FM-AA-CIA-15 Rev.

0 10-July-2020

Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

STUDY GUIDE FOR MODULE NO. 3

THE CONTROL PROCESS

MODULE OVERVIEW

• Steps of Cost Control

• Determining Inventory Levels
• Setting Purchase Point
• Verifying Price Extensions

MODULE LEARNING OBJECTIVES

At the end of this module, you should be able to:

1. Understand techniques in the step of cost control.
2. Determine strategies on how food and beverage operations set inventory levels.
3. Analyze purchase point based on as needed and par level methods
4. Compute for extension price of items in the inventory

LEARNING CONTENTS : COST CONTROL

CONTROL
The process by which managers attempt to direct, regulate and restrain the actions of people
in order to achieve desired goals

The control process consists of four steps:

1. Establish standards and standards procedures for operation
2. Train all individuals to follow established standards and standards procedures
3. Monitor performance and compare actual performances with established standards
4. Take appropriate action to correct deviation from standards

Cost Control
¡ It is the process used by managers to regulate costs and guard against excessive
costs.
¡ It is an ongoing process and is involved every step in the chain of purchasing,
receiving, storing, issuing and preparing food and beverage for sale.

SELLING INVENTORY ORDERING / PURCHASING

FOOD PREP HANDLING/STORING DELIVERY/ RECEIVING

PANGASINAN STATE UNIVERSITY 1

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

With the knowledge of what is likely to be purchased by our customers (Sales

Forecast) and a firm idea of the ingredients necessary to produce these items (standardized
recipes) the food service operator must take decisions about inventory levels. The desired
inventory levels is simply the answer to the question “How much of each needed ingredient
should I have on hand at any given time?”
Inventory management seeks to provide appropriate Working Stock, which is the
amount we feel will be used between deliveries and minimal Safety stock, which is the extra
amount of a food product we will keep on hand. The ability to effectively manage the
inventory process is one of the best skills a food service manager can acquire.

DETERMINING INVENTORY LEVELS

Inventory Levels are determined by variety of factors. Some of the important ones
are as follows:
1. Storage Capacity
2. Item Perishability
3. Vendor delivery Schedules
4. Potential Savings from Increased Purchase Size
5. Operating Calendar
6. Relative importance of stock outages
7. Value of Inventory peso to the operator

Storage Capacity
Operators must be careful in determining inventory levels in a way that will overload
storage capacity. When storage is too great, the tendency of the manager is to fill the space.
It is important that this is not to be done for the following reasons:
a. Increased inventory of items generally leads to greater spoilage
b. Loss of items due to theft
c. Large quantities of goods on the shelf tend to send a message to
employees that there is “plenty “of everything
d. Overstocking may result in the careless use of valuable and expensive
products.
e. Too many stocks can result in difficulty in finding items.

PANGASINAN STATE UNIVERSITY 2

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

Item Perishability
If all food products had the same shelf life, that is, if all items would retain their
freshness, flavor and quality for the same number of days, the food service operator would
have less difficulty in determining the quantity of each item he or she should keep on hand
at any given time.

The need for a balanced inventory of perishable items are being considered because of the
following factors :
a. Serving items that are too old is a sure way to remember a customer complaint.
b. Over stocking of perishable items may lead to moldy, soft, overripe or rotten food
items- a clear indication that the managers does not have a feel for inventory levels
that is based on the need of the operations. It is a sign that sales forecasting
methods either are not in place or have broken down.

Vendor Delivery Schedule

It is the fortunate food service operator who lives in a large city with many
vendors some of whom may offer the same service and all of whom would like to have
the operators business. In some cases, however, the food service operator does not
have the luxury of daily delivery. In all situations it is important to remember that the
cost to the vendor for frequent deliveries will be reflected in the cost of goods to the
operator.
Vendors will readily let an operator know what their delivery schedule to a
certain area and it is up to the manager to use this information to make educated
decisions regarding the quantity of that vendor’s product he or she will require to have
both in working stock and safety stock.

Potential Savings from Increased Purchase Size

Some food service operators find that they can realize substantial savings by
purchasing large quantities and thus receiving a lower price from the vendor. But as a
general rule, operators should determine their actual product inventory levels and then
maintain their stocks within the need range. Only when the advantages of placing an
extraordinarily large order are very clear should such a purchase be attempted.

