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Actual F&B Costs
 

Actual F&B Costs

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Cost of Food & Beverage - Computing Food and Beverage Costs, Inventory Valuation - LIFO / FIFO / WAM

Cost of Food & Beverage - Computing Food and Beverage Costs, Inventory Valuation - LIFO / FIFO / WAM

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  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Numerically: We can say that if the Standard Food Cost of a F&B Operation is 40% of Revenue, then the Actual Cost must also be expressed similarly as a % of the Revenue. This allows for ease of comparison. If the Actual Food Cost were expressed as $ 250,000 then it is not possible to draw a comparison between the Standard and the Actual.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Numerically: If the Standard Food Cost for a F&B operation is computed as 40% across all meal periods, then the Actual Costs must not be computed as a % of Revenue for individual meal periods – Example: 39% for Breakfast, 40 % for Lunch, 41% for Dinner.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Factors? These may be Beverage Transfers from the Bar to the Kitchen (say, a bottle of wine which might be required in order to prepare a sauce); Food Transfers from the Kitchen to the Bar (say, Pineapple / Lemons / Oranges etc. which might be used as a Garnish for Beverages); Employee Meals and Complimentary meals deductions from the Food Cost.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh A timely computation of Actual Costs becomes very essential as it aids the Decision Makers to take Corrective Action in there is a Deviation of the Actual Costs from the Standard and Planned Costs.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Accuracy is in part a function of the amount of time spent on collecting the information required to compute actual Food Costs. If the development and collection of extremely accurate Cost Information requires an excessive amount of time, then it will not be practical to assess the Actual Food Costs accurately. There is a Cost Benefit Consideration here.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Information that is collected during this process becomes a basis for the preparation of Financial Statements and hence a source of data which can be used to compute Actual Food Costs.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: Beverage Data is not included. Another Format is used to identify the Financial Status of Beverage Operation. Adjustments to the Cost of Food are made. These are discussed later in the Chapter.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: The Source Documents for the Purchases is the Delivery Invoice. Larger Operations with Formal Accounting Procedures may post information from the Delivery Invoice into a “ Purchase Journal” after payment. This source, representing Invoices for Products Received and Paid for Plus Delivery Invoices representing Products Received but not as yet Paid for maybe Totaled to determine the Total Value of the Purchases during the month / Accounting Cycle Period.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh In case the Daily Receiving Reports are completed correctly on a day to day basis, they will by default segregate Food and Beverage Purchases. This helps to save Time needed otherwise to make these Calculations.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh The above 3 Factors should be discussed at length and a consensus materializing in the form of a Policy for the above must be evolved. This ensures there is a Consistency in our Closing Inventory and the Value will enable comparisons of Actual F&B Costs with those from the Previous Accounting Cycles.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: The Highest in the range of Prices obtained is $ 467.00 and the Lowest is $ 440.00 This constitutes a difference of $27.00 only which might be insignificant in this case. However, in the above case, we are considering only one Product. However, in a F&B Operation there maybe numerous products depending upon the complexity of the Operation and the Quantities involved may be fairly large in which case the differences between the Maximum and the Minimum in a Range of Prices would be in Thousands of USD. Such a difference is not acceptable as it would be misleading to base our judgment on Cost Of Sales computed, especially when there is no CONSISTENCY in the Valuation of Inventory.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: Employee Meal Costs are included in the Unadjusted Cost of Sales. However, Employee Meals Costs are not directly related to generating Revenue. Including the Cost of Employee Meals in the Cost of Sales for Food would make the figure Inflated and not paint a clear picture upon which Management Decisions could be based.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: Some Food and Beverage Managers will use the Unadjusted Cost of Sales because they believe that the Increased degree of Accuracy does not warrant the increased amount of time it takes to make the adjustments. When Adjustments are made to the Basic Cost of Sales, the amount deducted must be charged to some other Expense Category. Managers who want an accurate picture of the Cost of Sales for Food and Beverage may carry some or all the Adjustments listed above. However, all adjustments made in the case of Basic Cost of Sales of F&B must also be reflected in the Computation of Standard Food Costs in order for the comparison between the two to be meaningful. The Cost of Sales is compared with the Standard Food & Beverage Costs, Budgeted Figures for Food and Beverage and Past Financial Statements.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: Large Hotels with Multiple Food and Beverage Outlets also make another use of the Transfer Memos. Each Food & Beverage Outlet of the Hotel is seen as a Revenue Center. Whenever, these Outlets requisition for F&B Products, charges of the Products are Debited to the Revenue Centers.