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starts with the standards, which are the planned or expected results of the operation. The standards are prepared and kept before the operation starts and these standards are compared with the actual results after the operation is over. It is the best measure to control the food and beverage costs. Usually the whole organization is divided into particular sections for the control purpose; the advantage is each outlet can be evaluated separately based on its own set of anticipated cost System for developing F&B standards must begin with the menu once the menu is created, five standard cost tools can be developed. They are: 1. 2. 3. 4. 5. Standard purchase specifications Standard Recipe Standard Yield Standard Portion Sizes Standard Portion Costs

Standards Purchase specifications The purchase specification is the exact description of any ingredient in regard to its shape, size, volume, count, weight, color, texture, density etc. Every food and beverage service organization its planning process devices a purchase specification of each and every ingredient to be used, considering its menu requirements. It is devised by the combined effort of 1. 2. 3. Executive Chef Purchase Manager and Food and Beverage Controller.

The final purchase specification thus compiled becomes the Standard Purchase Specification (SPS) of the organization. The SPS can be vary from one organization to the other and can be altered or modified wherever require. Following are the advantages of having a SPS in writing. 1) Raw material of the same standard will be purchased every time giving the same outcome. Thus the purchasing standard will yield a standard product. 2) Receiving staff became aware of the points to note in product to be received. 3) Acts as a tool to control cost 4) Supplier gets the specification in writing and thus late on cannot argue against any shortcoming of the raw material supplied. While devising a SPS care should be taken that all terms used should be understandable to all people concerned. Even though the SPS is good for the organization there are some disadvantages also. Following are the disadvantages of SPS:

1. 2. 3.

Extra manpower is required for planning, evaluating and monitoring the SPS. It creates increased duty for the receiving clerk. Purchase manager may satisfied at the quality mentioned in the SPS and may not try for better quality even if it is available at the same cost in the market.

Standards recipes This refers to the production of food and beverage items where in the ingredients used and method of production followed are tried, tested and finally written down to be a standard to be followed when ever the particular dish has to be prepared. The information recorded on the Standard Recipe Card is; 1. 2. 3. 4. 5. 6. 7. 8. Ingredients used Quantity required Yield Portion Size Preparation procedure Equipment to be used Time taken Garnish etc.

Advantages of maintaining Standard Recipe Card: 1. 2. 3. 4. 5. Whenever & wherever prepare, consistency is maintained in terms of taste, texture, cost and appearance. Less supervision required on employees since everything is recorded. Less training is required. Any person knowing the basics can prepare a dish even if the cook is not present. Less wastage is occurred, as the chef will know how much to indent for production of a particular number of portions.

Since time required for preparing the food is forecasted there will not be any errors anticipated. So no complaints from guests. Despite the advantage of using standard recipe there may be some disadvantages. They are 1. 2. 3. 4. Cooks or Chefs may feel that they can no longer be creative in the kitchen They may resent the need to put down on paper It consumes extra time to standardize existing recipes It takes extra time to train production employee about the new standards.

Standards yields Yield is a term used to denote the net quantity (weight/volume) of food item produced which can be served after the processing and cooking is over upon the raw material. Technically speaking yield is equal to Edible portion Yield = Edible portion (EP) When we prepare food there will be some wastage or loss due to; 1) Trimming and 2) Cooking

The loss of cooking obtained when edible portion is taken out from the as purchased material. i.e. Cooking loss = AP EP Where AP is As Purchases and EP is Edible Portion How to determine Standard Yield A yield test is conducted physically for all those items whose yield is desired to be determined. Typically yield tests are only subjected to these items, which do not have 100% yield and are high cost items nature. Example: Carcass of lamb, beef, whole chicken. Food with 100% yield do not require yield test. Yield of any product normally depends upon 1) The brand 2) The grade 3) The original weight etc In case of meats and fishes yield tests are conducted by first cutting and trimming, secondly preparing and finally cooking the raw material. Cost per servable kg To determine this, first percentage of original weight (i.e. yield %) has to be found out. Yield % = Servable Weight * 100 Original Weight = AP Price (As purchased Price) Yield percentage

Cost per servable Kg Cost factor

Cost factor is a factor used to calculate new cost per servable Kilo whenever the market prices change. The pre-determined and recorded cost factor is multiplied with the market price to calculate the new cost per servable Kilo, provided the Standard Recipe, SPS and the Standard Yield do not change. Cost Factor is used for adjusting the Standard Recipe Yield. Adjustment of standard recipe yield may be required due to following reasons: a) To increase or decrease the yield of a standard recipe b) To determine the new quantity required if the portion size is altered. A) Increasing or decreasing the yield of a standard recipe Example: If the Standard recipe of Chicken Tikka says that 300 gm of chicken will yield 3 portions of Chicken Tikka. The adjustment factor calculated would be able to indicate how much chicken will be needed to produce 300 portions. Adjustment factor So = Desired Yield Original Yield Adjustment Factor = 300 / 3 = 100

So Quantity needed to produce 300 portions of chicken = Original Quantity * Adjustment Factor

= 300 * 100 = 30,000 Gms = 30 Kg B) Determining the new quantity required if the portion size is altered. Example: If the standard recipe can prepare 3 portions of 100 grams each and the chef desires to have 3 portions of 75 Gms each. Then the quantity of chicken required has to be calculated. Adjustment Factor = Desired Portion Weight Original Portion Weight = 75 / 100 = 0.75 Each and every recipe ingredient may be now multiplied to this factor to find out the new quantity required. Quantity of chicken required to produce 3 portions of Chicken Tikka, of 75 gms each = Original Quantity * Adjustment Factor = 300 * 0.75 = 225 Gms Standard portion sizes To avoid certain situations where the guest may complain about the inconsistency of the portion size served every time he visits the food service establishment. It is necessary to standardize the size of the portion to be served so that every time the same quantity is served and the guest does not feel cheated. In other words the guest gets the same value for the money he pays. Standard potion size for each and every food and beverage items are decided as a policy by the senior management and are adhered to every time the dish is prepared. So that; The guest will receive the product of the same value. Every time the item is prepared it will incur the same food cost.

Standard Portion Size is maintained by the help of Portion Control Tools. Such as Tablespoons, Ice cream scoops, peg measures, Electronic Measuring Unit (EMU), etc. It is important for the management to train the employee about the importance of standard portioning and the use of tools for standardizing.

Standard portion costs Standard Portion Cost is another standard, which is used by the food service organization to maintain the food cost. After standard recipes and standard portion sizes have been developed, a standard portion cost the fifth standard cost tool can be developed. Standard portion cost is, simply, the cost of preparing and serving one potion of food or one drink item according to the standard recipe. A standard portion cost is determined by dividing the sum of the recipes ingredient costs by the number of portions that the standard recipe yields. For example, if the cost to prepare a recipe is Rs. 1112.50 and it yields 60 portions, then the standard portion cost for that item is Rs. 18.54 (1112.50 / 60)

Standard food and beverage costs Calculating Standard Food Cost and Food Cost Percentage At the beginning stage when the standard recipe is established and the prices for the various items are determined, it is necessary to calculate the actual cost of ingredients. Sometimes standard food cost is called average food cost. To establish this it is necessary to 1. 2. 3. Perform the yield test Decide upon the portion sizes Establish a standard recipe SAMPLE STANDARD FOOD COST WORKSHEET Total Sales Food Cost Sales Price Total Cost Date Food Cost% 10.9 45.83 29.24 10.9 45.83 Food Cost% Total Sold 13/10 14/10 16 11 14 9 13 8 15/10 55 38 Item

Soup Fish

12 10


15 24 Total

825 912 1737

6 11 Total

90 418 508

(Total cost / Total sales) * 100 = Standard Food Cost (508 / 1737) * 100 = 29.24

SAMPLE STANDARD BEVERAGE COST WORKSHEET Total Sold Sales Price Total Sales Item Food Cost Date Total Cost 90 418



14/10 16 11

Gimlet Whisky sour

12 10

14 9

13 8

15/10 55 38

15 24

825 912

6 11

Total (Total cost / Total sales) * 100 = Standard Beverage Cost (508 / 1737) * 100 = 29.24





CHAPTER 2 MENU THE BASICS FOR CONTROL The menus influence on the operation Menu decides the mode operation for any catering operation. After the financial policy and marketing policy the operation plans out the catering policy. After the catering a menu is prepared and that menu becomes the basis for the operation. The menu may be a la carte, or table dhote or may be QSR menu, cafeteria menu, Snack menu etc. The menu has an impact on every aspect of a food and beverage managers job as well as the operations itself. The following sections identify some of the more important areas of a food service operation that are directly affected by the menu.

Product control procedures. The food and beverage products must be controlled. If an operation needs shrimp to produce a menu item, shrimp will need to be purchased, received, stored, issued, prepared, cooked, and served. Cost control procedure. Careful cost control procedures must be followed and more expensive products are served, as service styles dictated by the menu become more complex, and as guests desire a dining experience, not just a meal. Production requirements. Food items required by the menu must be produced consistently. Product quality, staff productivity and skills, timing and scheduling and other kitchen functions are all dictated by the menu. Nutritional content of meals. Non-commercial food service programs and increasingly, commercial food service operations are concerned about the nutritional content of food served to clients or guests. The menu can have an impact on the health and well being of those to whom it is offered. Equipment needs. Equipment must be available to prepare products required by the menu. The menu must be balanced based on availability equipment resources so that no one section is overloaded or underutilized. Sanitation management. Since the menu sets the stage of the remaining control points, management must consider menu items in light of possible sanitation hazards. Once the potential hazards are indentified, the risks can be reduced. Layout and space requirements. There must be adequate facilities for the staff and equipment required to produce items listed on the menu. The layout and design of facilities establish the physical space within which food production and service take place. The physical facilities must be adequate for the purchasing, receiving storing, issuing, production and serving of every item on the menu Staffing needs. Employees must be available to produce and serve all items required by the menu. As a menu becomes more complex, complex, greater demands may be placed upon the staff. Staffing needs are also influenced by the degree to which the menu uses convenience food items. Service requirement. The food and beverage manager must carefully plan how products will be served to the guest. The menu affects the skill levels required for service personnel along with equipment, inventory, and facilities needed in the front of the house. Sales income control procedures. For example, when a simple menu is serviced in a fast food operation, the potential fro income control problems is not as great as the problem potential in a table service restaurant offering an elaborate menu.

Pricing methods

Commercial food service operation, as well as many institutional facilities, must establish appropriate selling prices for menu items. Pricing methods ensure that the propertys profit requirements. Guests attach value to the entire dining experience with the selling price. Pricing of menu items in all food and beverage organization is an art and depends on so many factors such as cost of ingredients, competitions, guests ability to pay, profit margins required etc. All contribute into the pricing strategy. Following are the common pricing methods followed by food and beverage organizations; Q: EXPLAIN THE SUBJECTIVE PRICING METHODS Subjective Pricing Method: These are methods of pricing used by 90% of the food sellers and are based on mostly market acceptability. Management perceive of the clients pocket, competitors price, intuition etc. A few are named below: The Reasonable Price method: Here the manager guesses the most reasonable value of the item to be priced keeping in mind the standard of service and dcor. He may keep any price he feels will be fair to be charged. Highest Price Method: Here the manager puts with highest possible price he feels the client will be able to pay for food and service. This method may allow larger profits but can sieve out man such clients who may not visit due to high pricing. This method is used by those who do not go for costing of ingredients and so may keep a price which will certainly will result in a higher turnover so higher profits. The Loss Leader Method: Many managers believe in keeping the lowest price of items in the market anticipating that low prices will be capable of attracting large number of customers which will result in a higher turnover so higher profits The Intuitive Method: This is the most wild method utilized by a manager to set up the items prices as this method totally depend upon the intuition of the manager, his fancies and guesses. Here unlike the reasonable pricing or the next-door competition. This is a risky method of pricing and often results in huge losses. Q: EXPLAIN THE OBJECTIVE PRICING METHOD IN DETAIL Simple Mark-Up Pricing Method: These are the methods where the food cost of ingredients used is taken as a base and to which a certain calculated amount is multiplied to get the Base Selling Price. This mark up is designed depending upon all the cost factors and desired profit factor involved. The mark up this designed should cover up all the costs and give the desired profit. A very important step is the costs and gives the desired profit. Another important factor to decide upon is what should the food cost percentage be? Now the base selling price thus established should be the minimum selling price, which can be offered. The selling price increased seeing the market position if the desired so by the management. Following are the mark-up methods followed by the food service organizations. Ingredient Mark Up Method: Here the cost of all ingredients use in the making of he dish is calculated and is multiplied by the multiplier to get the Base Selling Price. The calculations is as shown below. Assume: The desired food cost percentage is 40%. Then the multiplier will be 1/40 = 2.5 Now let us assume that the cost incurred in making of a Chicken Tikka is Rs. 72.85. Then the Base Selling Price will be. = Cost * Multiplier = Rs. 72.85 * 2.5 = Rs. 182.12

Now this base Selling Price should be kept in mind to decide upon the final selling price. Prime Ingredient Mark-up Method: Here the cost of the foundation ingredient is only considered to compute the price. In case of Chicken Tikka, only the cost of chicken will be multiplied by the Multiplier. The food cost percentage may be changed in this case to obtain a safe Base Selling Price. Base Selling Price = Cost of Prime Ingredient * Multiplier Mark-Up with Accompaniment Cost: In many restaurant main dishes are essentially served with several accompaniments and the Selling Price covers the cost of the main course dish along with all the accompaniments served. The Selling Price is there by calculated as: Base Selling Price = (Primary cost + plate cost) * Estimated Food cost * Multiplier. Contribution Margin Pricing Methods: Besides the food cost, selling price of any menu item is constituted additional amount which is called the gross profit and takes care of all the other costs involved in production and service of the item besides the desired profit. This amount is known as the Contribution Margin as it contributes to the payment of all related costs and profit. This method of pricing is accomplished by (1) first deciding upon the contribution margin, which is sensible (2) Adding the margin to the standard food cost of the item. Average Contribution Margin = Non-food costs + Required Profits Number of guests expected Now the above contribution margin may be added to the food cost to achieve the Base Selling Price For example: Assume Non-food cost = Rs. 3,00,000 Desired Profit = Rs. 70,000 Contribution Margin = Rs. 3,70,000 Average Contribution Margin = Rs. 3,70,000 / 2000 (No. of Guests expected) = Rs. 185 BSP = Rs. 185 + 72.85 (cost of preparing chicken tikka) = Rs. 257. 85 Q: DISCUSS IN THE DETAIL THE MENU PRICING CONSIDERATIONS? The formulas used to calculate the selling price is not the only criteria to find out the final selling price, there are some other factors also must be assessed. The following factors are the important pricing considerations.

