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What is Cost Control???Minimizing costs the company mustexpend without sacrificing the endproduct (service/food) that the...
Revenue and Expense          Revenue - Expenses = Profit    Revenue – Desired Profit = Ideal Expense          Expense     ...
A budget is simply a forecast or estimate of   projected revenue, expense, and profit.The 28-day-period approach to budge...
Sales Forecasts         Advantages to Precise Sales           Forecasts         1)   Revenue Estimates         2)   Expens...
Sales This Year – Sales Last Year = Variance  Percentage variance indicates the percentage change in sales from one  time...
Forecasting The guest count forecast is determined by multiplyingguest count last year by the % increase estimate, and the...
Cost of Food & Bev•Once you know the average number of people selecting a given menu item, and the total number ofguests w...
Standardized RecipesThe standardized recipe controls both the quantity and quality of what the kitchen willproduce. It con...
Converting Recipes – Factor or Percentage Yield Desired Current Yield         =      Conversion FactorIngredient Weight / ...
Waste, Yield AP & EPYield % = 1.00 - Waste %AP – Waste (EP)AP                =   Yield %EP Required   Yield %    =   AP Re...
Calculating Food CostDetermining Actual Food Expense   Cost of food sold is the dollar amount of all food actually sold, ...
Six Column ReportingSix Column Food Cost % Estimate       1. Purchases Today           Sales Today              = Cost % T...
Calculating Beverage CostBeginning Inventory  PLUS  Purchases  = Goods Available for Sale  Less  Ending Inventory  Less  T...
Calculating Sales Mix & Terms  Item Dollar Sales Total Beverage Sales = Item % of Total Beverage                    SalesT...
F&B ProductionNecessary Components of F&B Production Planning: 1) Maintain Sales Histories 2) Forecast Future Sales Histor...
Controlling Product IssuesIssues TodaySales Today         = Beverage/Food Cost Estimate Today The six-column form requires...
Methods of Inventory Control A physical inventory is one in which an actual, physical  count and valuation of all invento...
ABC Inventory Systemo Category A items are those that require tight control and  the most accurate record keeping. Those a...
Inventory Control FormulasCost in Product CategoryTotal Cost in All Categories   = Proportion of Total Product CostCost as...
Principles of Cost Percentages The food cost percentage equation is extremely interesting. In its simplest form, it can b...
If costs can be kept constant but sales increase, the costpercentage goes down.If costs remain constant but sales decline,...
Managing F&B Pricing Standard Menu Daily Menu Cycle Menu Value Pricing Bundling
Factors Influencing Menu Pricing1.   Local competition2.   Service levels3.   Guest type4.   Product quality5.   Portion s...
Selling Price Determination    Cost of a Specific Food Item Sold     Desired Food Cost % of That Item       = Selling Pric...
Multiplier Method        1.00  Desired Product Cost %   = Pricing FactorPricing Factor x Product Cost = Menu Price
Contribution Margin MethodSelling Price – Product Cost = Contribution Margin Product Cost + Contribution Margin Desired = ...
Pricing BuffetsTotal Buffet Product Cost   Guests Served            = Buffet Product Cost per                       GuestT...
Labor Cost Labor Expense includes salaries and wages, but it consists    of other labor-related costs as well.   Payroll...
Productivity Standards Output Input     =Productivity Ratio     Cost of Labor     Total Sales   =Labor Cost %Total SalesLa...
Productivity and Scheduling                   hour          7.5Productivity =     covers =    60 = 0.125Productivity X For...
Factors Influencing Productivity              10 Key Factors Affecting               Employee Productivity1. Employee Sele...
 A job specification is a listing of the personal  characteristics needed to perform the tasks  contained in a particular...
Employee TurnoverEmployee Turnover Rate =       # of Employees Separated                               # of Employees in W...
Managing Other Expenses Other expenses are those items that are neither food, beverage, nor labor. While there are many ...
 The following shows how fixed, variable,and mixed expenses behave as sales volumeincreases: Expense As a Percentage of  ...
Financial Analysis To ensure that this financial information is presented in a way that  is both useful and consistent, t...
The gross profit section consists of food and beverage sales and costs thatcan and should be controlled by the manager on...
Analysis of Sales/VolumeOverall sales increases or decreases can becomputed using the following steps:  1.Determine sales...
 There are several ways a foodservice  operation experiences total sales (dollar)  volume increases. These are:  1. Serve...
The procedure to adjust sales variance for known menuprice increases is as follows:Step 1. Increase prior period sales (la...
Analysis of Food Cost & Inventory A food cost percentage can be computed for each food sub-category. For instance, the co...
Inventory turnover refers to the number of times thetotal value of inventory has been purchased and replacedin an accounti...
Analysis of ProfitNet Income This Period – Net Income Last Period     Net Income Last Period     =   Profit Variance %
Profit Planning Strategies
Three of the most popular systems of menuanalysis are:                     Variables Considered   Analysis Method    Over...
When analyzing a menu using the Food Cost PercentageMethod, you are seeking menu items that have the effect ofminimizing ...
Each of the menu items that fall in the squaresrequires a special marketing strategy, depending onits square location.   ...
The selection of either food cost percentage orcontribution margin as a menu analysis techniqueis really an attempt by th...
The goal value formula is as follows:  A x B x C x D = Goal Value  A = 1.00 - Food Cost % (Contribution Margin %)  B = It...
The computed goal value carries no unitdesignation; that is, it is neither a percent nor adollar figure because it is rea...
Contribution margin for the overall operationis defined as the dollar amount that contributes tocovering fixed costs and ...
To determine the dollar sales required to break even, use the following formula:     Fixed CostsContribution Margin % = B...
 Minimum Sales Point (MSP) is the dollar sales volume  required to justify staying open for a given period of time. The ...
Minimum Operating Cost = FC% +VC%MSP =      Minimum Labor Cost        1 – Minimum Operating CostOr it could be written as:...
BudgetingDeveloping the Budget To establish any type of budget, you need to have the following  information available:  1...
To determine a food budget, compute the estimated food cost as follows:1. Last Year’s Average Food Cost per Meal     = La...
 Todetermine a labor budget, compute theestimated labor cost as follows:1. Last Year‟s Labor Cost per Meal               ...
Yardstick Method Some operators elect to utilize the yardstick method of calculating expense standards so determinations ...
Break-Even Analysis
Defined:Break-even analysis examines the cost tradeoffs associated with demand volume.
Overview: Break-Even Analysis Benefits Defining Page Getting Started Break-even Analysis   Break-even point   Compar...
Benefits and Uses: The evaluation to determine necessary levels of service or production to avoid loss. Comparing differ...
Defining Page: USP      = Unit Selling Price UVC      = Unit Variable costs FC       = Fixed CostsQ         = Quantity...
Defining Page: Cont. OI     = Operating Income TR     = Total Revenue TC     = Total Cost USP    = Unit Selling Price
Getting Started: Determination of which equation method to use:   Basic equation   Contribution margin equation   Grap...
Break-even analysis: Break-even point John sells a product for $10 and it cost $5 to produce (UVC) and has fixed cost (FC...
Algebraic approach: Basic equationRevenues – Variable cost – Fixed cost = OI (USP x Q) – (UVC x Q) – FC     = OI       $10...
Algebraic approach: Contribution Margin equation  (USP – UVC) x Q = FC + OI                  Q = FC + OI                  ...
