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CONTENTS

Food & Beverage Control


Food Purchasing Control
Food Receiving Control
Food Storing & Issuing Control
Food Production Control
Food Cost Control
Cost Dynamics
Sales Concepts
Activities and Assignments
References

FOOD AND BEVERAGE CONTROL


Defined as, Guidance and regulation of the costs and revenue of
operating the catering activity.
Limitations
Not sufficient in itself ( depended upon correct policies and
operational procedures)
Requires constant mgt. supervision
Needs mgt. action to evaluate the information produced and to act
upon it
Objectives
Analysis of income and expenditure
Establishment and maintenance of standards
Pricing
Prevention of waste
Prevention of fraud ( customers and staff )
Management information
Accurate and up to date information for the preparation of reports
Helps in comparison with set standards previously laid down

Problems Faced

Perishability of the product


Unpredictability of the volume of business
Unpredictability of the menu mix
Short cycle of catering operations
Departmentalization

Having several production and secure areas


Offering different produvts under different policies
F & B Control System Cycle
FINANCIAL MARKETING
POLICY
BY POLICY
SENIOR
MGT.
CATERING
POLICY

BY DEPT. HEADS AND


SUPERVISORS
(CONTROL) PURCHASING

RECEIVING

STORING AND
F & B CONTROL DEPT. ISSUING
PREPARING

SELLING

MANAGEMENT
CONTROL AFTER THE
EVENT
Fundamental of Control

THREE BROAD PHASES


The planning phase
Operational phase
Mgt. control after the event

PLANING PHASE
FINANCIAL POLICY
-levels of profitability
-level of subsidy/cost limits
-setting of targets
MARKETING POLICY
-identification of broad mkt.
-identification of particular segment
Identifying immediate and future customers/for various areas

--Can have the following objectives


National identity
Customer
Market share
Turn over
Profitability
Average spending power
Product
Customer satisfaction

CATERING POLICY
Defines main objectives of F&B facilities and describes methods of
achieving such objectives
-type of customer
-type of menu
-beverage provision
-food quality standards
-method of buying
-type and quality of service
-degree of comfort and dcor
-hours of operations

THE OPERATIONAL PHASE


5 main stages

PURCHASING -product testing


-yield testing
-purchase specification
-method of buying
-clerical procedures

RECEIVING -quality inspection


-quantity inspection
-clerical procedures

STORING& -stock records


ISSUING -pricing of issues
-stock taking
-clerical procedures

PREPARING -volume forecasting


-pre costing
-clerical procedures

SELLING -a checking system


-control of cash
-clerical procedures
MANAGEMENT CONTROL

-F&B cost procedures


-assessment
-correction

CONTROL
Control is a process used by the managers to direct, regiulate, and
restrain the action of people so that the established goals of an
enterprise may be achieved.

ADVANTAGES OF CONTROL

Establishing control over costs and sales in F & B operations.


Establishing standards and standard operating procedures for
operations.
Eliminating excessive costs in all areas to ensure profitability of
operations
Monitoring performances against established standards.
Preventing frauds, wastage and pilferage.
Management reporting.

CONTROL PROCESS

The control process consists of 4 steps:


Establish standards and standard operating procedures for operations
Train all individual to follow established standards and standard
operating procedures.
Monitor performance and compare actual performances with
established standards.
Take appropriate actions to correct deviations from standards.

F & B CONTROL

Food & Beverage Control may be defined as the guidance and


regulation of the costs and revenue of operating catering activity in
Hotels restaurants and other catering establishments.
OBJECTIVES OF F & B CONTROL
Analysis of income & expenditure.
Establishing standards and standard operating procedures for
operations.
Pricing and quotations for banquets and special events.
Management reporting.
Prevention of waste and frauds.
SPECIAL PROBLEMS OF F & B CONTROL

Perish ability of the product.


Unpredictability of the volume of business.
Unpredictability of the menu mix.
Short cycle of catering operations.
High degree of departmentalization.
FOOD PURCHASING CONTROL
Purchasing

Purchasing may be defined as a procurement function concerned with


search, selection, purchase, receipt, storage and final use of
commodity in accordance with the catering policy of the
establishment.

Purchasing Control

Establishing standards and standard procedures for purchasing.


Quality standards
Product testing, yield testing, standard purchasing specifications.
Quantity standards
Appropriate purchase quatities for both perishable and non perishable
foods.

Methods of purchasing
By contract, quotations, cash & carry etc.

Clerical procedures
Documentation and procedures

Purchasing Research
The markets
The marketing channels
The materials
The price trends
Purchasing documentations
Originating from the buyer side
Purchase specifications
Purchase requisition
Purchase order
Originating from the supplier side
Invoice
Delivery note
Purchasing procedure
STEPS ACTIVITIES NOTES
Initiation of purchase Check location Kitchen/ restaurant/
requisition Check authorization bar/ stores
Check purchase Chef/ F& B Manager/
specification bar man/ Storekeeper
Food beverages
Determination of Select & approve From a list of approve
sources of supply suppliers suppliers or inquiries
Negotiate prices and to new suppliers
delivery requirements Telephone/ fax/ mail/
Invite price internet
quotations
Placement of orders Evaluate quotations Prepare comparative
Select most statements to evaluate
favourable quotations proposals
Place purchase orders
Follow up the orders
Receiving supplies Verification of Verify quality,
invoice/ delivery quantity and price
notes Invoice stamping
Acknowledgement of Kitchen/ restaurants/
the receipt of the bar/ stores/ cellar
supplies
Transfer of
commodities to user
departments
Closure of purchase Clerical procedures Forwarding
transactions Payments for completed paper
materials works to purchase
office for payments
THE PURCHASE TRANSACTION

Requisition from an
authorized person

Check purchase
specifications
Check previous purchase
of same/ similar Purchasing
commodities office
records
Enquiries to new suppliers
Details & Select a
Approve suppliers quotations supplier
Select suppliers from suppliers from a
list of
approve
d
supplier
s
Negotiate price and delivery
requirements
Purchase order
Place the purchase order

Delivery note

Invoice
Transaction completed

Statement
HOTEL IHM
PURCHASE REQUISITION

To:Purchasing Office Requisition No: FB 1201


From:F&B Manager Purchase Order No: 1542
Date:August 02, 2002 Date Required: August 05, 2002

Item# Des QTY UNIT PRICE/UNIT TOTAL


cription COST

Requested By: . Approved By: .. Date


Ordered..

