14. Basic Hotel Accounting Cost Control #5 by Dino Leonandri

1. Which Inventory Costing
Method Is Right for Your
Restaurant/Hotel?
By : Dr. Dino Leonandri, MM, CHA

2. You actually have a few options here:
• First-in, first-out (FIFO)
• Last-in, first-out (LIFO)
• Weighted average cost (WAC)

3. First-In, First-Out (FIFO) Inventory Costing
The majority of restaurants operate according to the first-in, first-out (FIFO)
principle of inventory valuation.
This technique assumes that the goods you purchase first are the goods
you use (and sell) first. As a result, your remaining inventory consists of
your most recent purchases and is accounted for at the goods' current cost.
The first-in, first-out method is best for businesses where inventory has a
short demand cycle or is perishable, which is most prominent in the
restaurant industry. Chefs and back-of-house staff will use the ingredients
purchased earliest, with the nearest expiration date, in order to avoid
spoiling or wasting inventory. FIFO makes sense because it matches the
actual flow of food in the kitchen.

4. Why use FIFO?
As inventory costs continue to rise — and with the
potential for inventory shortages and disruptions in the
food supply chain due to the COVID-19 health crisis —
restaurants find themselves in an inflationary
environment.
But for those using the first-in, first-out method, the
financial hit is minimized. FIFO directs restaurants to
use older, lower-priced goods first and to leave the
(theoretically) more expensive goods as inventory.
Altogether, this adds up to a lower cost of goods sold
and higher net income.

5. FIFO in restaurants
Of all inventory valuation methods, first-in, first-out is the most
reliable indicator of inventory value for restaurants. Because this
method corresponds inventory with its original cost, the calculated
value of remaining goods is most accurate. Managers can even
access real-time depletion and inventory counts instantly through
modern inventory management software.
One thing to consider with this method is that revenue and cost
matching don't always match up. With FIFO, older and often lower
costs are calculated with current revenues, resulting in some
incorrect correlations.

7. Factors Influencing Menu Pricing
By DR. Dino Leonandri, MM, CHA

8. Factors Influencing Menu Pricing
1. Local competition
2. Service levels
3. Guest type
4. Product quality
5. Portion size
6. Ambience
7. Meal period
8. Location
9. Sales mix

9. Pricing Buffets
Total Buffet Product Cost
Guests Served
= Buffet Product Cost per Guest
The secret to keeping selling price low for a salad bar or buffet is to
apply the ABC method.
A items should comprise no more than 20% of the total product
available; B items, no more than 30%; and C items, 50%.

10. 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.

13. Cost Concept
•Fixed Cost (FC) and Variable Cost (VC) are used to distinguished between those cost that have no direct
relationship to business and those that do.
•Fixed Cost are those that are normally unaffected by changes in sales volume. Such as = real estate taxes, insurance
premiums, depreciation, repairs and maintenance, rent or occupancy cost, most utility cost, advertisement,
professional services.
The term fixed should never taken to mean static or unchanging but merely to indicate that any changes that may
occur in such cost are related only indirectly or distantly to changes in business volume.

14. Cost Concept
•Variable Cost are those that are clearly related to business volume. As business volume
increase, variable cost will increase and vice versa.
•Food & Beverage cost are considered directly variable cost. Direct Variable Cost are
those that are directly linked to
volume of business increase and decrease of volume correspondingly.
•Payroll Cost includes salaries and wages and employee benefits and often referred as
Labor Cost.
Because labor cost consist of fixed and variable element it is known as semi-variable
cost, meaning a portion should change in short-term and the other portion remains
unchanged.

15. Cost Concept
CONTROLLABLE AND NON-CONTROLLABLE COST
•Controllable cost are those that can be change in the short term such as Direct
Variable Cost, Wages, Advertising & Promotion, Utilities, Repairs &
Maintenance and Administration and General Expenses.
•Non-Controllable cost are those that cannot normally be changed in short-term such
as fixed cost like Rent, Interest on a mortgage, Real estate taxes, License fee and
Depreciation.

16. Cost Concept
•Unit Cost may be food & beverage portion as in the cost of one item or hourly unit of
work. In F&B business unit cost are commonly in average unit cost rather then actual
unit cost.
•Total Cost are the total of food & beverage portions served in one period such as a
week or a month or total cost of labor for one period.

17. Cost Concept
• Prime Cost is a term used in the Hotel Industry refer to the cost of materials and
labor. (Food, Beverage and Payroll)
•Historical and Planned Costs
•Historical cost are all cost are historical - that is, that they can be found in business
records, book of account, financial statements, invoices, employees’ time card and
other similar records. It is used for establishing unit cost, determining menu
prices and comparing present with past labor cost.
•It will be used for planning and determining the future to develop planned costs -
projections of what cost will be or should be for a future period. It is often called as
Budgeting

18. Average Sale
This average is determined as follows:
Average check = Total dollar sales ÷ Total number of covers
Total sales of $3,902.30 and 140 covers.
Thus, Average sale = $3,902.30 ÷ 140 = $27.87
Amir, one of the servers, had 30 customers and total dollar sale of $565 on the
Saturday night of February 13, average sale per server for Jim would be calculated as
follows:
Average sale = Total sales for Yasser ÷ No. of customers for Amir
= $565 ÷ 30
= $18.83

19. Average Sale
Total Number Sold refers to the total number of menu item sold
in a given time period.
•Cover is the term used to describe one diner regardless of the quantity of good the
person consumes.
•Total Cover refer to the total number of customer served in a given period. Help to
make judgment & comparisons
•Average Covers is determined y dividing the total number of cover for a given period
by some other number such as hour of operation, day of operation or numbers of
server.
1. Cover per Hour = Total Covers / No. of Hours of Op.
2. Covers per Day = Total Covers / No. of Days of Op.
3. Covers per Server = Total Covers / No. of Servers

20. Seta Turnover
Seat Turnover or simply turnover refer to the number of seats
occupied during a given period (or number of cover) divided by the
number of seats available.
140 customers served during that one Saturday meal.
The restaurant has 75 seats, so seat turnover would be calculated
as follows:
Seat turnover = Number of customers served ÷ Number
of seats
= 140 ÷ 75
= 1.87 turns

21. Sales Mix is a term used to describe the relative quantity sold of any menu item
compared to other items in the same category.
Sales Mix For the Sugar & Spice Restaurant
August 20xx
Menu Item Portion Sales Sales Mix
Strip steak 1,000 12.5%
Ginger shrimp 1,200 15.0
Lamb chop 1,800 22.5
Vege buritto 2,400 30.0
Chicken chop 1,600 20.0
Totals 8,000 100.0%

22. Question :
Mention the types of inventory calculations that you know, and
explain the advantages of each?
Please answer the questions above and email to:
dinoleonandri@stptrisakti.ac.id
by email no later than 1 week ahead.
In the email subject, write the name of the campus, course and class
example :
1. STPT/Intl Class/Hotel Basic Accounting
2. Poltekpar Plb/DIK 6A/Hospitality Business
3. Poltek Intl Jkt/AJ/Hotel Management

23. Thank you
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