1. Perceived Product Value: The product does not only mean the food but a totality of food,
service, atmosphere, dcor, ambience, hygiene, facilities etc. Pricing will certainly depend upon these factors to cover up all the costs. Guest may pay more the similar product if these factors are better looked after.

2. Demand of the Product: Prices of certain food items may remain high due to the high demand
and low supply in the market.

3. Competitors Price: Even if the supply of a particular food item is high, it will still depend upon
the prices prevailing in the market to settle for a particular price, some organizations decide to go for lower prices to get higher number of clientele, so a higher turnover whereas some decide to go for higher prices so that even if less number of items are sold, the cost can be covered. However as discussed the client may pay higher or may not go for a lower price only if there is something extra added upon the food, viz service, the atmosphere, hygiene, entertainment etc.

4. Higher the Volume Lower the Price: In many areas of tourist interest, the restaurant owner may
resort to higher prices just because very less clientele may be visiting and the fixed costs have to be covered although the food costs comparatively may be very low. In contradiction in the cities where raw material prices may be very high but still the restaurant can offered to keep reasonable low prices only because the turnover is every high due to high number of clientele visiting thus making the fixed cost per portion sold very low.

5. Prestige Product: In case of many restaurants having a good will or affiliation form a well-known
organization may change exorbitantly high price, although the costs may not be as high.


Differentiation of Product: Many organizations belief in bringing out new varieties of products and this can bring high menu prices due to lack of competition for the latest developed product.

7. Perishability of the food Product: In many situations food products may be sold at a
comparatively low price to invite high turnover just due to the reason that the food is too perishable and if kept for longer period may get spoil and thus may not yield any return. Menu Evaluation Menu Evaluation is a post operational procedure, in which the acceptability of the prevailing menu is evaluated. Every catering organization requires knowing the overall acceptability of the menu compiled. This is because the requirement and tastes of the market changes depending upon various factors, and changes the profitability of maintaining dish in the menu card. Menu should be thus evaluated periodically and if necessary addition and subtraction of the menu item can be done. So as to evaluate the menu the management must establish standards, which should be the expected result from the performance. Some of the standards could be; The average guest check at lunch should be Rs. 60 Each dinner guest should order a food item in addition to the entre such as appetizer, a soup or salad, or a dessert.

If the standards are not met, management must first determine if and to what extent other variables are contributing to the problem. The variables are Menu prices Up selling and suggestive selling Quality and quantity of food Service speed etc

If the entire variables are contributing to the required standards the operation is going to become a success. There are many production and sales benchmarks managers can use to help them evaluate a menu. Production records and sales history records can be used to determine how well menu items are selling. If overall sales or the sales of particular menu item s are not meeting managements projections or expectations, the menu is one of several areas that should be investigated. Each catering organization is unique. So each organization should establish its own method to evaluate the menu.


Defining Profitability: There is an overall misconception that any item which has a low food cost has a high profitability. Although this is not correct as profitability of an item is expressed in figures and not percentages. The basis of measuring profitability of each menu item is the contribution margin. Contribution Margin is the difference between the selling price and the food cost, which is also called Gross Profit. Example: As shown above Paneer Tikkas Food cost percentage is lower than Palak Paneer, but the contribution margin of Palak paneer is higher. So that the criteria of measuring the profitability are the contribution margin and not food cost percentage. The Average contribution margin is calculated by dividing the total menu contribution margin by the total number of menu items sold during the special time period in which sales date was collected. Defining Popularity: The basis of measuring the degree of popularity of each menu item is called the popularity index. Popularity Index is the degree of popularity of each menu item in relation to the other. Popularity index is calculated in percentages. The total volume of the item sold is kept as 100% and the popularity is calculated as shown below. For the purpose of analysis each menu item is assumed to be equally popular. This means that each item is expected to contribute an equal share of total sale. Therefore, the expected popularity of each menu item is calculated by simply dividing 100% ( i.e., total sales) by the number of items on the menu. For example, if there are only four items on a menu and each item is assumed to be equally popular, the sales of each item would be expected to represent 25% of total sales (100% divided by a 4 equal 25%). Menu Engineering What is a good menu item? There are two measures of how good a menu item is: its popularity and its profitability. A popular menu item is ordered frequently by guests. A profitable menu item generates a higher contribution margin. Menu items can be evaluated in terms of both their popularity and profitability. Basically the menu engineering process uses information readily available to the food and beverage manager to classify menu items into four types:

1. 2. 3. 4.

Stars items that are popular and profitable Plow horses items that are not profitable but popular Puzzles items that are profitable but not popular Dogs items that are neither profitable not popular.

In order to classify each menu item into one of the four basic categories, managers must develop a practical way to define and measure the relative profitability and popularity of each menu item. This can be accomplished by using information about standard food costs and frequency of sales. Besides the food cost, the amount left in the price structure is known as the Contribution Margin or Gross Profit, which includes all the other costs such as labor costs, overhead cost and the net profit. This is called Contribution Margin because the money contributes to the Profit. Contribution Margin = Menu Revenue Food Cost Average Contribution Margin = Total Contribution Margin Total Number of Items Sold


Individual Contribution Margin for each menu item can now be compared to the average contribution margin for all menu items in order to assess each items level of profitability. A profitable menu item is one whose individual contribution margin equals or exceeds the average contribution margin. Menu engineering also assumes that an item is popular if items sales equal 70% of what is expected. Thus, the popularity index for items on a given menu is defined as 70% of the expected popularity of each item on that menu. (The popularity index of 70% is based upon the experience of the authors of Menu Engineering. The popularity index for a specific property can be adjusted to a higher or lower level depending upon the managers emphasis on selling popular and profitable items) Improving the menu The goal of Menu engineering is to place the various menu items under concerned titles and thus to decide and compile a more meaningful menu. Given below is the menu engineering table, where each and every menu item has been evaluated using the primary data. Depending upon the menu engineering information, the menu can take several steps to improve the menu control and design. The following tips will be useful to cope with the respective class of menu item. Stars: These are the items, which besides having high popularity and a very high Contribution Margin. The following steps can be taken to improve the stars. 1. Increase prices of star item. The guests may be able to pay more as the item might be very as the guest perceives. 2. The recipe should not be changed under may circumstances as any change in the quality may bring down the reputation and sales. 3. Sell more as it gives a good C.M. If possible keep at the more visible section on a menu card. Merchandize more for this menu item. Plow Horses: These are items, which may not be giving a good C.M. but are certainly sold in good quantity. Following steps could be taken to improve the plow horses. 1. First idea will be to increase the selling price considering the fact that since it is very popular the guests will not mind paying a little more. To do this a little change in presentation may be beneficial. The increase in the price may be introduced gradually rather than all at once, if the market is price elastic. 2. The menu item if is sold with an accompaniment could be served with a lesser expensive one to reduce the Food Cost thus increasing the C.M. 3. Portion could be also be reduced to obtain a lower Food Cost, but guests perception about the value for money should not be changed. 4. These items could be printed at less visible place on the menu card so that they are sold less in its place more of other items could be promoted, which may provide a higher Contribution Margin. Puzzles: These do give a good C.M. but are not sold much. Following steps can be taken to improve the puzzles. 1. The selling price can be decreased considering that the item may be unpopular due to very high selling price. 2. Portion seize may be increased. This will mean again loss of C.M. but can give boost to sales. 3. Could be placed at a particular position in the menu card where it can be easily located and may attract easy attention of guests. 4. May be merchandized by putting as a specialized item in the menu card. 5. Suggestive selling by waiters required to boost the sales. Dogs: These are the most undesired menu items as they neither sell nor give a good C.M. The steps to improve the dogs are following; 1. The menu item can be removed and replace by a more comfortable item 2. The selling price can be increased so that the contribution margin increases and whenever sold can give gross profit.



Dog items can be placed in a more visible area on the menu card, which will boost the sales.

Identifying the Menu Category From the below table calculate the Stars, Dogs, Puzzles and Plow horses Item Name A B C D Quantity Sold 420 360 150 70 Menu Cost $ 2.21 $ 4.50 $ 4.95 $ 4.00 Menu Selling price $ 4.95 $ 8.50 $ 9.50 $ 6.50

Menu item category is based on two aspects 1) Popularity Index and 2) Formula to calculate Popularity Index is: (100 % / No. of items in the menu) * 70 % i.e.(100 % / 4) * 70 % = 17.5 % Note: Menu Engineering Assumes that an item is popular if its sales equal 70 % Formula to calculate the Profitability index is: Popularity index = Average Contribution Margin Steps to find Average Contribution Margin 1. Find Contribution margin of each item 2. Total Each items contribution margin 3. Divide the total contribution margin by No. of items Simplified Menu Engineering Work sheet Item A B C D Total Qty Sold 42 36 15 7 100 Cost in 8.00 15.00 9.00 12.00 Selling Price 50.00 30.00 45.00 25.00 Contribution 42.00 15.00 36.00 13.00 Total 1764 540 540 91 2935 Menu Mix 42 36 15 7 Total Menu Star Plowhorse Puzzle Dogs

Total Contribution Margin = 2935 Average contribution Margin = 2935/100 = Rs. 29.35 To identify the Menu category, compare the Menu mix % and the Contribution of each item with the popularity index and the profitability index. Since the menu contains 4 items the popularity index would be 17.5. Compare the popularity index with menu mix percentage to categorize menu with regard to popularity. Computer based menu management Now-a-days most of the food service organizations use computer software to increase speed of operations. Software programs sort and index data into timely, factual reports for management. Menu management software goes a step further and helps managers plan menus, price menu items, and evaluate menus. There are basically two types of menu management software: pre-costing/ post-costing software and menu engineering software Pre-costing/post-costing software pre-costing analysis enables management to determine a menus profitability before actual production and service. Projections of cost of sales figures enable management to


review and adjust operations before an actual service period begins. For example, if pre-costing analysis finds projected costs to be outside an acceptable range, management may consider raising prices, decreasing portion sizes, altering accompaniments, or substituting menu items. Computer based pre-costing programs significantly streamline the analysis by accessing appropriate data from the ingredient file, recipe file and other files to pre-cost a menu within minutes. Post-costing analysis differs from pre-costing analysis n that post-costing is based on actual sales, not forecasted sales. Post-costing software conducts a special type of sales analysis that multiplies the number of menu items sold by standard recipe costs to determine a potential food cost amount for a completed meal period. Menu engineering software menu engineering software processes menu mix (MM) and contribution margin (CM) data for each menu item. The resulting information enables managers to evaluate possible changes to a menus current mix of menu items and to make sound pricing decisions. The software a step further than the manual identification of the menu category, the software identifies practical approaches by which to re-engineer the next menu. For example, simple strategies would include; retain stars, re-price plowhorses, reposition puzzles on the menu, and replace dogs. Menu Engineering Analysis In a Computer based Menu Management the menu can be analyzed in detail with regard to the current and future menu pricing, cost related matters, trends etc. To do this the user input is required for each menu item concerning the items product cost, selling price, and the sales history. To analysis the menu by the menu engineering method the following outputs are required; Menu Item Analysis This is an item-by-item listing accompanied by selling price, portion cost, contribution margin, and item count (number sold). The primary purpose of this report is to provide the used with a means by which to verify the data that is to be analyzed. This can be helpful when data has been manually entered into the program. Menu Mix Analysis This report evaluates each items participation in the overall menus performance. The percentage of menu mix is based upon each items count divided by the total number of items sold. Each percentage is then ranked as high or low depending upon its comparison with the menu engineering rule for menu mix sufficiency. The percentage each item has contributed to the menus total contribution margin si found in the column labeled %CM SHARE. Each items contribution margin is then ranked according to how ti compares with the menus weighted average contribution by considering its MM group rank and Cm group rank together. 1. Menu Engineering Summary This is perhaps the most informative report produced by the menu engineering application, this analysis presents important information in capsule form to produce a concise statement of operations. The row labeled PRICE shows total l menu revenue, average item selling price. Lowest selling price, and highest selling price. The FOOD COST row contains total menu costs average item food cost, lowest cost item, and highest cost item. The CONTRIBUTION MARGIN row show total menu CM, average item CM, lowest CM, and highest item CM. the DEMAND FACTOR row lists total number of covers (sales per guest), average number of covers, lowest item count, and highest item count. Much of the information in the body of this report is used elsewhere in the overall menu engineering system. For example, the lowest and highest selling process of the menu are termed price points and can be used to help identify target market success. This report also contains the menus food cost percentage and number of items sold. 2. Four-Box Analysis


The four box analysis classified menu into different boxes. Since menu engineering leads t a series of decision strategies specific to each menu classification, this report provides the user with insight about the number of items found in each category. This type of evaluation process begins with the four box matrix and continues through the menu engineering graph. 3. Menu Engineering Graph This graph indicates each competing menu items position relative to all others, the menu engineering graph is the most powerful report produced by a menu engineering application . The vertical axis of the graph positions menu mix and the horizontal axis positions contribution margin. Each item is then graphed according to its CM and MM coordinates. It is especially important to note that not all items in the same classification possess identical characteristics. This technique, therefore, points out that a different menu engineering strategy may be appropriate for items even though they are similarly segmented.


CHAPTER 3 PURCHASING & RECEIVING CONTROLS Purchasing objectives, cycle and responsibilities, legal requirement for beverage purchase Purchasing can be defined as a function concerned with the search, selection, purchase, recipe, storage and final use of a commodity in accordance with the catering policy of the establishment. In a catering operation, the role of a purchasing department would start from identifying the needs of the organization, selecting the source of supply, receiving the goods in proper quality and quantity, store it to the various departments where it is required.