Graphical analysis:Dollars70,00060,000           Total Cost Line50,00040,00030,00020,000                            Total ...
Graphical analysis:Cont.Dollars70,00060,000           Total Cost Line50,00040,00030,00020,000                            T...
Scenario 1: Break-even Analysis Simplified When total revenue is equal to total cost the process is at the break-even poi...
Break-even Analysis:  Comparing different variables Company XYZ has to choose between two machines to purchase. The selli...
Break-even analysis: Comparative analysis Part 1 Determine break-even point for Machine A and Machine B. Where: V =     ...
Break-even analysis: Part 1, Cont.Machine A:             v = $3,000               $10 - $5               = 600 unitsMachin...
Part 1: Comparison Compare the two results to determine minimum quantity sold. Part 1 shows:   600 units are the minimu...
Part 2: ComparisonFinding point of indifference between Machine A and Machine  B will give the quantity demand required to...
Part 2: Comparison Cont. Knowing the point of indifference we will choose: Machine A when quantity demanded is between 6...
Part 2: ComparisonGraphically displayedDollars21,00018,000                Machine A15,00012,000 9,000                     ...
Part 2: ComparisonGraphically displayed Cont.Dollars21,00018,000                      Machine A15,00012,000 9,000         ...
Exercise 1: Company ABC sell widgets for $30 a unit. Their fixed cost is$100,000 Their variable cost is $10 per unit. ...
Exercise 1: AnswerRevenues – Variable cost - Fixed cost = OI(USP x Q) – (UVC x Q) – FC     = OI   $30Q - $10Q – $100,00 = ...
Exercise 2: Company DEF has a choice of two machines to  purchase. They both make the same product which  sells for $10....
Exercise 2: AnswerStep 1: Break-even analysis on both options.Machine A:              v = $5,000                 $10 - $5 ...
Exercise 2: Answer Cont.  Machine A       =   Machine B     FC + VC      =      FC + VC $5,000 + $5      Q     = $15,000 +...
Summary: Break-even analysis can be an effective tool in determining the cost effectiveness of a product. Required quant...
Break-even & Leverage Analysis
Types of Costs Essentially, there are two types of costs that a business faces:   Variable costs which vary proportional...
Types of Costs Grapically                                                             T o ta l                            ...
Operating (Accounting) Break-even The operating break-even point is defined as that level    of sales (either units or do...
The Operating Break-even in Units We can find the operating break-even point in units by    simply solving for Q:        ...
The Operating Break-even in Dollars We can calculate the operating break-even point in    sales dollars by simply multipl...
Operating Break-even: an Example Suppose that a company has fixed costs of $100,000 and variable costs of $5 per unit. Wh...
Targeting EBIT We can use break-even analysis to find the sales    required to reach a target level of EBIT              ...
Targeting EBIT: an Example Suppose that we wish to know how many units the company (from the previous example) needs to s...
Cash Break-even Points Note that if we subtract the depreciation expense (a non-cash expense) from fixed cost, we can cal...
Leverage Analysis   In physics, leverage refers to a multiplcation of a force    into even larger forces   In finance, i...
Types of Risk There are two main types of risk that a company faces:   Business risk - the variability in a firm‟s EBIT....
The Degree of Operating Leverage (DOL) The degree of operating leverage is directly proportional  to a firm‟s level of bu...
Calculating the DOL The degree of operating leverage can be calculated as:                                    %        E ...
The Degree of Financial Leverage (DFL) The degree of financial leverage is a measure of the %    changes in EBT that resu...
The Degree of Combined Leverage (DCL) The degree of combined leverage is a measure of the    total leverage (both operati...
Calculating Leverage Measures                               B a se C a se        S a les D o w n 1 0 %       S a les u p 1...
Budgets
Budgets Estimates of the income and expenditure of a  business or a part of a business over a time  period Used extensiv...
Budgets Flexible Budgets – budgets that take account of  changing business conditions Operating Budgets – based on  the ...
Budgets Variance – the difference between planned values and actual values   Positive variance – actual figures less tha...
Food Storing and Issuing Control
Five Principle Concerns Conditions of facilities and equipment Arrangement of foods Location of facilities Security of...
Condition of Facilities and Equipment Conditions include:   Temperature   Storage Containers   Shelving   Cleanliness...
Temperatures Key factor in storage   Fresh meats – 34 to 36 degrees F.   Fresh produce – 34 to 36 degrees F.   Fresh d...
Storage Containers Foods should be stored in appropriate containers.   Tight, insect proof containers   Some may be fin...
Cleanliness Should be enforced Prevents accumulation and odor Discourages infestation of insects and rodents Professio...
Arrangement of Foods Most used item readily available Fixed definite locations Rotation of stock
Location and Storage Facilities Located between receiving and preparation areas Proper location:   Speeds the storing a...
Security Storage should limit pilferage Storerooms should not be unlocked and unattended Procedures should be in place ...
Dating and Pricing Items should be dated as they are stored Items should be priced as they are put away   Computer trac...
Physical Movement of Foods fromStorage Practices vary in operations   Requisitions   Honor system   Wide open Greater...
Record Keeping Directs:   Charged to food cost as received   No further records kept Stores:   Considered part of inv...
The Requisition Form filled out by kitchen staff   Lists items needed for production   Quantities deducted from invento...
Importance of Training Inappropriate containers or temperature Improper or multiple locations Lack of rotation Pilfera...
Monitoring Management should:  Inspect facilities on a regular basis     Cleanliness     Organization     Temperature...
Food and Beverage Transfers Intra-unit transfers:   Food to beverage   Beverage to food Inter-unit transfers:   Unit ...
Developing a safety cultureFigure 3.1
The process of food hygiene      management for food productionFigure 3.3
Elements of food production               BlendFigure 3.4
A generic model of the      food production systemFigure 3.5
Methods of food production (1)1.   Conventional         Production using fresh foods and traditional cooking          met...
Methods of food production (2)4.   Continuous flow         Production line approach         Different parts of the proce...
Methods of food production (3)7.   Cook-freeze         Production, storage and regeneration using freezing to          co...
The control cycle of daily operationFigure 3.6
Standard Operating Procedures: Cycle of F&B ProductControl                 Step 1: Purchasing                 Step 2: Rece...
Cycle of F&B Product Control (continued…)              Develop purchase specification   Step 1:    Supplier selection     ...
Cycle of F&B Product Control (continued…)    Step 5:       Mise-en-place                  Minimizing food waste / maximizi...
STOCK CONTROLInventory is often referred to as thegraveyard of business because overinvestment in stock is a frequent caus...
STOCK CONTROLMany business costs, such as:A storeman‟s wagesStorage costsInsurance of the stockInterest on borrowed mo...
STOCK CONTROLit is important to control stock and inventory so that there is:enough to keep work flowing efficientlynot ...
STOCK CONTROLAn inventory is simply a list of all the goods purchasedand used in the manufacturing process.For exampleraw...
STOCK CONTROLStock control is used to:Reduce the costs of running the businessesReduce excess stock and wastageMake sur...
WHAT ITEMS ARE RECORDED?Equipment, such as static machinesTools, such as hammers and spannersPackaging, such as bubble ...
A TYPICAL PRODUCTION PROCESS.
HOW IS STOCK CONTROLLED?Systems can be:Paper based, such as hand written stock cards or sheetsComputer generated.Stock con...
