monitoring food service operations 1

Monitoring Food Service Operations-1

Monthly Inventory and Monthly Food CostMonthly Inventory and Monthly Food Cost

Wednesday, April 06, 2011BAC-4131 Food and Beverage Management Cost Control: Monitoring Food Service

Operations -1 Slide 1 / 27

Recap of the Previous sessionRecap of the Previous session

• Explain As Purchased weight, AsExplain As Purchased weight, As purchased cost.

• Describe Edible portion cost rawDescribe Edible portion cost raw processed food item.

• What is Yield percentage.What is Yield percentage.• How do you calculate cost per usable

pound and Ounce.pound and Ounce.• How does one calculate cost factor per

pound and per ounce.pound and per ounce.Wednesday, April 06, 2011

BAC-4131 Food and Beverage Management Cost Control: Monitoring Food Service Operations -1 Slide 2 / 27

KCM of Monitoring Food S i O i 1Service Operations-1

• Describe the procedure of taking a physicalDescribe the procedure of taking a physical inventory.

• State formula for calculate cost of food consumed.

• List and explain adjustments made to cost of the food sold and the monthly income statement.E l i th ff t f t f h f th 5• Explain the effects of on cost of each of the 5 acceptable methods of assigning unit costs to a closing inventorya closing inventory.



Features of a Monthly InventoryFeatures of a Monthly Inventory

1. Require physical counting of each item.1. Require physical counting of each item.2. Usually done at a close of a said

accounting period.accounting period.3. A separate book has to be maintained for

this purpose which is permanent.this purpose which is permanent.4. Usually requires two persons.5 The closing inventory is also known as5. The closing inventory is also known as

the closing stock and becomes opening stock for the next accounting period.stock for the next accounting period.



Monthly InventoryMonthly Inventory

6 Exercise dexterity in assigning unit values6. Exercise dexterity in assigning unit values to each item.

7 Requires organized stores7. Requires organized stores.8. Requires date marking and a keen eye to

id tifidentify:a. Expiry dates of products:b. Damaged products:c Slow moving productsc. Slow moving products.



Wednesday, April 06, 2011BAC-4131 Food and Beverage Management Cost Control: Monitoring Food Service Operations -1 Slide 6 / 27

Valuing the Physical InventoryValuing the Physical Inventory

• In chain restaurants one of the majorIn chain restaurants one of the major problems faced by the purveyors is assigning units to various purchases in the inventory.

1. Actual purchase price method2. First - in, first - out method.3. Weighted - average purchase price method.4. Latest purchase price method5. Last - in, first - out method



Opening inventory on the 1st of the month: 10 cans @ $9.98 = $ 99.80

Purchased on the 7th of the month: 24 cans @ $9.70 = $232.80

Purchased on the 15th of the month: 24 cans @ $9.60 = $230.40Purchased on the 15th of the month: 24 cans @ $9.60 $230.40

Purchased on the 26th of the month: 12 cans @ $9.45 = $113.40

Total value of purchases $576.60

Value of opening inventory $ 99 80Value of opening inventory $ 99.80

Total value of purchases + $576.60

Value of total number of units available $676.40

Sample Inventory for Cans of Crushed tomatoesp y



Sample Inventory for Cans of C h dCrushed tomatoes

Opening inventory 10 cansOpening inventory 10 cans+ Purchases during the month 60 cans

————————————————————= Total available 70 cans— Closing inventory 20 cans ( b f it till il bl )(number of units still available)————————————————————= Units consumed 50 cansUnits consumed 50 cans (number of units no longer available)



Using the Actual Purchase P i M h dPrice Method

• Using the actual purchase price on theUsing the actual purchase price on the cans considering that 4 are from opening balance 4 from 2nd purchase and 12 frombalance, 4 from 2 purchase and 12 from the final purchase.

$ $4 @ $9.98 = $ 39.924 @ $9.60 = $ 38.4012 @ $9 45 = $113 4012 @ $9.45 = $113.4020 Cans = $191.72



Using the First in First out method

• First- In First- Out Method (Latest Prices)First In, First Out Method (Latest Prices)• It is necessary to know that the latest

purchase on the 26th of the month was forpurchase on the 26th of the month was for 12 cans and that the next previous purchase on the 15th was for 24 canspurchase on the 15th was for 24 cans.

12 @ $9.45 = $113.40@8 @ $9.60 = $ 76.80

20 = $190.20



Weighted average Purchase i h dprice method

• Usually used when the stock rotation isUsually used when the stock rotation is high, the Procedure requires detailed records Computerized accountingrecords, Computerized accounting methods are recommended.

10 Cans @ $ 9 98 = $ 99 80 $ 676 40/70 Cans10 Cans @ $ 9.98 = $ 99.80 $ 676.40/70 Cans24 cans @ $ 9.70 = $ 232.80 = $ 9.66 per can24 cans @ $ 9 60 =$ 230 40 20 Cans x $ 9 6624 cans @ $ 9.60 $ 230.40 20 Cans x $ 9.6612 cans @ $ 9.45 = $ 113.40 = $ 193.20________________________70 cans @ $ 676.40



Latest Purchase Price Method (M R P i )(Most Recent Price)

• A simpler faster and more widely usedA simpler, faster, and more widely used approach is to use the latest purchaseprice method for valuing the closingprice method for valuing the closing inventory.

