise 1:
 Answer

Revenues – Variable cost - Fixed cost = OI

(USP x Q) – (UVC x Q) – FC     = OI
   $30Q - $10Q – $100,00 = $ 0.00
                      $20Q     = $100,000
                           Q = 5,000
Exercise 2:
 Company DEF has a choice of two machines to
  purchase. They both make the same product which
  sells for $10.
 Machine A has FC of $5,000 and a per unit cost of
  $5.
 Machine B has FC of $15,000 and a per unit cost of
  $1.

 Under what conditions would you select Machine A?
Exercise 2:
 Answer
Step 1: Break-even analysis on both options.
Machine A:
              v = $5,000
                 $10 - $5
                = 1000 units
Machine B:
              v = $15,000
                   $10 - $1
                = 1667 units
Exercise 2:
 Answer Cont.
  Machine A       =   Machine B
     FC + VC      =      FC + VC
 $5,000 + $5      Q     = $15,000 + $1Q
               $4Q= $10,000
                 Q= 2500

 Machine A should be purchased if expected demand
 is between 1000 and 2500 units per year.
Summary:
 Break-even analysis can be an effective tool in
 determining the cost effectiveness of a product.

 Required quantities to avoid loss.


 Use as a comparison tool for making a decision.
Break-even & Leverage Analysis
Types of Costs

 Essentially, there are two types of costs that a business
 faces:
   Variable costs which vary proportionally with sales
     hourly wages
     utility costs
     raw materials
     etc.

   Fixed costs which are constant over a relevant range of
   sales
     executive salaries
     lease payments
     depreciation
     etc.
Types of Costs Grapically
                                                             T o ta l




                                                                    T o t a l V a r ia b le C o s t
                                          U n it S a le s                                             U n it S a le s
     V a r ia b le C o s t p e r U n it




                                                                    F ix e d C o s t p e r U n it
                                                            P e r U n it




                                          U n it S a le s                                             U n it S a le s
Operating (Accounting) Break-even

 The operating break-even point is defined as that level
    of sales (either units or dollars) at which EBIT is equal to
    zero:
                    S a le s   VC        FC       0
                                   Or
                      Q P      v        FC    0

   Where VC is total variable costs, FC is total fixed costs, Q is the
    quantity, p is the price per unit, and v is the variable cost per unit
The Operating Break-even in Units

 We can find the operating break-even point in units by
    simply solving for Q:
                      *    FC            FC
                  Q
                          p   v     C M $ / u n it

   Where CM$/unit is the contribution margin per unit sold (i.e.,
    CM$/unit = p - v)
   The contribution margin per unit is the amount that each unit sold
    contributes to paying off the fixed costs
The Operating Break-even in Dollars

 We can calculate the operating break-even point in
    sales dollars by simply multiplying the break-even point
    in units by the price per unit:
                                        *
                      BE$           Q           p
   Note that we can substitute the previous definition of Q* into this
    equation:
                         FC                     FC        FC
                BE$             p
                        p   v               p    v       CM %
                                                     p
    Where CM% is the contribution margin as a % of the selling price
Operating Break-even: an Example

 Suppose that a company has fixed costs of $100,000
 and variable costs of $5 per unit. What is the break-
 even point if the selling price is $10 per unit?
                  *   1 0 0 ,0 0 0
              Q                           2 0 , 0 0 0 u n its
                       10     5
                                    Or
             BE$       2 0 ,0 0 0        10      $ 2 0 0 ,0 0 0

                                    Or
                         1 0 0 ,0 0 0
              BE$                             $ 2 0 0, 0 0 0
                         10     5
                                     10
Targeting EBIT

 We can use break-even analysis to find the sales
    required to reach a target level of EBIT

                       *
                                  FC   E B ITT arg et
                   Q   T arg et
                                       p   v
   Note that the only difference is that we have defined the break-
    even point as EBIT being equal to something other than zero
Targeting EBIT: an Example

 Suppose that we wish to know how many units the
 company (from the previous example) needs to sell
 such that EBIT is equal to $500,000:
             *     1 0 0 ,0 0 0        5 0 0 ,0 0 0
         Q                                                 1 2 0 , 0 0 0 u n its
                            10          5
                                                Or
                  BE$      1 2 0 ,0 0 0          10        $ 1, 2 0 0 , 0 0 0

                                                Or
                        1 0 0 ,0 0 0        5 0 0 ,0 0 0
                 BE$                                           $ 1, 2 0 0 , 0 0 0
                                  10        5
                                                10
Cash Break-even Points

 Note that if we subtract the depreciation expense (a
 non-cash expense) from fixed cost, we can calculate the
 break-even point on a cash flow basis:
                *          FC   D ep reciatio n
            Q   T arg et
                                 p   v
Leverage Analysis

   In physics, leverage refers to a multiplcation of a force
    into even larger forces
   In finance, it is similar, but we are refering to a
    multiplication of %changes in sales into even larger
    changes in profitability measures
      Lev erage in phy s ic s              Lev erage in financ e

                         F orc e In                         %      S ales
F orc e O ut                          %   P rofits
Types of Risk
 There are two main types of risk that a company faces:
   Business risk - the variability in a firm‟s EBIT. This type of
    risk is a function of the firm‟s regulatory environment, labor
    relations, competitive position, etc. Note that business risk
    is, to a large degree, outside of the control of managers
   Financial risk - the variability of the firm‟s earnings before
    taxes (or earnings per share). This type of risk is a direct
    result of management decisions regarding the relative
    amounts of debt and equity in the capital structure
The Degree of Operating Leverage (DOL)
 The degree of operating leverage is directly proportional
  to a firm‟s level of business risk, and therefore it serves
  as a proxy for business risk
 Operating leverage refers to a multiplication of changes
  in sales into even larger changes in EBIT
 Note that operating leverage results from the presence
  of fixed costs in the firm‟s cost structure
Calculating the DOL

 The degree of operating leverage can be calculated as:

                                    %        E B IT
                          DOL
                                    %        S ales

   This approach is intuitive, but it requires two income statements to
    calculate
   We can also calculate DOL with one income statement:


                            Q p     v           S ales     VC
                 DOL
                         Q p    v       FC            E B IT
The Degree of Financial Leverage (DFL)

 The degree of financial leverage is a measure of the %
    changes in EBT that result from changes in EBIT, it is
    calculated as:
                                    %     EBT
                          D FL
                                    %     E B IT

   This approach is intuitive, but it requires two income statements to
    calculate
   We can also calculate DFL with one income statement:

                                        E B IT
                             D FL
                                        EBT
The Degree of Combined Leverage (DCL)

 The degree of combined leverage is a measure of the
    total leverage (both operating and financial leverage)
    that a company is using:
                %   EBT      %   E B IT   %   EBT
         DCL                                           DOL   D FL
                %   S ales   %   S ales   %   E B IT


   It is important to note that DCL is the product (not the sum) of
    both DOL and DFL
Calculating Leverage Measures
                               B a se C a se        S a les D o w n 1 0 %       S a les u p 1 0 %
    S ales                         1000                      900                        1100
    V ariab le C o sts              450                      405                         495
    F ix ed C o sts                 300                      300                         300
    D ep reciatio n                 100                      100                         100
    E B IT                          150                       95                         205
    In terest E x p en se            30                       30                          30
    EBT                             120                       65                         175


                      P ercen ta g e C h a n g es R ela tiv e to th e B a se C a se
    S ales                                               -1 0 .0 0 0 %                1 0 .0 0 0 %
    E B IT                                               -3 6 .6 6 7 %                3 6 .6 6 7 %
    EBT                                                  -4 5 .8 3 3 %                4 5 .8 3 3 %