THE SELECTION OF SUPPLIER

A supplier can be selected either from the existing list of approved


suppliers of the buyer or form enquiries to new suppliers. When
seeking a new supplier, the following points must be considered:
Details of the firm name, address, fax, telephone etc.
Details of the range of items they are selling.
Copies of recent price lists.
Details of trading terms & conditions.
Details of other customers.
Sample of products.
Visit to the company.
Having selected suppliers and placed them on an approved suppliers
list, and after having purchased from them, it is necessary t
periodically evaluate their performance using a rating system. There
are three main performance criteria which are normally used in a
rating system:
Price performance
Quality performance
Deliver performance

PRICE PERFORMANCE

This is the ability of a supplier to quote competitive prices over a


period of time.

QUALITY PERFORMANCE

This is the ability of a supplier to supply the buyer consistently


with goods of the desired quality as laid down in the purchase
specification.

DELIVERY PERFORMANCE

This is the ability of a supplier to meet agreed delivery schedule


(time and dates) with the buyer.

STANDARD PURCHASE SPECIFICATION (SPEC)

A Standard Purchase Specification is a concise direction of writing of


the quality, size, weight or count, grade, brand, packaging and other
factors required for a particular food or beverage item.
Purchase specifications are prepared by members of the management
team for example, the purchasing manager, head chef and the food
and beverage manager with reference to, the menu requirements ,
price structure and catering policy of the firm. Printed copies of the
specifications should be freely available to the purchasing staff, the
store man, the receiving clerk, and must be sent to all suppliers on the
approved suppliers list.

OBJECTIVES

The reasons for preparing standard purchase specification are as


follows:
To establish a buying standard for a particular commodity of an
establishment.
To facilitate purchasing and internal requisitioning.
To inform the supplier, in writing, precisely what the purchase
requires.
To inform the receiving clerk and the store man, what to accept.
To obtain a standard product for the production and selling
departments.
To eliminate misunderstanding between the purchasing officer and the
purveyors.

CONCEPTS OF PURCHASE SPECIFICATION

Name of the item: Trade/ Brand/ Standard.


Definition of the item: Use common catering terms for both the buyer
and supplier.
Grade: Official recognized grading scheme or any other e.g. ISI,
AGMARK
Weight, size or count: Kilos, pound, grams etc. e.g. lemon 12s,
Pineapples 24s, Apple medium to large, 3 3/4 to 4 in diameter.
Unit of purchase: per kg, per case, per pound.
Quality requirements: degree of freshness, degree of preparation,
color, texture etc.
Packaging requirements: Tomato sauce packed 24 bottles to a
carton.
Delivery notes: Asparagus tips delivered at 10 degree or below

STANDARD PURCHASE SPECIFICATION


Grapefruit
Florida
Medium to large, 3 to 4 in diameter
Light yellow in color
Thin-skinned, tender delicate flesh
No visible spotting or bruising on skins, Paced 36 to a crate

THE PURCHASING OF FOODS

TYPES OF FOOD PURCHASES

The types of foods are those foods to be purchased for any


foodservice enterprise can be divided into two categories, Perishable
and Nonperishables.

PERISHABLE FOODS

Perishable foods are those food items that have a comparatively short
useful life after they have been received. For e.g. various kinds of
fresh vegetables, fruits and fresh fish etc. perishable then should be
purchased for immediate use in order to take advantage of quality
desired at the time of purchase.

NONPERISHABLE FOODS

Nonperishable foods are those food items that have longer shell-lives.
Frequently referred to as groceries or stables. Foods that typically fall
into this category include salt, sugar, canned fruits and vegetables,
spices and flavorings.
They do not deteriorate quickly as long as they are unopened and kept
at reasonable temperatures. Nonperishable are typically purchased and
stored in the packages or containers in which they are received such
as jars, bottles, cans, bags and boxes. The storage area, in which they
are kept, usually called as Store room, would resemble the shelves of
a supermarket.
SOURCE OF SUPPLY

Food service operators depend on supplier who can be grouped in the


following general categories.
Wholesaler
Retailers
Manufacturers
Packers
Local farmers
Cooperative associations
In most instances the foodservice operator will deal with several of
these sources of supply to obtain the necessary foods. For example, a
restaurant may turn to local producer for dairy and bakery products, a
packer for canned meats, a wholesaler for fresh meats, a different
wholesaler for canned fruits and vegetables and a local farmer for
eggs.

METHODS OF PURCHASING FOODS

Purchasing by contract.
Purchasing by Daily Quotation Sheets for Daily Market List.
Purchasing by Weekly/Fortnight Quotation Sheets.
Purchasing by Cash and Carry method.
Open market purchasing.
Periodically purchasing.
Standing order purchasing.
Centralized purchasing.

PURCHASING BY CONTRACT

There are two common types of contract used. They are:


Specific Period Contract
This form of contract is concerned with buying food items for a
specified period of time (3-6 months) at an agreed price from an
approved source of supply to safeguard the continuity of supply. Items
with a fairly stable price, such as milk, cream, bread, biscuits etc. can
be contracted in this way.
Specific Quantity Contract
This form of contract is concerned with buying food items of a
specific quantity for a particular trading period at an agreed price
from an approved vendor to safeguard the continuity of supply. For
e.g. purchase of frozen fruits and vegetables for use in a summer
season or banqueting.

Purchasing By Daily Quotation Sheets


This method is particularly used for purchasing perishable foods
where to ensure freshness they have to be purchased on a daily basis,
also where the market price for the commodity fluctuates daily.

Procedure

The head chef or a senior member of the kitchen staff would take a
quick stock takeoff the food items left at the completion of each meal
period.
The quantities on hand and the quantities required to be purchased for
the next period of the business would be entered in the Daily
Quotation Sheet. This sheet would then be passed to purchasing office
for further processing.
Each of the approved suppliers would then be telephoned and asked
for their price quotation for each of the items required. The price
quoted would be with reference to the purchasing specification for the
items previously sent to the supplier.
The prices quoted would be entered on the day Daily Quotation
Sheet and then a decision made by the Purchasing Manager as to
where to place the order for each item.

Purchasing by Weekly/ Fortnightly Quotation Sheets:

This method is commonly used for purchasing grocers items where


the perishability of the items is not such an important factor and a
delivery of once a week or fortnight is adequate.
Procedure:

The head storekeeper or other person responsible would check the


level of all items in the stores at the weekly/ fortnightly period of
extract them directly from the store records.

The quantities and the quantities required to be purchased for the next
period of the business would be entered on to the weekly/ fortnightly
quotation sheet. This sheet would then be passed to purchasing office
for further processing.

The purchasing would send out blank quotation sheets to approved


suppliers asking them to quote their price and to return them to a
specific date. The price quoted would be with reference to the
purchasing specification for the items previously sent to the supplier.