• Takes the immediate last ( latest) price into• Takes the immediate last ( latest) price into consideration.

20 @ $9.45 = $ 189.00



Last- In, First- Out Method (E li P i )(Earliest Prices)

• Usually applied where the Tax rates andUsually applied where the Tax rates and inflation is high.

• Managements try to minimize the value of• Managements try to minimize the value of the inventory.

10 @ $9 98 = $ 99 8010 @ $9.98 = $ 99.8010 @ $9.70 = $ 97.0020 = $196 8020 = $196.80



Comparison of methodsComparison of methods1. Value based on actual purchase price p p

method: $191.72.2. Value based on first - in, first - out method:

$190 20$190.20.3. Value based on weighted - average method:

$193.20.$193.20.4. Value based on latest purchase price

method: $189.00.5. Value based on last - in, first - out method:

$196.80.



Comparison of methodsComparison of methods

• The difference between the last - in first -The difference between the last in, first out method and actual purchase price methods is calculated as follows:methods is calculated as follows:

• $ 189.00 and $ 196.80 difference is $ 7 087.08.

• Which is 4.126 % rounded up to 4.13 %.



Monthly Food Cost DeterminationMonthly Food Cost Determination

• These figures do notThese figures do not include directs.

• These also may not O i i t yinclude in and out transfers.

Opening inventory+ Purchase= Total availableTotal available— Closing inventory= Cost of food issued



ExampleExample

•Opening inventory $ 9 010 00Opening inventory $ 9,010.00Food purchases $23,570.00Closing inventory $ 9,356.00g y ,Food sales $65,420.00

Opening inventory $ 9,010.00Opening inventory $ 9,010.00+ Food purchases $ 23,570.00

Total available $ 32,580.00— Closing inventory $ 9,356.00= Cost of food Consumed $ 23,224.00



Calculating Food Cost in InventoryCalculating Food Cost in Inventory

• Cost / Sales = Cost %$23 224 / $65 420 = 355 x 100$23,224 / $65,420 = .355 x 100= 35.5%



Adjustments to Cost of Food dconsumed

• Intra Unit transfersIntra Unit transfers.• Inter Unit transfers.• Transfers of alcoholic beverages from bar to• Transfers of alcoholic beverages from bar to

kitchen, used in food preparation.Th t ki li i l d t• The term cooking liquor is commonly used to refer to these items. The cost of the cooking liquor is subtracted from the beverageliquor is subtracted from the beveragedepartment and added to the cost of food issuedissued




• Transfers of directs from kitchen to bar,Transfers of directs from kitchen to bar, where they will be used in drink preparation. p p

• The term food to bar (directs) is often used for these items.

• Food to Bar (directs) are subtracted from the cost of food issued and added to the beverage department ’ s cost.




• Steward Sales:• In some large establishments employees are

allowed to purchase food at subsidized rates.It b k d f d• It may be raw or cooked food.

• Gratis to Bars:• Gratis to Bars:• Transfers of food material like Amuse-bouche

or Hors d'œuvres to the bar for promotion.p




• Promotion Expense:P t ti l t idi B lk f d• Potential customers providing Bulk food sales business, Banquet business and

di i i l t t i d drooms division sales are entertained and the cost is adjusted against.



Determining Cost of Food C dConsumed

Opening inventory Opening inventory $ 9,010P h F d h 23 570+ Purchases + Food purchases 23,570

= Total available for sale = Total available $32,580— Closing inventory — Closing inventory 9,356= Cost of food issued = Cost of food issue $23,224Cost of food issued Cost of food issue $23,224+ Cooking liquor + Cooking liquor 200+ Transfers from other units = Subtotal $23,424— Food to bar (directs) — Food to bar (directs) 170— Transfers to other units — Steward sales 80— Steward sales — Gratis to bar(s) 290— Gratis to bars — Promotion expense 250

Promotion expense Total subtractions 790— Promotion expense Total subtractions 790

is equal to the cost of the food consumed = Cost of food consumed $22,634— Cost of employees ’ meals 1,050



p y= Cost of food sold $21,584

Finding food cost percentageFinding food cost percentage

• Using the sales figure of $65 420 identifiedUsing the sales figure of $65,420 identified earlier in this article, it is now possible to use this new and more accurate figure for cost of gfood sold to determine food cost percent for the period:p

• Cost of food sold / Food sales = Food cost %Cost of food sold / Food sales Food cost %$21,584 / $65,420 = .3299 x 100 = 32.99 %



Q tiQuestions&&

C tCommentsWednesday, April 06, 2011

BAC-4131 Food and Beverage Management Cost Control: Monitoring Food Service Operations -1 Slide 27 / 27

monitoring food service operations 1

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cost of foodconsumed