DOCUMENTS AND FORMSUsed to control stock includePurchase requisitionsPurchase ordersDelivery docketsInvoices
PAPER BASED SYSTEMSSome of the typical ways of keeping a paper based system up todate involve the use of:Job cards - Job c...
STOCK CARDSStock cards – use minimum/maximum stock levels.Stock cards are used to monitor the amount of raw materials that...
STOCK CONTROL SHEET
REQUISITION BOOKSRequisition books are used to request an order to be raised formaterials. A duplicate of the requisition ...
DELIVERY DOCKETSDelivery dockets are used to account for and record:inward goods – materials coming inoutward goods.- pr...
CUSTOMER ORDERSOrders from customers are received, - lists of raw materials needed is raisedWhen using this method, consum...
COMPUTER GENERATED RECORDS  Computers help to:  •eliminate extra paperwork  •centralise stock control  •generate orders au...
COMPUTER GENERATED RECORDS All of the following information can be produced by computer. Invoices. Orders. Supplier lis...
DATA ENTRYThe computer application can then:Check to see if the stock is on handProduce an order for more stockPlace an...
BARCODE SYSTEMSThis system can be used for all sorts of stockitems, such as:Boxes of nailsLoads of timberContainers of ...
BARCODE SYSTEMSBarcodes are attached to all goods orgroups of goods and can contain a wholerange of information, such as:...
SCANNINGA scanner is a piece of equipment that actslike a photocopier and can: be used to copy a paper invoice ororder. ...
STOCK CONTROL WITHOUT             RECORDSDetailed records of stock movements and levels may not always be necessary: in s...
BIN SYSTEMS Bin systems can replace formal stock control records.Single bin, two bin and three bin systems
IMPREST SYSTEMS In an imprest system, an upper limit is set for inventory items in stock  and orders are placed to bring ...
STOCKTAKINGStocktaking is the process of counting the amount of materials and  goods the company has on hand.Physical stoc...
STOCKTAKING Stocktakes are usually held at least twice a year, Important points to remember when stock taking: Count ev...
SUMMARYThe more efficient the control of stock is, the less will be wasted or storedunnecessarily.Good stock control:Save...
Your companies name                                              Order No:                      Supplier:   Delivery addre...
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COST CONTROL

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COST CONTROL

  1. 1. What is Cost Control???Minimizing costs the company mustexpend without sacrificing the endproduct (service/food) that the customerreceives.
  2. 2. Revenue and Expense Revenue - Expenses = Profit Revenue – Desired Profit = Ideal Expense Expense Revenue = Expense % Revenue (100%) - Food and Beverage Cost % - Labor Cost % - Other Expense % = Profit %
  3. 3. A budget is simply a forecast or estimate of projected revenue, expense, and profit.The 28-day-period approach to budgeting divides a year into 13equal periods of 28 days each. This helps the manager compareperformance from one period to the next without having tocompensate for “extra” days in any one period.If significant variations with planned results from a budget occur,management must: 1. Define the problem 2. Determine the cause 3. Take corrective action
  4. 4. Sales Forecasts Advantages to Precise Sales Forecasts 1) Revenue Estimates 2) Expense $ Estimates 3) Scheduling Workers 4) Scheduling Food and Service Production needs 5) Proper purchasing of amounts of food for immediate use. 6) Increased operational efficiency – lower pricing, increased benefits for workers. 7) Increased dollars for growth 8) Increased profit levels and stockholder value
  5. 5. Sales This Year – Sales Last Year = Variance Percentage variance indicates the percentage change in sales from one time period to the next. Sales This Year –Sales Last Year Sales Last Year = Percentage Variance or Variance Sales Last Year = Percentage Variance Revenue forecast is calculated using the following formula: Forecast =Sales Last Year + (Sales Last Year X %Increase)
  6. 6. Forecasting The guest count forecast is determined by multiplyingguest count last year by the % increase estimate, and thenadding the guest count last year.Guest Count Last Year + (Guest Count Last Year x % IncreaseEstimate) = Guest Count ForecastOrGuests Last Year x (1.00 + % Increase Estimate) = Guest CountForecast
  7. 7. Cost of Food & Bev•Once you know the average number of people selecting a given menu item, and the total number ofguests who made the selections, you can compute the popularity index, which is defined as thepercentage of total guests choosing a given menu item from a list of alternatives.Popularity Index =Total Number of a Specific Menu Item Sold Total Number of All Menu Items Sold The basic formula for individual menu item forecasting, based on an item’s individual sales history, is as follows: Number of Guests Expected x Item Popularity Index = Predicted Number of That Item to Be Sold
  8. 8. Standardized RecipesThe standardized recipe controls both the quantity and quality of what the kitchen willproduce. It consists of the procedures to be used in preparing and serving each of your menuitems. The standardized recipe is the key to menu item consistency, and ultimately,operational success.  In general, standardized recipes contain the following information: 1. Item name 2. Total yield (number of servings) 3. Portion size 4. Ingredient list 5. Preparation/method section 6. Cooking time and temperature 7. Special instructions, if necessary 8. Recipe cost (optional)
  9. 9. Converting Recipes – Factor or Percentage Yield Desired Current Yield = Conversion FactorIngredient Weight / Total Recipe Weight = % of Total then % of Total x Total Amount Required = New Recipe Amount
  10. 10. Waste, Yield AP & EPYield % = 1.00 - Waste %AP – Waste (EP)AP = Yield %EP Required Yield % = AP RequiredEP Required =AP Required x Yield %
  11. 11. Calculating Food CostDetermining Actual Food Expense Cost of food sold is the dollar amount of all food actually sold, thrown away, wasted or stolen. It is computed as follows: Beginning Inventory PLUS Purchases = Goods Available for Sale MINUS Ending Inventory = Cost of Food Consumed MINUS Employee Meals = Cost of Food Sold
  12. 12. Six Column ReportingSix Column Food Cost % Estimate 1. Purchases Today Sales Today = Cost % Today 2. Purchases to Date Sales to Date = Cost % to Date Sales Purchases Cost &Weekday Today To Date Today To Date Today To DateMonday $850.40 $850.40 $1,106.20 $1,106.20 130.08% 130.08%Tuesday $920.63 $1,771.03 $841.40 $1,947.60 91.39% 109.97%Wednesday $1,185.00 $2,956.03 $519.60 $2,467.20 43.85% 83.46%Thursday $971.20 $3,927.23 $488.50 $2,955.70 50.30% 75.26%Friday $1,947.58 $5,874.81 $792.30 $3,748.00 40.68% 63.80%Saturday $2,006.41 $7,881.22 $286.20 $4,034.20 14.26% 51.19%Sunday $2,404.20 $10,285.42 $0.00 $4,034.20 0.00% 39.22%
  13. 13. Calculating Beverage CostBeginning Inventory PLUS Purchases = Goods Available for Sale Less Ending Inventory Less Transfers from Bar Plus Transfers to Bar = Cost of Beverage Sold
  14. 14. Calculating Sales Mix & Terms Item Dollar Sales Total Beverage Sales = Item % of Total Beverage SalesTwo-key systemOxidationBroken caseEmpty for full system of managment
  15. 15. F&B ProductionNecessary Components of F&B Production Planning: 1) Maintain Sales Histories 2) Forecast Future Sales Histories 3) Purchase and store needed F&B supplies 4) Plan daily production schedules 5) Issue needed products to production areas 6) Manage the food and beverage production process
  16. 16. Controlling Product IssuesIssues TodaySales Today = Beverage/Food Cost Estimate Today The six-column form requires only that the manager divide today‟s issues by today‟s sales to arrive at the today estimate as follows Beverage Cost Issues Sales EstimateDate Today To Date Today To Date Today To Date 1-Jan 945 945 1450.22 1450.22 65.16% 65.16% 2-Jan 785 1730 1688.4 3138.62 46.49% 55.12% 3-Jan 816.5 2546.5 2003.45 5142.07 40.75% 49.52% 4-Jan 975.4 3521.9 1920.41 7062.48 50.79% 49.87% 5-Jan 1595 5116.9 5546.5 12608.98 28.76% 40.58% 6-Jan 1100.2 6217.1 5921.27 18530.25 18.58% 33.55% 7-Jan 18.4 6235.5 495.2 19025.45 3.72% 32.77%Total 6235.5 19025.45 32.77%
