Monitoring food service operations 1

Monitoring Food Service
Operations-1
Monthly Inventory and Monthly Food Cost

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

Recap of the Previous session
• Explain As Purchased weight, As
purchased cost.
• Describe Edible portion cost raw
processed food item.
• What is Yield percentage.
• How do you calculate cost per usable
pound and Ounce.
• How does one calculate cost factor per
pound and per ounce.
Operations -1

KCM of Monitoring Food
Service Operations-1
S i O i 1
• Describe 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 the effects of on cost of each of the 5
Explain th ff t f t f h f th
acceptable methods of assigning unit costs to
a closing inventory
inventory.
Operations -1

Features of a Monthly Inventory
1. Require physical counting of each item.
2. Usually done at a close of a said
accounting period.
3. A separate book has to be maintained for
this purpose which is permanent.
4. Usually requires two persons.
5.
5 The closing inventory is also known as
the closing stock and becomes opening
stock for the next accounting period.
Operations -1

Monthly Inventory
6.
6 Exercise dexterity in assigning unit values
to each item.
7.
7 Requires organized stores
stores.
8. Requires date marking and a keen eye to
identify:
id tif
a. Expiry dates of products:
b. Damaged products:
c.
c Slow moving products
products.
Operations -1

Operations -1

Valuing the Physical Inventory
• In chain restaurants one of the major
problems faced by the purveyors is assigning
units to various purchases in the inventory.
1. Actual purchase price method
2. First - in, first - out method.
3. Weighted - average purchase price method.
4. Latest purchase price method
5. Last - in, first - out method

Operations -1

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



Total value of purchases $576.60

Value of opening inventory $ 99 80
99.80

Total value of purchases + $576.60

Value of total number of units available $676.40
Sample Inventory for Cans of Crushed tomatoes
p y

Operations -1

Sample Inventory for Cans of
Crushed
C h d tomatoes
Opening inventory 10 cans
+ Purchases during the month 60 cans
————————————————————
= Total available 70 cans
— Closing inventory 20 cans
(number of units still available)
( b f it till il bl )
————————————————————
= Units consumed 50 cans
(number of units no longer available)

Operations -1

Using the Actual Purchase
Price Method
Pi M h d
• Using the actual purchase price on the
cans considering that 4 are from opening
balance 4 from 2nd purchase and 12 from
balance,
the final purchase.
4@$ $9.98 = $ 39.92
4 @ $9.60 = $ 38.40
12 @ $9 45 = $113 40
$9.45 $113.40
20 Cans = $191.72

Operations -1

Using the First in First out
method
• First- In First Out Method (Latest Prices)
First In, First-
• It is necessary to know that the latest
purchase on the 26th of the month was for
12 cans and that the next previous
purchase on the 15th was for 24 cans
cans.
12 @ $9.45 = $113.40
8 @ $9.60 = $ 76.80
20 = $190.20
Operations -1

Weighted average Purchase
price method
i h d
• Usually used when the stock rotation is
high, the Procedure requires detailed
records,
records Computerized accounting
methods are recommended.
10 Cans @ $ 9 98 = $ 99 80
9.98 99.80 $ 676 40/70 Cans
676.40/70
24 cans @ $ 9.70 = $ 232.80 = $ 9.66 per can
24 cans @ $ 9 60 =$ 230 40
9.60 $ 230.40 20 Cans x $ 9 66
9.66
12 cans @ $ 9.45 = $ 113.40 = $ 193.20
________________________
70 cans @ $ 676.40
Operations -1

Latest Purchase Price Method
(Most R
(M Recent P i )
Price)
• A simpler faster and more widely used
simpler, faster,
approach is to use the latest purchase
price method for valuing the closing
inventory.
• Takes the immediate last ( latest) price into
consideration.

20 @ $9.45 = $ 189.00

Operations -1

Last- In, First- Out Method
(Earliest P i
(E li Prices)
)
• Usually applied where the Tax rates and
inflation is high.
• Managements try to minimize the value of
the inventory.
10 @ $9 98 = $ 99 80
$9.98 99.80
10 @ $9.70 = $ 97.00
20 = $196 80
$196.80

Operations -1

Comparison of methods
1. Value based on actual purchase p
p price
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.
4. Value based on latest purchase price
method: $189.00.
5. Value based on last - in, first - out method:
$196.80.

Operations -1

Comparison of methods
• The difference between the last - in first -
in,
out method and actual purchase price
methods is calculated as follows:
• $ 189.00 and $ 196.80 difference is $
7.08.
7 08

• Which is 4.126 % rounded up to 4.13 %.

Operations -1

Monthly Food Cost Determination
• These figures do not
These figures do not
include directs.
• These also may not
y
Opening inventory
O i i t
include in and out
+ Purchase
transfers.
= Total available
— Closing inventory
= Cost of food issued

Operations -1

Operations -1

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

Operations -1

Calculating Food Cost in Inventory

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

Operations -1

Adjustments to Cost of Food
consumed d
• Intra Unit transfers.
transfers
• Inter Unit transfers.
• Transfers of alcoholic beverages from bar to
kitchen, used in food preparation.
• Th term cooking liquor i commonly used t
The t ki li is l d to
refer to these items. The cost of the cooking
liquor is subtracted from the beverage
department and added to the cost of food
issued
Operations -1

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

Operations -1

consumed d
• Steward Sales:
• In some large establishments employees are
allowed to purchase food at subsidized rates.
• It may be raw or cooked food.
b k df d

• Gratis to Bars:
• Transfers of food material like Amuse-bouche
or Hors d'œuvres to the bar for promotion.
p

Operations -1

consumed d

• Promotion Expense:
• P t ti l customers providing B lk f d
Potential t idi Bulk food
sales business, Banquet business and
rooms di i i sales are entertained and
division l t t i d d
the cost is adjusted against.

Operations -1

Determining Cost of Food
Consumed
C d
Opening inventory Opening inventory $ 9,010
+ P h
Purchases + F d purchases 23 570
Food h 23,570
= Total available for sale = Total available $32,580
— Closing inventory — Closing inventory 9,356
= Cost of food issued = Cost of food issue $23,224
+ 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

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
Operations -1

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

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

Operations -1

Questions
Q ti
&
Comments
C t
Operations -1

Monitoring food service operations 1

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Monitoring food service operations 1