Figure: Purchasing Cycle The purchasing cycle refers to the procedure followed in the purchase of the commodity. It shows all the activities, which take place serially when commodities are purchased. Following are the basic five steps, which comprises the purchasing cycle: 1. 2. A requisition of the required raw materials is received by the purchase department from the F&B department. The purchase department orders for the particular product to a supplier in written in the form of the purchase order form. If the item is regular, then supplier whose name is entered in the records can be accessed. But in case new supplier has to be identified then the product prices of few suppliers are compared and then fixed. Once the purchase order is received by the supplier, he supplies the raw materials to the receiving department, where the goods are checked by the help of the copy of purchase order form received from the purchase department and the invoice received from the supplier. The goods are physically checked for quality and quantity before receiving.



4. 5.

Once the goods are received, the receiving clerk issues a delivery note to the supplier. The supplier can collect his payment from the accounts department on showing the delivery note. The store receives these goods from the receiving department after the entry in goods received book. The stores can then issue these raw materials to the various departments whenever required.

The role of the purchasing department 1. 2. 3. 4. 5. 6. 7. 8. To identify the needs of a F&B department of a hotel To identify the sources from where the goods can be brought at a reasonable price keeping in mind the quality of the goods. To determine and compile a SPS of the F&B material. To design and develop a good receiving and storage area and to manage them. To develop a control system for the purchasing, receiving and storing operations. Studying the latest development in the market and searching for new product. Ensuring proper supply of raw materials to the F&B areas. Co-coordinating with all other related F&B areas for suggestions and feed back.

Duties and responsibilities of a Purchase Manager 1. 2. 3. 4. 5. 6. 7. Administrative head of the purchasing, receiving and storing areas. So accountable for al the staff working therein. Keeping good relations and communicating with all the consumer departments (production, service, housekeeping etc). It is the job of a purchase manager to search for the right source of purchasing various goods To study the trends of the market and thus to take decisions leased on it. To try and test all new product and convenience products released in the market to enhance quality and economies purchase. To establish control system in one receiving and storage areas and to ensure that the system is working. To meet, report and coordinate with the top management on behalf of the purchase department.

After going through the above specifications the suppliers are required to respond by sending samples of the product to the hotel along with the rate and other supply details. Studying the various details and conducting yield test (if required) of these sample, reports on each sample received are prepared and analyzed for the appropriateness. Selecting suppliers When the quality of a raw material is compared with the price of the raw material it is referred to as value of the material. All catering organization desire to get the maximum value for the money they pay as price. Shown below is a diagrammatic representation of selecting a supplier To achieve this, the purchase manager should try to reach as many suppliers as possible and choose the right one among them. The basic information for evaluation on the consistency of: Adequate Quality Reasonable prices Prompt delivery Service

In selecting supplier, managers of the purchasing function must weigh a number of considerations. Not every supplier who carries the needed product is appropriate for the food and beverage operation. The


following sections identify important factors that should be used to determine suppliers eligible for the propertys business.

1. Details of the firm: Its name, range of item it is selling, location, how far etc 2. Location: Delivery time, transport costs, and unexpected delays may be reduced if the suppliers 3. 4. 5. 6. 7.
facility is close to the food and beverage operation. Terms of trading: Refers to the working relationship, payment mode, lead-time etc. Personnel working: Both the personnel managing the store and delivery, their ability and technical knowledge Sample of Product: To assess the value of the product. Details of any other customers: This may give light to the honesty and integrity compatibility and general behavior of the supplier. Price list of the product: The price of the supplier should be competent.

All the above information once processed they are short-listed and the best-suited suppliers are included in what is termed as the approved suppliers list. This is often accomplished by using a computerized system known as the Suppliers rating system where in all the suppliers are rated according to their quality, price, delivery, performance. The suppliers already existing are given 10 marks for each of above and to them are compared the new supplier. Determining quality and quantities to be purchased Determining quantity and quality of items to be purchased is important. This is based on the operational needs. The buyer must be informed by the chef or other members of the production team of the products that are needed. The chef and their team must establish the quality and they should be encouraged to inspect the goods on arrival. The buyer with this information then checks the market and looks for the best quality and best price. Delivery arrangements and other factors will be handled by the buyer. In smaller establishments the chef may also be the buyer. When considering the quantity needed, certain factors should be known: 1. 2. 3. The number of people to be served in a given period The sales history Portion sizes, determined from yield testing a standard portion control list drawn up by the chef and management teams.

Buyers need to know production, often to be able to decide how many portions a given size may yield. They must also understand the various yields. Cooking shrinkage may vary, causing problems in portion control and yield. The chef must from the buyer of quantities. The buyer must also be aware of different packaging sizes, such as jars, cans and the yield from each package. There must be an indication of grades, styles, appearances, composition, varieties and quality factors such as; 1. 2. 3. 4. 5. 6. 7. Color Texture Size Absence of defects Bruising Irregular shape Maturity

The chef and the management team should establish quality standards when the menu is planned. Menus and recipes are developed using standardized recipes which directly related to the buying procedure and standard purchasing specification.


How much to order This factor has to be properly calculated as they directly affect the cost and service in the outlet. Too much ordering nay result into: 1. 2. 3. High money investment with late returns. Wastage and pilferage Increased operational storage costs

Whereas too less ordering of goods results: 1. 2. 3. Higher rates purchasing. Chances of foods to run out of stock Disinterested suppliers

As a result there should be some firm reasons established by the management, which should dictate the factors of quantity of purchase. The factors may vary with place to place and situation to situation. Some factors are mentioned below.

1. Storage space available: Too less space of storage can force the hotel to purchase in lower

2. Highly popular foods: Certain raw materials used in preparing popular food item have to be 3. 4. 5.
naturally purchased in large quantities, as the consumption is guaranteed so larger quantity purchased. Cost of raw materials: In many cases even if the sale of a particular raw material is less still it may be necessary to purchase in high quantity to reduce the unit cost. Market condition: Many a times there are chances of prices to be increased drastically in the near future in which cases it becomes essential for the hotel to purchase the commodity before the prices increase and store in bulk. Par stock: This is a minimum quantity of stock kept in the store below which the stock should not go down. It depends on the hotel to decide what the par stocks should be. Whenever the stock level goes down the par stock level it again has to be ordered. So how much to order will again depend on this level of safety.

Economic Order Quantity The basic objective of inventory control is to carry sufficient stock of different items of inventory at the least cost. This involves a basic problem, namely, what quantity of each item of inventory should be ordered at a time? While answering this question the factors to be considered are the inventory carrying costs and the ordering costs. Inventory carrying costs or inventory holding costs include warehouse charges, insurance, loss due to pilferage, spoilage etc. These costs increase or decrease in proportion to the quantity of inventory stocked. That is larger the stock more will be the carrying cost and smaller the stock less will be the carrying cost. Inventory ordering cost refers to the cost of preparing and placing orders. Ordering costs depend on the number of orders placed. These costs decrease as the size of the order increases because bigger the size of the order, fewer the number of orders to be placed to cover the requirements of a given period. The above discussion clearly shows that Inventory Carrying cost is the minimum where minimum amount of inventory is held in stock. But in such cases inventory ordering costs increase because small quantities are bought at each order and therefore more orders are to be placed. Thus the ideal quantity to be ordered must be such that it keeps both carrying costs and ordering costs at the minimum.


EOQ is the optimum of the most favorable quantity to be bought at each order. It sets equilibrium between carrying costs and ordering costs. At this point cost of carrying and cost of ordering are equal and the total cost is the lowest. This can be presented graphically as under. The formula for determining EOQ is given below: EOQ Where = 2 UO IC U = Annual Usage in Units O = Cost of Placing order I = Cost of Carrying Inventory C = Cost per Unit of Material

Example: Annual consumption of dry fruits is 16000 boxes. The cost of placing an order Rs. 500 and each dry fruit box costs Rs. 2000. The cost of carrying inventory is 20%. Annual usage in units Cost of placing order Cost of carrying inventory Cost of Material EOQ = 2 UO IC = = = = 16000 boxes Rs. 500 Rs. 20 % Rs. 2000

= 2 * 16000 * 500 = 16000000 = 40000 = 200 boxes 20% * 2000 400

Minimum Maximum order quantity Some operations use a minimum /maximum system to make sure inventories are kept at optimal levels. Under this system, a par level the minimum amount of a product that should always be in inventory is established for most products in inventory. Par levels equals the lead time quantity plus the safety stock level of any given product. The lead time quantity is the number of items of a particular product that will be withdrawn from inventory and used between the time the product is reordered and the time it is delivered. The safety stock level is the number of items of a product needed in case of emergencies, spoilage, or unexpected delays in delivery. When the inventory level of a product reaches the minimum quantity, additional supplies of that product must be ordered. Maximum quantity is the greatest number or amount of a product that should be in stock at any given time. Every product in inventory with an established minimum level also has a maximum level. Maximum levels are established so that cash is not tied up in unnecessary inventory. The shelf-life of a product also affects the maximum quantity that can be stored. Calculations are given below Purchase unit Usage rate Order period Monthly usage rate Lead time Lead time usage rate Safety level Order point Maxim level = Case = 2 cases per day = Monthly (30 days) = 2 * 30 = 60 cases = 4 days =4*2 = 8 cases = Lead time = 8 cases = lead time + safety level = 16 cases = Usage rate + safety level = 60 + 8 = 68 cases


Purchase order system computerized systems Before the purchasing process begins, the good and beverage operation should have specified minimum quality standards, calculated quantities of products to be purchased, determined order points for each purchase item, and considered eligible suppliers. It is important that control procedures be built into the actual purchasing process as well. For this purpose large good and beverage operations use a purchase order system. With the purchase order system, a purchase order is en tot the supplier awarded the order. Copies fo the from are retained in the purchasing department and are also circulated internally among the receiving and accounting departments. The purchase order formally identifies the product, quantity, unit cost, and total cost that both the supplier and purchaser have agreed upon. In addition, the purchase order may include guarantees, warranties, payment requirements, inspection rights, hold harmless provisions, and other legal, contractual concerns. A purchase order is the food and beverage operations record of the specifics of all incoming shipments the property must pay the agreed-upon price for no less than the agreed-upon quality for the amount ordered. Higher than necessary food and beverage cost are frequently traced to communication and coordination problems among the several departments or personnel involved in purchasing. Properly used, the purchase order minimizes these problems. Rather than using a purchase order system, smaller food and beverage operations may simply summarize purchase order information by using a purchase record form. It provides the record performs the same functions as the purchase order. It provides the food and beverage cooperation with a detailed record of all incoming shipments. Affected personnel and departments must know al the specifics about incoming food and beverage products. Without a written record busy management staff will forget the details. Properly used, the purchase record helps to control higher than necessary food and beverage costs. Security concerns in purchasing In larger organizations, where other personnel take on purchasing tasks, security becomes an important concern. The control process must guard against several types of theft that are possible during the purchasing process. 1. Kickbacks: In several common types of kickbacks, the buyer works in collusion with someone from the suppliers company. The kickback can be money of gifts. Either way, the owner of the operation is the loser. In one kickback scheme, products are purchased at prices higher than necessary, then the difference between the real and inflated prices are shared by the persons involved. To best control this type of theft, the manager can routinely review invoices and ask questions pertaining to the prices or the stock. The manager can also periodically review the selection of suppliers and solicit price quotations randomly to ensure that prices paid are the best for the required product quality. In another kickback procedure, the invoice is padded by adding items that were not received, or it is increased by adding unreasonable charges for handling or some other service. This scheme works well when the same employee receives as well as purchases. Therefore, designing a system that separates the purchasing and receiving tasks can help prevent this type of kickback. 2. Fictitious Companies: Purchasing personnel can steal by setting up a non-existing company that then submits invoices for products never received. Managers can periodically review the selection of suppliers by examining the names of payees on company checks. 3. Reprocessing: Suppliers may try to send an invoice to the food and beverage operation for processing a second time. To avoid this type of theft operations need an internal system to verify which invoices have not been paid and to cancel invoices when they are paid.


4. Delivery Invoice Errors: Intentional arithmetic errors, short weight or counts, wrong quality and similar mistakes can cost the operation o\money. Concerned person must check all arithmetic on invoices and statements and follow proper receiving practices to catch these mistakes. 5. Credit Memo Problem: When products are not delivered or when deliveries are short of the quantities ordered, the supplier should then issue a credit memo to adjust the account. Managers and staff should not accept verbal assurance of later delivery at all. The manager should also alert the propertys account department to ensure that the supplier properly processes the credit to the buyers account. 6. Quality Substitutions: Quality substitutions occur when a price is quoted for the proper quality item but a lower item is delivered. Again proper receiving practices can prevent paying more for a lower quality product. This problem occurs frequently in the hospitality industry and requires close attention to both purchasing and receiving duties. 7. Purchaser Theft: Purchasers might practice a variety of other thefts: purchasing for their own use, reciprocal purchasing for their own benefit, purchasing products wholesale with the intention of reselling them to selected employees or to others. Using an effective designed purchasing system can reduce these types of potential problems. Food Delivery After the purchase order is received by the supplier, the supplier delivers the goods within the lead time in the delivery hours to the receiving section of the organization. Following are the steps followed: 1. 2. 3. 4. 5. Goods are taken to the delivery area and unloaded. An invoice is presented to the receiving clerk by the deliveryman. The receiving clerk compares the delivery note with the purchase order form to match the quality and quantity. The receiving clerk then physically inspects the goods for quality and quantity comparing with the SPS. Once satisfied, the receiving clerk gives a delivery note to the delivery man, which states that the goods are delivered. This note is required for obtaining payment from the accounts department.

Receiving controls receiving personnel, tools, procedures, credit memos, blind receiving, tagging or marking procedures, reports generated, security concerns. Receiving the ordered goods should be given due importance as all the hard work done in establishing an efficient and good purchase procedure may go in vain if there is no proper checking and controlling when the goods actually are delivered. To see that the raw materials and other goods delivered meet the requirements of the hotel and the standard already stated, the receiving area of the hotel should be manned by qualified and knowledge personnel. Proper training should be imparted to them to understand the nature of goods to be received. These receiving personnel should; 1. 2. 3. Have knowledge about the goods to be received Have knowledge about the correct receiving procedures. Have knowledge about the paper work and the procedure for keeping records of goods being received.