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: Procedures for Computation of Employee Meals Costs are very complex. Hence, for the purpose of understanding we simply say that a Fixed Costs is derived and multiplied by the No. of Employee Meal Costs.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: In Large Hotels with Multi – Unit Food & Beverage Operations, Entertaining Clientele or important Business Associates and Contacts is very common. It is generally Sales and Marketing Personnel who would often invite their important Accounts to a Lunch or a Dinner in one of the Hotel’s Outlets. Entertainment might also include Prospective Clients to given them a Feel of the Hotel. All such Entertainment is documented in the form of an Entertainment Check which is usually signed by the S&M Executive and then sent to the H.o.D of S&M for Authorization. Cost of Food and Beverage incurred on such Entertainment is summed up at the end of the month and debited to the Sales and Marketing Department for which they have a Budget.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: Suppose something goes wrong in the Beginning of the month and continues till the end of the month. Another several days may elapse before Actual Operating Data is converted into Financial Statements / Accounting Reports. When these reports are then compared with the Standard Costs, the problem is finally discovered. However, so much time has now elapsed between now and when the problem had started. So much money that could have been saved if the problem was nipped in the Bud is now lost. Hence, some operations use a Daily Food and Beverage Cost Control System. Let us take the example of of Theft of Alcohol . In this case, the Bartender is consuming Alcohol while on his shift. This would increase your Alcohol consumption with no increase in Sale. As Beverage Cost % = Total Cost of Beverage Consumed / Total Beverage Revenue * 100 , hence we can say that the Beverage Cost % would be higher. If we had a monthly computation of actual Food and Beverage Costs then a problem which started at the beginning of a month would be discovered only by the II week of the next month when the Financial Reports were ready for Interpretation. But it is too late to take corrective action and prevent the loss of money which is now lost forever.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: As discussed in the above slide, Directs are more or less purchased on Daily basis. They are generally inexpensive items and highly perishable in nature. They are sent to the Production Areas or Processing Areas soon upon receiving for immediate use. Upon arriving at the hotel, the Receiving Clerk will inspect the Products and the same will be entered into the Daily Receiving Report (DRR). After this the products will be sent up to their designated areas for usage. At the end of the day, the Directs received are summed and the total is charged to the Food Cost. These are not inventory items and will not be entered into the Inventory Records even if they might be stored in the Refrigerator in the Stores to upkeep the Quality till required for consumption.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: It is interesting to note that Meats and Seafood though being highly perishable items are considered as Store Items or Inventory Items. This is because these items are very expensive and would inflate Food Costs upon day of receipt if treated as directs. Also, since these items are expensive, the issue of Controls becomes more important and their consumption must be documented. They also have to be kept in the best of conditions until required for preparation as the deterioration factor in these Raw Materials is very high.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: Computer Applications in the Food and Beverage Operation have enabled Operators exercise a greater control over costs. Using Pre – Costing Analysis, the Operator can evaluate each Meal Period prior to Service in terms of his Food Costs. These Costs can be easily obtained using the Pre – Costing Feature in most Recipe Management Software. The Costs generated by the Pre – Costing Analysis can be then compared to Planned Costs or Budgeted Costs. If the Meal Period Costs exceed the Budgeted Costs then the Operator has to alter his Menu offering for the Meal Period in order to comply with Budgetary Constraints.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh Note: The same justification as in the case of the “Need for Daily Actual Food Costs” can be given in the case of the “Need for Daily Actual Beverage Costs”. It help to take corrective action before it is too late and the Operation suffers major losses.
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh
  • Actual Food & Beverage Costs Food & Beverage Management - III Yr. - Bhavin Parekh

Actual F&B Costs Actual F&B Costs Presentation Transcript

  • CALCULATING ACTUAL FOOD & BEVERAGE COST Food & Beverage Management III Year Prepared By: Bhavin Parekh
  • Chapter Outline
    • Actual Food & Beverage Costs : Monthly Calculations
      • Cost of Sales
      • Sources of Information for Basic Cost of Sales
      • Calculating the Value of Inventory
      • Adjustments to Basic Cost of Sales
  • Chapter Outline
    • Actual Food Cost: Daily Calculations
      • Components of Daily Food Costs
      • Sources of Actual Daily Food Cost Information
      • Calculating Actual Daily Food Cost Information
  • Chapter Outline
    • Computerized Pre / Post Costing Software
    • Actual Beverage Cost: Daily Calculations
      • Principles for Calculating Actual Daily Beverage Costs
      • Procedures for Calculating Daily Beverage Costs
    • Averaging Shift Costs
    • Bartender Performance Review
  • Objectives
    • Calculate the Basic Monthly Cost of Sales for Food & Beverage .
    • Use the FIFO Method to calculate the Inventory Value.
    • Use the LIFO Method to calculate the Inventory Value.