On receipt of quotations these would be entered on to a master


quotation sheet and then a decision made by the purchasing manager
as to where to place the order for each item.

Purchasing by 'Cash and Carry'

This method is of particular items to the medium and small


establishments whose orders are often not large enough to be able to
get regular supply from wholesalers and food manufacturers.

Advantages:

Cash & carry outlets are situated near to most catering establishment.

Small or large quantities may be purchased at a competitive price.

They are useful in emergencies or when special offers are being made.
Customers can see what they are buying as against buying just from a
price catalogue.

Disadvantages:

Caterers have to pay cash for the items they purchase.

Caterers have to provide their own staff and transport to collect the
items purchased.

Open market purchasing:

This is an informal method of buying food items that can be easily


adopted by smaller establishments. It is generally used for purchasing
perishable food like fresh fruits, vegetables, meat etc on a daily basis
from the open market as per requirements of the caterers.

Periodical purchasing:

This method of purchasing permits the purchasing officer


comparatively infrequent ordering and is generally used for
purchasing non-perishable foods that have larger shelf lives than
perishables. When periodic order method is followed, the purchasing
officer normally establish with the advice of management, regular
dates for ordering with fixed intervals between them, for example,
once every weeks or once each month.

Standing order purchasing:


This is a method of purchasing whereby the purchasing officer are
make arrangements with certain purveyors for the delivery of food
items without specific orders. These arrangements are known as
standing orders and can be of two types.

The first arrangement calls for the delivery of a specific quantity of


given item each day. For example, 12 loaves of bread per day. The
number remains constant unless changed by the purchasing officer.

The second arrangement calls for the replenishing of stock each day
up to a certain predetermined quantity. For instance, the purchasing
officer may arrange with a dairy supplier to leave a sufficient quantity
of bulk milk each morning to bring the total supply up to a
predetermined figure, such as 20 gallons.

Although these arrangements are convenient, they do present a


number of possible for waste and excessive cost to develop.

Centralized Purchasing:

This method of purchasing is widely used by chain operators under a


centralized purchasing system, requirements of individual units are
relayed to central office, which determines total requirements of all
units & then purchasing that total requirement, either for delivery to
the individual units by the dealer or for delivery to a central
warehouse for further distribution. This method obviously requires
that a whole system for distribution be maintained and operated by the
organization doing the centralized purchasing.
FOOD RECEIVING CONTROL
Receiving control

Establishment 'Standards and Standard Procedures'

Aims of Receiving

The receiving process is concerned with the task of monitoring the


receipt of all incoming merchandise thoroughly and systematically to
ensure that the quantity, quality and price of each item delivered
conforms exactly to the order placed.

Location:

Ideally, receiving department should be located near the delivery door,


purchase department & store to minimize the time & effort in
movement of goods into appropriate storage areas.

Facilities:

Motorable road up to the enterance (8 feet to 10 feet).

Platform for unloading delivery trucks.

Ramp to facilitate unloading of other delivery vehicles.

Layout plan:

Well lighted and adequately ventilated receiving area.


Interior distribution.

Receiving clerks office.

Weighing section.
Washing section.

Packing section.

Empties outward section.

Receiving equipment:

Weighing scales: Platform, Counter, Hanging.

Hand/ Fork lift trucks, Moveable shelves, Trollies and carts for
transporting goods.

Bins, Basket, Waste bins.


Tools such as Can opener, Crow bar, Claw hammer, Short
bladed knife for opening containers and packages.

Thermometer for checking temperature of frozen foods.

Marking & Tagging equipment.

Office equipment table, file cabinet, calculator, computer,


stationary etc.

Receiving schedule:

Perishables: 7 am to 11 am

Groceries & others 2pm to 4 pm

Receiving documents:

Documents from the supplier:

Delivery Notes
Invoice/ Bills

Statements

Credit Notes

Documents maintained in the receiving department:

Goods received books

Daily receiving report

Meat tags:

Delivery Notes:

These are sent with goods supplied as a mean of checking that


everything ordered has been delivered. The delivery note should also
be checked against the duplicate purchase ordered

Invoices/ Bills.

These are bills from a vendor for goods supplied or services rendered.
An invoice should be sent on the day the goods are dispatched or the
services or the services are rendered or as soon as possible afterwards.
Invoices contain the following information.

The word Invoice.

Name, address, phone and fax of the firm supplying the goods
or services.

Name and address of the firm to whom the goods or services


have been supplied.

Date on which the goods or services were supplied.


Particular of goods or services supplied together with prices.

Particulars of discounts, if any and taxes as applicable.

Statements:

These are summaries of all invoices and credit notes sent to clients
during the previous accounting period, usually one month. A
statement is usually a copy of a clients ledger account and does not
contain more information than is necessary to check invoices and
credit notes.

Credit Notes:

These are advices to clients, setting out allowance made for goods
returned or adjustments made through errors of overcharging on
invoices.

Goods Received Book/ Daily Receiving Report:

This is used to record the details of all the deliveries of goods made
by suppliers.

Meat Tag:

In many catering establishments, it is common practice to tag most


expensive food items such as meat and smoked salmon after
accepting it for quantity & quality. A meat tag is a stock card
perforated for division into two parts used to record in duplicate the
following information about an item.

Meat Tag No.


Item

Weight

Supplier

Unit price

Total value

Date of receipt

Date of issue

One part of the meat tag is attached by string or wire to the food item
and the second part is sent to the control office with the invoice to be
used as an inventory control device.

Receiving procedure:

Quantity inspection:

To ensure that the quantity of the goods delivered is in accordance


with quantity listed on the purchase order/ invoice. This means that all
goods will have to be weighed (for example, fresh fruits, vegetables,
meat etc.) or counted (for example cases, crates, boxes, sacks etc.).

Quality inspection:

To ensure that the quality of the goods delivered is in accordance with


the quality established in the standard purchase specifications of the
establishment.

Price inspection:

To ensure that price stated on the invoice/ delivery note are in


accordance with the prices on the purchase order / invoice.
Dispatch to stores/ user departments:

The goods, having been checked for quantity, quality and price must
be removed from the receiving area to appropriate stores/ user
departments. For example, perishable food items to the kitchen and all
other food items to the stores.

Clerical procedure:

Invoice stamping to acknowledge the receipt of supplies.

Recording invoices on goods received book.

Raising Request for credit note for shortages, breakages, sub-


standard items etc.

Filling out meat tags for expensive food items.

Forwarding completed paper work to purchase office.