                                       L ev era g e M ea su res
    U sin g a sin g le in co m e sta tem en t:
    DOL                            3 .6 7                    5 .2 1                      2 .9 5
    DFL                            1 .2 5                    1 .4 6                      1 .1 7
    DCL                            4 .5 8                    7 .6 2                      3 .4 6


    U sin g tw o in co m e sta tem en ts:
    DOL                            3 .6 7
    DFL                            1 .2 5
    DCL                            4 .5 8
Budgets
Budgets
 Estimates of the income and expenditure of a
  business or a part of a business over a time
  period
 Used extensively in planning
 Helps establish efficient use
  of resources
 Help monitor cash flow and identify departures from
  plans
 Maintains a focus and discipline
  for those involved
Budgets
 Flexible Budgets – budgets that take account of
  changing business conditions
 Operating Budgets – based on
  the daily operations of a business
 Objectives Based Budgets - Budgets driven by
  objectives set by the firm
 Capital Budgets – Plans of the relationship
  between capital spending and liquidity (cash) in the
  business
Budgets
 Variance – the difference between planned values and
 actual values
   Positive variance – actual figures less than planned
   Negative variance – actual figures above planned
Food Storing and Issuing Control
Five Principle Concerns
 Conditions of facilities and equipment
 Arrangement of foods
 Location of facilities
 Security of storage areas
 Dating and pricing of stored foods
Condition of Facilities and Equipment
 Conditions include:
   Temperature
   Storage Containers
   Shelving
   Cleanliness
 Problems can lead to:
   Spoilage and waste
 Health codes specify:
   Storage temperatures
   Storage containers
   Storage procedures
Temperatures
 Key factor in storage
   Fresh meats – 34 to 36 degrees F.
   Fresh produce – 34 to 36 degrees F.
   Fresh dairy – 34 to 36 degrees F.
   Fresh fish – 30 to 34 degrees F.
   Frozen foods – minus 10 to 0 degrees F.
 Temperatures above recommended:
   Shorten shelf life
   Raise the risk of spoilage
 Storage temperatures for non-perishables
   60 to 70 degrees F.
Storage Containers
 Foods should be stored in appropriate containers.
   Tight, insect proof containers
   Some may be fine as purchased
   Fresh fish and poultry packed in ice
   Cooked foods in SS and covered
Cleanliness
 Should be enforced
 Prevents accumulation and odor
 Discourages infestation of insects and rodents
 Professional exterminator should be used on a regular
 basis
Arrangement of Foods
 Most used item readily available
 Fixed definite locations
 Rotation of stock
Location and Storage Facilities
 Located between receiving and preparation areas
 Proper location:
   Speeds the storing and issuing of foods
   Maximizes security
   Reduces labor requirements
Security
 Storage should limit pilferage
 Storerooms should not be unlocked and unattended
 Procedures should be in place to track removal of items
 When not open, storage areas should be locked
 Establish separate procedures for “A” items
Dating and Pricing
 Items should be dated as they are stored
 Items should be priced as they are put away
   Computer tracking eliminates the need
Physical Movement of Foods from
Storage
 Practices vary in operations
   Requisitions
   Honor system
   Wide open
 Greater control leads to:
   Increased cost
   More time and delay
 Large operations tend to be more formal
 Smaller operations tend to be less formal
 Cost/Benefit considerations needed before
 establishment of standards and procedures
Record Keeping
 Directs:
   Charged to food cost as received
   No further records kept
 Stores:
   Considered part of inventory
   Not used in cost figures until issued
   For control purposes a system for issuing must be
   established
The Requisition
 Form filled out by kitchen staff
   Lists items needed for production
   Quantities deducted from inventory
   Requisitions should be submitted in advance
   Definite times established for issue
 Pricing the requisition
   Extended to determine total value of food issued
   Cost derived from item, file card, perpetual inventory
    record or memory
Importance of Training
 Inappropriate containers or temperature
 Improper or multiple locations
 Lack of rotation
 Pilferage from lack of security
 Poor record keeping
Monitoring
 Management should:
  Inspect facilities on a regular basis
     Cleanliness
     Organization
     Temperatures
     Location
     Rotation
  Examine paperwork
    Verify requisitions
Food and Beverage Transfers
 Intra-unit transfers:
   Food to beverage
   Beverage to food
 Inter-unit transfers:
   Unit to unit
Developing a safety culture




Figure 3.1
The process of food hygiene
      management for food production




Figure 3.3
Elements of food production


               Blend




Figure 3.4
A generic model of the
      food production system




Figure 3.5
Methods of food production (1)
1.   Conventional
         Production using fresh foods and traditional cooking
          methods
2.   Convenience
         Production using mainly convenience foods
3.   Call order
         Food is cooked to order either from customer
          (cafeterias) or from waiter
         Production area often open to customer area
Methods of food production (2)
4.   Continuous flow
         Production line approach
         Different parts of the process may be separated (e.g. fast
          food)
5.   Centralised
         Production not directly linked to service
         Foods are „held‟ and distributed to separate service areas
6.   Cook-chill
         Food production storage and regeneration using low
          temperature control to preserve processed food.
Methods of food production (3)
7.   Cook-freeze
         Production, storage and regeneration using freezing to
          control and preserve qualities of processed food
         Requires special processes to assist freezing
8.   Sous-vide
         Production, storage and regeneration using sealed
          vacuum to control and preserve qualities of processed
          food
9.   Assembly kitchen
         System based on using latest technological
          developments in manufacturing and conservation of food
          products
The control cycle of daily operation




Figure 3.6
Standard Operating Procedures: Cycle of F&B Product
Control
                 Step 1: Purchasing

                 Step 2: Receiving

                 Step 3: Storing

                 Step 4: Issuing

                 Step 5: Pre-Preparation

                 Step 6: Preparation

                 Step 7: Serving

                 Step 8: Service
Cycle of F&B Product Control (continued…)
              Develop purchase specification
   Step 1:    Supplier selection
              Purchasing correct quantities
 Purchasing   No collusion between property and supplier
              Evaluation of purchasing process

              Development of receiving procedures
  Step 2:
              Completion of necessary receiving reports (e.g.,
 Receiving    addressing financial and security concerns)

              Effective use of perpetual & physical inventory systems
  Step 3:     Control of product quality
  Storing     Securing products from theft
              Location of products within storage areas
              Product rotation concerns
  Step 4:     Matching issues (issue & usage)
  Issuing     Purchasing as inventory is depleted
Cycle of F&B Product Control (continued…)
    Step 5:       Mise-en-place
                  Minimizing food waste / maximizing nutrient retention
Pre-Preparation
                  Use of standardized recipes
   Step 6:        Use of portion control
 Preparation      Requirements for food and employee safety

                  Timing of incoming F&B orders
   Step 7:        Portion control
   Serving        Revenue management concerns

                  Revenue control concerns
    Step 8:       Serving alcoholic beverage responsibly
    Service       Sanitation and cleanliness
                  F&B server productivity
STOCK CONTROL


Inventory is often referred to as the
graveyard of business because over
investment in stock is a frequent cause
of business failure.
STOCK CONTROL

Many business costs, such as:
A storeman‟s wages
Storage costs
Insurance of the stock
Interest on borrowed money,
are directly related to investment in inventory.
STOCK CONTROL

it is important to control stock and inventory so that there is:
enough to keep work flowing efficiently
not too much so that money spent on the stock lies idle while it is
not used.
STOCK CONTROL

An inventory is simply a list of all the goods purchased
and used in the manufacturing process.
For example


raw materials
work in progress
finished goods
STOCK CONTROL

Stock control is used to:
Reduce the costs of running the businesses
Reduce excess stock and wastage
Make sure there are enough goods to meet the demand
Speed up deliveries to customers.
WHAT ITEMS ARE RECORDED?
Equipment, such as static machines
Tools, such as hammers and spanners
Packaging, such as bubble wrap or boxes
Spare parts, such as extra cutterblades for machines
Accessories, such as door handles
Other consumables, such as nails and screws.
A TYPICAL PRODUCTION PROCESS.
HOW IS STOCK CONTROLLED?