In most of the food and beverage organizations, the task of receiving is done by a receiving clerk. If the organization is medium to large and if the relative number of suppliers are high then it will be necessary to employ a receiving team consisting of a manager/ supervisor and two or three receiving clerks. In all organizations one or more than one porter(s) are employed who does all the work of unloading, counting, transferring and other related physical activities. General duties of Receiving Personnel:


Following are the general duties to be performed by a receiving personnel. 1. 2. 3. 4. 5. 6. 7. Check purchase order and compare with invoice Physically examine products against purchase order and invoice Look for standard specification Accept goods. Give delivery notes Enter the daily receiving report, meat tags etc. Transfer goods to stores.

Receiving Procedure The following are the standard receiving procedure followed by many organizations.

1. Check incoming products against Purchase orders or purchase records: Obviously, the
property does not want to accept items it did not order, receive partial or unacceptable quality, or pay a price higher than that agreed upon. These problems can be prevented by comparing incoming products against an in-house record.

2. Check incoming products against standard purchase specifications: This requires knowledge
and skilled receiving personnel. They should be allow themselves to be rushed by delivery persons. The receiving staff must know how to confirm that the correct product is, in fact, being delivered and that the food and beverage operation is getting what it pays for.

3. Check incoming products against delivery invoice: The supplier provides the delivery invoice,
which becomes the basis for subsequent payment claims. A definite policy must be develop, implemented, and enforce for measuring, weighing, or counting all incoming products to ensure that the proper quantity of products is delivered and bills. Like wise, price information on the invoice should be verified by reviewing the purchase order or purchase record. Any discrepancies should be handled by a request for credit memo.

4. Accept incoming products: This is normally done by signing the delivery invoice. At this point
ownership of the product is transferred to the property, and the products become the responsibility of the food and beverage operation.

5. Move accepted products to storage immediately: This is to minimize the employee theft is a
concern here. Likewise, the quality of products needing low temperature storage will deteriorate if they are left at room temperature.

6. Complete necessary receiving documents: A typical receiving document is a daily receiving

report, which is used for several purposes such as; - To separate beverage costs liquor, beer, wine, soda from food costs. This information is needed for income statements that isolate sales and costs of goods sold categories for these items. - To ad up the value of directs in a daily food cost assessment system - To transfer responsibility for products control from receiving to store room personnel. Credit Memo: Every Time a delivery invoice is modified at the time of receiving, a credit memo becomes necessary. For example, if deliveries do not include the full quantity specified on the delivery invoice, are refused because of quality problems, or are rejected for any other reason, this is noted on the credit-memo. Never permit the delivery person to leave off items on the invoice and deliver them free next time. The following list presents procedures for using a request for credit memo.


1. 2. 3. 4. 5. 6.

Note problem with items on the invoice. Complete the credit memo, have the delivery person sign it, and return a copy to the supplier along with the delivery invoice. Attach the propertys copy of the memo to its copy of the delivery invoice. Note the correct amount of the invoice on the face of the invoice Call the supplier to advice that the original invoice has been amended by a credit-memo. If short or refused products are subsequently delivered, a separate invoice can accompany the items. The new invoice is processed in the usual manner. Do not file any problem invoices. Hold them in a separate file until all problems, such as a suppliers confirmation of a credit, are resolved.

Marking and Tagging: Marking and tagging puts invoice information directly on items. For example, marking case goods or bottles of liquor with the delivery date and price makes it easier to judge whether stock rotation plans are effective. Also when valuing inventory, cost data can be taken directly from the cases or bottles; this saves the time it would take to look up the information on the daily receiving report or delivery invoice. Recording the unit price on products makes it more likely that the operations staff members will think about them as alternative forms of cash. Therefore, they will be more careful in handling, portioning, and controlling waste.

Tag Number : Date Recorded: Weight: Price: Cost: Supplier: Date of Issue:

1005 8/01/1996 35 Units 15.75 551.25 Jacob ..

Figure: Sample Storage Tag Tagging is often used with meats and seafood and is done when the products are received. The following are the advantages of tagging meat or fish items. 1. 2. 3. 4. 5. In order to complete the tag, the receiving employee has to weigh the product. Calculating food costs is easier since the information about costs on the tag can be entered onto a requisition form when the product us issued. Also, recording the costs on the tag forces food service employees to think about the product as money, which should not be wasted. Theft and pilferage may be better controlled since the tag number helps to identify products that should be in storage. Inventory procedures are simplified since needed information is noted on the tags. The physical inventory process is speedier. Stock rotation can be maintained more easily. This is the goal of the first-in, first out (FIFO) inventory system.

Security concerns in Receiving Examples of supplier theft possibilities when products are received include the following: 1. The supplier may deliver lesser quality items, such as inexpensive domestic wines instead of higher wines, or 30% fat content ground beef instead of 20%, and the operation pays the price for the higher quality.


2. 3. 4. 5. 6. 7. 8.

Short-weight or short-count products may be delivered so the food service operation pays for more products than it receives. Thawed products may be represented as fresh, while the operation pays the higher price for fresh. Ice may be ground into ground meat products, fillers such as soy products or non-fat dry milk extenders may be added, and meat may be sold with excess trim. Weight of ice and/or packaging may be included in the product weight on which price is based. Slacked out seafood frozen fish, thawed and packed in ice- may be sold as fresh. Expensive steaks and inexpensive meat may be combined in one container, an when the entire container is weighed, the operation may be billed for more expensive steaks than are actually in the container. One empty liquor may be included in a case of 12 bottles.

These are just a few of the many ways that supplier can steel form the property by overcharging for amount and/or quality. To help guard against theft at receiving, some basic principle should be followed: 1. 2. 3. 4. 5. 6. 7. Have different people receive and purchase, unless the owner/ manage performs both duties. Train the employee to receive properly. Receiving is too important to leave to whoever happens to be handy. To the maximum extend possible, schedule product deliveries at slow times so that receiving personnel. Who may have other duties, have time to receive correctly. Have deliveries made to specified area of the facility, and be sure receiving scales and other equipment are available and are used. After receipt, immediately move products to storage. Chances for employee theft increase the longer products remain unattended. Do not permit salespersons or delivery persons access to back of the house production or storage areas. To the maximum extent possible, the receiving area should be close to an outside exit and visible to management personnel. Lock the outside door. Install an audio signal so delivery persons can ring when they arrive. With this plan, receiving personnel have delivery persons in sight during their entire visit.

Blind receiving: This is a measure to control pilferage in the receiving area. In this method the supplier is asked to put the bill directly to the accounts department instead of giving it to the receiving area. So the receiving clerk has to count, weight and measure all the raw material he receives and enter it correctly in the Daily Receiving Report (DRR). Else there can be a discrepancy in the sheet. This method prevents the receiving clerk form entering the DRR without actually examining and weighing the goods.


CHAPTER4 STORING & ISSUING CONTROLS General storing procedures As soon as received products are moved to and placed in storage areas, their quality and security can be ensured by the control procedure built into the propertys storage system. The principles of effective storage system for both food and beverage products focus on three primary concerns: Keeping products secure from theft Retaining products quality Providing information necessary for the financial accounting system.

Inventory control policy When designing storage systems, every control procedure must be cost-effective. It is generally not practical for managers to attempt to regulate all food and beverage products under a strict system of tight controls. Some properties, for example, may not be able to justify a perpetual inventory system for any but the most expensive items. As a result many food and beverage operations, especially smaller ones, maintain tight control over meats, seafood, liquor, and wine, but not as much control over less expensive products. Others may expand the list of items needing special controls because of specific concerns. The point is that each property is different, and managers must develop basic control procedure that recognizes their operations unique situation. One approach that has been useful is based on a ABCD inventory classification system which categorizes products according to their perishability and cost per serving. Category A items include those products that are high in both perishability and cost per serving, while category B items are relatively high in cost but low in perishability. One advantage of using this system is the ability to regulate the products needing the tightest control usually those in categories A and B. storage systems for these products should be designed and implemented first. Then as time permits, and practices require, other products in lower priority categories can be brought under tighter control. Separating Directs form stores For inventory purpose, food products are often separated into two categories: Directs and stores. Directs are usually relatively inexpensive, perishable products generally purchased several times a week for more or less immediate use. Examples are fresh produce, baked goods, and dairy products. Directs may be received and transferred immediately to production areas for preparation or mahy e held in work station storage areas. Alternatively, they can be received and placed in cetral storage areas for withdrawal as needed. However, in either case, directs are not entered in to any storage records; they are not considered part of the inventory system. Instead, they are considered part of food costs for the day on which they are received. The record keeping concern associated with these products lies with receiving, rather than storage, procedures. Stores are generally relatively expensive items and are purchased less often than directs and in quantities necessary to rebuild inventory levels. Examples are meats, seafood, frozen and canned products, and staples such as floor, sugar nd cereals. Food and beverage operations may purchase stores as often as once a week or as seldom as once every several months, depending on usage reates and inventory levels. Stores must be tightly controlled, usually by recording them in inventory records and using an issuing system to remove them from inventory. Defining storage areas


When products are in storage they have been entered into inventory records and should be under tight storage control. Each food and beverage operation must difine its storage areas. For example, central storerooms and walk-in refrigerators and freezers are obvious storage areas. However, are items still in storage when they are in work station storage areas such as reach in refrigerators, pantry shelves, broken case storage areas, and behind the bar? Managers must designate: What locations are considered storage areas What items are to be tightly controlled What specific procedures wil be employed for keeping items secure, maintaining proper quality, taking inventory, and other accounting activities.

Legal requirements for alcoholic beverage storage areas Any type alcoholic sale, storage and transportation needs license. The person or the organization should apply for the license in a form that contains a. b. c. Name and address of the applicant The location of the premises for which the license is sought The type of license sought

Where the premises for which a license is sought are owned by a company, the license is applied for in the name of the person who will manage the premise. The premise where the alcohol is stored may have conditions imposed upon. Such conditions may restrict the license to the sale of certain types of liquor, or may restrict sale to certain parts of the premises. The license may be required to make alterations to make the store room more theft proof. A provisional grant of a license may be made where premises are being constructed or altered provided plans of the premises are deposited with the licensing authority and found by them to be satisfactory. Once the premises have been completed the provisional license could be made final license. Security concerns in Storage After management determines what items are to be tightly controlled and what locations are to be considered storage areas, security procedures can be designed to ensure those items stay in those locations until issuing procedures send them to production areas. The following types of procedure help storage areas secure:

1. Limited Access: Only authorized staff members should be permitted in storerooms. In addition to
management, authorized staff in large properties may include receiving and/ or storage personnel. Smaller operations can keep storage areas locked and involve management directly in receiving and issuing activities. When a manager is present to unlock the storeroom door, employee theft is less likely. This procedure is more easily implemented if issuing is done only at specified times.

2. Lockable Storage Areas: The storeroom, freezer, and beverage storage areas should be
completely lockable. Depending upon available equipment, one section of a walk-in or reach-in refrigerator might be used to secure expensive refrigerated items. Or, a lockable shelving unit can be kept in the walk-in refrigerator. In this way, expensive refrigerated products, such s fresh meats and seafood, or wines being chilled for service, can be kept secure form theft. At the same time, personnel can still have access to produce, dairy, and similar products that are less likely to be stolen.

3. Behind-the-Bar Storage: The quantity of beverage products kept behind the bar should be
minimal since this area is less secure than the central storage area. Liquor should be locked behind


the bar when the bar is closed. Lockable cabinets, roll-down screens, or similar devices can keep beverages out of the reach of cleaning staff and other employee when the bar is closed.

4. Storeroom Key Control: Only staff members who need keys should have them. Locks or
combinations should be changed routinely and each time an employee with access to keys leaves the propertys employment. An excellent policy is that all keys remain at the property at all times, securely locked in the managers office when not in use. Newer locking systems may eliminate the need for traditional keys. For example card systems or password numbers to access. The card system provides the information about the staff who entered the storage area and how much time he spend in the area etc. Maintaining quality during Storage Improper storage practices can reduce the quality of products in storage. In fact, most food products including frozen foods- experience a loss in quality if stored too long. While this is especially true for foods, it also applies to wines and beers. It is important that control procedures designed to minimize the loss of quality of products in storage be strictly followed. Food cost increases if any spoilage is happened in the storage. The following section present several procedures for maintaining quality during storage.

1. Product Rotation: The first-in first-out inventory rotation method is a good rule. The products
held in inventory the longest should be the first to be issued to production areas. To facilitate this, when newly received products enter storage areas they should be placed under or behind products already in storage. Marking the date of receipt on every item makes it possible to compare dates of products used in production with those of items in storage areas. Those items in production should have been received earlier than those in storage. This method will help management ensure that stock rotation practices are followed.

2. Properly Controlled Environment: Maintain proper temperature, humidity, and ventilation. Use
accurate thermometers and check them routinely. Proper temperature are: a. Dry storage temperature 50 to 70 degree F (10 to 21 degree Celsius) b. Refrigerated storage temperature 45 degree F (7 degree Celsius) or lower c. Freezer storage temperature 0 degree F ( -18 degree Celsius) or lower Require managements permission to discard spoiled items. This way, management can judge the effectiveness of its quality control methods and also assess the costs of failing to comply with proper storage procedures.

3. Sanitation Practices: Establish and follow regular cleaning times for all storage facilities, in
contrast with cleaning them only when extra time become available. This applies not only to storerooms and storage spaces, but also to walk-in and reach-in refrigerators and storage equipment. Facilities and equipment should be made of non-porous, easily cleanable materials. Shelving units should be louvered or slotted to permit air circulation. Lower shelves and similar storage equipment should be least two inches from walls and at least six inches off the floor to permit mop and broom cleaning and to discourage rodent and insect nesting.

4. Proper Storage: Store products properly, for example, store products in their original packaging,
away from the wall, to allow air circulation. Store items that absorb odors, such as flour, away from products that give off odors, such as onions. Store opened products in clean, labeled, covered containers designed for food storage. Generally, products should be stored in quantities that can used within a reasonable time period. There are exceptions to this rule, such as investments in wines and volume purchase made as hedges against price increases, but these decisions should be made by top management, not by purchasing staff. Beverage products are generally stored for less than one month. Food items classified as stores are usually used within an even shorter time period. Perishable products are purchased two or more times weekly.