Invoice Receiving:

The method of receiving goods against the invoice accompanying the


goods being delivered by supplier.

Blind Receiving:

The method of receiving goods against purchase order with quantity


column blanked out the main purpose of the system is to compel in
different receiving clerks to weigh and count all goods coming into
the establishment. The system works as follows.

The receiving clerk is sent a copy of the purchase order which lists the
goods to be purchased but does not show the quantities of such goods.

The receiving clerk is required to count and weigh all goods received
and record the quantities of all incoming goods.
Note: All invoices/ delivery notes, in such circumstance, are sent
direct to the accounts office. The receiving clerk has, therefore, no
access to these documents.

Assessing Performance and Efficiency of the Receiving Department:

The purchasing officer must be responsible for the receiving


department and for its operating efficiency in order to discharge his
responsibility, he must consider the following points:

Maintain a very close working relationship with the start receiving


department.

Conduct spot- checking different suppliers deliveries every week for


quantity, quality and price.

Check if all the necessary paperwork is done properly and in time.

Ensure that the receipt of goods is done as quickly assessable and sent
direct to the stores, celler or any other user department.

Hygiene & Cleanliness of the Receiving area


The following points must be considered to ensure hygiene &
cleanliness of the receiving area.

Receiving area should be well lighted and adequately ventilated.

Receiving areas must be clean & free from litter.

Waste bins, empty return boxes etc should be kept tidy and safe.

Waste bins must be kept with lids on and empty frequently and kept
clean.

All receiving equipment should be kept clean and functional.


LAYOUT PLAN OF RECEIVING DEPARTMENT
= = = = = = = = FOOD CONTROL COPY= = = = = = =

= = = = = = = = FOOD STORE COPY= = = = = = = =


SEND TO FOOD CONTROL ON DAY OF ISSUE TO
KITCHEN
INVOICE STAMP
INVOICE

STATEMENT

EXAMPLE OF A TYPICAL REQUEST FOR CREDIT FORM


EXAMPLE OF AN EXTRACT FROM A GOODS RECEIVED
BOOK-
FOOD STORING & ISSUING CONTROL
INTRODUCTION

The basic aim of a food store is to maintain an adequate supply of


foods for the immediate needs of the business with the very minimum
loss through spoilage and pilferage.

STORING CONTROL

Establishing standards and standard procedures for storing in general,


the standards establised for storing food should address the following
pricipal concerns.
location of storage facilities.
layout of storage facilities.
condition of facilities and equipments.
arrangement of foods.
security of storage areas.

1.) LOCATION OF STORAGE FACILITIES

Whenever possible, the storage facilities for both perishable and non
perishable foods should be located near to receiving department and
where necessary to goods lift. a properly located storage facility will
have the effect of
- speeding the storing and issuing of food.
- maximum security.
- reducing labour requirements.

2.) LAYOUT OF STORAGE FACILITIES-

The internal layout of storage facilities include-


- refrigerated area.
- non-refrigerated area.
- order processing area.
3.) CONDITION OF FACILITIES AND EQUIPMENT-

The factors involved in maintaining proper internal conditions are-

-STORAGE TEMPERATURES-

Food must be stored at correct temperatures.


Following are generally accepted optimum temperature for storing
foods indicated-

PERISHABLE FOODS-

-fresh meat 34 to 36 deg. f


-fresh products 34 to 36 deg. f
-fresh fish 34 to 36 deg. f
-frozen food -10 to 0 deg. F

NON PERISHABLE FOOD- 65 TO 70 deg F

STORAGE CONTAINER-food must be stored in appropriate


containers.
-food delivered in unsealed containers- paper bags, boxes, and
snacks should be transferred to suitable airtight containers (glass or
plastic) example- herbs and spices.
-bulk dry foods (pulses, cereals, flour, sugar, salt etc) should be stored
in suitable bins with tight-fitting lids.
-sacks or cases of commodities shoulb be stored on dock boards so as
to permit a free circulation of air.
SHELVING-
FOR PERISHABLE FOODS- Shelving should be slatted to permit
maximum circulation of air in refrigerated facilities.
FOR NON PERISHABLE- Solid steel shelving is usually preferred.

CLEANLINESS OF STORAGE AREAS-


-absolute cleanliness is a condition that should be enforced in all food
storage facilities at all times.
-store rooms should be swept and cleaned daily.
-waste and rubbish should not be allowed to accumulate.
-professional exterminator should be brought in on a regular basis to
prevent rodents and vermin.

3). ARRANGEMENT OF FOODS-

the factors involved in maintain ing an appropriate internal


arrangement of foods include-
-categorizing types of food received (perishable and non perishable).
-keeping the most frequently used items closest to the entrance.
-fixing definite location for each commodity.
-using fifo method of stock rotation.
-grouping similar commodities together, example- canned items.
-coding commodities in a logical sequence (alphabetical or numerical
sequence).

5.) SECURITY OF STORAGE AREAS-

appropriate security must be maintained in storage areas at all times.


-store room should never be left open to unattended.
-proper key control should be implemented.
-employees access to store room should be restricted.
-store room should be kept open during specified periods.
STOCK CONTROL

Establishing standards and standard procedures for stock control


address the following concerns

1.stock taking
2.detremining the value of stock held in stores
3.comparing actual physical stock value with the book value of the
stock
4.dtermining rate of stock turn-over
5.establishing stock levels
6.maintaining stock records

Stock Taking

The stock taking is an important task and should be undertaken by the


staff from the control or accounts department together with the
members of the food and beverage management team.

Stock Taking Methods

1. Monthly Inventory Method


The process of taking a physical inventory of products on hand in all
storage areas at the end of the month or the trading period is called a
monthly inventory. The physical inventory would involve physically
counting or weighing the goods held in stock and recording the
information accurately in the stock taking sheet for management
reporting.
2. Perpetual Inventory Method
The process of maintaining a continuous record of all purchases and
issues is called a perpetual inventory. The perpetual inventory may be
maintained on cards or in books, usually in the control office for each
commodity of item held in stock. The perpetual inventory provides
the book value of stock for comparison with physical inventory.
Book Value of the stock is calculated by the formula:-

Value of opening stock + purchases during period requisition made


in the same period = value of closing stock
Rate of stock turnover is calculated by the formula:-
Cost of food consumed / average value of stock at cost price = rate of
stock turnover in a given period
For Example: in a 28 day trading period the cost of food consumed
was rs.3000/- .The opening stock on day 1 was rs.800/- and the
closing stock on day 28 was rs.700/-
Rat of stock turnover = (3000) / (800+700/2) = 3000 / 750 = 4 times
This means that in the 28 day trading period the total value of stock
turned over four times and that an average of one weeks stock was
held during the period.