Systems can be:
Paper based, such as hand written stock cards or sheets
Computer generated.
Stock control records should contain:
a description of the goods
details of where the goods are stored or located
the amount of goods currently held
details about the movement of the stock
DOCUMENTS AND FORMS

Used to control stock include
Purchase requisitions
Purchase orders
Delivery dockets
Invoices
PAPER BASED SYSTEMS

Some of the typical ways of keeping a paper based system up to
date involve the use of:
Job cards - Job cards are used as a means of keeping account of
the amount of goods you have produced.
STOCK CARDS

Stock cards – use minimum/maximum stock levels.
Stock cards are used to monitor the amount of raw materials that are
used.
When using this system, you need to consider:
The time taken for delivery
Reliability of suppliers
Importance of the stock item.
STOCK CONTROL SHEET
REQUISITION BOOKS
Requisition books are used to request an order to be raised for
materials. A duplicate of the requisition is then forwarded to the
purchasing department.
This system works well if the employees are vigilant toward
maintaining stock.

A requisition is NOT an order for product.
DELIVERY DOCKETS


Delivery dockets are used to account for and record:
inward goods – materials coming in
outward goods.- product going out
CUSTOMER ORDERS

Orders from customers are received, - lists of raw materials needed is raised
When using this method, consumables are not indicated.
Disadvantage -work cannot start on the customer order until the stock arrives.
Advantage - you don’t spend a lot of money on stock with the risk that you
may not use it. You can use customer deposits to fund materials.



              WHICH SYSTEM DO YOU USE?
COMPUTER GENERATED RECORDS

  Computers help to:
  •eliminate extra paperwork
  •centralise stock control
  •generate orders automatically
  •save time.
  Computers can
  •enter stock data manually
  •entering data with bar code readers
  •scanning documents, such as invoices
COMPUTER GENERATED RECORDS

 All of the following information can be produced by computer.
 Invoices.
 Orders.
 Supplier lists.
DATA ENTRY

The computer application can then:
Check to see if the stock is on hand
Produce an order for more stock
Place an interim hold on the stock
Produce a job card
Produce working drawings
Produce delivery dockets and invoices
BARCODE SYSTEMS


This system can be used for all sorts of stock
items, such as:
Boxes of nails
Loads of timber
Containers of adhesives
Paint
Boxes of fittings and accessories.
BARCODE SYSTEMS

Barcodes are attached to all goods or
groups of goods and can contain a whole
range of information, such as:
Quantity
Price
Size
Type
Supplier name
Date of expiry, if applicable.
SCANNING

A scanner is a piece of equipment that acts
like a photocopier and can:
 be used to copy a paper invoice or
order.
 transfer this copy to the computer for
storage and easy access.
 have text recognition, so the
information can be interpreted and
processed by the computer automatically
STOCK CONTROL WITHOUT
             RECORDS

Detailed records of stock movements and levels may not always be
 necessary:

 in small businesses – owner/operator looks after all stock control
  issues
 in businesses such as prefabricated or made-to-order products.
BIN SYSTEMS


 Bin systems can replace formal stock control records.




Single bin, two bin and three bin systems
IMPREST SYSTEMS

 In an imprest system, an upper limit is set for inventory items in stock
  and orders are placed to bring the inventory back up to this level. This
  level equals the quantity necessary to:
 provide supplies to cover delivery time


 maintain supplies to cover the review period.
STOCKTAKING

Stocktaking is the process of counting the amount of materials and
  goods the company has on hand.

Physical stocktakes are important so you can identify:

 discrepancies between what is ordered and what is received


 discrepancies between prices paid and value received


 patterns of usage.
STOCKTAKING


 Stocktakes are usually held at least twice a year,
 Important points to remember when stock taking:
 Count everything
 Use stock recording sheets and stickers so things aren’t counted
  twice.
 3. Electronic recording devices make it much faster
SUMMARY
The more efficient the control of stock is, the less will be wasted or stored
unnecessarily.
Good stock control:
Saves time
Saves money
Makes sure the workplace is more efficient.
You can use paper based and computer based stock control methods to:
Record the movement of stock items
Maintain stock lists
Adjust levels to meet demand.
Your companies name




                                              Order No:


                      Supplier:   Delivery address:
Date of order:                                  COD/30 Days
     Quantity                                    Courier ?

 Litre / sheets                                  Order
                                                 maker
 C grade
 12mm 7 ply
 2400x 1200
      Special
      Instructions

                                                  Costs and
                                                  charges
 Authorising
 signature and date