Inventory Control Procedures The third major concern in storage, after security and minimizing quality losses, is record keeping. Inventory procedures play an important role in the security concerns of the control system. Other reasons for designing and implementing effective inventory record keeping system are; 1. 2. Financial accounting systems need inventory values to generate monthly statements. The value of products in inventory is considered part of the propertys current assets Daily control procedures may require knowing the quantity of products currently available. For example, a food and beverage manager may wish to keep a perpetual inventory record of selected expensive items to allow frequent and quick assessment of any differences between the quantity that should be in storage and how much si actually there. Inventory records help managers determine not only when to order new products, but also how much of each product to order.


Inventory Turn Over: One important function of keeping accurate inventory records is to allow managers to assess how much money is being invested in non-productive inventory. The value of goods in inventory is typically calculated on a monthly basis to provide information for financial accounting system. Non-Productive Inventory refers to products in storage that are not issued to production areas during the time period (usually monthly) covered by financial records. In order to determine how much money is tied up in nonproductive inventory, managers measure the inventory turnover rate. The Inventory Turnover Rate shows the number of times in a given period that inventory is converted or turned into revenue. In financial terms, it measures the rate at which inventory is turned into food or beverage costs required to generate food or beverage income. Inventory turnover rates can be determined for food or beverage products in storage. The inventory turnover is calculated by dividing the cost of food or beverages used by the average food or beverage inventory in Rupees. The average inventory value is determined by adding the value of inventory at the beginning of the time period to the value of inventory at the end of that period and then dividing the sum by two. Average Food Inventory of Month = Food Inventory Turn Over = Beginning Ending Inventory + Inventory 2 Cost of Food Used for Month Average Food Inventory for Month

Inventory record keeping systems There are basically two methods of inventory record keeping system for products in storage; they are Perpetual Inventory System and Physical Inventory System. Perpetual Inventory System: The most important tool of inventory control is the perpetual inventory system. ICMA London has defined this system as a system of record maintained by controlling department, which reflects the physical movement of stock and their current balances. It is a method of recording stores balances after each receipt and issue to facilitate regular checking and to obviate closing down of work for stock taking. The features of Perpetual Inventory System are (a) continuous inventory recording and (b) continuous stock verification. In Perpetual Inventory System the stock is verified throughout the year by a group of regular staff, appointed for that purpose. They are assigned with the work of stock verification only. Therefore, normal


functions of the production departments are not disturbed by stock verification activities. The team maintains the secrecy of items to be verified on each day. A perpetual inventory system keeps a running balance of he quantity of food and beverage products in inventory. It operates like a bank account. When more food or beverage is put in the bank the balance is increased. As products are removed the balance decreases. At any time, then the amount of products that should be currently available in known. The physical count is still necessary with a perpetual inventory system to verify the accuracy of the inventory balances. When using a perpetual inventory system, staff members who maintain the perpetual inventory records should not perform the physical inventory used for verification. Perpetual Inventory Card Inventory refers to the checking of the quantity of material remain in the storeroom for consumption in the various departments. In a physical inventory system the raw material are counted, weighed or measured as the case may be after a certain time interval and thus the exact quantity held is known to the stock take. Where as in the perpetual inventory system a record is maintained on a perpetual inventory card for each item regarding the purchases, the requisitions and the remaining balance. This is a written document and the status of stock in hand can be known at any given time. Perpetual inventory card Item name: cheddar cheese Item code: Ch 008 Sl no Date 01 2/8/96 02 3/8/96 03 4/8/96 Figure: Perpetual Inventory Card In the perpetual inventory card there are three distinct columns maintained. They are a. b. c. The quantity purchased and stored The quantity issued to the various outlets for consumption The balance quantity remains in hand..

In 10

Unit: kg Unit size: 5 kg packet Out 04 3 5

Balance 04 11 6

Physical Inventory System: A physical inventory system is use to periodically assess the value of food and beverage products in inventory. This is done at least monthly to develop information needed for the balance sheet and income statement. Inventory value is counted as a current asset, and inventory values, both at the end of the financial period, are a factor in assessing food and beverage costs. Stock is verified by an actual count of closing stock on hand. A team of people taken form different departments is formed for this purpose. The stock taking team counts every item of stock and prepares stock verification sheet. A physical inventory indicates only how much of each product is in inventory and the actual value of all stored products. This system helps to minimize manipulations in stock accounting. The task of stock verification is completed within a few days. However, the practical limitations of this system are: it disturbs the daily activities of different departments, stock taking task is to be completed within the shortest possible period and the reason for discrepancies cannot be traced easily. When the physical count of a product differs from the quantity indicated on the perpetual record, a control problem may exist, and management must determine the reason for the variance. Perhaps products are not being recorded at the time of receipt of issue, or perhaps theft is occurring. The purpose of control


procedure is to indicate when such problems exist. Managements task is to discover why a problem exists and, of course, to correct it. Special consideration for beverage inventory The basic control procedures for both food and beverage products are same. How ever, since beverages, especially liquor and wine are expensive and popular targets of theft, they require some special control precautions. Even small food and beverage operations normally use a perpetual inventory system for alcoholic beverages. While important for all stored products, control procedures such as locked storage areas, controlled access, and management of storeroom keys are especially critical to the control of alcoholic beverages. The inventory task is easier if process are marked on the bottles or cases when they are originally placed in storage. An important consideration in designing inventory control procedures for beverages is whether beverage inventory values will include items currently behind the bar as well as beverage items in the central storeroom. Consistency is the key here. Items behind the bar should either always be included or never be included in inventory record keeping procedure. If only central storeroom beverage products are to be counted, the physical inventory form is sufficient for recording information about quantities and costs however, when both central -storeroom and behind-the-bar inventory costs are assessed, a beverage inventory cost card can be used. Behind the bar inventory costs: when beverage items behind the bar are valued for inventory purpose, the following procedures can be used to assess costs: Count the number of unopened bottles of each type of beverage product. Determine the quantity of beverage products in opened bottles. This can be done either by visually estimating to the nearest tenth of a bottle, by weighing, or by using dipsticks. Add the number of unopened bottles of each type of beverage to the amount remaining in opened bottles to assess the total volume of product available behind the bar. Add the amount in the central storeroom to the storeroom to the behind-the-bar amount to determine the total beverage inventory. Calculate the total cost of beverage items in inventory.

Bin Card: Bin card is a card used for each item in the store and is attached to the bins where the materials are stored in the godown. A bin may be a shelf, rack, container, almirah or open space. The quantity every receipt and issue of materials are entered in bin card immediately. The main feature of the bin card is that after each receipt and issue the balance quantity is record in the balance column. Thus a bin card is a continuous quantitative record of receipt, issues and balances of a particular material. It is to be noted that value of receipt, issues and the balance of stock are not entered in the bin card. A bin card has three columns t record receipts, issues and the balance on hand. It also contains information of various levels of stock, ordering quantity and material code etc. a specimen bin card is given below. Incorporating a bin card system with physical and perpetual inventory procedures provides for a very tight inventory control system. Calculation of the Value of inventory FIFO method (First In First Out) This method is also known as original cost method. In this issues are made in the order in which the lots are received, that is, the first lot that comes in should be issued first, then the second lot and so on. But physical disposal of material may not be actually in this order. Only for the purpose of pricing it is assumed that


materials received first are issued first. As per such an assumption the cost at which the oldest lot was purchased is issued for pricing the issues until the whole lot is exhausted. Advantages: 1. 2. 3. 4. 5. It is simple and easy to operate Material are charged at actual cost It reflects the current market price It is acceptable to income tax authorities It is best suited for perishable materials

Disadvantages: 1. During the period of increasing prices of material it inflates the profit. 2. It involves more clerical work. Therefore it is expensive. 3. Comparison of costs of two jobs requiring the same quantity of material, executed at two periods, becomes difficult. However FIFO method is used where inventories turn over rapidly, inventory is not major factor in the profit and where inventory item change frequently. Example: Assume: Opening Inventory in units = 28 cases @ $ 22.00 Purchase during the month= 15 cases @ $ 23.80 Issue during the month = 23 cases Calculation of the value of inventory at the stock Closing Stock = 28+15-23 = 20 cases Stock remaining from the Opening Inventory = 28 23 = 5 cases Remaining Inventory = 20cases 5 cases = 15 cases Value of Stock = 5 * 22.00 = $ 110.00 = 15 * 23.80 = $ 357.00 Total Value of Stock = $ 110.00 + $ 357.00 = $ 467.00 LIFO (Last In First Out) This method is just the opposite of FIFO method. The value is calculated out of the latest purchases. The price of the latest lot or the recent purchase issued to price the issue. Materials are issued at the cost, which is nearer to the current market price levels. Advantages: 1. The issue price is based on the latest purchase price. Thus the issue price reflects the market price. 2. Cost of production is nearer the market price. This enables the concern to fix process more competitively. 3. Issue price nearer the current price reduces the chances of unrealized profit or loss 4. During the period of rising prices it keeps the profit figures at a lower level and thus saves tax liability, reduces the profit to be distributed among the workers as bonus. 5. During the period of falling prices it shows lower cost of material and increase the profit. Disadvantage: 1. Clerical work is excessive and monotonous. 2. During the days of falling prices closing stocks valued at the latest price and not by the purchase price 3. It is not preferred by the income tax authorities. Example:


Assume: Opening Inventory in units = 28 cases @ $ 22.00 Purchase during the month= 15 cases @ $ 23.80 Issue during the month = 23 cases Calculation of the value of inventory at the stock Closing Stock = 28+15-23 = 20 cases In LIFO, the value of last in stock calculates first, then the first in stock value taken into consideration So here the last in stock is nil, since the entire last in stock (15 cases) is issued Therefore the stock value is = 20 * $ 22.00 = $ 440.00 Simple Average Method Issue price is calculated by dividing the total of prices of materials in stock up to the date of issue by the number of prices used in that total. So far as the actual issue of material is concerned it is assumed that the oldest stock is issued first. In other words, materials are issued on the basis of FIFO. Advantages: 1. It is easy to operate. 2. Where price fluctuations are negligible, it averages the profit. Limitations: 1. Issue price is not related to any purchase price specifically 2. It ignores qualities of purchases. 3. Valuation of closing stock is unrealistic. Example: Assume: Opening Inventory in units = 28 cases @ $ 22.00 Purchase during the month= 15 cases @ $ 23.80 Issue during the month = 23 cases Calculation of the value of inventory at the stock Closing Stock = 28+15-23 = 20 cases Average Value of the stock = (Rs. 22.00 + Rs. 23.80) 2 = Rs. 22.90 So that value of the inventory Weighted Average Method This method determines the value of inventory by multiplying the number of cases remaining in inventory at the end of the month by the weighted average case price paid during the month. Example: Assume: Opening Inventory in units = 28 cases @ $ 22.00 Purchase during the month= 15 cases @ $ 23.80 Issue during the month = 23 cases Calculation of the value of inventory at the stock Closing Stock = 28+15-23 = 20 cases Weighted Average Price calculation 28 cases * 22.00 = Rs. 616.00 = Rs. 22.90 * 20 = Rs 458.00


15 caess * 23.80 43 cases Average Case price

= Rs. 357.00 Rs. 973.00 = Rs.973.00/ 43 cases = Rs. 22.63

Therefore the Value of inventory at the stock = Rs. 22.63 * 20 cases =Rs.452.60 Computerized Inventory Management There is no uniform inventory control software available. The food and beverage business, with its unique inventory characteristics, usually does not lend itself to using software developed for another industry. Ideally, the software will feature an integrated package containing an ingredient file (for food and non-food items) and an inventory file. The ingredient file contains all necessary information to define the ingredients. The inventory file deals with inventory stock levels and reorder points and is responsible for computing usage, variance, and product valuations. Some inventory applications provide file space for meore htan one ingredient designation, sucha s item file code number, inventory sequence number, internal customer code, and so on. The ability to work with additional designations can increase the efficiently of the inventory control system. For example, a user may be able to print ingredients on a physical inventory worksheet according to the order in which they are shelved. Another concern is how usage is charted by the inventory application by unit, by cost, or by both unit and cost. A system that charts items by unit may able to report changes in stock levels, but may not able to provide financial data necessary for food costing. The most effective inventory applications are those which track items in items of both unit and cost. Conversion tables can be maintained by which to track ingredients as they pass through purchasing/ receiving, storing/issuing, and production/service control points. To efficiently maintain a perpetual inventory record, a computerized inventory management system must be able to automatically convert purchase units into issue units and recipe units. Inventory data must be specific to each of these control points because purchase units commonly differ from storeroom inventory units, in turn, differ from standard recipe units. Some systems are not able to support the number of conversion tables necessary to track menu items through ingredient purchase, storage, and use (standard recipe). Similarly, the computer-based system should also be able to track the costs associated with these various ingredient units. For example, assume that ketchup is purchased by the case, issued from the storeroom to the kitchen by the can, and used in recipes by the grams. Given the information about the purchase units net weight and cost, the computer should be able to automatically extend costs for issue and recipe units. Performing these calculations manually for every ingredient purchased can be a tedious, error-prone, timeconsuming process. A food service management applications package cans perform these calculations in fractions of a second. Care must be taken to ensure that the ingredient file contains the necessary data and conversion definitions. Issue of Material The objectives of an effective issuing system can be met by using techniques available to food and beverage operations of all sizes. A well designed issuing system has the following objectives: - To limit the access to storage areas to authorized staff members only. - To match items removed from storage with actual production requirements. - To assess quantities and cost of products removed from storage. This record keeping becomes important when updating perpetual inventory records and assessing costs of issues in order to calculate daily food and beverage costs. The food requisition and issue procedure:


The food issuing procedure starts with the requisition form. The food requisition form identifies the type and amount of each item necessary for production during a given shift or other time period. The following are the procedure. 1. The form identifies each item to be withdrawn from storage. Studying the standard recipe to be prepared helps ensure that nothing is forgotten. The quantity of each item needed is based upon the amount required by the recipes expected to be prepared during the shift minus any product already withdrawn from inventory and available in production area. After the production personnel complete the form, it then goes to the chef, kitchen manager, or other responsible employee who should approve the products for withdrawal from inventory. Next, the form goes to the appropriate storage area. The food requisition form can be designed to distinguish whether products are from refrigerated, frozen, or dry storage areas. Smaller properties may not need this classification system. It is not necessary to calculate total cost at the time of issuing, nor does the storeroom employee have to do so before signing products over to production areas. The storage or management employee responsible for issuing verifies that items listed. The employee accepting the issue products can also initial the requisition form. This transfers the responsibility for the products from whoever did the issuing to the production employee withdrawing the products. Thus if there is a discrepancy between the amount taken from storage and the amount delivered to production areas, documentation helps determine who is responsible and where and when the problem occurred. After issuing is completed, the items should be transferred promptly to the appropriate production areas.