PERPETUAL INVENTORY CARD

ITEM CODE UNIT SIZE PAR STOCK


___________ _____ ____________
ITEM NAME UNIT REORDER POINT
___________ COST_____ ___________
DATE ORDER# RECEIVED ISSUED BALANCE
PHYSICAL INVENTORY SHEET
QTY IN UNIT ITEM UNIT TOTAL
HAND DESCRIPTION COST INVENTORY
VALUE

DATE ___________ TAKEN BY _______________


BEGINNING INVENTORY RS ______

Stock Levels

The level at which an item of stock is to be held in stores/cellars at


any point in time of the business in a particular trading period.
Determinants of stock levels
The forecasted usage figures for the trading period
The economic ordering quantity (EOQ)
The reordering time for the item (lead time)
The rate of stock turnover
The budget available
The market trends
The storage space available
The shelf life of the item
Minimum stock level
It indicates the minimum figure of inventory quantity held in stock at
any time.
Minimum level=ROL (average usage X average reordered period)
Maximum stock level
It indicates the maximum figure of inventory quantity held in stock at
any time.
Maximum level = ROL + ECQ (minimum usage X minimum
reordered period)
Reorder level
It indicates the level at which fresh orders should be placed for
replenishment of stock.
Reorder level = maximum usage X maximum reorder period
NOTE:
Average stock level = (minimum stock level + maximum stock
level)
Average reorder period = (minimum reorder period + maximum
reorder period)

Illustration
The information given below is in respect of a product ZED:
Monthly demand of ZED = 1,000 units
Cost of placing an order rs.100
Annual carrying cost per unit rs.15
Normal usage 50 units per week
Minimum usage 25 units per week
Maximum usage 75 units per week
Re-order period 4 to 6 week
Compute from the above
Re-order quantity(ECQ)
Re-order level
Minimum level
Maximum level
Average stock level

Economic order quantity (EOQ)


The EOQ is the optimum are the most favourable quantity
which should be purchased each time when the purchase are to be
made. In other words the EOQ determines how much to buy at
particular time.
The EOQ can be computed by using the following formula
EOQ = 2UO / IC
Where :
U = annual usage Units
O = ordering cost i.e. cost of placing an order
I = carrying cost percentage of inventory
C = carrying cost (storage cost) i.e. annual carrying cost per unit
Illustration
Calculate the EOQ from the following information
Consumption of material per annum: 10,000 Kg.
Order placing cost per order : Rs. 50
Cost per Kg. of raw material : Rs. 2
Storage cost : 8% on average inventory
Solution
(2x10,000x50) / (2 X 8/100)
62,50,000
EOQ = 2,500kg.
TRANSFER NOTE

(FOOD/BEVERAGE TRANSFER MEMO)

FROM ___________
DATE ___________
TO ___________
QTY DESCRIPTION AMOUNT
UNIT PRICE
TOTAL
SENT BY __________________
RECEIVED BY _______________

Issuing Control

Establishing standard and standard procedure for issuing control


should address the following concern :
1. Setting up a requisition system
2. Pricing the requisition
Setting up a requisition system
A requisition system is a highly structure method for controlling
issues. All storeroom issued should be made against a written
requisition signed by an authorized person. Often the chef whenever
practical, it is advisable that requisition be submitted in advance to
enable the storeroom clerk to prepare the order without haste.
The items listed on requisition fall into two categories.
Directs : The food category charged to food costs as received. Eg.
Perishable food items.
Stores : The food category charged to food costs as issued. Eg. Staples
and tagged items.
Pricing the requisition
The various method of pricing the requisitions are as follows:
1. Actual purchase price:
This method involves pricing of commodities at as purchased price.
2. Simple average price:
This method involves pricing of commodities at a simple average
price.
3. Weighted average price:
This method involves pricing of commodities taking into account both
quantities as well as prices thus giving a more accurate average price.

4. FIFO Method:
This method involves pricing of commodities at the earliest purchased
price This may be applied to items which have a fluctuating market
price.

5. LIFO Method
This method involves pricing of commodities at the latest purchased
price. This also may be applied to items which have a fluctuating
market price.
6. Standard Price:
This method involves pricing of commodities at a standard price for a
specified time period usually 3-6 months.
7. Inflated price:
This method involves pricing of commodities at an inflated price i.e.
cost plus, say 10% or 15% to recover the cost of handling and storage
charges.

FOOD PRODUCTION CONTROL


INTRODUCTION

Food production control implies establishing Standards and


Standards procedure for production control in a food service
operation.
The four main stages are
1. Production Planning
2. Standard yields
3. Standard recipes
4. Standard portion sizes

PRODUCTION PLANNING

Production planning or volume forecasting is the forecasting the


volume of sales for an establishment, for specified time period, eg. A
day, a week, a month
Aims and objectives
1. To facilitate food cost control
2. To facilitate purchasing and internal requisitioning
3. To reduce the problem of over and under production
4.To enable a comparison to be made between actual and forecasted
volume of sales.
Aids or Management Tools to assist production planning
Cyclic menus
Sales Histories
Advance booking
Current events
Current Trends

STANDARD YIELDS

The standard yield of particular food product may be defined as the


edible or the usable part of that product which is available after the
preparation or preparing and cooking.
Eg. The standard yield for a whole fillet of beef is the number of fillet
steaks that will be available for cooking and final sales to the
customer after preparation and cooking.
Aims and Objectives
1. To determine the most appropriate and advantageous size/weight to
buy a particular commodity.
2. To establish a standard for the quantity and number of portions
obtainable from a specific item of food.
3. To Assist in food costing and menu pricing.
4. To facilitate purchasing and internal requisitioning
5. To act as a safeguard against pilferage and wastage.
YIELD TEST SUMMARY REPORT
ITEM: SMOKED SALMON TOTAL RAW
WEIGHT AS PURCHASED: 3LB. 4OZ.
PURCHASE SPECIFICATION: 437 TOTAL COST:
_________
STANDARD RECIPE NO. 520 COST PER LB:
7.00
COOKING AND PREPARATION WEIGHT PERCENTAGE
DETAIL LB. ORIGINAL
OZ. WEIGHT
AS PURCHASED WEIGHT 3
4 100
(LESS)INITIAL TRIMMING
9 17.3