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COST CONTROL

  • 1. What is Cost Control??? Minimizing costs the company must expend without sacrificing the end product (service/food) that the customer receives.
  • 2. Revenue and Expense Revenue - Expenses = Profit Revenue – Desired Profit = Ideal Expense Expense Revenue = Expense % Revenue (100%) - Food and Beverage Cost % - Labor Cost % - Other Expense % = Profit %
  • 3. A budget is simply a forecast or estimate of projected revenue, expense, and profit. The 28-day-period approach to budgeting divides a year into 13 equal periods of 28 days each. This helps the manager compare performance from one period to the next without having to compensate for “extra” days in any one period. If significant variations with planned results from a budget occur, management must: 1. Define the problem 2. Determine the cause 3. Take corrective action
  • 4. Sales Forecasts Advantages to Precise Sales Forecasts 1) Revenue Estimates 2) Expense $ Estimates 3) Scheduling Workers 4) Scheduling Food and Service Production needs 5) Proper purchasing of amounts of food for immediate use. 6) Increased operational efficiency – lower pricing, increased benefits for workers. 7) Increased dollars for growth 8) Increased profit levels and stockholder value
  • 5. Sales This Year – Sales Last Year = Variance Percentage variance indicates the percentage change in sales from one time period to the next. Sales This Year –Sales Last Year Sales Last Year = Percentage Variance or Variance Sales Last Year = Percentage Variance  Revenue forecast is calculated using the following formula: Forecast =Sales Last Year + (Sales Last Year X %Increase)
  • 6. Forecasting The guest count forecast is determined by multiplying guest count last year by the % increase estimate, and then adding the guest count last year. Guest Count Last Year + (Guest Count Last Year x % Increase Estimate) = Guest Count Forecast Or Guests Last Year x (1.00 + % Increase Estimate) = Guest Count Forecast
  • 7. Cost of Food & Bev •Once you know the average number of people selecting a given menu item, and the total number of guests who made the selections, you can compute the popularity index, which is defined as the percentage of total guests choosing a given menu item from a list of alternatives. Popularity Index =Total Number of a Specific Menu Item Sold Total Number of All Menu Items Sold The basic formula for individual menu item forecasting, based on an item’s individual sales history, is as follows: Number of Guests Expected x Item Popularity Index = Predicted Number of That Item to Be Sold
  • 8. Standardized Recipes The standardized recipe controls both the quantity and quality of what the kitchen will produce. It consists of the procedures to be used in preparing and serving each of your menu items. The standardized recipe is the key to menu item consistency, and ultimately, operational success.  In general, standardized recipes contain the following information: 1. Item name 2. Total yield (number of servings) 3. Portion size 4. Ingredient list 5. Preparation/method section 6. Cooking time and temperature 7. Special instructions, if necessary 8. Recipe cost (optional)
  • 9. Converting Recipes – Factor or Percentage Yield Desired Current Yield = Conversion Factor Ingredient Weight / Total Recipe Weight = % of Total then % of Total x Total Amount Required = New Recipe Amount
  • 10. Waste, Yield AP & EP Yield % = 1.00 - Waste % AP – Waste (EP) AP = Yield % EP Required Yield % = AP Required EP Required =AP Required x Yield %
  • 11. Calculating Food Cost Determining Actual Food Expense  Cost of food sold is the dollar amount of all food actually sold, thrown away, wasted or stolen. It is computed as follows: Beginning Inventory PLUS Purchases = Goods Available for Sale MINUS Ending Inventory = Cost of Food Consumed MINUS Employee Meals = Cost of Food Sold
  • 12. Six Column Reporting Six Column Food Cost % Estimate 1. Purchases Today Sales Today = Cost % Today 2. Purchases to Date Sales to Date = Cost % to Date Sales Purchases Cost & Weekday Today To Date Today To Date Today To Date Monday $850.40 $850.40 $1,106.20 $1,106.20 130.08% 130.08% Tuesday $920.63 $1,771.03 $841.40 $1,947.60 91.39% 109.97% Wednesday $1,185.00 $2,956.03 $519.60 $2,467.20 43.85% 83.46% Thursday $971.20 $3,927.23 $488.50 $2,955.70 50.30% 75.26% Friday $1,947.58 $5,874.81 $792.30 $3,748.00 40.68% 63.80% Saturday $2,006.41 $7,881.22 $286.20 $4,034.20 14.26% 51.19% Sunday $2,404.20 $10,285.42 $0.00 $4,034.20 0.00% 39.22%
  • 13. Calculating Beverage Cost Beginning Inventory PLUS Purchases = Goods Available for Sale Less Ending Inventory Less Transfers from Bar Plus Transfers to Bar = Cost of Beverage Sold
  • 14. Calculating Sales Mix & Terms Item Dollar Sales Total Beverage Sales = Item % of Total Beverage Sales Two-key system Oxidation Broken case Empty for full system of managment
  • 15. F&B Production Necessary Components of F&B Production Planning: 1) Maintain Sales Histories 2) Forecast Future Sales Histories 3) Purchase and store needed F&B supplies 4) Plan daily production schedules 5) Issue needed products to production areas 6) Manage the food and beverage production process
  • 16. Controlling Product Issues Issues Today Sales Today = Beverage/Food Cost Estimate Today The six-column form requires only that the manager divide today‟s issues by today‟s sales to arrive at the today estimate as follows Beverage Cost Issues Sales Estimate Date Today To Date Today To Date Today To Date 1-Jan 945 945 1450.22 1450.22 65.16% 65.16% 2-Jan 785 1730 1688.4 3138.62 46.49% 55.12% 3-Jan 816.5 2546.5 2003.45 5142.07 40.75% 49.52% 4-Jan 975.4 3521.9 1920.41 7062.48 50.79% 49.87% 5-Jan 1595 5116.9 5546.5 12608.98 28.76% 40.58% 6-Jan 1100.2 6217.1 5921.27 18530.25 18.58% 33.55% 7-Jan 18.4 6235.5 495.2 19025.45 3.72% 32.77% Total 6235.5 19025.45 32.77%
  • 17. Methods of Inventory Control  A physical inventory is one in which an actual, physical count and valuation of all inventory on hand is taken at the beginning and close of each accounting period.  A perpetual inventory system is one in which additions to and deletions from total inventory are recorded as they occur.  The ABC system attempts to combine both the physical and perpetual inventory systems. It separates inventory items into three main categories
  • 18. ABC Inventory System o Category A items are those that require tight control and the most accurate record keeping. Those are typically high-value items, which can make up 70% to 80% of the total inventory value. o Category B items are those that make up 10% to 15% of the inventory value and require only routine control and record keeping. o Category C items make up only 5% to 10% of the inventory value. These items require only the simplest of inventory control systems
  • 19. Inventory Control Formulas Cost in Product Category Total Cost in All Categories = Proportion of Total Product Cost Cost as per Standardized Recipes Total Sales =Attainable Product Cost % Actual Product Cost Attainable Product Cost = Operational Efficiency Ratio
  • 20. Principles of Cost Percentages  The food cost percentage equation is extremely interesting. In its simplest form, it can be represented as: where A = Cost of Goods Sold B = Sales C = Cost Percentage A B =C
  • 21. If costs can be kept constant but sales increase, the cost percentage goes down. If costs remain constant but sales decline, cost percentage increases. If costs go up at the same rate sales go up, your cost percentage will remain unchanged. If costs can be reduced but sales remain constant, the cost percentage goes down. If costs increase with no increase in sales, the cost percentage will go up.
  • 22. Managing F&B Pricing  Standard Menu  Daily Menu  Cycle Menu  Value Pricing  Bundling
  • 23. Factors Influencing Menu Pricing 1. Local competition 2. Service levels 3. Guest type 4. Product quality 5. Portion size 6. Ambience 7. Meal period 8. Location 9. Sales mix
  • 24. Selling Price Determination Cost of a Specific Food Item Sold Desired Food Cost % of That Item = Selling Price of That Item
  • 25. Multiplier Method 1.00 Desired Product Cost % = Pricing Factor Pricing Factor x Product Cost = Menu Price
  • 26. Contribution Margin Method Selling Price – Product Cost = Contribution Margin Product Cost + Contribution Margin Desired = Selling Price
  • 27. Pricing Buffets Total Buffet Product Cost Guests Served = Buffet Product Cost per Guest The secret to keeping selling price low for a salad bar or buffet is to apply the ABC method. A items should comprise no more than 20% of the total product available; B items, no more than 30%; and C items, 50%.
