CHUKA UNIVERSITY

Department of Environmental studies and

Resource Development
Bachelor of Hotel Management
Unit Level: Year 4 Semester 2
Unit Code: BCHM 421
Unit Name: Applied Costing For Hotels
Facilitator: Mr. Weru Joshua

05-May-20 By Mr. Weru Joshua 1

 Introduction to F & B Cost Control
• Definition:
• F & B control may be defined as the guidance and regulation of the
costs and revenue of operating the catering activity in hotels,
restaurants, hospitals, schools, employee restaurants and other
establishments.
• In hotels, F & B sales often account for up to half of the total revenue,
while in restaurants, F & B sales are the main or the only source.
• The amount of F & B control is related to the size of the operation.

05-May-20 By Mr. Weru Joshua 2

• Objectives of F & B Control:
• Analysis of income and expenditure related to food and beverage
operations:
• Income analysis involves the volume of F & B sales, sales mix,
average spend per guest and number of customers served at a given
meal.
• Cost analysis involves departmental F & B costs, portion costs and
overheads.
• The performance of an outlet can then be expressed in terms of gross
and net profit.

05-May-20 By Mr. Weru Joshua 3

 • Establishment and maintenance of standards: Standards set guidelines
for performance for employees and basis of evaluation of achievement.
• Provide basis for menu pricing including quotations for special
functions: It helps in menu pricing having established F & B Costs and
market considerations and in providing quotations for functions.
• Prevent Waste: With standards & targets of costs & revenues wastage of
materials is prevented resulting from poor preparation, over production,
failure to use standard recipes etc

05-May-20 By Mr. Weru Joshua 4

• Prevent frauds by customers and staff: Typical fraud by customers are such things
as walking out without paying, claiming food not well cooked or disputing number of
drinks served while those of staff may include overcharging or undercharging
customers, stealing of drink, food or cash.
• Provision of management information: This involves provision of periodical
reports such cost reports, revenue reports which help analyze the performance of an F
& B outlet.

05-May-20 By Mr. Weru Joshua 5

• Limitations of a Control System:
• A control system in itself will not cure or prevent problems
occurring.
• An effective system is dependent upon correct up-to-date policies
and operational procedures.
• The system should identify problems and trends in the business.
• A control system will require constant management supervision to
ensure that it functions efficiently.
• A control system will need management action to evaluate the
information produced and to act upon it.

05-May-20 By Mr. Weru Joshua 6

• Special problems in F & B control
• The perishability of food whether cooked or raw and need to match
quality and quantity of purchases and production to estimated
demand.
• Also need for proper storage and processing.
• Unpredictability of volume of business raising challenges with
quantities of purchases, production and right staffing.
• The unpredictability of menu mix raising challenge in translating
estimated demand into specific customer selections.
• The short cycle of catering operations allowing little time for many
control tasks.

05-May-20 By Mr. Weru Joshua 7

 The F & B Control Process
• Food and beverage control is the process employed by foodservice
managers to achieve the one basic goal of business: operating profitably.
• Therefore the focus is establishing control over costs and sales of F & B
Operations.
• Attention is centered on the particular methods and procedures used by
foodservice managers to direct, regulate and restrain the actions of people,
both directly or indirectly, to keep costs within acceptable bounds, to
account for revenues, and to earn a profit in the process.
• An effective control system and procedures consists of three broad phases;
• planning,
• operational and
• management control.
05-May-20 By Mr. Weru Joshua 8
 • The planning phase involves defining basic policies which outline the
market segments to be targeted, how they will be catered for and the
level of profitability to be achieved.
• The three basic policies which need to be considered include:
• The financial Policy: this determines the level profitability and
cost limits to be expected from the businesses. The financial policy
for the catering department will set the overall targets for the
department itself, which is further divided into targets for various
restaurants, bars and function facilities.

05-May-20 By Mr. Weru Joshua 9

• The marketing policy: this identifies the broad market the operation is
intended to serve. The marketing policy should also identify the
immediate and future consumer requirements on a continuous basis in
order to maintain and improve its business performance. It covers
decisions on the type of customer the menus items and types, the quality
of F & B, the type and quality of service, the degree of comfort and
decor, the hours of operation etc. The broad market can be divided into
different segments having specific and different consumer requirements.
• The catering policy: this evolves from the financial and market policies
and defines the main objectives of operating an F & B operation. The
operation phase includes such activities as purchasing, receiving, storing,
issuing, production and selling. The management control involves F & B
cost reporting, assessments and correction.
05-May-20 By Mr. Weru Joshua 10
• Cost control:
• It’s the process used by managers to regulate costs and guard against
excessive costs.
• It involves every step in the chain of purchasing, receiving, storing,
issuing and preparing food and beverages for sale, as well as training
and scheduling the personnel involved.
• The principal causes of excessive costs are inefficiency and waste.