2. 3.



Requisition form: Requisition is a list of all the goods required from the store. This slip should be signed by the dept head. On receiving the requisition, the store copy is retained by the stores. After getting the goods the receiving person signs the requisition slip. After the issue of the goods the perpetual inventory card duly filled accordingly in issue column and the balance column. Sample requisition form is given below. Beverage Requisition And Issuing Procedure The basic procedure for issuing food is also applied to beverages. However, since beverages, by their nature, are very susceptible to employee theft, there are several additional concerns in transferring beverages from storage to production areas. Special procedures incorporated into beverage issuing can reduce the possibility or frequency of employee theft. Beverages should be issued only in quantities needed to re-establish bar par inventory levels. A bar par is an established number of bottles of each type of beverage that is always kept in behind-the-bar storage areas. A bar par is established for each type of liquor and wine kept behind the bar. Some food and beverage operations also set pars for bottled beer. Bar pars are established on the basis of the number of bottles of each beverage type used during a busy shift, adding one bottle for the display. The beverage issuing process typically may include the following steps: 1. 2. At the end of each shift, the bartender places the bottles emptied during the shift on top of the bar. The bartender completes a beverage requisition form recording the name of each type of liquor or wine emptied, the number of empty bottles, and the size of the bottle. Depending upon the specific property, the bartender may also record the unit cost. Information for this column comes from the cost marked on the bottle at the time it was placed in storage. The beverage manager checks the number and type of empty bottles on the bar against the information on the beverage requisition form. If there are no problems, he or she signs or initials the ok to issue section of the sheet.




5. 6.

Bar tender or manager takes the empty bottles and the beverage requisition to the beverage storage area. The person responsible for issuing (a) compares empty bottles with the data on the issue requisition, (b) bottle-for-bottle replaces empty bottles with full ones, and (c) signs or initials the issued by section of the sheet. At the same tine, the bartender or manager, who returns full bottles to the bar, signs or initials the received by section. Empty bottles are broken or otherwise disposed of according to local or state laws, or as specified by the propertys control requirements designed to prevent re-use. As soon as the bottles are received by the bartender he takes to the bar kept locked in the bar.

Additional concerns about the issuing beverages should be noted are when beverages behind the bar frequently running out, bar par levels must be re-examined and increased. Similarly, there may not be time to complete a beverage issue requisition in the middle of a rush period, so information about beverage costs and reduced perpetual inventory balances is lost. To avoid these problems, manager should carefully assess the need for behind the bar inventories during the operations busy periods, and issuing times and bar par quantities should be planned accordingly. Whenever the bar is not in operation, all bar par inventories should be under lock to discourage employee theft. In addition, keys to beverage storeroom areas should not be left with bartenders. In small operations, the key can be sealed in an envelop will show that the storeroom has been entered. An immediate comparison of perpetual inventory records to physical count may then be in order. Bottle Marking Bottle marking identifies a bottle before it is issued. It may simply identify the bottle as house property, or it may also contain information about the bottles cost and/ or date of issue. If a property has only one bar the bottle can be marked when it is placed in storage. If, however, there is more than one bar in a property, bottles are not marked until issued so that a specific mark can indicate to which bar the bottles goes. The bottle mark is an adhesive label or hard to remove ink stamp, with the logo or symbol difficult to duplicate. Bottle marking is important for two reasons. First, if the cost from the daily receiving report or delivery invoice is recorded on he bottle, it is easier to complete the requisition form. Second, if the date of issue is recorded on the bottle, it is easier to keep track of the rotation of bottle behind the bar. Beverage storeroom control Alcoholic beverages have a very high unit price and thus require excellent storage facilities. This is not only to control pilferage but also to protect it from spoilage, deterioration and to ensure stock rotation. Storeroom may mean every small storing units provided in each beverage outlet to kept in mind that over indenting should never be done. Too much of inventory held in the unit stores may encourage pilferage. A centralized storeroom having facilities to store all types of alcoholic beverages should be constructed to hold beverages for a long period of time. Indenting by the units should be done frequently rather that stocking, beer should be indented after every two days if bottled. Keg beer should be brought fresh every day. Spirits can be indented after a week of 10 days. Proper Storage In the centralized stores proper shelving units should be provide to keep different types of alcoholic beverages. Bottled beer and canned beer should be stored incases. Keg and draught beer should be stored in refrigerated conditions. Wines should always be kept horizontal. Special shelves to keep the wine position should be designed. All storerooms storing especially beer and wine should be planned for space economy. This is so because they hardly fetch one tenth of the revenue although the space occupied is the same. To store wines the storerooms should be well ventilated and the temperature should be kept below room


temperature. The storeroom should be designed to hold supplies for at least two weeks for the bar requirements. Bin Cards Perpetual inventory cards as has been discussed in the earlier chapter is also being used for storing beverages. Like foods beverages purchasing also requires monitoring of the maximum and minimum level to be maintained. This is made easy by using these inventory cards. Like food inventory cards these too have the in, out and balance columns. Depending upon the availability of certain brands and the rates of consumption, a minimum level to be reached is determined by the manager for individual brands of alcoholic beverages. The quantity held in balance is mentioned regularly and purchases are made when required. This helps the purchase official whereby he does not have to take a stock inventory by physical counting. All he has to do is to go through the cards and accordingly place order to the supplier. Each and every brand should have a separate inventory card. Par stock Literally the term par stock means the minimum quantity of stock required to be held at a storing place. The storage area may be the contributed beverage stores or a storing unit in the bar. A minimum quantity is necessary to be held for sudden and emergency requirement. This level should be maintained whenever it goes down. The par stock level should be determined upon the following factors: 1. 2. 3. 4. Quantities turn over of the beverage in average. Seasonal changes Any prolonged period of festivals Storage space available.

At times of special requirements due to some function etc. the level can temporarily increased. The par stock levels should be checked everyday by a responsible person in the bar and requisitions should be made accordingly. Par stock lists should be made available to the personnel handling requisitions to stores. Introducing par stock method indenting establishes a control by limiting the value of requisitions and it makes the close maintaining of goods movements easier and simpler. Full bottle replacement: This is another method of control established only incase of hard liquor whereby the bar tender has to return an empty bottle or a particular liquor to receive a full one. In case of bottle, which still contain a little liquor may be noted down and fill bottles are issued. On the following day the above bottles are returned to the stores. It prevents the bar from over indenting and over stocking liquor. Incidents of bar tenders bringing their own purchased bottles from outside and getting it replaced by a full bottle from the stores may arise. This can be prevented by coding of bottles. Coding of bottles: Many bars resort to coding of liquor bottles with a coding device, which may be difficult to procure from the open market. Coding the bottles is required not only to enforce full bottle replacement procedure nut also prevent bar personnel from bringing their own bottles from outside, selling it in the bar and pocketing the sale amount. Use of inventory sheets: Physical stock taking is record on inventory sheets having separate column made for beer, wine and liquor. To make stock taking more efficient, the items should be listed code number wise serially as given in perpetual inventory cards. The monetary value of the stock should be same as mentioned in the requisitions


(either LIFO or FIFO followed). It is desirable not to allow the same person to fill in inventory cards and sheets otherwise will full pilferage and manipulations of the figures can be done. Later the date of the physical inventory is reconciled with the data mentioned on the perpetual inventory cards. This is done by recording on the beverage inventory reconciliation sheet. Figures in this sheet are written in detail regarding purchase, issue and closing inventory is then compared with the recorded inventory and the differences are noted. Differences although are inevitable to extent of a little. But in case of large differences the matter should be investigated. Storeroom inventory reconciliation: A physical inventory in the stores after a particular interval of time should be taken compulsorily. The basic objective of stock tasking or physical inventory is to ascertain the value of goods held in stock. The following objective also may be derived from stock taking. Physical inventory acts as a verification of the stock level shown in the books of store keeper. The stock level should match with the balance or stock and figure given in the storekeeper diary, bin card and inventory card. This will discourage any pilferage. A storeroom variation report is made after physical inventory, which mention the differences observed between the stock taking and the inventory cards. To bring in notice the slow moving items so that measures can be taken to use the particular commodity before the quality deteriorates. As discussed above, in case the physical inventory does not match with the inventory card, one should immediately check up all the invoices and requisitions to look out for any mistake in recording of data. If everything is found correct and no discrepancies can be resolved, then the figure noted on the inventory card should be changed and corrected as per the latest figure. Sometimes mistakes do occur due to other reasons. They are; 1. 2. Quantity received has been recorded on the inventory card on the day of stocktaking but beverage units have not yet been transferred to store. Beverage units have been transferred to stores but have not been recorded in inventory cards.

Inventory turnover rate: Inventory turnover is simple works refers to the replenishing of stock as it gets over it is desired by many bar operations to purchase after every two days instead of purchasing in a large quantity and keeping the beverages stock and every a large period of time as alcoholic beverages are among the expensive commodities. A high turnover has the following advantages. 1. 2. 3. Lesser amounted tie up in stock Lesser risk taken, since beverages are purchased in lesser quantities and incase if not sold will not involve much capital at stake. Lesser storage space required.

The disadvantages are: 1. 2. The more number of times beverages are purchased and received stored, more is the requirement of manpower. Extra staff is required. Chances of pilferage increases in receiving are and while transferring goods to the storage. Most bars fix a rate of inventory turn over depending upon situations prevailing.

Calculations of bar inventory rate Inventory turnover rate = beverage cost for a period Average inventory of the period


Where as: Beverage cost for period= inventory at the beginning + purchase during the period inventory at the end of the period Average inventory of the period = inventory at the beginning + inventory at the end _________________________________ 2


CHAPTER 5 PRODUCTION, SERVING AND REVENUE CONTROLS Because guest satisfaction depends directly on production and serving, these control points are in many ways the most important and complex. Production must ensure quality while complying with cost limitations. And serving requires proper timing, accuracy, and a host of other talents to provide a dining experience that will please the guests. Production planning Production planning is the first step towards ensuring quality products and dining experiences that meet or exceed guest expectations. Production actually comprises three control points: preparing, cooking and holding. Production planning is simply getting ready for production. Planning does not guarantee that all problems will be eliminated, but each food and beverage operation must develop specific procedure for production planning that is suited to its own unique needs. However, a typical strategy into first forecast production requirements and that translate those requirements into production plans. The aims and objectives or production planning are as follows: 1. 2. 3. 4. 5. To facilitate food cost control for the establishments To facilitate the purchasing of ingredients, particularly perishable items, and ensure appropriate stock levels are maintained. Reduce the problem of food that is left over and how it is to be re-used, or customer dissatisfaction when insufficient foods are available. To gear production to demand by forecasting the number of meals to be served for a given meal period. To enable a comparison to be made between actual and potential volume of sales, and for corrective action to be taken if necessary.

Forecasting production requirements Quantities of products required for expected production activities during the upcoming week must be estimated. These projections may be based on sales history records. A careful analysis of previous sales can help control production quantities and reduce leftovers. Season, special events etc. should be taken care of when planning sessions. Note that column 1 of Sample Sales History Card lists the average number of each menu item ordered daily over past 80 days. Column 2 lists the percentage total, calculated by dividing the number sold by the total number of guests served and multiplying by 100. For example, in the previous 80 days, an average of 46 shrimp cocktails were served, or 42.6% of 108 guests ordered shrimp cocktails. Number of Sold * 100 = Percentage of Guests Ordering Item Total Guests 46 *100 = 108 42.6% or 0.426

Information from the most recent day is listed in column 3. 49 guests of the 104 total ordered the shrimp cocktail. This will amount to 47.1 %. Once the total number of guests for the next day is estimated the percentage trend can be to used to estimate the number of portions of each menu item required. For example, assume that the total number of 200 guests is estimated for the next day. If the manager assumes that the same percentage of guests will order shrimp cocktail, the estimated number of shrimp cocktail needed to next day can be calculated as follows:


Estimated Guest * Percentage as a Decimal = Estimated Servings 200 * .426 = 85.2 = 83 (rounded) This process is repeated to estimate production requirements for all other menu items, sold and for all other days in the forecast period. Formulating production plans Regularly scheduled planning meeting should be held. Personnel most directly involved with production activities should attend these planning sessions. During these meetings, estimates of production needs, derived from a study of sales history and similar information must be adjusted and converted into production plans. Sales history records may be used to produce a master food production planning worksheet. Food production personnel can use this form to determine the amount of menu item ingredients to purchase. The form also allows recording of actual results of each days operation, including the number of leftovers. This information can be used ot modify and update sales history information. Revised counts can then be used in estimating production needs in subsequent weeks. Other matters must be considered at the production planning meeting. Based upon the estimated production needs, labor and equipment can be scheduled at this meeting. After the production planning meeting, the required number of each menu item for the forecast period is known. Therefore, requisition forms for some days or item many also be partially completed. Requisition forms might be completely prepared or catered events if these costs are charged to a separate revenue center. Production Control Food and Beverage controls begin with the menu. Controls during production are adhering to established operating standards. Control procedures must help the operations ability to meet its required standards. Those standards are; Standard Purchase Specification Standard Recipe Standard Yield Standard Portion Sizes and Standard Portion Costs These control tools provide procedure for uniformly purchasing, producing and serving products of the required quality. Food and beverage cost standards cannot be developed until standard cost control tools are in use. Cost standards are useless if the tools needed to attain them are not used in production areas. Production Cost Control Procedures Food production involves preparing, cooking, and holding. The purpose of production controls is to ensure quality while complying with cost limitations. Some general cost control procedures are: 1. Insist that all standard cost control tools be used consistently. 2. Issue food items only in those amounts needed to meet production requirements forecasted on the basis of post sales records and scheduled special events. 3. Through supervision ensure that tall personnel are trained in and constantly comply with food production procedures. 4. Minimize food waste. 5. Use proper quality items as per recipe and purchase specifications.