  • 28. Labor Cost  Labor Expense includes salaries and wages, but it consists of other labor-related costs as well.  Payroll refers to the gross pay received by an employee in exchange for his or her work.  A salaried employee receives the same income per week or month regardless of the number of hours worked.  Minimum staff is used to designate the least number of employees, or payroll dollars, required to operate a facility or department within the facility.  Fixed Payroll refers to the amount an operation pays in salaries.  Variable Payroll consists of those dollars paid to hourly employees. Sometimes employees have both a fixed and variable element to their pay.
  • 29. Productivity Standards Output Input =Productivity Ratio Cost of Labor Total Sales =Labor Cost % Total Sales Labor Hours Used = Sales per Labor Hour Cost of Labor Guests Served = Labor Dollars per Guest Served
  • 30. Productivity and Scheduling hour 7.5 Productivity = covers = 60 = 0.125 Productivity X Forecast Cover = Scheduled Hours 0.125 x 3000 Covers = 375 hours
  • 31. Factors Influencing Productivity 10 Key Factors Affecting Employee Productivity 1. Employee Selection 2. Training 3. Supervision 4. Scheduling 5. Breaks 6. Morale 7. Menu 8. Convenience vs. Scratch Preparation 9. Equipment 10. Service Level Desired
  • 32.  A job specification is a listing of the personal characteristics needed to perform the tasks contained in a particular job description.  A job description is a listing of the tasks that must be accomplished by the employee hired to fill a particular position.  Task training is the training undertaken to ensure an employee has the skills to meet productivity goals.
  • 33. Employee Turnover Employee Turnover Rate = # of Employees Separated # of Employees in Workforce A voluntary separation is one in which the employee made the decision to leave the organization. An involuntary separation is one in which management has caused the employee to separate from the organization. Employee Turnover Rate = Number of Employees Separated Number of Employees in Workforce
  • 34. Managing Other Expenses  Other expenses are those items that are neither food, beverage, nor labor.  While there are many ways in which to consider other expenses, two views of these costs are particularly useful for the foodservice manager. They are: 1.Fixed, variable, or mixed 2.Controllable or non-controllable
  • 35.  The following shows how fixed, variable, and mixed expenses behave as sales volume increases: Expense As a Percentage of Total Dollars Sales Fixed Decreases Remains the Expense Same Variable Remains the Same Increases Expense Mixed Decreases Increases Expense
  • 36. Financial Analysis  To ensure that this financial information is presented in a way that is both useful and consistent, the uniform systems of accounts have been established for many areas of the hospitality industry.  The USAR can better be understood by dividing it into three sections: gross profit, operating expenses, and non-operating expenses.  These three sections are arranged on the income statement from most controllable to least controllable by the foodservice manager.
  • 37. The gross profit section consists of food and beverage sales and costs that can and should be controlled by the manager on a daily basis. The operating expenses section is also under the control of the manager but more so on a weekly or monthly basis (with the exception of wages which you can control daily). Nonoperating expenses section is the least controllable by the foodservice manager. For example, interest paid to creditors for short-term or long-term debt is due regardless of the ability of the manager to control operations. The income statement is an aggregate statement. This means that all details associated with the sales, cost, and profits of the foodservice establishment are summarized on the P&L statement. Although this summary gives the manager a one-shot look at the performance of the operation, the details are not included directly on the statement.
  • 38. Analysis of Sales/Volume Overall sales increases or decreases can be computed using the following steps: 1.Determine sales for this accounting period. 2.Determine the difference between this period‟s sales minus last period‟s sales. 3.Divide the difference in #2 by last period's sales to determine percentage variance.
  • 39.  There are several ways a foodservice operation experiences total sales (dollar) volume increases. These are: 1. Serve the same number of guests at a higher check average. 2. Serve more guests at the same check average. 3. Serve more guests at a higher check average.
  • 40. The procedure to adjust sales variance for known menu price increases is as follows: Step 1. Increase prior period sales (last year) by amount of the price increase. Ex: if prices were increased 5% on all menu items, increase the prior period sales by 5%. Step 2. Subtract the result in Step 1 from this period's sales. Step 3. Divide the difference in Step 2 by the value of Step 1.
  • 41. Analysis of Food Cost & Inventory  A food cost percentage can be computed for each food sub-category. For instance, the cost percentage for the category Meats and Seafood would be computed as follows: Meats and Seafood Cost Total Food Sales = Meats and Seafood Cost %
  • 42. Inventory turnover refers to the number of times the total value of inventory has been purchased and replaced in an accounting period. Cost of Food Consumed Average Inventory Value= Food Inventory Turnover The higher the Food Inventory Turnover number, the greater the frequency of orders and typically the smaller the inventory size.
  • 43. Analysis of Profit Net Income This Period – Net Income Last Period Net Income Last Period = Profit Variance %
  • 45. Three of the most popular systems of menu analysis are: Variables Considered Analysis Method Overall Goal Food Cost % Food Cost % Matrix Minimize overall FC% Popularity Contribution Margin Contribution Margin Matrix Maximize CM Popularity Goal Value Analysis Contribution Margin % Algebraic Equation Achieving certain Popularity Profit Percentage Goals Selling Price Variable Cost % Food Cost % A matrix allows menu items to be placed into categories based on whether they are above or below menu item averages such as food cost %, popularity, and contribution margin.
  • 46. When analyzing a menu using the Food Cost Percentage Method, you are seeking menu items that have the effect of minimizing your overall food cost percentage. The characteristics of the menu items that fall into each of the four matrix squares are unique and thus should be marketed differently 1 – High FC%, Low Popularity % 2 – High FC%, High Popularity % 1 2 3 – Low FC%, Low Popularity % FC% 4 – Low FC%, High Popularity % 3 4 Popularity %
  • 47. Each of the menu items that fall in the squares requires a special marketing strategy, depending on its square location. 1 – High CM, Low Popularity % 2 – High CM, High Popularity % 1 2 3 – Low CM, Low Popularity % CM$ 4 – Low CM, High Popularity % 3 4 Popularity %
  • 48. The selection of either food cost percentage or contribution margin as a menu analysis technique is really an attempt by the foodservice operator to answer the following questions: 1. Are my menu items priced correctly? 2. Are the individual menu items selling well enough to warrant keeping them on the menu? 3. Is the overall profit margin on my menu items satisfactory?
  • 49. The goal value formula is as follows: A x B x C x D = Goal Value A = 1.00 - Food Cost % (Contribution Margin %) B = Item Popularity C = Selling Price D = 1.00 - (Variable Cost % + Food Cost %) Food Cost % Number Selling Variable Cost % Item (in decimal form) Sold Price (in decimal form) Fajita Plate 0.38 147 $12.95 0.28 Enchilada Dinner 0.35 200 9.95 0.28 Menudo 0.25 82 6.95 0.28 Mexican Salad 0.30 117 7.95 0.28 Chalupa Dinner 0.28 125 8.95 0.28 Burrito Dinner 0.33 168 9.95 0.28 Taco Dinner 0.26 225 5.95 0.28 Overall Menu (Goal Value) 0.32 152 8.95 0.28 Average Goal Value = 0.68 x 152 x 8.95 x 0.40 = 370
  • 50. The computed goal value carries no unit designation; that is, it is neither a percent nor a dollar figure because it is really a numerical target or score. Anything scoring above the average would be considered a good item, anything below would be considered an item that needs some re-thinking. Food Cost % Number Selling Variable Cost % Item (in decimal form) Sold Price (in decimal form) Goal Value Fajita Plate 0.62 147 $12.95 0.40 472.1 Enchilada Dinner 0.65 200 $9.95 0.40 517.4 Menudo 0.75 82 $6.95 0.40 171.0 Mexican Salad 0.70 117 $7.95 0.40 260.4 Chalupa Dinner 0.72 125 $8.95 0.40 322.2 Burrito Dinner 0.67 168 $9.95 0.40 448.0 Taco Dinner 0.74 225 $5.95 0.40 396.3 Average 0.68 152 $ 8.95 0.4 370.0