  • Objectives
    • Use the Weighted Average Method to calculate Inventory Value.
    • Identify Adjustments to calculate a monthly Net Cost of Sales for F&B.
    • Identify factors that affect daily calculations of actual food and beverage costs.
  • Introduction
    • Why do we calculate the Actual Food & Beverage Costs?
      • We compute Actual F&B Costs so that we can compare them to Standard Costs (Obtained from Analyzing F&B Sales Report over a Period of Time) or Planned Costs (Obtained from Projections in the Budget).
  • Introduction
    • Rules relating to computation of Actual Food & Beverage Costs:
      • Why do we require them?
        • In the computation of Actual F&B Costs we need to follow certain rules so that the Actual Costs are comparable to Standard Costs / Planned Costs.
  • Introduction
    • Rules relating to computation of Actual Food & Beverage Costs:
    • RULE 1
      • The Actual Costs must be stated in the same manner as the Standard Costs / Planned Costs.
  • Introduction
    • Rules relating to computation of Actual Food & Beverage Costs:
    • Rule 1 – Example:
      • If the Standard Food Costs are expressed as a % of the Revenue, then the Actual Food Cost must also be expressed in the same terms. This allows ease of comparison between them.
  • Introduction
    • Rules relating to computation of Actual Food & Beverage Costs:
    • Rule 2
      • Actual Costs and Standard Costs must be computed for the same meal period. This will make the Costs truly comparable.
  • Introduction
    • Rules relating to computation of Actual Food & Beverage Costs:
    • RULE 2 – Example:
      • If Standard Costs are expressed as a % of Revenue across all Meal Periods, then the Actual Costs should not be computed as a % of Revenue individually for Breakfast, Lunch and Dinner.
  • Introduction
    • Rules relating to computation of Actual Food & Beverage Costs:
    • RULE 3
      • Factors used in the Computation of Standard Food Costs must also be used in the computation of Actual Food Costs.
  • Introduction
    • Rules relating to computation of Actual Food & Beverage Costs:
    • RULE 3 – Example:
      • If you have not deducted the Cost of Employee Meals in the Calculation of Standard Costs, then the same must be followed for the computation of Actual Costs.
  • Introduction
    • The Computation of Actual Costs must be on a timely basis .
    • The Reason for this is because Decision Makers must know as early as possible if and to what extent Actual Costs differ from Planned and Standard Costs.
  • Introduction
    • Accuracy Factor :
      • The Actual Cost computation must be accurate.
    • Why Accuracy is required?
      • Accuracy in Actual Cost Computation is important because good decisions cannot be based on inaccurate Cost information.
  • Introduction
    • How much time would you spend on computing accurate Actual Costs?
      • Managers must be able to justify the time they spend on generating & collecting increasingly accurate Cost related information.
      • A decision must be made as to how much time they need to spend collecting Cost related information. You have to evaluate the above in terms of CBA – COST BENEFIT ANALYSIS .
  • Actual F&B Costs – Monthly Calculations
    • Computations of Actual F&B Costs are based on the same set of information used to develop Financial Operating Statements .
    • Financial Operating Statements are developed periodically – mainly on a monthly basis or a Quarterly Basis.
  • Actual F&B Costs – Monthly Calculations
    • Defining the Cost of Sales :
      • It is defined as the Cost of F&B incurred to produce all Food and Beverage sold during an accounting period.
  • Actual F&B Costs – Monthly Calculations
    • Generally the Income Statement will express Cost of Sales as Total Dollars.
    • The Cost of Sales is also represented as a % of the Total Revenue or Sales.
      • (Refer: Sample Income Statement in the format of Uniform System of Accounting {USA} approved by the NRA – National Restaurant Association).
  •  
  • Actual F&B Costs – Monthly Calculations
    • Inference from the Sample Income Statement :
      • 35% of the Food Revenue was used to Purchase Food Products necessary to Generate Food Revenue.
      • 27% of the Beverage Revenue was used to Purchase Beverage Products necessary to Generate Beverage Revenue.
  • Actual F&B Costs – Monthly Calculations
    • The Uniform System of Accounting (USA) recommends a Format that a Food Department in a Lodging Property can use to gain relevant financial information.