6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Monitor employee eating and drinking practices Put unused items withdrawn from storage back in storage and reissue the products when necessary. Make sure hat inventory and requisition forms are properly adjusted. Require that no item be discarded without prior approval of management. This applies to items spoiled in storage as well as items improperly prepared. Match issue and production records with sales records to assess the extent to which issued products generate revenue. Look for production bottlenecks during busy periods and resolve them. Often the staff involved will have ideas about how to improve procedures and reduce costs. Be sure measuring and weighing tools and equipment are always used to prepare food and beverage items. Make sure staff uses portion control tools scoops, ladles, etc- when portioning food items for service. Recognize the importance of communication and coordination between work sections and departments when drawing plans and implementing them. Keep records during production to help guide further planning and for accounting use. The design or record keeping systems, their accuracy and the timeliness of information and reports all have control implications. Be sure production employee understand the principles of food preparation and can apply or modify them to meet quantity food production needs of the operation. Look for personnel genuinely concerned about preparing and offering the highest quality food products possible within the propertys standards. Accurately complete the leftover reports and use them to fine tune the quantities of items prepared. Also use leftovers creatively when possible in future production.

Control of wastage Food losses through simple product waste can play a large role in overall excessive cost situations. Management must show its concern for the value of products on a daily basis. Each employee should be made to realize that wasting foods affects the profitability of the operation, and thus their own economic well being. Wastage can be effectively controlled if strict measures are taken in the following. 1. By using standard recipes standard recipes if effectively used minimizes wastage as appropriate quantity of food is cooked. 2. By mechanization machines when used cut down lot of wastage is used efficiently. As I the case of peeling of potatoes, lot of edible potatoes parts are wasted if manually peeled. 3. Determining how much to prepare judicious anticipation or requirement of food quantity per meal period assists in cooking appropriate amount. 4. Tracking food sales through sales analysis report helps making a food production chart, which forecasts the actual quantity of food required. 5. Portion control portioning of food served per customer should be appropriate and dish up accordingly. Over serving will lead to wastage while under serving will create dissatisfaction. 6. Developing standard yield developing standard yield of each item and comparing the same with actual yields safe guards wastage when corrective measures are taken right away. 7. Training staff training and by giving awareness among staff helps control waste. When charts are put up around work areas depicting actual cost of food items and also losses shown, deliberate and ignorant wastage can be stopped. 8. Proper storage if cooked and uncooked food is stored hygienically in correct paces at the right temperature, spoilage will be minimized and thence wastage would be controlled. 9. Proper menu planning when planning menus, utmost care should be taken that food served should be appropriate qualitatively as well as quantitatively. Over serving or offering too much choice leads to wastage of food. 10. Re chauffeing re-chauffeing and reusing leftover in the right manner leads to controlling wastage of food.


Use of leftovers Re-cycling of left over food should usually be avoided, but where and when it become necessary to control cost the following points should be bear in mind. 1. 2. 3. 4. 5. Storing Left over food should be hygienically stored at the right temperature. Timely thawing Timely thawing is necessary as spontaneous heating might affect the taste of cooked food and may also alter its texture and consistency. Re-Chauffeing is done for hot food and utmost care should be taken as it may lead to over cooking, toughening discoloration or extra concentration of flavor of a particular dish. Leftovers should be appropriately used keeping in mind, the customer, menu/ dish price, occasion, meal period and suitability. Leftovers should be creatively presented but not camouflaged. Appropriate garnish and accompaniments are a must as they ad to the make up of the dish.

Serving Controls After food and beverage products are produced, they must be served to the guest. The serving activity is critical from a cost control stand point because the responsibility for menu item changes from the kitchen to the dining room or service area. This activity may enhance or detract from the quality of food and beverage products. Many factors such as communication, cooperation between the kitchen and service personnel, the menu, the design and layout of the dining room and the style of service. Management is responsible for standardizing ordering procedures, serving procedures, sanitation practices, and personnel requirements. The following are the factors that should be considered when establishing service control procedures. 1. Timing of service: Many aspects of food and beverage service must be taken into account when designing service control systems. Timing systems for placing orders are needed. At the same table, one guest may want a well done Steak, while another wants a rare portion of the same. Some guest walk out if the bill is not presented in time. Therefore, procedures specifying time limits for specific orders, the sequence for turning in orders and other server-related concerns. Staff Communication: Production and service staff must communicate effectively. Does SP mean Shrimp platter or Seafood Platter? Do service personnel known an item is sold out before placing an order? Communication problems increase costs and create dissatisfied guests. Such problems can be resolved, however, by requiring the use of specified abbreviations for food and beverage orders and constantly updating portions left and items sold out. Favoritism: Favoritism may disrupt service. For example, a production person, bartender or cooks, may show favoritism towards a service employee out of affection or because of a bigger share of tips. If one server receives order before others, guests are affected; they are not concerned or interested in these inter staff relationships. Adequate supply: Backup supplies must be sufficient. Service, cost and the guest satisfaction are affected by the availability of food items or beverage mixes made in advance of actual production orders. Like wise, plates and glass wares, disposable or washable guest supplies, and other materials must be available in the correct quantities. Consider both speed and costs involved in using service areas. Excess labor may be needed to continually keep them supplied. Temperature and holding time: Foods must be kept hot or cold as appropriate until served. Excessive holding time can result in reduced product quality to the point where the food becomes unsuitable for service. What could hurt a food and beverage operation more than an outbreak of food-borne illness because proper food holding equipment is not available or staff are not trained to work safely and maintain cleanliness around foods. Updated Job Descriptions: All staff members must clearly understand the exact duties of service personnel. Job descriptions listing required tasks, responsibilities, and other concerns for each position can accomplish this. Job descriptions are helpful management tools. Food Appearance: Do not neglect food appearance. To some extent, guests eat with their eyes. Food and beverage should look attractive when served. Creative garnishes, how food is placed upon plates, and wiping plate rims to remove spilled sauce al aid appearance. The products





6. 7.




appearance and presentation influence the guests perception of value and willingness to pay for menu items. Expediters: Consider using an expediter. An expediter helps communication between production and service personnel. This staff member controls the process of turning in orders and picking up food items. In some properties, the food server turns in the order to the expediter. He or she punches the order into a time recorder to monitor production times. The expediter also resolves disputes about when the order came up, and calls out or gives order information to cooks or servers. The expediter can coordinate order pick ups to help ensure that the entire order is ready at the same time and that the server picks up the complete order as soon as it is ready. The expediter may also check portion size and appearance, ensure that all items on the servers tray are recorded on the check, and verify the prices of items on the manual guest checks. However, even when an expediter is used, the chef still should have control over and responsibility for the quality and appearance of all food items served. Food Checkers: A food checkers can help control product quality and cost. This staff member examines each tray before it leaves the pickup area. Frequently, food server must pass the checkers station on the way to the dining room. In addition to reviewing plates for appearance, portion size, and related concerns, the checker also plays an important role in the operations sales income control system. Depending on the system, the checker may collect a copy of the guest check and compare items on the check with those in the plate. Service personnel may give payments collected from the guests to the checker, who confirms that the amounts are correct.

Computerized pre-check systems An effective way to achieve control over the production to service link is through the use of a computerized precheck system. Precheck system are composed of both hardware and software aimed at operational efficiency through sound internal control. Precheck software usually resides in an electronic cash register (ECR) or point-of-sale (POS) terminal that is connected to local and remote printer. These connections form a communication network between production work areas and service stations. Basically, the server enters an order through a precheck terminal which, in turn, relays the recorded items to the proper work station for preparation. Computerized precheck systems ensure that no food or beverage items are produced unless they have first been recorded (accounted for) in a precheck file. The elimination of actual order presentation to kitchen personnel or bartenders assures management that production will not begin without a sale being posted. Some automated systems enable managers to randomly review guest checks while they are being processed. This allows managers to verify that items ordered are in fact being served. ECR/POS Technology. These are the hardware components of food service computer system. An electronic cash register is an independent computer system. The registers key serves as an input device. A point-of-sale on the other hand contains its own input/output units and may even possesses a small storage (memory) capacity but does not contain its own central processing unit. In order for POS transactions to be processed, the terminal must be connected to a central processing unit that is located outside the terminals housing. In addition to ECR and/ or POS terminals, food service computer systems generally require additional hardware components, such as: Order Entry devices Order entry device include keyboard, touch-screen terminals, hand held terminals, and magnetic strip readers. The most common order entry device is the keyboard. Display units in addition to an order entry device, ECR and POS terminals contain an operator display unit ( a monitor) enabling the user to review and edit entries. An operator display unit helps the user check transactions in progress and responds to prompts necessary for carrying out various system procedures. Printers guest check printers are standard ECR/POS output devices. Sophisticated guest check printers have automated form number reader capability, which enable user to access to


the correct guest check amount rapidly. The printers are usually used for printing receipts, checks etc. Automated beverage control system Automated beverage control system may enhance production and service capabilities while improving accounting and operational control. A beverage control unit is the brain of an automated system. This control unit is generally located close to a beverage storage area and is primarily responsible for regulating all essential mechanisms within the system. The unit communicates requests from order entry terminals to the systems delivery network and directs the flow of beverages from a storage area to a dispensing unit. Automated beverage control systems may use different kinds of sensing devices to increase operational controls within the system. Three common sensing devices are glass sensors, guest check sensors, and empty bottle sensors. A glass sensor is an electronic mechanism located in bar dispensing unit that will not permit liquid to flow form the dispensing unit unless there is a glass positioned below the dispensing head to catch the liquid. Guest check sensors prevent the system from fulfilling beverage orders unless they are first recorded on a guest check. When a server or bartender places a beverage order whose ingredients are out of stock, an empty bottle sensor relays a signal to the order entry device. The following sections examine the basic components of an automated beverage control system: an order entry device, a delivery network, and dispensing units Order entry devices: The primary function of an order entry device is to initiate activities involved with recording, producing, and pricing beverage items requested by guests. There are two basic order entry devices: a group of present buttons located on a dispensing unit, and keyboard units. A group of preset buttons on a dispensing unit is the most popular order entry device, but is has only 16 preset buttons, so the number of beverage items under the control of the automated beverage system is limited. Keyboard units place a large number of beverage items under the control of the automated system. Keyboard units are most effective when equipped with a guest check printer that has an automatic form number reader and automatic slip feed capabilities. Delivery network: An automated beverage control system relies on a delivery network to transport beverage item ingredient from storage areas to dispensing units. The delivery network must be a closed system capable of regulating temperature and pressure conditions at various locations and stages of delivery. Almost any type of liquor and accompanying liquor ingredient can be stored, transported, and dispensed by an automated beverage control system. Portion sizes of liquor can be controlled wit remarkable accuracy. Standard revenue and guest check control systems In many food and beverage operations, a guest check system is at the heart of sales income control. The standard revenue is the total amount of all individual guest checks added together after they are accounted for. The reliability of this system depends on the waiters following strict procedure while processing the checks/ bills. There are two types of guest check control system; a) Manual guest check system and b) Automated guest check system. Manual Guest check system. A fundamental income control procedure requires the servers neatly write all food and beverage orders on guest checks. All the corrections in the check must be verified by the manager or supervisor.


Before food or beverage items are produced, servers must provide appropriate production staff with requisition slip. The server lists items on a requisition slip, and also records his or her name and the serial number of the corresponding guest check. Some operations use a duplicate guest check system for food orders. With this system, each guest check ahs at least two parts. The server gives the duplicate copy to the kitchen and keeps the original copy for presentation to the guest. When the guest is ready to pay, the guest check is tallied. Requisition slips and duplicate checks are useful for routine guest check audit functions. At the end of a meal period, the manager matches requisition slips (or duplicate copies of guest checks) turns into the kitchen with the corresponding guest checks for which income has been collected. This procedure identifies differences between what was produced and served. Routine audits of guest checks may also reveal mistakes made y servers in pricing items on guest checks or in calculating totals. These mistakes should be brought to the attention of the responsible staff members. By conducting routine audits of guest checks, management indicates to employees its concern about effectively controlling the propertys income collection system. Other procedures apply to sales income control with a manual guest check system are: 1. 2. 3. Guest checks should be unique to the property. It should be hard to duplicate Guest check should be sequentially numbered and a record kept of which checks are given to which employee. All checks issued to each server must be accounted for at the end of a shift.