  17. 17. Methods of Inventory Control A physical inventory is one in which an actual, physical count and valuation of all inventory on hand is taken at the beginning and close of each accounting period. A perpetual inventory system is one in which additions to and deletions from total inventory are recorded as they occur. The ABC system attempts to combine both the physical and perpetual inventory systems. It separates inventory items into three main categories
  18. 18. ABC Inventory Systemo Category A items are those that require tight control and the most accurate record keeping. Those are typically high-value items, which can make up 70% to 80% of the total inventory value.o Category B items are those that make up 10% to 15% of the inventory value and require only routine control and record keeping.o Category C items make up only 5% to 10% of the inventory value. These items require only the simplest of inventory control systems
  19. 19. Inventory Control FormulasCost in Product CategoryTotal Cost in All Categories = Proportion of Total Product CostCost as per Standardized Recipes Total Sales =Attainable Product Cost % Actual Product CostAttainable Product Cost = Operational Efficiency Ratio
  20. 20. Principles of Cost Percentages The food cost percentage equation is extremely interesting. In its simplest form, it can be represented as: where A = Cost of Goods Sold B = Sales C = Cost Percentage A B =C
  21. 21. If costs can be kept constant but sales increase, the costpercentage goes down.If costs remain constant but sales decline, cost percentageincreases.If costs go up at the same rate sales go up, your costpercentage will remain unchanged.If costs can be reduced but sales remain constant, the costpercentage goes down.If costs increase with no increase in sales, the cost percentagewill go up.
  22. 22. Managing F&B Pricing Standard Menu Daily Menu Cycle Menu Value Pricing Bundling
  23. 23. Factors Influencing Menu Pricing1. Local competition2. Service levels3. Guest type4. Product quality5. Portion size6. Ambience7. Meal period8. Location9. Sales mix
  24. 24. Selling Price Determination Cost of a Specific Food Item Sold Desired Food Cost % of That Item = Selling Price of That Item
  25. 25. Multiplier Method 1.00 Desired Product Cost % = Pricing FactorPricing Factor x Product Cost = Menu Price
  26. 26. Contribution Margin MethodSelling Price – Product Cost = Contribution Margin Product Cost + Contribution Margin Desired = Selling Price
  27. 27. Pricing BuffetsTotal Buffet Product Cost Guests Served = Buffet Product Cost per GuestThe secret to keeping selling price low for asalad bar or buffet is to apply the ABC method.A items should comprise no more than 20% ofthe total product available; B items, no morethan 30%; and C items, 50%.
  28. 28. Labor Cost Labor Expense includes salaries and wages, but it consists of other labor-related costs as well. Payroll refers to the gross pay received by an employee in exchange for his or her work. A salaried employee receives the same income per week or month regardless of the number of hours worked. Minimum staff is used to designate the least number of employees, or payroll dollars, required to operate a facility or department within the facility. Fixed Payroll refers to the amount an operation pays in salaries. Variable Payroll consists of those dollars paid to hourly employees. Sometimes employees have both a fixed and variable element to their pay.
  29. 29. Productivity Standards Output Input =Productivity Ratio Cost of Labor Total Sales =Labor Cost %Total SalesLabor Hours Used = Sales per Labor HourCost of LaborGuests Served = Labor Dollars per Guest Served
  30. 30. Productivity and Scheduling hour 7.5Productivity = covers = 60 = 0.125Productivity X Forecast Cover = Scheduled Hours0.125 x 3000 Covers = 375 hours
  31. 31. Factors Influencing Productivity 10 Key Factors Affecting Employee Productivity1. Employee Selection2. Training3. Supervision4. Scheduling5. Breaks6. Morale7. Menu8. Convenience vs. Scratch Preparation9. Equipment10. Service Level Desired
  32. 32.  A job specification is a listing of the personal characteristics needed to perform the tasks contained in a particular job description. A job description is a listing of the tasks that must be accomplished by the employee hired to fill a particular position. Task training is the training undertaken to ensure an employee has the skills to meet productivity goals.
  33. 33. Employee TurnoverEmployee Turnover Rate = # of Employees Separated # of Employees in WorkforceA voluntary separation is one in which the employee made the decisionto leave the organization.An involuntary separation is one in which management has caused theemployee to separate from the organization. Employee Turnover Rate = Number of Employees Separated Number of Employees in Workforce
  34. 34. Managing Other Expenses Other expenses are those items that are neither food, beverage, nor labor. While there are many ways in which to consider other expenses, two views of these costs are particularly useful for the foodservice manager. They are: 1.Fixed, variable, or mixed 2.Controllable or non-controllable
  35. 35.  The following shows how fixed, variable,and mixed expenses behave as sales volumeincreases: Expense As a Percentage of Total Dollars Sales Fixed Decreases Remains the Expense Same Variable Remains the Same Increases Expense Mixed Decreases Increases Expense
  36. 36. Financial Analysis To ensure that this financial information is presented in a way that is both useful and consistent, the uniform systems of accounts have been established for many areas of the hospitality industry. The USAR can better be understood by dividing it into three sections: gross profit, operating expenses, and non-operating expenses. These three sections are arranged on the income statement from most controllable to least controllable by the foodservice manager.
  37. 37. The gross profit section consists of food and beverage sales and costs thatcan and should be controlled by the manager on a daily basis.The operating expenses section is also under the control of the manager butmore so on a weekly or monthly basis (with the exception of wages which youcan control daily).Nonoperating expenses section is the least controllable by the foodservicemanager. For example, interest paid to creditors for short-term or long-termdebt is due regardless of the ability of the manager to control operations.The income statement is an aggregate statement. This means thatall details associated with the sales, cost, and profits of the foodserviceestablishment are summarized on the P&L statement. Although thissummary gives the manager a one-shot look at the performance of theoperation, the details are not included directly on the statement.
  38. 38. Analysis of Sales/VolumeOverall sales increases or decreases can becomputed using the following steps: 1.Determine sales for this accounting period. 2.Determine the difference between this period‟s sales minus last period‟s sales. 3.Divide the difference in #2 by last periods sales to determine percentage variance.
  39. 39.  There are several ways a foodservice operation experiences total sales (dollar) volume increases. These are: 1. Serve the same number of guests at a higher check average. 2. Serve more guests at the same check average. 3. Serve more guests at a higher check average.
  40. 40. The procedure to adjust sales variance for known menuprice increases is as follows:Step 1. Increase prior period sales (last year) by amount ofthe price increase. Ex: if prices were increased 5% on allmenu items, increase the prior period sales by 5%.Step 2. Subtract the result in Step 1 from this periods sales.Step 3. Divide the difference in Step 2 by the value of Step1.