PANGASINAN STATE UNIVERSITY 3

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

Operating Calendar
When an operation is involved in serving meals seven days a week to a relatively
stable number or customers, the operating calendar makes little difference to inventory
level decision making. If however, the operation opens on Monday to Friday and closes
for Sat and Sun as in the case of many schools, the operating calendar plays a large
part in determining the desired inventory levels. This is especially true when it comes to
perishable items. Many operators actually plan menus to steer clear of highly perishable
items at week’s end. They prefer to work highly perishable items such as fresh seafoods
and some meats into the early or mid-part of their operating calendar.

Relative Importance of Stock Outages

In many food service operations, not having enough of a single food ingredient
or menu item is simply not that important. In other operations, the shortage of even one
menu item might spell disaster. A strong awareness of how critical an outage can be
helps determine the appropriate inventory level. The food service operator who is
determined never to run out of anything must be careful not to set inventory levels so
high as to actually end up costing the operation more than if realistic levels were
maintained.

Peso to the Value of Inventory Operator

In some cases, operators select to remove peso from their bank accounts and
convert them to product inventory. When this is done, the operator is making the
decision to value product more than peso.

SETTING THE PURCHASE POINT

A purchase point, as it relate to inventory levels, is simply that point in
time when an item should be reordered. This point is typically designated by one
of the two methods :
1. As Needed
2. Par Level

PANGASINAN STATE UNIVERSITY 4

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

As Needed
When operators use the :as Needed” method of determining inventory level
they basically are purchasing food based on their prediction of unit sales and on the
sum of the ingredients from standardized recipe necessary to produce sales.

Example : In a hotel foodservice operation, the demand for 500 servings of raspberries and
cream torte dessert, to be served to a group in the hotel next week would cause the
responsible person to check the standardized recipe for this item and thus, determine the
amount of raspberries that should be ordered.

Par Level
Food service operators may set predetermined purchase points called par levels. When
demand for a product is relatively constant, we may set inventory level by determining
purchase points.
When determining par levels, both minimum and maximum amount required must be
established. Many food service managers established minimum par level by computing
working stock, then by adding 25 to 50 percent more for safety stock. Then, appropriate
purchase point can be determined.

Reminder: As a rule, highly perishable items should be ordered on as-needed basis

PURCHASING
Regardless of the method used to determine inventory levels, each food service
operator must turn his or her attention to the extremely important area of purchasing. If we
know the number of guests who will be coming from the sales forecast and what they are
likely to select from our menu, we must purchase the ingredients needed so that our workers
can prepare those items. Purchasing is essentially a manner of determining the following:
1. What should be purchased?
2. What is the best price to pay?
3. How can a steady supply be assured?

PANGASINAN STATE UNIVERSITY 5

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

WHAT SHOULD BE PURCHASED?

Just as it is not possible to determine inventory levels without standardized recipes, it
is not possible to manage costs where purchasing is concerned without the use of product
specifications, or specs. A product specs is simply a way for the food service director to
communicate specifically with a vendor so that the operator receives the exact item
requested, delivery after delivery. A food service specs generally lists the following types of
information:
1. Product Name or Specs Number
2. Packaging or unit on which a price is quoted
3. Standard or grade, if established
4. Weight range
5. Type of processing or packaging
6. Size of the basic container
7. Other information such as product yield

Other information maybe included if it helps the vendor understand exactly what
the operator has in mind when the order is placed.

PREPARING THE PURCHASE

Purchase order preparation can be simple or complex, but in all cases the written
purchase order form should contain for the following information:
a. Item Name
b. Spec Number, if appropriate
c. Quantity Ordered
d. Quoted Price
e. Extension Price
f. Vendor Name
g. date Ordered
h. Delivery Date
i. Ordered By
j. Received By
k. Delivery Instructions

PANGASINAN STATE UNIVERSITY 6

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

The Receiving Area

Once the purchase has been prepared by the purchasing agent, it is time to prepare
for the acceptance or receiving of the goods. In a large operation, this function is performed
by the receiving clerk but in a smaller operation, it may be done by the manager or his
designee.
There is probably no area of the foodservice establishment more ignored than the
area in which receiving takes place. Receiving area is where we ensure that the products we
ordered are in the best quality. Proper receiving includes all of the following features:
1. Proper location
2. Proper Tools and Equipment
3. Proper Delivery Schedules
4. Proper Training