      • ( Sample of the Format shown on MS - Excel )
  • Actual F&B Costs – Monthly Calculations
    • Cost of Sales: The Basic Calculations
      • The Basic Cost of Sales for F&B is computed as follows:
    • Cost of Sales = Beginning Inventory
    • + Purchases
    • – Closing Inventory
                     
  • Actual F&B Costs – Monthly Calculations
    • Cost of Sales: The Basic Calculations
    • Example of computing 1) Cost of Food Sales:
    • Food Beverage
    • Beginning Inventory = $ 124500 $36800
    • Purchases = $ 85000 $29500
    • Closing Inventory = $ 112250 $27500
    • Cost Of Sales = $ 97250 $ 38800
  • Actual F&B Costs – Monthly Calculations
    • Cost of Sales: The Basic Calculations
      • Example of Computing 2) F&B Cost %
    • Cost of Sales x 100
    • Food / Beverage Cost % =
    • Total Revenue
  • Actual F&B Costs – Monthly Calculations
    • Cost of Sales: The Basic Calculations
      • Example of Computing 2) Food Cost %
    • Food Cost % = Cost of Food Sales x 100
    • Food Revenue
    • = $ 97250 x 100
    • $ 284500
    • = 34.18%
  • Actual F&B Costs – Monthly Calculations
    • Cost of Sales: The Basic Calculations
      • Example of Computing 2) Beverage Cost %
    • Beverage Cost % = Cost of Beverage x 100
    • Beverage Revenue
    • = $ 38800 x 100
    • $ 154500
    • = $ 25.11 %
  • Actual F&B Costs – Monthly Calculations
    • Sources Of Information for Basic Cost of Sales
    Required Information Cost Of Sales: Food Cost of Sales: Beverage Beginning Inventory Physical Inventory Forms (Last Month) Physical Inventory Forms (Last Month) + Purchases Daily Receiving Report (DRR) Daily Receiving Report (DRR) - Closing Inventory Physical Inventory Forms (End of Current Month) Physical Inventory Forms (End of Current Month)
  • Actual F&B Costs – Monthly Calculations
    • Sources of Information for Basic Cost of Sales :
      • For Purchases
        • The Value of F&B Purchases for the month can be obtained from the sum of the Daily Receiving Reports (DRR) for the corresponding period.
        • b) Delivery Invoices may be attached to these documents.
        • c) If all DRRs are completed correctly they will separate all Food and Beverage Purchases.
  • Actual F&B Costs – Monthly Calculations
    • Sources of Information for Basic Cost of Sales :
      • For Purchases
        • If the DRRs are not used by a Food & Beverage Operation the Value of the Total Purchases over a certain period would be represented by the Sum of the Delivery Invoices during that period .
  • Actual F&B Costs – Monthly Calculations
    • Sources of Information for Basic Cost of Sales :
      • For Closing Inventory
        • The Values of Ending Inventories / Closing Inventories can be directly taken from a Physical Inventory form.
        • Remember the Importance of Consistency in the following:
  • Actual F&B Costs – Monthly Calculations
    • Sources of Information for Basic Cost of Sales :
      • For Closing Inventory (Cont’d)…
      • The method used to compute the Cost of Inventory Items
      • Decisions such as how to treat the Value of Food Supplies in Workstations and the Value of Open Bottles behind the bar.
      • Whether items in Broken Cases, miscellaneous Storage Areas, or in the Process are to considered as a part of Inventory
  • Actual F&B Costs – Monthly Calculations
    • Sources of Information for Basic Cost of Sales :
      • For Closing Inventory – Computation of Value
        • Since Closing Inventory is essential in the computation of Actual Costs, it’s computation must be consistent and accurate.
        • There are essentially 4 methods of Inventory Valuation.
  • Actual F&B Costs – Monthly Calculations
    • FIFO Method
      • Basic Definition:
        • FIFO stands for First In First Out .
      • Approach to Inventory Valuation:
        • The FIFO approach assigns the first or least recent Product Costs to ISSUES – in other words, it values issues in the order in which the costs were incurred.
  • Actual F&B Costs – Monthly Calculations
    • FIFO Method
      • Approach to Inventory Valuation:
        • That is, since the least recent product costs were applied to the Products that were issued, the most recent Product Costs are applied to the Products left in the Inventory.
  • Actual F&B Costs – Monthly Calculations
    • FIFO Explained Diagrammatically
    STORES B $2.2 A $2.0 C $2.4 D $2.6 A $2.0 B $2.2 Receiving Issuing
  • Actual F&B Costs – Monthly Calculations
    • Numerical Example on FIFO:
      • At the end of August 2005, there were 28 cases of BBQ Sauce in the stores valued at $22.00/case. Hence, as on 1 September 2005, the Beginning Inventory of BBQ Sauce will be 28 cases.
      • During the month of September, the Stores Received 15 cases of BBQ Sauce valued at $ 23.80/case.
      • At the end of the month, the Physical Inventory Count reveals 20 cases available with the stores.
      • What will be the Value of the BBQ Sauce in our Inventory???