  41. 41. Analysis of Food Cost & Inventory A food cost percentage can be computed for each food sub-category. For instance, the cost percentage for the category Meats and Seafood would be computed as follows: Meats and Seafood Cost Total Food Sales = Meats and Seafood Cost %
  42. 42. Inventory turnover refers to the number of times thetotal value of inventory has been purchased and replacedin an accounting period.Cost of Food ConsumedAverage Inventory Value= Food Inventory Turnover The higher the Food Inventory Turnover number, the greater the frequency of orders and typically the smaller the inventory size.
  43. 43. Analysis of ProfitNet Income This Period – Net Income Last Period Net Income Last Period = Profit Variance %
  44. 44. Profit Planning Strategies
  45. 45. Three of the most popular systems of menuanalysis are: Variables Considered Analysis Method Overall GoalFood Cost % Food Cost % Matrix Minimize overall FC% PopularityContribution Margin Contribution Margin Matrix Maximize CM PopularityGoal Value Analysis Contribution Margin % Algebraic Equation Achieving certain Popularity Profit Percentage Goals Selling Price Variable Cost % Food Cost %A matrix allows menu items to be placed into categories based on whether theyare above or below menu item averages such as food cost %, popularity, andcontribution margin.
  46. 46. When analyzing a menu using the Food Cost PercentageMethod, you are seeking menu items that have the effect ofminimizing your overall food cost percentage.The characteristics of the menu items that fall into each of the fourmatrix squares are unique and thus should be marketed differently 1 – High FC%, Low Popularity % 2 – High FC%, High Popularity % 1 2 3 – Low FC%, Low Popularity %FC% 4 – Low FC%, High Popularity % 3 4 Popularity %
  47. 47. Each of the menu items that fall in the squaresrequires a special marketing strategy, depending onits square location. 1 – High CM, Low Popularity % 2 – High CM, High Popularity % 1 2 3 – Low CM, Low Popularity %CM$ 4 – Low CM, High Popularity % 3 4 Popularity %
  48. 48. The selection of either food cost percentage orcontribution margin as a menu analysis techniqueis really an attempt by the foodservice operator toanswer the following questions: 1. Are my menu items priced correctly? 2. Are the individual menu items selling well enough to warrant keeping them on the menu? 3. Is the overall profit margin on my menuitems satisfactory?
  49. 49. The goal value formula is as follows: A x B x C x D = Goal Value A = 1.00 - Food Cost % (Contribution Margin %) B = Item Popularity C = Selling Price D = 1.00 - (Variable Cost % + Food Cost %) Food Cost % Number Selling Variable Cost % Item (in decimal form) Sold Price (in decimal form) Fajita Plate 0.38 147 $12.95 0.28 Enchilada Dinner 0.35 200 9.95 0.28 Menudo 0.25 82 6.95 0.28 Mexican Salad 0.30 117 7.95 0.28 Chalupa Dinner 0.28 125 8.95 0.28 Burrito Dinner 0.33 168 9.95 0.28 Taco Dinner 0.26 225 5.95 0.28 Overall Menu (Goal Value) 0.32 152 8.95 0.28 Average Goal Value = 0.68 x 152 x 8.95 x 0.40 = 370
  50. 50. The computed goal value carries no unitdesignation; that is, it is neither a percent nor adollar figure because it is really a numerical targetor score. Anything scoring above the average wouldbe considered a good item, anything below wouldbe considered an item that needs some re-thinking. Food Cost % Number Selling Variable Cost % Item (in decimal form) Sold Price (in decimal form) Goal Value Fajita Plate 0.62 147 $12.95 0.40 472.1 Enchilada Dinner 0.65 200 $9.95 0.40 517.4 Menudo 0.75 82 $6.95 0.40 171.0 Mexican Salad 0.70 117 $7.95 0.40 260.4 Chalupa Dinner 0.72 125 $8.95 0.40 322.2 Burrito Dinner 0.67 168 $9.95 0.40 448.0 Taco Dinner 0.74 225 $5.95 0.40 396.3 Average 0.68 152 $ 8.95 0.4 370.0
  51. 51. Contribution margin for the overall operationis defined as the dollar amount that contributes tocovering fixed costs and providings for a profit.This is different than the C.M. for a menu item inthat it takes into account both important variablecosts – food and labor.Total Sales - Variable Costs = Contribution MarginC.M. % = Contribution Margin $/ Total Sales $C.M. per Guest = Contribution Margin $ / Guests
  52. 52. To determine the dollar sales required to break even, use the following formula: Fixed CostsContribution Margin % = Break-Even Point in Sales In terms of the number of guests that must be served in order to break even, use the following formula: Fixed Costs Contribution Margin per Unit (Guest) = Break-Even Point in Guests Served
  53. 53.  Minimum Sales Point (MSP) is the dollar sales volume required to justify staying open for a given period of time. The information necessary to compute MSP is as follows: 1. Food cost % 2. Minimum payroll cost for the time period 3. Variable cost % Fixed costs are eliminated from the calculation because even if volume of sales equals zero, fixed costs still exist and must be paid.
  54. 54. Minimum Operating Cost = FC% +VC%MSP = Minimum Labor Cost 1 – Minimum Operating CostOr it could be written as:MSP = Minimum Labor Cost 1 – (FC% + VC%)
  55. 55. BudgetingDeveloping the Budget To establish any type of budget, you need to have the following information available: 1. Prior period operating results 2. Assumptions of next period operations 3. Goals 4. Monitoring policies annual budget achievement budget
  56. 56. To determine a food budget, compute the estimated food cost as follows:1. Last Year’s Average Food Cost per Meal = Last Year’s Cost of Food / Total Meals Served2. Last Year’s Food Cost per Meal + % Estimated Increase in Food Costs = This Year’s Food Cost per Meal3. This Year’s Food Cost Per Meal x Number of Meals to Be Served This Year = Estimated Cost of Food This Year
  57. 57.  Todetermine a labor budget, compute theestimated labor cost as follows:1. Last Year‟s Labor Cost per Meal = Last Year‟s Cost of Labor / Total Meals Served2. Last Year‟s Labor Cost per Meal + % Estimated Increase in Labor Cost = This Year‟s Labor Cost per Meal3. This Year’s Labor Cost per Meal x Number of Meals to Be Served This Year = Estimated Cost of Labor This Year
  58. 58. Yardstick Method Some operators elect to utilize the yardstick method of calculating expense standards so determinations can be made as to whether variations in expenses are due to changes in sales volume, or other reasons such as waste or theft. The yardstick method helps you identify specific problems quickly and accurately.
  59. 59. Break-Even Analysis
  60. 60. Defined:Break-even analysis examines the cost tradeoffs associated with demand volume.
  61. 61. Overview: Break-Even Analysis Benefits Defining Page Getting Started Break-even Analysis  Break-even point  Comparing variables Algebraic Approach Graphical Approach
  62. 62. Benefits and Uses: The evaluation to determine necessary levels of service or production to avoid loss. Comparing different variables to determine best case scenario.
  63. 63. Defining Page: USP = Unit Selling Price UVC = Unit Variable costs FC = Fixed CostsQ = Quantity of output units sold (and manufactured)
  64. 64. Defining Page: Cont. OI = Operating Income TR = Total Revenue TC = Total Cost USP = Unit Selling Price
  65. 65. Getting Started: Determination of which equation method to use:  Basic equation  Contribution margin equation  Graphical display
  66. 66. Break-even analysis: Break-even point John sells a product for $10 and it cost $5 to produce (UVC) and has fixed cost (FC) of $25,000 per year How much will he need to sell to break-even? How much will he need to sell to make $1000?