Proper Location
The “back door “which is usually reserved for receiving, is often no more than that- just an
entrance to the kitchen. Receiving area must be “
a. Large enough to receive and check the goods delivered against both the invoice
with the PO.
b. It should be kept clean do avoid contamination of incoming food
c. It should be well lit and properly ventilated. Excessive heat can quickly
damage delivered goods especially if they are frozen products.

Proper Tools and Equipment

Standard items needed in receiving operation :
a. Scales
b. Wheeled Equipment
c. Box cutter
d. Calculator
e Records Area

PANGASINAN STATE UNIVERSITY 7

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

Proper Delivery Schedule

Acceptance hours - In an ideal world, the foodservice manager would accept
delivery of products during only designated hours. These times would be scheduled during
slow periods when there would be plenty of time for thorough checking of products delivered.
Refusal hours - time wherein the operation may refuse to accept deliveries.

Proper Training
Receiving clerks should be properly trained to verify the following product characteristics :
a. Weight – One of the most important items to verify when receiving food products is of
course their weight
b. Quantity – The counting and weighing of products are equally important. Suppliers make
more mistakes in not delivering products than they do in excessive delivery. The counting
of boxes, cases, sacks, barrels and this must be a routine for a receiving clerk.
c. Quality – Checking for quality means checking the entire shipment for conformance to
specifications. The effective Receiving clerk should develop a keen eye for quality
d. Price - In the area of training for price, the following two major concerns are to be
addressed:
1. Matching PO unit price to invoice unit price
2. Verifying Price Extensions

If the receiving clerk has a copy of the purchase order, it is a simple matter to verify the
quoted price and the delivery price. If this two do not match, suppliers should be notified
immediately.

Contract Price – Simply a price agreed by the suppliers and the operator. It covers a certain
product for a prescribed amount of time.

PANGASINAN STATE UNIVERSITY 8

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

Verifying Price Extension

Price extension is just as important as the ordered or unit price. Price extension or
extended price is simply the unit price multiplied by the number of units delivered.

Unit Price x No. of Units/Quantiy = Extended Price

Example :
Quantity/ No. Extended Price
Items Unit Price (PhP) of Units (PhP)
Tomatoes 18.50 3 55.50
Potatoes 12.90 6 77.40
Carrots 18.29 4 73.16

RECEIVING RECORD OR DAILY RECEIVING SHEET

Some large operations use a receiving record rather than a copy of the actual purchase
order when receiving food items. This method, while taking more administrative time to other
prepare and monitor have some advantages. A receiving record generally contains the
following information:
a. Name of supplier
b. Invoice Number
c. Item description
d. Unit Price
e. Number of Units delivered
f. Total Cost
g. Storage Area
h. Date of Activity

PANGASINAN STATE UNIVERSITY 9

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Study Guide in HM 113 – FOOD AND BEVERAGE CONTROL SYSTEM

Module No. 1

LEARNING ACTIVITY 1

ACTIVITY 1 will be posted in MS Teams.

SUMMARY

With the knowledge of what is likely to be purchased by our customers (Sales Forecast) and a firm idea
of the ingredients necessary to produce these items (standardized recipes) the food service operator must
take decisions about inventory levels. Operators must be careful in determining inventory levels in a way that
will overload storage capacity. When storage is too great, the tendency of the manager is to fill the space. Food
service operators may set predetermined purchase points called par levels. When demand for a product is
relatively constant, we may set inventory level by determining purchase points. When determining par levels,
both minimum and maximum amount required must be established.

REFERENCES

• Dopson Lea R. (2011). Food and beverage cost control (5th ed.). New Jersey: John Wiley & Sons. 647.95 /
• 3G E-Learning. (2019). Purchasing and costing for the hospitality industry. New York, NY: 3G E-Learning.
• Dopson, L. R., & Hayes, D. K. (2015). Food and beverage cost control. John Wiley & Sons.
D692f / 2011

PANGASINAN STATE UNIVERSITY 10