  • Actual F&B Costs – Monthly Calculations
    • Numerical Example on FIFO:
      • Opening Stock =28 Cases
      • Purchases =15 Cases +
      • Total Stock =43 Cases
      • Closing Stock = 20 Cases -
      • Total Consumption =23 Cases
      • In order to compute Closing Inventory, we would have to find the valuation of the 20 cases available in the stores.
  • Actual F&B Costs – Monthly Calculations STORES 28 BBQ $22.0 15 BBQ $23.8 23 BBQ $22.0 Receiving Issuing Opening Inventory 20 BBQ
  • Actual F&B Costs – Monthly Calculations
    • Numerical Example on FIFO:
      • As per the FIFO approach, least recent costs are assigned to the issues, therefore:
      • No. of cases with a unit value of $22.00/case= 5
      • Cost of Inventory = 5 x $ 22.00/case = $ 110.00
      • No. of cases with a unit value of $23.80/case=15
      • Cost of Inventory = 15 x $ 23.80 = $ 357.00
      • Hence, Closing Inventory Value = $110.00 + $ 357.00
    • = $ 467.00
  • Actual F&B Costs – Monthly Calculations
    • LIFO Method
      • Basic Definition:
        • LIFO stands for Last In First Out .
      • Approach to Inventory Valuation:
      • The LIFO approach assigns the last or the most recent Product Costs to issues. Consequently, the most recent Product Costs were applied to the Products that were issued, hence the least recent Product Costs are applied to Products in the Inventory.
  • Actual F&B Costs – Monthly Calculations
    • LIFO Explained Diagrammatically
    STORES B $2.2 A $2.0 C $2.4 D $2.6 D $2.6 C $2.4 Receiving Issuing
  • Actual F&B Costs – Monthly Calculations
    • Numerical Example on LIFO:
      • Using the same figures as in the above example we try to compute the Value of Closing Inventory by the LIFO Method:
        • Opening Stock =28 Cases
        • Purchases =15 Cases +
        • Total Stock =43 Cases
        • Closing Stock = 20 Cases -
        • Total Consumption =23 Cases
      • In order to compute Closing Inventory, we would have to find the valuation of the 20 cases available in the stores.
  • Actual F&B Costs – Monthly Calculations STORES 28 BBQ $22.0 15 BBQ $23.8 15 BBQ $23.80 + 8 BBQ $22.0 Receiving Issuing Opening Inventory 20 BBQ Balance
  • Actual F&B Costs – Monthly Calculations
    • Numerical Example on LIFO:
      • As per the LIFO approach, the most recent costs are assigned to the issues.
      • No. of cases with unit value $23.80/case = 0
      • No. of cases with unit value $22.00/case = 28 - 8
    • = 20
      • Hence Cost of Inventory = 20 x $ 22.00
    • = $ 440.00
      • Hence, Closing Inventory Value = $ 440.00
  • Actual F&B Costs – Monthly Calculations
    • Actual Cost Method
      • The Value of the Inventory is the Total Value represented by summing the Individual Unit Costs.
      • If the Actual Cost Method were used, then each case of BBQ Sauce would be dated and marked with it’s Actual Purchase Price and Receiving Date , before it is entered into storage.
  • Actual F&B Costs – Monthly Calculations
    • Actual Cost Method
      • In such a case, the Closing Inventory Value would be determined by physically counting the number of cases of BBQ Sauce at each Purchase Price .
  • Actual F&B Costs – Monthly Calculations
    • Issuing under Actual Cost Method
    STORES B $2.2 A $2.0 C $2.4 D $2.6 D $2.6 C $2.4 Receiving Issuing A $2.0 B $2.2
  • Actual F&B Costs – Monthly Calculations
    • Numerical Example of Actual Cost Method:
      • Let us assume that, according to an actual count made at the end of the month, there are:
        • 14 Cases of BBQ @ $ 22.00 /case
        • 06 Cases of BBQ @ $ 23.80 /case
        • Hence Value of Closing Inventory:
        • = (14 x $ 22.00) + (06 x $23.80) = $ 446.48
  • Actual F&B Costs – Monthly Calculations STORES 28 BBQ $22.0 15 BBQ $23.8 14 BBQ $22.00 + 9 BBQ $23.80 Receiving Issuing Opening Inventory 20 BBQ Balance
  • Actual F&B Costs – Monthly Calculations
    • Weighted Average Method
      • This method determines the Value of Inventory by multiplying the number of cases remaining in the inventory at the end of the month by the Average Price paid per case paid during the month .