  • 51. Contribution margin for the overall operation is defined as the dollar amount that contributes to covering fixed costs and providings for a profit. This is different than the C.M. for a menu item in that it takes into account both important variable costs – food and labor. Total Sales - Variable Costs = Contribution Margin C.M. % = Contribution Margin $/ Total Sales $ C.M. per Guest = Contribution Margin $ / Guests
  • 52. To determine the dollar sales required to break even, use the following formula: Fixed Costs Contribution Margin % = Break-Even Point in Sales In terms of the number of guests that must be served in order to break even, use the following formula: Fixed Costs Contribution Margin per Unit (Guest) = Break-Even Point in Guests Served
  • 53.  Minimum Sales Point (MSP) is the dollar sales volume required to justify staying open for a given period of time.  The information necessary to compute MSP is as follows: 1. Food cost % 2. Minimum payroll cost for the time period 3. Variable cost %  Fixed costs are eliminated from the calculation because even if volume of sales equals zero, fixed costs still exist and must be paid.
  • 54. Minimum Operating Cost = FC% +VC% MSP = Minimum Labor Cost 1 – Minimum Operating Cost Or it could be written as: MSP = Minimum Labor Cost 1 – (FC% + VC%)
  • 55. Budgeting Developing the Budget  To establish any type of budget, you need to have the following information available: 1. Prior period operating results 2. Assumptions of next period operations 3. Goals 4. Monitoring policies  annual budget  achievement budget
  • 56. To determine a food budget, compute the estimated food cost as follows: 1. Last Year’s Average Food Cost per Meal = Last Year’s Cost of Food / Total Meals Served 2. Last Year’s Food Cost per Meal + % Estimated Increase in Food Costs = This Year’s Food Cost per Meal 3. This Year’s Food Cost Per Meal x Number of Meals to Be Served This Year = Estimated Cost of Food This Year
  • 57.  Todetermine a labor budget, compute the estimated labor cost as follows: 1. Last Year‟s Labor Cost per Meal = Last Year‟s Cost of Labor / Total Meals Served 2. Last Year‟s Labor Cost per Meal + % Estimated Increase in Labor Cost = This Year‟s Labor Cost per Meal 3. This Year’s Labor Cost per Meal x Number of Meals to Be Served This Year = Estimated Cost of Labor This Year
  • 58. Yardstick Method  Some operators elect to utilize the yardstick method of calculating expense standards so determinations can be made as to whether variations in expenses are due to changes in sales volume, or other reasons such as waste or theft. The yardstick method helps you identify specific problems quickly and accurately.
  • 60. Defined: Break-even analysis examines the cost tradeoffs associated with demand volume.
  • 61. Overview: Break-Even Analysis  Benefits  Defining Page  Getting Started  Break-even Analysis  Break-even point  Comparing variables  Algebraic Approach  Graphical Approach
  • 62. Benefits and Uses:  The evaluation to determine necessary levels of service or production to avoid loss.  Comparing different variables to determine best case scenario.
  • 63. Defining Page:  USP = Unit Selling Price  UVC = Unit Variable costs  FC = Fixed Costs Q = Quantity of output units sold (and manufactured)
  • 64. Defining Page: Cont.  OI = Operating Income  TR = Total Revenue  TC = Total Cost  USP = Unit Selling Price
  • 65. Getting Started:  Determination of which equation method to use:  Basic equation  Contribution margin equation  Graphical display
  • 66. Break-even analysis: Break-even point  John sells a product for $10 and it cost $5 to produce (UVC) and has fixed cost (FC) of $25,000 per year  How much will he need to sell to break-even?  How much will he need to sell to make $1000?
  • 67. Algebraic approach: Basic equation Revenues – Variable cost – Fixed cost = OI (USP x Q) – (UVC x Q) – FC = OI $10Q - $5Q – $25,000 = $ 0.00 $5Q = $25,000 Q = 5,000 What quantity demand will earn $1,000? $10Q - $5Q - $25,000 = $ 1,000 $5Q = $26,000 Q = 5,200
  • 68. Algebraic approach: Contribution Margin equation (USP – UVC) x Q = FC + OI Q = FC + OI UMC Q = $25,000 + 0 $5 Q = 5,000 What quantity needs sold to make $1,000? Q = $25,000 + $1,000 $5 Q = 5,200
  • 69. Graphical analysis: Dollars 70,000 60,000 Total Cost Line 50,000 40,000 30,000 20,000 Total Revenue Line 10,000 Break-even point 0 1000 2000 3000 4000 5000 6000 Quantity
  • 70. Graphical analysis: Cont. Dollars 70,000 60,000 Total Cost Line 50,000 40,000 30,000 20,000 Total Revenue Line 10,000 Break-even point 0 1000 2000 3000 4000 5000 6000 Quantity
  • 71. Scenario 1: Break-even Analysis Simplified  When total revenue is equal to total cost the process is at the break-even point. TC = TR
  • 72. Break-even Analysis: Comparing different variables  Company XYZ has to choose between two machines to purchase. The selling price is $10 per unit.  Machine A: annual cost of $3000 with per unit cost (VC) of $5.  Machine B: annual cost of $8000 with per unit cost (VC) of $2.
  • 73. Break-even analysis: Comparative analysis Part 1  Determine break-even point for Machine A and Machine B.  Where: V = FC SP - VC
  • 74. Break-even analysis: Part 1, Cont. Machine A: v = $3,000 $10 - $5 = 600 units Machine B: v = $8,000 $10 - $2 = 1000 units
  • 75. Part 1: Comparison  Compare the two results to determine minimum quantity sold.  Part 1 shows:  600 units are the minimum.  Demand of 600 you would choose Machine A.
  • 76. Part 2: Comparison Finding point of indifference between Machine A and Machine B will give the quantity demand required to select Machine B over Machine A. Machine A = Machine B FC + VC = FC + VC $3,000 + $5 Q = $8,000 + $2Q $3Q= $5,000 Q= 1667
  • 77. Part 2: Comparison Cont.  Knowing the point of indifference we will choose:  Machine A when quantity demanded is between 600 and 1667.  Machine B when quantity demanded exceeds 1667.
  • 78. Part 2: Comparison Graphically displayed Dollars 21,000 18,000 Machine A 15,000 12,000 9,000 Machine B 6,000 3,000 0 500 1000 1500 2000 2500 3000 Quantity
  • 79. Part 2: Comparison Graphically displayed Cont. Dollars 21,000 18,000 Machine A 15,000 12,000 9,000 Machine B 6,000 3,000 Point of indifference 0 500 1000 1500 2000 2500 3000 Quantity
  • 80. Exercise 1:  Company ABC sell widgets for $30 a unit.  Their fixed cost is$100,000  Their variable cost is $10 per unit.  What is the break-even point using the basic algebraic approach?
  • 81. Exercise 1: Answer Revenues – Variable cost - Fixed cost = OI (USP x Q) – (UVC x Q) – FC = OI $30Q - $10Q – $100,00 = $ 0.00 $20Q = $100,000 Q = 5,000
  • 82. Exercise 2:  Company DEF has a choice of two machines to purchase. They both make the same product which sells for $10.  Machine A has FC of $5,000 and a per unit cost of $5.  Machine B has FC of $15,000 and a per unit cost of $1.  Under what conditions would you select Machine A?
  • 83. Exercise 2: Answer Step 1: Break-even analysis on both options. Machine A: v = $5,000 $10 - $5 = 1000 units Machine B: v = $15,000 $10 - $1 = 1667 units
  • 84. Exercise 2: Answer Cont. Machine A = Machine B FC + VC = FC + VC $5,000 + $5 Q = $15,000 + $1Q $4Q= $10,000 Q= 2500  Machine A should be purchased if expected demand is between 1000 and 2500 units per year.
  • 85. Summary:  Break-even analysis can be an effective tool in determining the cost effectiveness of a product.  Required quantities to avoid loss.  Use as a comparison tool for making a decision.
  • 87. Types of Costs  Essentially, there are two types of costs that a business faces:  Variable costs which vary proportionally with sales  hourly wages  utility costs  raw materials  etc.  Fixed costs which are constant over a relevant range of sales  executive salaries  lease payments  depreciation  etc.
  • 88. Types of Costs Grapically T o ta l T o t a l V a r ia b le C o s t U n it S a le s U n it S a le s V a r ia b le C o s t p e r U n it F ix e d C o s t p e r U n it P e r U n it U n it S a le s U n it S a le s
  • 89. Operating (Accounting) Break-even  The operating break-even point is defined as that level of sales (either units or dollars) at which EBIT is equal to zero: S a le s VC FC 0 Or Q P v FC 0  Where VC is total variable costs, FC is total fixed costs, Q is the quantity, p is the price per unit, and v is the variable cost per unit
  • 90. The Operating Break-even in Units  We can find the operating break-even point in units by simply solving for Q: * FC FC Q p v C M $ / u n it  Where CM$/unit is the contribution margin per unit sold (i.e., CM$/unit = p - v)  The contribution margin per unit is the amount that each unit sold contributes to paying off the fixed costs