PRESENTATION WEIGHT 2
11 82.7
(LESS)UNSERVABLE WEIGHT & SKIN
11 21.2

TOTAL SERVABLE WEIGHT 2


0 61.5
RATIO OF SERVABLE WEIGHT TO ORIGNAL WEIGHT =
SERVABLE WT./ORIGINAL WT.
=2LB
0OZ/3LB 4OZ = 32/52 = 61.%
COST PER LOBE = AS PURCHASED PRICE PER LOBE / %
ORIGINAL WT.
= 7.00 / 61.5% = 7.00 / 0.615 = 11.38
COST FACTOR = COST PER SERVABLE LB / AS
PURCHASED PRICE PER LB
= 11.38 / 7.00 = 1.62
PORTION COST(AT 2 OZ PORTION SIZE)
=COST PER SERVABLE LB / NO. OF
PORTIONS PER SERVABLE LB
= 11.38 / (16/2) = 1.42

STANDARD RECIPES

A standard recipe is a written schedule for producing a particular


menu item of specified quality and quantity for use in a particular
establishment.
Aims and objectives
To pre determine the quantities and the quality of the ingredients to be
used in a standard recipes
To pre determine the yield obtainable from a recipe if a standard yield
has not been prepared
To pre determine the food cost per portion
To pre determine the nutritional value of a particular dish
To facilitate menu planning
To facilitate purchasing and internal requisitioning
To facilitate food preparation
To facilitate portion control
To provide an accurate source of reference to all staff concerned

STANDARD PORTION SIZES

A standard portion is the quantity of a particular food item that will be


served to the customer in relation to the food cost and selling price of
the item.
The quantity may be measured in terms of:
Weight- for eg. 120 gm of meat per person
Volume-for eg. 150 ml of soup per person
Count-for eg. 2 bread rolls per person
The portion size may vary for different meals,menu ,outlets
Menu-A La Carte, Table de Hote
Meals-breakfast,lunch or dinner
Outlet-coffe shop,speciality restaurant
The portion sizes of the food items are determined by managements in
conjunction with the heads of both kitchen and restaurant
departments.

Aims and objectives

To facilitate food production control


To establish standard portion sizes for each menu item
To reduce customer dissatisfaction
To ensure food cost control
To act as a safeguard against pilferage and wastage

STANDARD RECIPE RECIPE


RECIPE DETAIL AND COST CARD PHOTOGRAPH
STANDARD NO. OF TOTAL SALES
RECIPE#____ PORTIONS_ COST____________ PRICE_____
___ ______ __ ______
STANDARD PORTION PORTION COST FOOD COST
RECIPE_____ SIZE ___________ %
____ R.T.C R.T.E ___________
. __

DATE______ DATE_____ DATE______


___ ____ ____
INGREDI UN QTY. UNIT AMO UN AMO UNI AMOU
ENTS IT COS UNT IT UNT T NT
T CO CO
ST ST

TOTAL
PREPARATION AND SERVICE
1.
2.
3.

TOTAL PREPARATION AND COOKING TIME


____________________________

BIN CARD
BIN # _______________ MIN.
STOCK ________________
ITEM ________________
MAX.STOCK_________________
DATE RECEIVED ISSUED BALANCE

STORES REQUISITION
DEPARTMENT______________ REQUISITION
DATE_______________
DATE
REQUIRED__________________
QUANTITY ITEMS QUNATITY UNIT TOTAL
REQUIRED ISSUED COST COST
TOTAL
REQUISITIONED BY___________________________

Cost
Expense incurred for goods or services when the goods are consumed
or the services rendered

Elements of Cost

Material cost
Labour cost
Overhead cost

MATERIAL 30%
LABOUR 30%
OVERHEADS 20%
NET PROFIT 20%
TOTAL COST = 80%
SALES = 100%

Classification of Cost

BY NATURE

Material cost
-cost of food and beverage consumed
-cost of additional items
MATERIAL COST = (D.P. STOCK + COST OF PURCHASES )
( CLOSING STOCK + COST OF S.M. )

Labour cost
-salaries and wages
-bonuses
-commissions and other cash payment
-staff meals and accommodation
-pension funds
-employer contribution to govt. taxes

Overhead cost
-rent/rate
-insurance
-Depreciation
-repairs
-printing and stationary
-fuel and electricity

BY BEHAVIOUR

Fixed cost
-rent/rate
-insurance
-depreciation
-managerial and supervisory salaries
-other labour costs
Semi fixed cost
-fuel cost
-electricity
-telephone
-laundry

Variable cost
-cost of food
-cost of beverages
-cost of cigarettes and tobacco
Food Cost

Consists of cost of food consumed less the cost of staff meals


Formula = OS + ( P SM ) CS = FOOD COST
Where:
OS opening stock of material
P cost of purchase
SM cost of staff meals
CS closing stock of material

Key elements in food cost determination


Cost of food issued
Cost of food consumed
Cost of food sold
Cost of employee meals
Adjustments : Transfers IN & OUT
Inter unit transfer
Intra unit transfer
Grease sales
Steward sales
Gratis to bar
Promotion expense

Food Cost Determination


Opening inventory + purchases / total available for sale closing
inventory
= Cost of food
ADD: cooking liquor
Transfer from other units
SUBTRACT: food to bar (directs)
Transfer to other units
Grease sales
Steward sales
Gratis to bar
Promotion expense
= Cost of food consumed
LESS: cost of employee meals
= Cost of food sold

Food Cost Control


Food Cost

This refers to the cost of food incurred in preparing the meals served
Food Cost Determination
Frequency: Daily/Weekly/Monthly
Key Elements:
Cost of food issued
The sum of opening inventory and purchases, less the value of closing
inventory.
Cost of food consumed
The cost of food issued plus or minus all adjustments, except
employees meals.
Cost of food sold
Cost of food consumed, less the cost of employees meals.
Cost of employees Meals
The cost of foods consumed for employees meals. It is deducted from
food cost and added to labour costs.
Adjustments: Transfer In & Out
Inter-Unit transfers
Transfer from one unit to another in chain organizations.

Inter-Unit Transfers between


Kitchen To Kitchen
Bar To Bar
Kitchen To Bar
Bar To Kitchen

Grease Sales
Sale of raw fat generated in kitchens (butcher shop) to rendering
companies for conversion into industrial fats and oils.

Steward sales
Sale of food items to employees at cost, e.g. meat cuts, turkey.

Gratis to Bar
Hot/Cold Horsdveure given free to customers at the bar.

Promotion Expense
Complimentary on the house entertainment expenses.

Standard Costing

Standard Cost is the predetermined cost under each element of cost


i.e. (material, labour & overheads) based on a technical estimate for a
selected period of time and for a prescribed set of working conditions.

Standard costing is a method of costing used for the purpose of cost


control with a view to maintain maximum efficiency in production.