  67. 67. Algebraic approach: Basic equationRevenues – Variable cost – Fixed cost = OI (USP x Q) – (UVC x Q) – FC = OI $10Q - $5Q – $25,000 = $ 0.00 $5Q = $25,000 Q = 5,000What quantity demand will earn $1,000? $10Q - $5Q - $25,000 = $ 1,000 $5Q = $26,000 Q = 5,200
  68. 68. Algebraic approach: Contribution Margin equation (USP – UVC) x Q = FC + OI Q = FC + OI UMC Q = $25,000 + 0 $5 Q = 5,000What quantity needs sold to make $1,000? Q = $25,000 + $1,000 $5 Q = 5,200
  69. 69. Graphical analysis:Dollars70,00060,000 Total Cost Line50,00040,00030,00020,000 Total Revenue Line10,000 Break-even point 0 1000 2000 3000 4000 5000 6000 Quantity
  70. 70. Graphical analysis:Cont.Dollars70,00060,000 Total Cost Line50,00040,00030,00020,000 Total Revenue Line10,000 Break-even point 0 1000 2000 3000 4000 5000 6000 Quantity
  71. 71. Scenario 1: Break-even Analysis Simplified When total revenue is equal to total cost the process is at the break-even point. TC = TR
  72. 72. Break-even Analysis: Comparing different variables Company XYZ has to choose between two machines to purchase. The selling price is $10 per unit. Machine A: annual cost of $3000 with per unit cost (VC) of $5. Machine B: annual cost of $8000 with per unit cost (VC) of $2.
  73. 73. Break-even analysis: Comparative analysis Part 1 Determine break-even point for Machine A and Machine B. Where: V = FC SP - VC
  74. 74. Break-even analysis: Part 1, Cont.Machine A: v = $3,000 $10 - $5 = 600 unitsMachine B: v = $8,000 $10 - $2 = 1000 units
  75. 75. Part 1: Comparison Compare the two results to determine minimum quantity sold. Part 1 shows:  600 units are the minimum.  Demand of 600 you would choose Machine A.
  76. 76. Part 2: ComparisonFinding point of indifference between Machine A and Machine B will give the quantity demand required to select Machine B over Machine A. Machine A = Machine B FC + VC = FC + VC$3,000 + $5 Q = $8,000 + $2Q $3Q= $5,000 Q= 1667
  77. 77. Part 2: Comparison Cont. Knowing the point of indifference we will choose: Machine A when quantity demanded is between 600 and 1667. Machine B when quantity demanded exceeds 1667.
  78. 78. Part 2: ComparisonGraphically displayedDollars21,00018,000 Machine A15,00012,000 9,000 Machine B 6,000 3,000 0 500 1000 1500 2000 2500 3000 Quantity
  79. 79. Part 2: ComparisonGraphically displayed Cont.Dollars21,00018,000 Machine A15,00012,000 9,000 Machine B 6,000 3,000 Point of indifference 0 500 1000 1500 2000 2500 3000 Quantity
  80. 80. Exercise 1: Company ABC sell widgets for $30 a unit. Their fixed cost is$100,000 Their variable cost is $10 per unit. What is the break-even point using the basic algebraic approach?
  81. 81. Exercise 1: AnswerRevenues – Variable cost - Fixed cost = OI(USP x Q) – (UVC x Q) – FC = OI $30Q - $10Q – $100,00 = $ 0.00 $20Q = $100,000 Q = 5,000
  82. 82. Exercise 2: Company DEF has a choice of two machines to purchase. They both make the same product which sells for $10. Machine A has FC of $5,000 and a per unit cost of $5. Machine B has FC of $15,000 and a per unit cost of $1. Under what conditions would you select Machine A?
  83. 83. Exercise 2: AnswerStep 1: Break-even analysis on both options.Machine A: v = $5,000 $10 - $5 = 1000 unitsMachine B: v = $15,000 $10 - $1 = 1667 units
  84. 84. Exercise 2: Answer Cont. Machine A = Machine B FC + VC = FC + VC $5,000 + $5 Q = $15,000 + $1Q $4Q= $10,000 Q= 2500 Machine A should be purchased if expected demand is between 1000 and 2500 units per year.
  85. 85. Summary: Break-even analysis can be an effective tool in determining the cost effectiveness of a product. Required quantities to avoid loss. Use as a comparison tool for making a decision.
  86. 86. Break-even & Leverage Analysis
  87. 87. Types of Costs Essentially, there are two types of costs that a business faces:  Variable costs which vary proportionally with sales  hourly wages  utility costs  raw materials  etc.  Fixed costs which are constant over a relevant range of sales  executive salaries  lease payments  depreciation  etc.
  88. 88. Types of Costs Grapically T o ta l T o t a l V a r ia b le C o s t U n it S a le s U n it S a le s V a r ia b le C o s t p e r U n it F ix e d C o s t p e r U n it P e r U n it U n it S a le s U n it S a le s
  89. 89. Operating (Accounting) Break-even The operating break-even point is defined as that level of sales (either units or dollars) at which EBIT is equal to zero: S a le s VC FC 0 Or Q P v FC 0 Where VC is total variable costs, FC is total fixed costs, Q is the quantity, p is the price per unit, and v is the variable cost per unit
  90. 90. The Operating Break-even in Units We can find the operating break-even point in units by simply solving for Q: * FC FC Q p v C M $ / u n it Where CM$/unit is the contribution margin per unit sold (i.e., CM$/unit = p - v) The contribution margin per unit is the amount that each unit sold contributes to paying off the fixed costs
  91. 91. The Operating Break-even in Dollars We can calculate the operating break-even point in sales dollars by simply multiplying the break-even point in units by the price per unit: * BE$ Q p Note that we can substitute the previous definition of Q* into this equation: FC FC FC BE$ p p v p v CM % p Where CM% is the contribution margin as a % of the selling price
  92. 92. Operating Break-even: an Example Suppose that a company has fixed costs of $100,000 and variable costs of $5 per unit. What is the break- even point if the selling price is $10 per unit? * 1 0 0 ,0 0 0 Q 2 0 , 0 0 0 u n its 10 5 Or BE$ 2 0 ,0 0 0 10 $ 2 0 0 ,0 0 0 Or 1 0 0 ,0 0 0 BE$ $ 2 0 0, 0 0 0 10 5 10
  93. 93. Targeting EBIT We can use break-even analysis to find the sales required to reach a target level of EBIT * FC E B ITT arg et Q T arg et p v Note that the only difference is that we have defined the break- even point as EBIT being equal to something other than zero
  94. 94. Targeting EBIT: an Example Suppose that we wish to know how many units the company (from the previous example) needs to sell such that EBIT is equal to $500,000: * 1 0 0 ,0 0 0 5 0 0 ,0 0 0 Q 1 2 0 , 0 0 0 u n its 10 5 Or BE$ 1 2 0 ,0 0 0 10 $ 1, 2 0 0 , 0 0 0 Or 1 0 0 ,0 0 0 5 0 0 ,0 0 0 BE$ $ 1, 2 0 0 , 0 0 0 10 5 10
  95. 95. Cash Break-even Points Note that if we subtract the depreciation expense (a non-cash expense) from fixed cost, we can calculate the break-even point on a cash flow basis: * FC D ep reciatio n Q T arg et p v
  96. 96. Leverage Analysis  In physics, leverage refers to a multiplcation of a force into even larger forces  In finance, it is similar, but we are refering to a multiplication of %changes in sales into even larger changes in profitability measures Lev erage in phy s ic s Lev erage in financ e F orc e In % S alesF orc e O ut % P rofits
  97. 97. Types of Risk There are two main types of risk that a company faces:  Business risk - the variability in a firm‟s EBIT. This type of risk is a function of the firm‟s regulatory environment, labor relations, competitive position, etc. Note that business risk is, to a large degree, outside of the control of managers  Financial risk - the variability of the firm‟s earnings before taxes (or earnings per share). This type of risk is a direct result of management decisions regarding the relative amounts of debt and equity in the capital structure