  • 91. The Operating Break-even in Dollars  We can calculate the operating break-even point in sales dollars by simply multiplying the break-even point in units by the price per unit: * BE$ Q p  Note that we can substitute the previous definition of Q* into this equation: FC FC FC BE$ p p v p v CM % p  Where CM% is the contribution margin as a % of the selling price
  • 92. Operating Break-even: an Example  Suppose that a company has fixed costs of $100,000 and variable costs of $5 per unit. What is the break- even point if the selling price is $10 per unit? * 1 0 0 ,0 0 0 Q 2 0 , 0 0 0 u n its 10 5 Or BE$ 2 0 ,0 0 0 10 $ 2 0 0 ,0 0 0 Or 1 0 0 ,0 0 0 BE$ $ 2 0 0, 0 0 0 10 5 10
  • 93. Targeting EBIT  We can use break-even analysis to find the sales required to reach a target level of EBIT * FC E B ITT arg et Q T arg et p v  Note that the only difference is that we have defined the break- even point as EBIT being equal to something other than zero
  • 94. Targeting EBIT: an Example  Suppose that we wish to know how many units the company (from the previous example) needs to sell such that EBIT is equal to $500,000: * 1 0 0 ,0 0 0 5 0 0 ,0 0 0 Q 1 2 0 , 0 0 0 u n its 10 5 Or BE$ 1 2 0 ,0 0 0 10 $ 1, 2 0 0 , 0 0 0 Or 1 0 0 ,0 0 0 5 0 0 ,0 0 0 BE$ $ 1, 2 0 0 , 0 0 0 10 5 10
  • 95. Cash Break-even Points  Note that if we subtract the depreciation expense (a non-cash expense) from fixed cost, we can calculate the break-even point on a cash flow basis: * FC D ep reciatio n Q T arg et p v
  • 96. Leverage Analysis  In physics, leverage refers to a multiplcation of a force into even larger forces  In finance, it is similar, but we are refering to a multiplication of %changes in sales into even larger changes in profitability measures Lev erage in phy s ic s Lev erage in financ e F orc e In % S ales F orc e O ut % P rofits
  • 97. Types of Risk  There are two main types of risk that a company faces:  Business risk - the variability in a firm‟s EBIT. This type of risk is a function of the firm‟s regulatory environment, labor relations, competitive position, etc. Note that business risk is, to a large degree, outside of the control of managers  Financial risk - the variability of the firm‟s earnings before taxes (or earnings per share). This type of risk is a direct result of management decisions regarding the relative amounts of debt and equity in the capital structure
  • 98. The Degree of Operating Leverage (DOL)  The degree of operating leverage is directly proportional to a firm‟s level of business risk, and therefore it serves as a proxy for business risk  Operating leverage refers to a multiplication of changes in sales into even larger changes in EBIT  Note that operating leverage results from the presence of fixed costs in the firm‟s cost structure
  • 99. Calculating the DOL  The degree of operating leverage can be calculated as: % E B IT DOL % S ales  This approach is intuitive, but it requires two income statements to calculate  We can also calculate DOL with one income statement: Q p v S ales VC DOL Q p v FC E B IT
  • 100. The Degree of Financial Leverage (DFL)  The degree of financial leverage is a measure of the % changes in EBT that result from changes in EBIT, it is calculated as: % EBT D FL % E B IT  This approach is intuitive, but it requires two income statements to calculate  We can also calculate DFL with one income statement: E B IT D FL EBT
  • 101. The Degree of Combined Leverage (DCL)  The degree of combined leverage is a measure of the total leverage (both operating and financial leverage) that a company is using: % EBT % E B IT % EBT DCL DOL D FL % S ales % S ales % E B IT  It is important to note that DCL is the product (not the sum) of both DOL and DFL
  • 102. Calculating Leverage Measures B a se C a se S a les D o w n 1 0 % S a les u p 1 0 % S ales 1000 900 1100 V ariab le C o sts 450 405 495 F ix ed C o sts 300 300 300 D ep reciatio n 100 100 100 E B IT 150 95 205 In terest E x p en se 30 30 30 EBT 120 65 175 P ercen ta g e C h a n g es R ela tiv e to th e B a se C a se S ales -1 0 .0 0 0 % 1 0 .0 0 0 % E B IT -3 6 .6 6 7 % 3 6 .6 6 7 % EBT -4 5 .8 3 3 % 4 5 .8 3 3 % L ev era g e M ea su res U sin g a sin g le in co m e sta tem en t: DOL 3 .6 7 5 .2 1 2 .9 5 DFL 1 .2 5 1 .4 6 1 .1 7 DCL 4 .5 8 7 .6 2 3 .4 6 U sin g tw o in co m e sta tem en ts: DOL 3 .6 7 DFL 1 .2 5 DCL 4 .5 8
  • 104. Budgets  Estimates of the income and expenditure of a business or a part of a business over a time period  Used extensively in planning  Helps establish efficient use of resources  Help monitor cash flow and identify departures from plans  Maintains a focus and discipline for those involved
  • 105. Budgets  Flexible Budgets – budgets that take account of changing business conditions  Operating Budgets – based on the daily operations of a business  Objectives Based Budgets - Budgets driven by objectives set by the firm  Capital Budgets – Plans of the relationship between capital spending and liquidity (cash) in the business
  • 106. Budgets  Variance – the difference between planned values and actual values  Positive variance – actual figures less than planned  Negative variance – actual figures above planned
  • 107. Food Storing and Issuing Control
  • 108. Five Principle Concerns  Conditions of facilities and equipment  Arrangement of foods  Location of facilities  Security of storage areas  Dating and pricing of stored foods
  • 109. Condition of Facilities and Equipment  Conditions include:  Temperature  Storage Containers  Shelving  Cleanliness  Problems can lead to:  Spoilage and waste  Health codes specify:  Storage temperatures  Storage containers  Storage procedures
  • 110. Temperatures  Key factor in storage  Fresh meats – 34 to 36 degrees F.  Fresh produce – 34 to 36 degrees F.  Fresh dairy – 34 to 36 degrees F.  Fresh fish – 30 to 34 degrees F.  Frozen foods – minus 10 to 0 degrees F.  Temperatures above recommended:  Shorten shelf life  Raise the risk of spoilage  Storage temperatures for non-perishables  60 to 70 degrees F.
  • 111. Storage Containers  Foods should be stored in appropriate containers.  Tight, insect proof containers  Some may be fine as purchased  Fresh fish and poultry packed in ice  Cooked foods in SS and covered
  • 112. Cleanliness  Should be enforced  Prevents accumulation and odor  Discourages infestation of insects and rodents  Professional exterminator should be used on a regular basis
  • 113. Arrangement of Foods  Most used item readily available  Fixed definite locations  Rotation of stock
  • 114. Location and Storage Facilities  Located between receiving and preparation areas  Proper location:  Speeds the storing and issuing of foods  Maximizes security  Reduces labor requirements
  • 115. Security  Storage should limit pilferage  Storerooms should not be unlocked and unattended  Procedures should be in place to track removal of items  When not open, storage areas should be locked  Establish separate procedures for “A” items
  • 116. Dating and Pricing  Items should be dated as they are stored  Items should be priced as they are put away  Computer tracking eliminates the need
  • 117. Physical Movement of Foods from Storage  Practices vary in operations  Requisitions  Honor system  Wide open  Greater control leads to:  Increased cost  More time and delay  Large operations tend to be more formal  Smaller operations tend to be less formal  Cost/Benefit considerations needed before establishment of standards and procedures
  • 118. Record Keeping  Directs:  Charged to food cost as received  No further records kept  Stores:  Considered part of inventory  Not used in cost figures until issued  For control purposes a system for issuing must be established
  • 119. The Requisition  Form filled out by kitchen staff  Lists items needed for production  Quantities deducted from inventory  Requisitions should be submitted in advance  Definite times established for issue  Pricing the requisition  Extended to determine total value of food issued  Cost derived from item, file card, perpetual inventory record or memory
  • 120. Importance of Training  Inappropriate containers or temperature  Improper or multiple locations  Lack of rotation  Pilferage from lack of security  Poor record keeping
  • 121. Monitoring  Management should:  Inspect facilities on a regular basis  Cleanliness  Organization  Temperatures  Location  Rotation  Examine paperwork  Verify requisitions
  • 122. Food and Beverage Transfers  Intra-unit transfers:  Food to beverage  Beverage to food  Inter-unit transfers:  Unit to unit
  • 123. Developing a safety culture Figure 3.1
  • 124. The process of food hygiene management for food production Figure 3.3
  • 125. Elements of food production Blend Figure 3.4
  • 126. A generic model of the food production system Figure 3.5