Automated guest check system. Many automated systems are pre-printed, serially numbered guest checks similar to those used by operations with manual guest check systems. Before entering an order, the server must open the guest check within the system. This is usually accomplished by inputting the servers identification number and the guest checks serial number. After the proper log in to the system the orders are entered and relayed to remote printers located at appropriate production areas. Once a guest check has been opened, it becomes part of the systems open check file. It contains - Terminal number - Serial number - Server id - Time guest check was opened - Menu item ordered - Prices - Tax - Total amount due A server adds additional order by entering the guest check serial number then entering additional items. Electronic cash registers and point-of-sale technology simplify guest check control functions and eliminate the need for many of the time-consuming manual audit procedures. Other advantages of Automated precheck system are: Eliminates mistakes made by server in pricing items on guest check or in calculating totals. At any point in time, managers and/or supervisor can access the system and monitor the status of any guest check. The status of a guest check changes from open to closed when payment is received from the guest and it is recorded in the system. Most automated systems produced an outstanding checks report which lists all guest checks that have to been settled. Assessing standard beverage revenue. Many organizations find it very difficult to assess the beverage income due to non-automated guest check system. The disadvantages are due to Time requirements for the bar tender to record guest check information. Impracticality of separating preparation, service, and collection activities. -


Managers of non-automated beverage operations can use a number of methods to control beverage income. Many of these methods match the number of ounces of liquor used with the amount of sales income generated. Some of the methods can be very time consuming. The following section examines the bottle sales value method, which is practical and yields reasonably accurate information. Bottle sales value system. The bottle sales value system estimates the amount of sales income expected from a bottle of liquor. The beverage income standard is determined from the number of empty liquor bottle. This standard is then compared with the amount of actual sales income generated. Differences represent the variance between standard income and actual sales. For example, at end of a shift, three bottles of whisky are issued in exchange for three empty bottles. If each empty bottle had a sales value of Rs. 2250, then Rs. 6750 in sales should have been generated from the sales of whisky during the shift. This system does not account for opened bottle, and assumes that it evens out over time. The usefulness of this system depends on how accurately bottle sales values are determined. The procedure for calculating bottle sales values involves examining the historical sales mix in order to establish a weighted average sales value per bottle. Preventing theft of revenue by staff and guests Method of Theft or Fraud in the Bar. As discussed in the preceding chapter, controlling the beverage storeroom is relatively easy using the procedures outlined. Unfortunately, controlling the bar is not easy, particularly when the bartender is also responsible for handling cash from beverage sales. Many situations may permit theft or fraud if a bartender or beverage server is dishonest. 1. 2. 3. Under pouring five drinks by, say one-sixth normal measure, not recording the sale of each sixth drink, and pocketing the cash from that drink. Using personal drink measuring devices that are smaller than the house ones, with the objectives of achieving item. Diluting liquor with water and keeping the cash from the additional drinks sold. This is particularly easy to do with gin, vodka, and tequila, as there will be no color change. With the brown liquors any color change can be reversed by also adding a little tea. And if the bartender uses these dilute brands only with mixed drinks, the customers are highly unlikely to notice any minor taste change. The only effective way to check for this is by chemical analysis. Bringing in liquor purchased personally, selling the contents not recording the sales, and pocketing the cash. Not recording the sales of individual drinks until they add up to the normal number of drinks from a full bottle, recording the sale as cash sake of a full bottle, and disposing of the bottle. Because the full bottle sale price is usually less than the accumulated sales of individual drinks, the bartender can pocket the difference. Substituting a house brand for a call brand (which usually sells at higher price) charging for the call brand, and pocketing the difference of filling an empty call brand with a house brand, in this case, no one will notice that the wring bottle is being used. Selling drinks: recording them as spilled, complimentary, or a walkout, and pocketing the cash. Over charging the number of drinks served to a group of customers who are running up a tab to be paid later. If automatic drink measuring and dispensing devices are used, obtaining the drink, say for example, five drinks, spreading this content into six glasses, and pocketing the cash from the sixth drinks. Over pouring drinks (and under pouring other to compensate) to influence a guest to buy the bartender a drink. Using private sales checks rather than those authorized be the establishment. Reusing an already paid sales check. Losing sales checks after the guest has paid. Changing sales check items and prices after the customer has paid. Bringing in empty bottles, exchanging them from the storeroom for full ones, and selling from the full ones without recording the sales.

4. 5.

6. 7. 8. 9. 10. 11. 12. 13. 14. 15.


16. Using a fraudulently obtained credit card, convert cash sales into charge sales and pocketing the cash. 17. Using a customers legitimate credit card, running through some blank charge vouchers with that card, and later transferring cash sales to those voucher. A bartender doing this usually is eventually caught when the credit card issuing company receives complaints about the fraudulent charges. 18. A hosted banquet functions (at which the hosting organization pays for all drinks that customer consume) removing unsold bottles for personal use or transferring them for sale at the regular bar, and charging the customer for those bottles. 19. Recording the sale of every drink, but from time to time showing and registering the sale as al beer rather than a more expensive highball or cocktail, and removing the difference in cash. 20. Pre-recording and registering the sale of drinks (which have actually been sold) at lower than normal prices during the happy hour and pocketing the cash difference when these drinks are actually sold at normal higher prices later on. Alternatively, unsold drinks can be recorded as sales during normal periods, end when actually sold at higher prices during an entertainment period, a bartender can again pocket the difference in cash. The use of different colored guest checks during these special periods could help prevent this. 21. Not recording sales of straight soft drinks, as the sales revenue from these is often not controlled in many bars. 22. Breaking a used empty bottle and claiming it was an accident and receiving a replacement full one that can be sold for the benefit of the bartender. 23. Short-pouring cocktails that contain a number of different alcoholic ingredients and filling up the cocktail with extra amounts of non-alcoholic ingredients such as cream, egg white of lemon juice. Theft by guests. Unfortunately, some guests will also steal from the food and beverages operation if given the opportunity. The following section describes some methods guests may use to steal from the property. 1. 2. 3. 4. 5. 6. 7. 8. Taking advantage of staff errors. Walking out before paying the bill Disclaiming transfer charges Theft of property Passing worthless checks Using fraudulent credit cards Passing counterfeit currency Short-changing cash-handling employees

Preventing thefts Following are some thefts are the prevention methods Theft method Collect cash and void sales checks Collect cash and record sales as a charge Collect cash, claim customer walked out Remove cash, claiming shortage Make payments from register for personal expenses Underadd cashiers reports Fail to record miscellaneous income (vending machine proceeds, grease sales etc) Prevention method Sales check must be matched with duplicates; management must okay all voids See procedures for processing credit card charges Walkouts should be tallied by employee; more than very occasional walkouts cal for retaining or more supervision Actual sales income known via double-check system Imprest petty cash system A non-cashier employee should process or at least review all income reports detailing cashier transactions. Miscellaneous income should be paid to management, not to the cashier.


Incorrectly use cash register/data machine Ring up on another cashiers key Collect income, claiming guest refusal to pay Receive cash, destroy ticket claiming ticket was not received Collect cash and charge ticket to show reduced amount owned

All cash register operating procedures should be strictly followed and supervised When possible each cashier should have a separate register, drawer, or access key These situations should be referred to management If problem occurs more than very occasionally, a sign off system should require the cashier to accept responsibility for tickets received from servers All procedures for guest check control should be in place. Match up original and duplicate checks.


CHAPTER 6 CALCULATION AND EVALUATION ACTUAL FOOD & BEVERAGE COSTS Monthly calculations of actual food and beverage costs Calculations of actual food and beverages costs are based on the same set of information used to develop financial operating statements. Generally, financial statements for food and beverage operations are developed monthly. Generally the income statements will express cost of sales in rupees and in percentage of revenue. The basic monthly cost of sales for food and beverage is calculated as follows. Cost of sales = Beginning inventory + Purchases Ending Inventory For example, assume: Beginning Inventory Purchases Ending Inventor Cost of Sales Food RS. 1,24,500 85,000 1,12,250 Rs. 97,250 Beverage Rs.36,800 29,000 27,000 Rs. 38,000

+ -

+ -

The food or beverage cost percentage is calculated by dividing the cost of sales by the revenue amount and multiply by 100: Cost of sales Revenue * 100 = Cost percentage

For example, assume that food revenue is Rs. 2,85,500 and that beverage revenue is Rs. 1,54,500. The food cost percentage and the beverage cost percentage can be calculated as follows. Food cost percentage Food Revenue Rs. 97,250 Rs. 2,84,500 Beverage cost percentage Beverage Revenue Rs. 38,800 Rs. 1,54,500 * * 100 100 = = Food Cost Percentage 34.18 %


Food Cost Percentage


25.11 %

Actual daily food cost calculations Monthly calculations of actual food and beverage cost are sufficient to yield information required for monthly accounting statements. However, for control purpose, some food and beverage operations may want more timely information about actual costs against which to compare standard cost estimates. Therefore some properties use a practical daily food cost control system to help reduce the variances.


Two components of daily food cost are directs and stores. Directs are typically perishables fresh produce, bakery, and dairy products purchased more or less on a daily basis for immediate use; they are not entered in inventory records. Directs are purchased food products charged to food costs on the day they are received. Because directs are considered a food cost when received, they must be assessed daily. Stores are charged to food costs as they are issued. All foods are ultimately perishable, but these items can generally be stored for a longer period of time than can directs. When received, they are entered onto the daily receiving report. When needed for production, they are withdrawn from inventory through the issuing process Two source documents provide reasonably accurate information for calculating actual daily food costs. Cost of daily directs comes from the daily receiving report. Cost of daily stores used in production comes from the sum of requisitions. If an operations standard food cost calculation includes adjustments for food transfers, beverage transfers, employee meals, and / or complimentary food and beverage, these should also be made to daily food cost calculations. Calculating Actual Daily Food Cost. If the receiving report and requisition forms are completed daily, it is easy to assess the actual daily food cost. While reviewing the actual daily food cost worksheet, note that the information for each day is listed separately. The unadjusted daily food cost is calculated by adding the opening inventory to all the purchases direct as well as store issues and reducing the value of stocks in hand. For example:

Opening Inventory


Closing Inventory

Unadjusted Food Cost

However this food cost cannot be used to calculate the daily food cost, as there are many other latent costs such as pilferage, staff food, wastage etc. that may remain hidden and will not figure in the cost statement thus giving incorrect information to the manager. So that it is necessary to calculate the adjusted food cost by adjusting such latent food costs. For example: Total Cost + Increasing Adjustments + Decreasing Adjustments = Total Daily Cost

Any factors that increase food cost, such as transfers to food from beverage, are added to the cost. Similarly, factors that reduce food costs such as transfers from food to beverage, cost of employee meals, or complimentary meals are reduced from cost. Important Adjustments are shown in the table below. CALCULATION OF COST ADJUSTMENTS Cost of Food Cost of Beverage Value of Beginning Inventory Value of Beginning Inventory (+) Purchase (+) Purchase (-) Value of Closing Inventory (-) Value of Closing Inventory (=) Unadjusted Food Cost (=) Unadjusted Beverage Cost


(+) Transfer to Kitchen (-) Transfer from Kitchen (-) Value of Complementary Meals (+) Value of Employee Meals (+) Food Spillage (+) Theft and Pilferage (Food) (+) Over Portioning Expense (Food) (-) Grease Sales (+) Cooking Liquor (-) Gratis to bar (=) Adjusted Food Cost/ Net Food Cost Figure showing the calculation of Net Cost of Sales Procedures for comparison and analysis

(-) Transfer to Kitchen (+) Transfer from Kitchen (-) Value of Complementary Drinks (-) Value of Employee Drinks (+) Beverage Spillage (+) Theft and Pilferage (Beverage) (+) Over Portioning Expense (Beverage)

(=) Adjusted Beverage Cost/ Net Beverage Cost

To compare expected results with actual results, standards must be established and actual costs must be assessed. The comparison is to analyze how successful an operation has been in meeting goals. Any differences (variances) between expected and actual results must be analyzed. Current income statements and selected management reports contain information about actual costs. The current income statement, prepared by the bookkeeper or accountant, shows the cost of sales the food and beverage expense incurred in generating income for the current month. The other internal records report daily operating information. These are developed by management staff to reflect daily and to-date the actual costs of food and beverages. The comparison process. There are a number of methods of evaluating the actual success of a food and beverage operation in meeting its goals. The comparison is made between, 1. 2. 3. 4. Industry averages Past financial statements Operating budgets Specific property requirements

Identifying problems and taking corrective action Comparisons often reveal that the actual cost to be higher than the standard cost. Managers commonly set a predetermined variance, which is permissible and not requiring corrective action. A variance between standards and actual costs does not automatically mean that a problem exists. The difference may be explainable. If the variance cannot be explainable, a serious problem may exist, which needs a close attention. Variance can be caused by: Failure to follow required procedures designed to keep costs within acceptable limits. Theft of income or failure to collect all income. Both of these, of course, raise the food or beverage cost percentage. Often, the food cost percentage is excessive, not because food costs are too high, but because theft of cash is decreasing food revenue.

The more specific the standard cost, the easier it is to identify the problem. Identifying the problem requires asking such questions as: Are gross sales decreasing? Why? Is the check average decreasing? Why?


Trend analysis or indexing, which shows changes over time, may help put production costs in historical perspective. A checklist for profitable food operations and checklist of profitable beverage operations list specific procedures to control food and beverage costs. The most important procedures may become the basis for standard operating procedures that personnel are required to follow. Management should study the lists routinely, update and revise them as necessary, and ensure that the procedures are being followed consistently. When variances between standard and actual costs are found, the checklists and standard operating procedures should be carefully reviewed. This practice may identify factors contributing to variances between standard and actual costs. Once problems have been identified, management must determine the need for corrective action. Several factors become relevant when considering strategies to be implemented. The probability of success reduction of variance must be weighed for all possible alternatives. All costs of implementing the corrective action must be known there can be no surprises. Knowing what has or has not worked in similar situations in the past is an excellent clue to resolving current problems. It must be possible to implement the chosen plan. The best plan to resolve a problem is often a compromise or a mixture of several possible solutions. In some instances, alternatives can be tried on a limited basis rather than implemented throughout the operation. Studying similar operations, reviewing books and trade journal articles, discussing problems with peers from other properties, and attending professional association meetings and educational seminars often generate useful ideas to help solve problems

Use for computer pre/post costing software. The existence of an ingredient file, standard recipe file, and menu item file enable the development of effective precost (prior to service) and postcost (after service) calculations. The ingredient file contains a list of all purchased food items and their current purchase costs. The recipe file holds the formulations of ingredients needed to produce the operations menu items. The menu item file consists fo the list of recipes to be served and the number (projected or actual) of portions associated with each. Precost analysis. Precosting yields a standard cost that enables an operator to accurately evaluate a meal plan relative to budgetary constraints before service. The precost analysis produces projected cost data based upon the application of ingredient costs across recipe offerings. Computer speed and accuracy assure management of sufficient planning time. Manual equivalent procedures are tedious, cumbersome, and at best completed just prior to service. Postcost analysis. There are two types of postcost analyses each performed with actual counts but with differing food (recipe) costs. Immediately after meal service, actual counts are multiplied by standard recipe costs (the same costs as in precost anaylysis) to produce an ideal food cost. Actual counts can be derived from a cash register, a precheck system, or a manual count. Once a physical inventory is taken and actual usage is known, actual counts are used again to generate actual costs. The computer employs previously constructed data files (ingredient, recipe, and menu) to produce analytical costing reports. This minimizes both data re-handling and elapsed time from input to output. In addition to cost reports, pre/postcost systems can be used as a base to produce purchase orders, inventory replenishments, stockroom breakout quantities, labor scheduling forecasts, production area repowers, and


the like. Many operators also elect touse pre/postcosting for meal period simulations, ingredient substitution evaluation, and potential menu item trending.