  • Actual F&B Costs – Monthly Calculations
    • Numerical Example of Weighted Average Method
      • Beginning Inventory = 28 Cases
      • Purchases = 15 Cases
      • Total Stock = 43 Cases
      • Therefore,
      • Beginning Inventory Value = 28 x $ 22.00/case = $616.00
      • Purchase Value = 15 x $ 23.80/case = $357.00
      • Total Stock Value = $973.00
      • Average Price/Case = $973.00 / 43 = $ 22.63
      • Hence, Value of Closing Inventory = 20 Cases x $ 22.63
      • = $452.56
  • Actual F&B Costs – Monthly Calculations
    • Comparison of Inventory Valuations by Different Methods:
      • FIFO Method: $467.00
      • LIFO Method: $440.00
      • Actual Cost Method: $465.00
      • Weighted Average Method: $452.60
  • Actual F&B Costs – Monthly Calculations
    • Inference :
    • From the comparisons drawn between the Inventory Valuation Methods, the Method employed has a significant impact on the Value of the Inventory.
    • Hence it is upon the Head of F&B Operations to determine the Method to employ for Inventory Valuation and then to follow the same CONSISTENTLY.
  • Actual F&B Costs – Monthly Calculations
    • Inventory Counting Procedures
      • As a Control Measure Inventory counting should be assigned to a personnel who is not responsible for Daily Inventory / Storage Practices.
      • In large properties, it is the F&B Manager with the Accountant who carry out this task.
  • Actual F&B Costs – Monthly Calculations
    • Adjustments to Basic Cost of Sales:
      • Computation of the Cost of Sales with reasonable accuracy, helps to tell us how much we have spent on Food & Beverage (Cost Incurred) in order to generate the Revenue .
    • Why are adjustments required?
      • In order to make the Cost of Sales more meaningful , as the Unadjusted Cost of Sales also includes Costs not directly related to generating Revenue .
      • Example: Employee Meals (Free / Subsidized)
  • Adjustments to Cost of Sales Cost of Sales: Food Cost of Sales: Beverage Value of Beginning Inventory + Purchases - Value of Closing Inventory Value of Beginning Inventory +Purchases -Value of Closing Inventory Unadjusted Cost of Food Sales Unadjusted Cost of Food Sales -- Transfers from Kitchen + Transfer to Kitchen -- Cost of Employee Meals -- Complimentary Meals Beverage Food Labor Promos. -- Transfers from Bar + Transfer to Bar -- Complimentary Meals Food Beverage Promos. Net Cost of Food Sales Net Cost of Beverage Sales
  • Actual F&B Costs – Monthly Calculations
    • Food Transfers :
      • These are Transfers from the Kitchen to the bar and will result in the decrease of Food Costs.
      • Example : Pineapples being transferred to the Bar to be used as a Garnish for Pina Colada. Since, the Pineapple aids in the generation of Beverage Revenue, it is charged to Beverage Cost.
  • Actual F&B Costs – Monthly Calculations
    • Beverage Transfers :
      • These are transfers from the Bar to the Kitchen. These help in reducing the Cost of Sales of Beverage.
      • Example :
        • Transfer of a Bottle of Wine from the Bar to the Kitchen in order to prepare a sauce. The Wine aids generate Food Revenue and hence must be charged to Cost of Food.
  • Actual F&B Costs – Monthly Calculations
    • Transfer Memos:
      • When adjustments are made for Cost of Transfers (Food or Beverage), a Food / Beverage Transfer Memo is used as the Source Document.
      • A Memo is completed each time products are transferred between the Food and Beverage Departments.
  • Actual F&B Costs – Monthly Calculations
    • Transfer Memos: (cont’d…)
      • Transfer Memos can be held till the end of the Accounting Period, when all Transfers are added and the Adjustments made in the Cost of Sales .
      • Effect:
        • Transfers made to the Food Department will increase the Cost of Food and decrease the Cost of Beverage by the same amount and vice versa.
  • Actual F&B Costs – Monthly Calculations
  • Actual F&B Costs – Monthly Calculations
    • Employee Meals :
      • Employee Meal Costs are usually calculated by Multiplying a Fixed Amount (representing the Average Food Cost per Meal) by the No. of Employee Meals served .
      • This Cost may be deducted from the Cost of Food Sales and charged to Labor or Employee Benefit Cost.
  • Actual F&B Costs – Monthly Calculations
    • Complimentary Food & Beverage :
      • Complimentary Food & Drinks provided to prospective Guests touring the operation or for other purposes might reasonably be considered a Marketing Cost .
      • In the above case, the Cost of F&B Sales can be reduced and the amount deducted can be Debited to Marketing Account.
  • Actual Food Cost – Daily Calculation
    • Why do we require to compute Actual Food Costs on a Daily Basis?
      • Monthly computation of Actual F&B Costs is sufficient to yield information required for generating monthly Accounting Statements .
      • However, for the purpose of greater control , some F&B Operations want more timely information about Actual Costs against which they want to compare the Standard Costs / Planned Costs.