  • 127. Methods of food production (1) 1. Conventional  Production using fresh foods and traditional cooking methods 2. Convenience  Production using mainly convenience foods 3. Call order  Food is cooked to order either from customer (cafeterias) or from waiter  Production area often open to customer area
  • 128. Methods of food production (2) 4. Continuous flow  Production line approach  Different parts of the process may be separated (e.g. fast food) 5. Centralised  Production not directly linked to service  Foods are „held‟ and distributed to separate service areas 6. Cook-chill  Food production storage and regeneration using low temperature control to preserve processed food.
  • 129. Methods of food production (3) 7. Cook-freeze  Production, storage and regeneration using freezing to control and preserve qualities of processed food  Requires special processes to assist freezing 8. Sous-vide  Production, storage and regeneration using sealed vacuum to control and preserve qualities of processed food 9. Assembly kitchen  System based on using latest technological developments in manufacturing and conservation of food products
  • 130. The control cycle of daily operation Figure 3.6
  • 131. Standard Operating Procedures: Cycle of F&B Product Control Step 1: Purchasing Step 2: Receiving Step 3: Storing Step 4: Issuing Step 5: Pre-Preparation Step 6: Preparation Step 7: Serving Step 8: Service
  • 132. Cycle of F&B Product Control (continued…) Develop purchase specification Step 1: Supplier selection Purchasing correct quantities Purchasing No collusion between property and supplier Evaluation of purchasing process Development of receiving procedures Step 2: Completion of necessary receiving reports (e.g., Receiving addressing financial and security concerns) Effective use of perpetual & physical inventory systems Step 3: Control of product quality Storing Securing products from theft Location of products within storage areas Product rotation concerns Step 4: Matching issues (issue & usage) Issuing Purchasing as inventory is depleted
  • 133. Cycle of F&B Product Control (continued…) Step 5: Mise-en-place Minimizing food waste / maximizing nutrient retention Pre-Preparation Use of standardized recipes Step 6: Use of portion control Preparation Requirements for food and employee safety Timing of incoming F&B orders Step 7: Portion control Serving Revenue management concerns Revenue control concerns Step 8: Serving alcoholic beverage responsibly Service Sanitation and cleanliness F&B server productivity
  • 134. STOCK CONTROL Inventory is often referred to as the graveyard of business because over investment in stock is a frequent cause of business failure.
  • 135. STOCK CONTROL Many business costs, such as: A storeman‟s wages Storage costs Insurance of the stock Interest on borrowed money, are directly related to investment in inventory.
  • 136. STOCK CONTROL it is important to control stock and inventory so that there is: enough to keep work flowing efficiently not too much so that money spent on the stock lies idle while it is not used.
  • 137. STOCK CONTROL An inventory is simply a list of all the goods purchased and used in the manufacturing process. For example raw materials work in progress finished goods
  • 138. STOCK CONTROL Stock control is used to: Reduce the costs of running the businesses Reduce excess stock and wastage Make sure there are enough goods to meet the demand Speed up deliveries to customers.
  • 139. WHAT ITEMS ARE RECORDED? Equipment, such as static machines Tools, such as hammers and spanners Packaging, such as bubble wrap or boxes Spare parts, such as extra cutterblades for machines Accessories, such as door handles Other consumables, such as nails and screws.
  • 140. A TYPICAL PRODUCTION PROCESS.
  • 141. HOW IS STOCK CONTROLLED? Systems can be: Paper based, such as hand written stock cards or sheets Computer generated. Stock control records should contain: a description of the goods details of where the goods are stored or located the amount of goods currently held details about the movement of the stock
  • 142. DOCUMENTS AND FORMS Used to control stock include Purchase requisitions Purchase orders Delivery dockets Invoices
  • 143. PAPER BASED SYSTEMS Some of the typical ways of keeping a paper based system up to date involve the use of: Job cards - Job cards are used as a means of keeping account of the amount of goods you have produced.
  • 144. STOCK CARDS Stock cards – use minimum/maximum stock levels. Stock cards are used to monitor the amount of raw materials that are used. When using this system, you need to consider: The time taken for delivery Reliability of suppliers Importance of the stock item.
  • 146. REQUISITION BOOKS Requisition books are used to request an order to be raised for materials. A duplicate of the requisition is then forwarded to the purchasing department. This system works well if the employees are vigilant toward maintaining stock. A requisition is NOT an order for product.
  • 147. DELIVERY DOCKETS Delivery dockets are used to account for and record: inward goods – materials coming in outward goods.- product going out
  • 148. CUSTOMER ORDERS Orders from customers are received, - lists of raw materials needed is raised When using this method, consumables are not indicated. Disadvantage -work cannot start on the customer order until the stock arrives. Advantage - you don’t spend a lot of money on stock with the risk that you may not use it. You can use customer deposits to fund materials. WHICH SYSTEM DO YOU USE?
  • 149. COMPUTER GENERATED RECORDS Computers help to: •eliminate extra paperwork •centralise stock control •generate orders automatically •save time. Computers can •enter stock data manually •entering data with bar code readers •scanning documents, such as invoices
  • 150. COMPUTER GENERATED RECORDS All of the following information can be produced by computer. Invoices. Orders. Supplier lists.
  • 151. DATA ENTRY The computer application can then: Check to see if the stock is on hand Produce an order for more stock Place an interim hold on the stock Produce a job card Produce working drawings Produce delivery dockets and invoices
  • 152. BARCODE SYSTEMS This system can be used for all sorts of stock items, such as: Boxes of nails Loads of timber Containers of adhesives Paint Boxes of fittings and accessories.
  • 153. BARCODE SYSTEMS Barcodes are attached to all goods or groups of goods and can contain a whole range of information, such as: Quantity Price Size Type Supplier name Date of expiry, if applicable.
  • 154. SCANNING A scanner is a piece of equipment that acts like a photocopier and can:  be used to copy a paper invoice or order.  transfer this copy to the computer for storage and easy access.  have text recognition, so the information can be interpreted and processed by the computer automatically
  • 155. STOCK CONTROL WITHOUT RECORDS Detailed records of stock movements and levels may not always be necessary:  in small businesses – owner/operator looks after all stock control issues  in businesses such as prefabricated or made-to-order products.
  • 156. BIN SYSTEMS  Bin systems can replace formal stock control records. Single bin, two bin and three bin systems
  • 157. IMPREST SYSTEMS  In an imprest system, an upper limit is set for inventory items in stock and orders are placed to bring the inventory back up to this level. This level equals the quantity necessary to:  provide supplies to cover delivery time  maintain supplies to cover the review period.
  • 158. STOCKTAKING Stocktaking is the process of counting the amount of materials and goods the company has on hand. Physical stocktakes are important so you can identify:  discrepancies between what is ordered and what is received  discrepancies between prices paid and value received  patterns of usage.
  • 159. STOCKTAKING  Stocktakes are usually held at least twice a year,  Important points to remember when stock taking:  Count everything  Use stock recording sheets and stickers so things aren’t counted twice.  3. Electronic recording devices make it much faster
  • 160. SUMMARY The more efficient the control of stock is, the less will be wasted or stored unnecessarily. Good stock control: Saves time Saves money Makes sure the workplace is more efficient. You can use paper based and computer based stock control methods to: Record the movement of stock items Maintain stock lists Adjust levels to meet demand.
  • 161. Your companies name Order No: Supplier: Delivery address: Date of order: COD/30 Days Quantity Courier ? Litre / sheets Order maker C grade 12mm 7 ply 2400x 1200 Special Instructions Costs and charges Authorising signature and date