Objectives of Standard Costing


To ascertain standard cost under each element of cost i.e. material,
labour & overheads.
To compare actual cost with the standard cost.
To measure the variations from standard cost.
To analyse the causes of variations.
To take appropriate action where necessary.

STANDARD COSTING SHEET

SCS #: NO. OF
PORTIONS:
ITEMS: PORTION SIZE:
INGREDIENTS QTY UNIT UNIT PRICE AMOUNT

TOTAL COST
COST PER
PORTIONS

FOOD COST DETERMINATION


OPENING INVENTORY
+ PURCHASES

= TOTAL AVAILABLE FOR SALE


CLOSING INVENTORY

= COST OF FOOD ISSUED


ADD: COOKINNG LIQUOR
TRANSFER FROM OTHER
UNITS
SUBTRACTS: FOOD TO BAR (DIRECTS)
TRANSFER FROM OTHER
UNITS
GREASE SALES
STEWARD SALES
GRATIS TO BAR
PROMOTION EXPENSE

= COST OF FOOD CONSUMED


LESS: COST OF EMPLOYEE MEALS

= COST OF FOOD SOLD

HOTEL IHM
FOOD COST REPORT
Month: Day:
Date:

Today To date Today To date


Description Requisition
Amount(Rs) Amount(Rs)
Food Sales Meat
Cost of Food consumed Fish
Add: Poultry
Requisition Eggs
Transfers(IN)
Dairy P
Sub Total [A] Vegetab
Less: Fruits
Staff Meals
Groceri
Fruit Baskets
Complimentary Bakery
Spoilage Others
Transfers(out) Total
Sub Total [B] Invento

Net Food Cost [A-B] Opening


Invento
Net Food Cost % Requisi
Budgeted % Total [A
Variance () Closing
Invento
Consum
Date: SD/- . Remar
FOOD COST CONTROL
Using data given in column [A] compute information given in column
[B].

COLUMN [A] COLUMN [B]


Sales figure for the 115,000,00
month
Opening inventory 15,000,00
Purchases 44,000,00 COMPUTE:
Closing inventory 20,000,00 Cost of food issued.
Cooking liquor 200,00 Cost of food consumed.
Transfer from other 950,00
units
Food to bar (directs) 170,00
Transfer to other 870,00
units
Grease sales 60,00
Cost of food sold.
Steward sales 80,00
Food cost per cent.
Gratis to bar (s) 290,00
Inventory turnover ratio.
Promotion expense 250,00
Cost of employee 1050,00
meals

EXERCISE:

Compute the daily costs, cumulative Food Costs, Sales and the
corresponding Food Cost Percentages from the following data:

DAILY FOOD COST REPORT


DATE DIRECT STORE BEV. FOO TOTA TOTA FOOD
S S TO D TO L L COST
FOO BEV COST SALE %
D TODA S TODA
Y TO TODA Y TO
DATE Y TO DATE
DATE
RS. RS. RS. RS. RS. RS. RS.
15/2/9 700 130 40 70 2000
9 300 80 60 40 1000
16/2/9 470 160 - 30 2000
9 660 120 70 50 1500
17/2/9 400 100 - - 1500
9 320 120 20 60 2000
18/2/9
9
19/2/9
9
20/2/9
9

PORTION CONTROL

Portion control is the key to viable catering portion control refers to


the achievement to the standard portion sizes to ensure production
control. The control of standard portion sizes is essential if the desired
gross profit is to be achieved from the kitchen.
Standard portion sizes
A standard portion is the quantity of a particular food item that will be
served to the customer in relation to the food cost & selling price of
the item.

The quantity may be measured in terms of


Weight- for e.g. 120gm of meat per person
Volume- For e.g. 150ml of soup per person
Count- For e.g. 2 bread rolls per person

The portion size May vary for different meals, menu & outlets
Menu- A la carte, table d hote
Meals- Breakfast, Lunch Or dinner
Outlet- coffee shop, specialty restaurant

The portion sizes of the food items are determined by management in


conjunction with the heads of both kitchen and restaurant department

Aims and objective


To facilitate food production control.
.To establish standard portion sizes for each menu item
To reduce customer dissatisfaction
To ensure food cost control
To act as safeguard against pilferage and wastage.
Techniques of monitoring portion control
By providing correct portion control equipment in production and
service areas.
By using portion control guides.
By following standard yields and standard recipes and standard
portion size.
By spot checking some menu items at each meal period for standard
portion size.
By buying in pre-portion items for e.g.-pre wrapped packs of butter
and condiments etc.
By buying in food items in bulk and portioning in production kitchen
before service for e.g. pre-platting salads to be served in the display
cabinet in the cafeteria.
By portioning food items as they are being served to the customer for
e.g. pre-plated service in a cafeteria

Standard portion cost

Calculated or planned, portion costs are best


known by the term standard
Portion cost. Standard portion cost is defined as
the rupee amount that a standard portion should cost, given the
standard and standard procedures for its productionthe standard
portion cost for a given menu item can be viewed as budget for the
production of one portion of that item.
Objectives
To ascertain standard portion cost.
To facilitate food cost control.
To facilitate menu pricing.
To match real or actual cost with standard cost.
To analyze the cause variation and take appropriate action where
necessary.
Calculating standard portion cost
the following methods can be used for calculating standard cost
Formula
Standard portion cost =purchase price per unit
No. of portion per unit

Standard recipe card (recipe detail and cost card)


A form used to record a standard recipe and to calculate a
standard cost of produsing the quantity stipulated in the
recipe as well as the standard cost and standard cost percent for one
standard portion.
Butcher test card
a form used to record and determine the standard cost a one standard
portion of a product portion before cooking.it used for product that
cannot be portion as purchased but that require some further
processing before portion are produce. The processing may include
trimming, butchering, filleting etc. For e.g.-meat,fish,andpoultry
portioned in-house from wholesale cuts.

Cooking loss test card


A form used to record & determine the standard cost of one standard
portion of a product portioned after cooking. It is used for products
that can not be portioned until after cooing is complete.For e.g.
portions of roast lamb.

Forecasting

This is the method of predicting the volume of sales for a future


period in order to be of practical value the forecast must
Predict the total no. of covers(customers)
Predict the choice of menu items.
Forecasting is in two stages:

Initial forecasting
This is done once a week in respect of each day of the following
week. It is based on sales histories, information related to advance
bookings and current trends. When this has been completed, the
predicted sales are converted into the food/ingredients requirements.
Purchase orders are then prepared and sent to suppliers.
The final forecasting
This normally takes place the day before the actual preparation and
service of the food.
This forecast must take into account the latest developments, such as
the weather and any food that need to be used up, if necessary
suppliers order need to be adjusted.