  • Actual Food Cost – Daily Calculation
    • Components of Daily Food Cost :
    Daily Food Cost Directs Stores Highly Perishable Items – Meats / Dairy Produce Inventory Items / Can be Stored for a longer time
  • Actual Food Cost – Daily Calculation
    • Directs :
      • Typical Characteristics:
        • Directs are typically inexpensive and highly perishable products.
        • They are purchased more or less daily and for immediate use .
        • Directs are charged to Food Cost on the day they are received even if they are not consumed on the same day. They are entered into the DRR and assessed daily.
        • Example: Dairy Products like Milk / Cream / Curd / Cheese.
  • Actual Food Cost – Daily Calculation
    • STORES :
      • Typical Characteristics:
        • Stores are charged to Food Costs as they are issued . These items are also perishable, however, they can be stored for a longer period of time than Directs.
        • Since, these items are purchased on the basis of Anticipated Need rather than Immediate Need, they are purchased in effect for inventory.
  • Actual Food Cost – Daily Calculation
    • STORES :
      • Typical Characteristics:
        • When received, these items are recorded in the DRR and then sent to the Stores . When required for Production, these items are withdrawn from Stores through the Issuing Process (By means of filling up a Requisition Form).
        • Example: Canned Products, Flour, Sugar, Lentils, Frozen Products etc.
  • Actual Food Cost – Daily Calculation Direct Items Receiving Area Entered into DRR Issued To Production Areas Processed for Consumption DRR Entries Summed Daily 1 Component of Food Cost Cycle of Directs: Receiving to Consumption
  • Actual Food Cost – Daily Calculation Store Items Receiving Area Entered into DRR Sent to Stores Segregated & Stored Issued to Production Area By Requisitions Requisitions Summed Monthly 2 Component of Food Cost Cycle of Stores: Receiving to Consumption Processed for Consumption
  • Source:Monthly Summation of Requisitions Source: Daily DRR Summations Adjustments to Cost of Sales
  • Computer Applications to Calculating Actual Cost of Sales
    • The existence of an Ingredient File , Recipe File and a Menu Item File enables the development of effective Pre-Cost (Prior to Service) and Post Cost (After Service) calculations.
  • Computer Applications to Calculating Actual Cost of Sales
    • The Ingredient File contains a list of all Purchased Ingredients (Food Items) with their Purchase Costs.
    • The Recipe File holds the formulations of ingredients needed to produce the Operation’s Menu Items.
    • The Menu Item File contains Sales related information of Menu Items for a F&B Operation.
  • Computer Applications to Calculating Actual Cost of Sales
    • Pre-Cost Analysis :
      • Pre-Costing as the name suggests is done prior to a meal period.
      • It helps the F&B Operator to accurately evaluate a meal plan in relation to the budgetary constraints before service.
      • The Pre-Cost Analysis produces projected Cost Data based upon application of Ingredient Costs across Recipe offerings.
  • Computer Applications to Calculating Actual Cost of Sales
    • Pre–Costing Analysis : An Example:
      • Assume, Papa Mario’s Diner is making a new TDH menu for the week. He plans to have a choice of 4 Entrées on the Menu in order to offer a greater choice to his clientele.
      • The Entrées are:
        • Tenderloin Tips
        • Steak
        • Spaghetti
        • Lobster Tail
  • Computer Applications to Calculating Actual Cost of Sales
    • Pre–Costing Analysis : An Example:
      • The Pre-Costing Software that Papa Mario’s Diner uses, computes his Food Pre-Cost as $ 753.57 for a Sales Mix based upon Forecasted Servings.
      • Analysis: This could be beyond the Budgetary Constraints and Papa Mario’s could take corrective action in order to reduce his Meal Period Food Pre – Cost to stay in the limits of Budgetary Constraints in order to achieved Projected Profit Level.
      • Action: In this case, Papa Mario’s Diner could take up eliminate a High Food Cost Item from the Menu and substitute it with a Lower Food Cost Item / Higher Contribution Margin Item in order to achieve the Projected Profitability.
  • Computer Applications to Calculating Actual Cost of Sales
    • Post-Cost Analysis :
      • There are two types of Post – Cost Analysis, each performed with Actual Counts but with differing Food (Recipe Costs).
  • Computer Applications to Calculating Actual Cost of Sales
    • Post-Cost Analysis : Type 1:
      • Immediately after a Meal Period, the Actual Sales Counts are multiplied with the Standard Recipe Costs of Menu Items to produce an ideal Food Cost.
      • (Similar to Pre-Cost Analysis, only differing in the fact that the Sales Counts are not Forecasted but Actual).