  98. 98. The Degree of Operating Leverage (DOL) The degree of operating leverage is directly proportional to a firm‟s level of business risk, and therefore it serves as a proxy for business risk Operating leverage refers to a multiplication of changes in sales into even larger changes in EBIT Note that operating leverage results from the presence of fixed costs in the firm‟s cost structure
  99. 99. Calculating the DOL The degree of operating leverage can be calculated as: % E B IT DOL % S ales This approach is intuitive, but it requires two income statements to calculate We can also calculate DOL with one income statement: Q p v S ales VC DOL Q p v FC E B IT
  100. 100. The Degree of Financial Leverage (DFL) The degree of financial leverage is a measure of the % changes in EBT that result from changes in EBIT, it is calculated as: % EBT D FL % E B IT This approach is intuitive, but it requires two income statements to calculate We can also calculate DFL with one income statement: E B IT D FL EBT
  101. 101. The Degree of Combined Leverage (DCL) The degree of combined leverage is a measure of the total leverage (both operating and financial leverage) that a company is using: % EBT % E B IT % EBT DCL DOL D FL % S ales % S ales % E B IT It is important to note that DCL is the product (not the sum) of both DOL and DFL
  102. 102. Calculating Leverage Measures B a se C a se S a les D o w n 1 0 % S a les u p 1 0 % S ales 1000 900 1100 V ariab le C o sts 450 405 495 F ix ed C o sts 300 300 300 D ep reciatio n 100 100 100 E B IT 150 95 205 In terest E x p en se 30 30 30 EBT 120 65 175 P ercen ta g e C h a n g es R ela tiv e to th e B a se C a se S ales -1 0 .0 0 0 % 1 0 .0 0 0 % E B IT -3 6 .6 6 7 % 3 6 .6 6 7 % EBT -4 5 .8 3 3 % 4 5 .8 3 3 % L ev era g e M ea su res U sin g a sin g le in co m e sta tem en t: DOL 3 .6 7 5 .2 1 2 .9 5 DFL 1 .2 5 1 .4 6 1 .1 7 DCL 4 .5 8 7 .6 2 3 .4 6 U sin g tw o in co m e sta tem en ts: DOL 3 .6 7 DFL 1 .2 5 DCL 4 .5 8
  103. 103. Budgets
  104. 104. Budgets Estimates of the income and expenditure of a business or a part of a business over a time period Used extensively in planning Helps establish efficient use of resources Help monitor cash flow and identify departures from plans Maintains a focus and discipline for those involved
  105. 105. Budgets Flexible Budgets – budgets that take account of changing business conditions Operating Budgets – based on the daily operations of a business Objectives Based Budgets - Budgets driven by objectives set by the firm Capital Budgets – Plans of the relationship between capital spending and liquidity (cash) in the business
  106. 106. Budgets Variance – the difference between planned values and actual values  Positive variance – actual figures less than planned  Negative variance – actual figures above planned
  107. 107. Food Storing and Issuing Control
  108. 108. Five Principle Concerns Conditions of facilities and equipment Arrangement of foods Location of facilities Security of storage areas Dating and pricing of stored foods
  109. 109. Condition of Facilities and Equipment Conditions include:  Temperature  Storage Containers  Shelving  Cleanliness Problems can lead to:  Spoilage and waste Health codes specify:  Storage temperatures  Storage containers  Storage procedures
  110. 110. Temperatures Key factor in storage  Fresh meats – 34 to 36 degrees F.  Fresh produce – 34 to 36 degrees F.  Fresh dairy – 34 to 36 degrees F.  Fresh fish – 30 to 34 degrees F.  Frozen foods – minus 10 to 0 degrees F. Temperatures above recommended:  Shorten shelf life  Raise the risk of spoilage Storage temperatures for non-perishables  60 to 70 degrees F.
  111. 111. Storage Containers Foods should be stored in appropriate containers.  Tight, insect proof containers  Some may be fine as purchased  Fresh fish and poultry packed in ice  Cooked foods in SS and covered
  112. 112. Cleanliness Should be enforced Prevents accumulation and odor Discourages infestation of insects and rodents Professional exterminator should be used on a regular basis
  113. 113. Arrangement of Foods Most used item readily available Fixed definite locations Rotation of stock
  114. 114. Location and Storage Facilities Located between receiving and preparation areas Proper location:  Speeds the storing and issuing of foods  Maximizes security  Reduces labor requirements
  115. 115. Security Storage should limit pilferage Storerooms should not be unlocked and unattended Procedures should be in place to track removal of items When not open, storage areas should be locked Establish separate procedures for “A” items
  116. 116. Dating and Pricing Items should be dated as they are stored Items should be priced as they are put away  Computer tracking eliminates the need
  117. 117. Physical Movement of Foods fromStorage Practices vary in operations  Requisitions  Honor system  Wide open Greater control leads to:  Increased cost  More time and delay Large operations tend to be more formal Smaller operations tend to be less formal Cost/Benefit considerations needed before establishment of standards and procedures
  118. 118. Record Keeping Directs:  Charged to food cost as received  No further records kept Stores:  Considered part of inventory  Not used in cost figures until issued  For control purposes a system for issuing must be established
  119. 119. The Requisition Form filled out by kitchen staff  Lists items needed for production  Quantities deducted from inventory  Requisitions should be submitted in advance  Definite times established for issue Pricing the requisition  Extended to determine total value of food issued  Cost derived from item, file card, perpetual inventory record or memory
  120. 120. Importance of Training Inappropriate containers or temperature Improper or multiple locations Lack of rotation Pilferage from lack of security Poor record keeping
  121. 121. Monitoring Management should:  Inspect facilities on a regular basis  Cleanliness  Organization  Temperatures  Location  Rotation  Examine paperwork  Verify requisitions
  122. 122. Food and Beverage Transfers Intra-unit transfers:  Food to beverage  Beverage to food Inter-unit transfers:  Unit to unit
  123. 123. Developing a safety cultureFigure 3.1
  124. 124. The process of food hygiene management for food productionFigure 3.3
  125. 125. Elements of food production BlendFigure 3.4
  126. 126. A generic model of the food production systemFigure 3.5
  127. 127. Methods of food production (1)1. Conventional  Production using fresh foods and traditional cooking methods2. Convenience  Production using mainly convenience foods3. Call order  Food is cooked to order either from customer (cafeterias) or from waiter  Production area often open to customer area
  128. 128. Methods of food production (2)4. Continuous flow  Production line approach  Different parts of the process may be separated (e.g. fast food)5. Centralised  Production not directly linked to service  Foods are „held‟ and distributed to separate service areas6. Cook-chill  Food production storage and regeneration using low temperature control to preserve processed food.