Sales forecasting is not a perfect method of prediction but does help


with production planning.
Fixing of Standards
Standards may be defined as rules or measures established for making
comparisons and Judgments.

Definition of Standards

Quality Standards
Rules or measure established for making comparisons about the
degree of excellence of raw materials finished products or work.
For example Standard purchase specifications for commodities.

Quantity Standards
Measures of weight, count, or volume used to make comparisons
or judgments. For example Purchase units expressed in terms of Kg,
Litre, or Number.

COST DYNAMICS
The cost of operating establishment may be analysed under three
headings as follows:
MATERIALS
30%
LABOUR
30%
OVERHEADS
The elements of Sales 100%
20%
cost: Total cost
NET PROFIT
80%
20%
Material costs
Labour costs
Overhead costs

Material costs

This refers to the three principal costs; food costs, beverage costs, and
the cost of sundry sales such as cigarettes and tobaccos.
Food Costs consists of the cost of the food consumed, less the cost of
staff meals.The formula for the calculation of food cost is therefore:
OS-(P-SM)-CS=FOOD COST
Where OS=opening stock of materials; P=cost of purchases; SM=cost
of staff meals; CS= closing stock of materials.
The calculation of beverage cost follows similar lines. We take the
opening stock of beverages, add the purchases during the period
concerned, and deduct the closing stock of beverages. Whilst in the
case of food cost we have to deduct the cost of staff meals, in the case
of beverage cost, deduction from the cost of beverages consumed
would have to be made in respect of authorized official entertaining
and any transfers of beverages to other departments, e.g. the kitchen

Labour costs

Labour costs include all the renumeration of the employees, both in


the form of cash and kind. Thus, in addition to wages, salaries,
bonuses, commissions, and similar cash payements, labour costs
include staff meals, staff accommodation and similar non-cash
benefits.

Overhead costs
Overhead costs are all costs other than materials and labour costs. For
example rents, rates, taxes, insurance, repairs, prinitng, and stationary,
etc.

Classification of Costs

By nature By Behaviour
Material Costs Fixed Costs
Labour Costs 2.Semi-fixed Costs
Overhead Costs 3.Variable Costs

Fixed Costs

These are costs which remain fixed irrespective of the volume of


sales. For example, rent, rates, insurance, depriciation,and managerial
and supervisory salaries.

Semi-fixed Costs
These are costs which move in sympathy with, but not in direct
proportion to the volume of sales. For example fuel costs, electricity,
telephone, laundry.

Variable Costs
These are costs which vary in proportion to the sales/output of the
establishment. For example cost of food, beverages and cigarettes and
tobaccos.

Basic Concepts of Profit


Three main concepts of profit are normally used in catering
establishments gross profit, net profit, and after wage profit

Gross Profit
Gross Profit may be defined as the excess of sales over the materials.
Gross Profit is also referred to as kitchen profit or bar
profit,depending on whether it is the gross profit on food operations
or beverages operations.
Gross Profit= Total sales- Cost of materials

Net Profit
Net Profit may be defined as the excess of sales over total costs
Net Profit= Total sales Total Costs (materials+labour+overheads)

After-wage profit (net margin)


After-wage profit amy be defined as the excess of sales over the cost
of materials and labour costs.
After-wage profit= Total sales- (material+labour costs)
Hotel IHM
RESTAURANT/BAR CHECK CH#:023456

GUEST NAME:__________________________________________________________________
ROOM NO.: ACCOUNT NO.:
DATE SERVER TABLE COVERS KOT NO.

OTY. ITEM AMOUNT

SUB TOTAL

SALES TAX

TOTAL

Servers Receipt CH#:023456

DATE SERVER
SALES CONCEPTS
Sales Defined:

The term is defined as revenue resulting from the exchange of


products and services and value. In our industry Food and Bveerage
sales are exchange of the products and services of a restaurant, bar or
related for value.

Ways of Expressing Sales


There are two basic groups of trems normally used in F&B
Operations. Express sales concept:
Monetary Terms
Non-Monetary Terms

Monetary Terms
Total volume of sales expressed in Rupee terms
Total sales by category expressed in rupee terms e.g. food sales,
beverages sales
Total sales per cover
Total sales per meal period
Sales price
Average sales

Non-Monetary Terms
Total numbers sold, e.g. soups, steaks, cocktails
Total covers
Covers-per hour, per day, per server
Seat turnover
Sales mix

MENU PRICING

Cost Plus Pricing


This method involves adding a given percentage of mark up to the
portion cost of any menu item to determine the menu pricing
Formula: P = C+f (C )
Where P= menu price, c- portion cost, F= % markup

Given:
Portion cost: Rs. 10/-
Markup: 150%
Therefore: P=10+150%(10/-) = Rs. 25/-

Cost-Percent Method of Pricing


This method involves dividing the portion cost of any menu item by
the desired Food Cost% to determine the menu price
Menu Price= Portion Cost
Food Cost%
Given:
Portion Cost: Rs 10/-
Food Cost%: 40%

Therefore Menu Price= 1040%=Rs. 25/-

Competitors based Pricing


This method involves pricing menu items following competitors
prices rather than on company cost or demand.
For example: if a nearby competitor manages to stay in business by
say, selling burgers for Rs. 12.50 then can do the same.

Promotional Pricing
This method involves pricing menu items below the list price and
sometimes even below cost, to increase short term sales. For example,
loss leaders, cash rebates, special event pricing, happy hours.

Contribution Margin Method of Pricing


This method involves adding average contributions margin (CM) to
portion costs of menu items to determine their menu prices.
Given:
Food Sales 3,00,000
(-)Cost of Food Sold 1,00,000
=Gross Profit (CM) 2,00,000
Number of customers served 50,000
Therefore ASP per customers 3,00,000/50,000
=Rs. 6/-
Average CM per customer 2,00,000/50,000 =Rs. 4/-
This method suggests that each menu item should be priced at Rs. 4/-
above portion costs other than food and providing profit

For example: A sandwich with a portion cost of Rs. 8/- would be


priced at Rs. 12/- and a soup with portion cost of Rs. 2.50 would be
priced at Rs. 6.50

Item Portion Costs Avg. CM Menu Price


(Rs.)
A 1.80 4/- 5.80
B 3.50 4/- 7.50
C 6.50 4/- 10.50
D 2.50 4/- 6.50

If this approach were followed and if sales volume matched or


exceeded forecasts, the minimum acceptable amount of profit would
be assured provided the costs were kept strictly under control in all
areas.