      • Source of Sales Counts could be obtained from the POS Systems.
  • Computer Applications to Calculating Actual Cost of Sales
    • Post-Cost Analysis : Type 2:
      • After the Meal Period, a Physical Inventory of the Food Store is taken. In this manner, Actual Consumption can be determined.
      • The Consumption Figures are then fed into the Recipe Management Software which would generate Actual Costs with the help of previously constructed data files (Ingredient File / Recipe File).
  • A $ 2.50 B $ 5.00 C $ 3.89 D $ 7.00 25 57 63 23 Forecasted Sales 753.57 Pre-Costing If Food Pre – Cost is higher than Budgeted, then change Menu Item to Low Food Cost ones A $ 2.50 B $ 4.25 C $ 3.89 D $ 5.5 Items can be either Substituted, Accompaniments can be reduced or made inexpensive, Portion Size reduced
  • Actual Beverage Costs – Daily Calculations
    • The Beverage Manager like the Food Manager has access to monthly Cost of Sales Information.
    • A more timely information about Beverage Cost of Sales would help in better Controls.
    • If a method can be designed to provide a reasonably accurate Beverage Cost on a day to day basis, which is not to time consuming, then it would aid in the Manager in better Bar Control and Beverage Management.
  • Actual Beverage Costs – Daily Calculations
    • Calculation of Daily Beverage Costs :
      • Let us start by computing Beverage Costs per shift .
      • Referring to the sample format in the next slide –
    • Step 1 The Bartender takes his Opening Inventory. This is a Physical Count of Bar Stock. This must tally with the Closing Inventory of the previous Bartender.
    • Step 2 The Bartender then adds on any Issues from the Stores during his Shift in order to meet his Par Stock requirements.
    • Step 3 The Total of Step 1 and Step 2 give the Bartender his Total Bar Stock for his shift.
    • Step 4 During the Shift, the Bartender may cater to several requests for Beverages – Spirits / Wines / Beers / Liqueurs etc. This constitutes to his Sales.
  • Actual Beverage Costs – Daily Calculations
    • Calculation of Daily Beverage Costs :
    • Step 5 Total Item wise sale can be determined by taking a Item Sale Report from the POS System or can be determined manually by recording each B.O.T. (Beverage Order Ticket).
    • Step 6 At the end of the Shift, the Bartender, computes the Ideal Consumption (Opening Stock – Sales) for his Shift.
    • Step 7 This Sale is then multiplied by the Unit Product Costs to obtain a Total Ideal Shift Cost.
  • Actual Beverage Costs – Daily Calculations
    • Step 8 The Bartender also take a Physical Inventory of his Stock and then computes the Actual Consumption (Opening Inventory – Closing Inventory).
      • Since, Sale is defined as Opening Inventory – Closing inventory, we are Computing Actual Sale and when multiplied by Unit Product Costs we arrive at Actual Cost of Beverage Sale.
      • Ideally, both must tally but they generally do not because there are always Spillages / Accidents / Orders Returned leading to Wastage etc.
      • This finally leads us to the Cost of Beverage per Shift.
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  • Opening Stock Requisitions Total Stock Sales Ideal Closing Inventory Unit Product Costs Ideal Cost of Sale Standard Beverage Costs Actual Closing Inventory Actual Consumption Unit Product Cost Actual Beverage Costs
  • Actual Beverage Costs – Daily Calculations
    • Averaging Shift Cost :
      • In large Multiple Beverage Outlet Operations, the Actual Beverage Costs for each bar are recorded on a consolidated summary along with the Revenue generated. This would give us the overall Actual Beverage Cost on a daily / weekly / monthly basis.
        • (Refer to the Consolidated Actual Cost of Beverage Sale Format in the next slide).
  •  
  • Actual Beverage Costs – Daily Calculations
    • Bartender Performance Review :
    • Computing Actual Cost of Beverage Sales on a Daily Basis and Shift wise would evaluate the Bartender’s Performance in terms of his technical skill knowledge of the Bar Operations.
    • The Shift wise Cost of Beverage Sales for a Bartender could be recorded for a week and the an Average Cost of Sales can be calculated.
    • This Average Cost of Sales for a particular Bartender is then compared against other Bartenders working in the same bar. This gives us a Quantitative Evaluation criteria during Performance Evaluation and can also help the Manager identify Training Needs and enforce better Control Techniques in case he suspects Theft and Misuse.
      • (Refer to Bartender Performance Review Format)
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  • References
    • Food & Beverage Controls –
    • By Jack Ninemeier
    • (American Hotel and Lodging Association– AH&LA Publication)
  • Linking to Next Chapter
    • Control Analysis , Corrective Action & Evaluation of Your Operations