  129. 129. Methods of food production (3)7. Cook-freeze  Production, storage and regeneration using freezing to control and preserve qualities of processed food  Requires special processes to assist freezing8. Sous-vide  Production, storage and regeneration using sealed vacuum to control and preserve qualities of processed food9. Assembly kitchen  System based on using latest technological developments in manufacturing and conservation of food products
  130. 130. The control cycle of daily operationFigure 3.6
  131. 131. Standard Operating Procedures: Cycle of F&B ProductControl Step 1: Purchasing Step 2: Receiving Step 3: Storing Step 4: Issuing Step 5: Pre-Preparation Step 6: Preparation Step 7: Serving Step 8: Service
  132. 132. Cycle of F&B Product Control (continued…) Develop purchase specification Step 1: Supplier selection Purchasing correct quantities Purchasing No collusion between property and supplier Evaluation of purchasing process Development of receiving procedures Step 2: Completion of necessary receiving reports (e.g., Receiving addressing financial and security concerns) Effective use of perpetual & physical inventory systems Step 3: Control of product quality Storing Securing products from theft Location of products within storage areas Product rotation concerns Step 4: Matching issues (issue & usage) Issuing Purchasing as inventory is depleted
  133. 133. Cycle of F&B Product Control (continued…) Step 5: Mise-en-place Minimizing food waste / maximizing nutrient retentionPre-Preparation Use of standardized recipes Step 6: Use of portion control Preparation Requirements for food and employee safety Timing of incoming F&B orders Step 7: Portion control Serving Revenue management concerns Revenue control concerns Step 8: Serving alcoholic beverage responsibly Service Sanitation and cleanliness F&B server productivity
  134. 134. STOCK CONTROLInventory is often referred to as thegraveyard of business because overinvestment in stock is a frequent causeof business failure.
  135. 135. STOCK CONTROLMany business costs, such as:A storeman‟s wagesStorage costsInsurance of the stockInterest on borrowed money,are directly related to investment in inventory.
  136. 136. STOCK CONTROLit is important to control stock and inventory so that there is:enough to keep work flowing efficientlynot too much so that money spent on the stock lies idle while it isnot used.
  137. 137. STOCK CONTROLAn inventory is simply a list of all the goods purchasedand used in the manufacturing process.For exampleraw materialswork in progressfinished goods
  138. 138. STOCK CONTROLStock control is used to:Reduce the costs of running the businessesReduce excess stock and wastageMake sure there are enough goods to meet the demandSpeed up deliveries to customers.
  139. 139. WHAT ITEMS ARE RECORDED?Equipment, such as static machinesTools, such as hammers and spannersPackaging, such as bubble wrap or boxesSpare parts, such as extra cutterblades for machinesAccessories, such as door handlesOther consumables, such as nails and screws.
  140. 140. A TYPICAL PRODUCTION PROCESS.
  141. 141. HOW IS STOCK CONTROLLED?Systems can be:Paper based, such as hand written stock cards or sheetsComputer generated.Stock control records should contain:a description of the goodsdetails of where the goods are stored or locatedthe amount of goods currently helddetails about the movement of the stock
  142. 142. DOCUMENTS AND FORMSUsed to control stock includePurchase requisitionsPurchase ordersDelivery docketsInvoices
  143. 143. PAPER BASED SYSTEMSSome of the typical ways of keeping a paper based system up todate involve the use of:Job cards - Job cards are used as a means of keeping account ofthe amount of goods you have produced.
  144. 144. STOCK CARDSStock cards – use minimum/maximum stock levels.Stock cards are used to monitor the amount of raw materials that areused.When using this system, you need to consider:The time taken for deliveryReliability of suppliersImportance of the stock item.
  145. 145. STOCK CONTROL SHEET
  146. 146. REQUISITION BOOKSRequisition books are used to request an order to be raised formaterials. A duplicate of the requisition is then forwarded to thepurchasing department.This system works well if the employees are vigilant towardmaintaining stock.A requisition is NOT an order for product.
  147. 147. DELIVERY DOCKETSDelivery dockets are used to account for and record:inward goods – materials coming inoutward goods.- product going out
  148. 148. CUSTOMER ORDERSOrders from customers are received, - lists of raw materials needed is raisedWhen using this method, consumables are not indicated.Disadvantage -work cannot start on the customer order until the stock arrives.Advantage - you don’t spend a lot of money on stock with the risk that youmay not use it. You can use customer deposits to fund materials. WHICH SYSTEM DO YOU USE?
  149. 149. COMPUTER GENERATED RECORDS Computers help to: •eliminate extra paperwork •centralise stock control •generate orders automatically •save time. Computers can •enter stock data manually •entering data with bar code readers •scanning documents, such as invoices
  150. 150. COMPUTER GENERATED RECORDS All of the following information can be produced by computer. Invoices. Orders. Supplier lists.
  151. 151. DATA ENTRYThe computer application can then:Check to see if the stock is on handProduce an order for more stockPlace an interim hold on the stockProduce a job cardProduce working drawingsProduce delivery dockets and invoices
  152. 152. BARCODE SYSTEMSThis system can be used for all sorts of stockitems, such as:Boxes of nailsLoads of timberContainers of adhesivesPaintBoxes of fittings and accessories.
  153. 153. BARCODE SYSTEMSBarcodes are attached to all goods orgroups of goods and can contain a wholerange of information, such as:QuantityPriceSizeTypeSupplier nameDate of expiry, if applicable.
  154. 154. SCANNINGA scanner is a piece of equipment that actslike a photocopier and can: be used to copy a paper invoice ororder. transfer this copy to the computer forstorage and easy access. have text recognition, so theinformation can be interpreted andprocessed by the computer automatically
  155. 155. STOCK CONTROL WITHOUT RECORDSDetailed records of stock movements and levels may not always be necessary: in small businesses – owner/operator looks after all stock control issues in businesses such as prefabricated or made-to-order products.
  156. 156. BIN SYSTEMS Bin systems can replace formal stock control records.Single bin, two bin and three bin systems
  157. 157. IMPREST SYSTEMS In an imprest system, an upper limit is set for inventory items in stock and orders are placed to bring the inventory back up to this level. This level equals the quantity necessary to: provide supplies to cover delivery time maintain supplies to cover the review period.
  158. 158. STOCKTAKINGStocktaking is the process of counting the amount of materials and goods the company has on hand.Physical stocktakes are important so you can identify: discrepancies between what is ordered and what is received discrepancies between prices paid and value received patterns of usage.
  159. 159. STOCKTAKING Stocktakes are usually held at least twice a year, Important points to remember when stock taking: Count everything Use stock recording sheets and stickers so things aren’t counted twice. 3. Electronic recording devices make it much faster
  160. 160. SUMMARYThe more efficient the control of stock is, the less will be wasted or storedunnecessarily.Good stock control:Saves timeSaves moneyMakes sure the workplace is more efficient.You can use paper based and computer based stock control methods to:Record the movement of stock itemsMaintain stock listsAdjust levels to meet demand.
  161. 161. Your companies name Order No: Supplier: Delivery address:Date of order: COD/30 Days Quantity Courier ? Litre / sheets Order maker C grade 12mm 7 ply 2400x 1200 Special Instructions Costs and charges Authorising signature and date

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