05-May-20 By Mr. Weru Joshua 11

• Sales control:
• Steps taken to ensure that all sales result in appropriate income to
the business.
• For example, profits are adversely affected if a steak listed in the
menu for $18.95 is sold to a customer for $ 15.95.The sales figures
must be accurately recorded.
• It is also important to compare sales records to production records to
ensure that all quantities produced are accounted for.

05-May-20 By Mr. Weru Joshua 12

• Responsibility for control:
• The responsibility for every aspect of any food and beverage
enterprise rests with management.
• It is clearly a management responsibility to take personal charge of
directing and supervising the control procedures in every phase of
operations.
• The managers may delegate some or all the work to subordinates.
• Food controller, beverage controller or assistant managers are some
of the tittles used for these subordinates.

05-May-20 By Mr. Weru Joshua 13

• The control techniques/principles include:
• Establishing standards
• Establishing procedures
• Training
• Setting examples
• Observing and correcting employee actions
• Requiring records and reports
• Disciplining employees
• Preparing and following budgets

05-May-20 By Mr. Weru Joshua 14

• Establishing Standards:
• Standards are defined as rules or measures established for making
comparisons and judgments. They are set by management and are used
for judging the extent to which results meet expectations. Types of
standards may include; quality, quantity and standards costs
• Quality standards: These define the degree of conformance to
specifications of raw materials, finished products, and, by extension ,
work. The food items are graded according the degree of conformance to
specifications and management should establish a quality standard for
each food item that is to be purchased. Beverage items also require
quality standards. Quality standards must also be determined for the
workforce. In some hotels and fine dining restaurants, higher degrees of
skill are required for the production and service of elaborate menu items.
05-May-20 By Mr. Weru Joshua 15
• Quantity standards: These are measures of weight, count, or volume
and used to make comparisons and judgments. Standard portion sizes
for food and beverage products and standards for work output are some
examples. A portion of soup should be identified as to size of bowl or
cup to be used or the size of ladle used to portion it.
• In bar operations, management must establish a standard quantity for
each measure of liquor used. Standard drink recipes indicating specific
quantities of ingredients to be used in preparing particular drinks are
normally used.

05-May-20 By Mr. Weru Joshua 16

 • Quantity standards are important in the control of labor as well.
• When planning staff schedules, it is useful to know, for example, the
number of tables or seats a server can cover during a given time
period or the sandwiches a pantry worker can make per hour.
• Standard costs: These are costs of goods or services identified,
approved and accepted by the management. They may be compared
with actual costs to establish the effectiveness of a foodservice
operation and are also basis of determining sales prices. They are
particularly useful in cost control and thus they must be calculated.

05-May-20 By Mr. Weru Joshua 17

• Establishing Standard Procedures: Procedures are methods employed to
prepare products and perform jobs. SOPs are those that have been
established to as the correct methods, routines and techniques for day-to-
day operations. They procedures should be developed for ordering and
purchasing, issuing and production procedures which aid standardization of
final products.
• Training: This is a process by which managers teach employees how work
is to be done, given the standards and standard operating procedures. If the
employees are suitably trained to follow established standards and SOPs,
the control aspects of the manager’s job become difficult or at times
impossible.

05-May-20 By Mr. Weru Joshua 18

• Setting Example: Employees in an operation follow the examples set by
the manager-the managers behavior, manner, responses to questions, and
even a failure to speak or take action in some situations. Individual
behaviors in a group tend to be influence by the actions, statements, and
attitudes of their leaders. For example, if a manager is inclined to wrap
parcels of food to take home for personal use, employees will more likely
do so. Managers must be consistent in setting examples, as well as in
directing, regulating, and restraining employees and their actions.

05-May-20 By Mr. Weru Joshua 19

• Observing & correcting employees actions: If a manager observed a
bartender mixing drinks without measuring the ingredients and failed to
remind him/her to measure quantities carefully, the bartender may assume
that their work meet the manager’s standards. The managers should
continually observe the actions of employees against the standards and
SOPs and correct any deviation when necessary.
• Requiring Records and reports: The larger the establishment, the more
likely it is that managers observations will be indirect rather than direct.
Indirect observations are done through analysis of variety of records and
reports. If timely records and reports are not available, opportunities for
taking corrective action may be lost.

05-May-20 By Mr. Weru Joshua 20

• Disciplining employees: Taking action to reprimand an employee for work
performance or personal behavior incompatible with established standards.
This can be reduced by selecting right people for the various jobs. Those
with experience, skills and personal characteristics that match the job
requirements.
• Preparing and following budgets: A budget is a financial plan and a
realistic expression of management’s goals and objectives expressed in
financial terms. The operating budget is more inclined with food, beverage
and labor control. Its a forecast of sales activity an estimate of costs that will
be incurred in the process of generating sales. It also indicates the resulting
profits. Once an operating budget is adopted for an upcoming period it
becomes a standard against which operating performance is measured as the
fiscal year progresses. If cost and sales figures for a given period do not
meet expectations as identified in the budget causes will be identified.
However, budget projections are merely estimations and inaccurate.
05-May-20 By Mr. Weru Joshua 21
 Cost & Sales Concepts and Cost/Volume/Profit
relationship
• Cost & Sales Concepts:

05-May-20 By Mr. Weru Joshua 22

• Cost:
• An expense to a food service establishment for goods or services when
they are consumed or the services rendered.
• Food and beverages are considered consumed when they are used,
wastefully or otherwise and are no longer available for use.
• Either cooked, served, spoilt and thrown away or stolen. Cost of labor is
incurred if people are on duty whether working or not.
• Fixed and Variable Costs:
• Fixed costs are costs normally unaffected by the changes in the sales
volume. They have little direct relationship to the business volume.
• They may include, insurance premiums, real estate taxes, rent and
depreciation on equipment. Are labeled as non controllable.
05-May-20 By Mr. Weru Joshua 23
• Variable costs are directly related to business volume. Examples are
food, beverage and labor costs. Are labeled as controllable.
• Unit and Total costs:
• The units may be food or beverage portions, as in the cost of one steak
or one glass of wine or units of work, as in the hourly rate for an
employee.
• Total cost may relate to all food served in a given period of say a week
or month or the total cost of labor for one period.
• Prime cost refers to the costs of materials and labor: food, beverages and
payroll.

05-May-20 By Mr. Weru Joshua 24

• Sales Concepts:
• Food and beverage sales are exchanges of the products and services of a
restaurant, bar or related enterprise, for a value.
• The sales in food and beverage operations may be expressed in
monetary and non monetary terms.
• Total sales refers to the volume of sales expressed in dollars.
• Total sales by category. Examples are total food sales or total beverage
sales.
• Total sales per seat is total sales divided by number of seats in the
restaurant.

05-May-20 By Mr. Weru Joshua 25

• Total sales per server is the total dollar volume of sales a given server
has been responsible in a given time period.
• Sales price refers to the amount charged each customer purchasing one
unit of a particular item.
• Average sale per customer is the total dollar sales divided by the number
of sales or customers

05-May-20 By Mr. Weru Joshua 26

• Total number sold or Sales volume is the total number of units or other
menu items sold for a given period of time.
• Cover refers to one diner while total covers refers to total number of
customers served in a given time period.
• Seat turnover refers to the number of seats occupied for a given time
period divided by number of seats available.
• Sales Mix describes the relative quantity sold of any menu item as
compared with other items in the same category.

05-May-20 By Mr. Weru Joshua 27

 • Cost-to-Sales Ratio: Cost Percent:
• Helps to compare the cost and sales of food and beverages in food
service operations.
• Cost/Sales=cost per dollar of sale
• Can be expressed as percentage by multiplying by 100. Cost/Sales *
100= Cost%
• Food cost/Food sales * 100= Food cost %
• Beverage cost/Bev sales * 100= Bev cost %
• Labor cost/Total sales * 100 = Labor cost %

05-May-20 By Mr. Weru Joshua 28

 Break-Even Analysis
• A low standard food cost % will not always result to high profits.
• Lowering menu prices or by increasing food costs, thus giving customer’s
more value for their money may result in sufficient additional customer
numbers to increase profitability in spite of higher food cost percent and
vice versa.
• The effect on profit from lowering costs or changing menu prices must be
judged by management.
• Management must examine the cost/volume/profit relationship for that
particular foodservice operation in the light of its competition, its
customer’s willingness to pay higher prices, the effect of lowering costs on
quality of food, beverage, and service and other factors applicable to the
operation.
05-May-20 By Mr. Weru Joshua 29
• Cost/Volume/Profit Equation:
• Their relationship can be expressed as follows;
• Sales = cost of sales + cost of labor + cost of overhead+ profit or
• Sales = variable cost (VC) + fixed cost (FC) + profit (P)
• Therefore, S=VC + FC +P
• Variable Cost, fixed Cost & Sales:
• Variable costs can be expressed as a % of sales this percentage should
relatively remain constant.
• The relationship between fixed cost and sales volume will vary-increase
and decrease
• Once acceptable levels are determined for costs, they must be controlled if
the operation is to be profitable.
05-May-20 By Mr. Weru Joshua 30
• Variable Rate and Contribution Rate:
• Variable rate is the ratio of VC to Total sales
• Variable Rate = VC/Sales
• For example, if the Variable (VC) is $4200, and the sales (S) is
$9200.Therefore,
• VR = VC/S=4200/9200=0.456
• This can be expressed as percentage which equals 45.6%
• If 45.6% of sales is needed to cover variable costs, then the remainder is
available for covering the fixed cost and target profit .
• So, 100%-45.6% = 54.4%
• This percentage or ratio is known as Contribution rate.
• CR = Fixed cost + Profit / Sales
05-May-20 By Mr. Weru Joshua 31
• Break-Even Point:
• This is the point where the total sales is just sufficient to cover both the variable
and the fixed cost (TC=TR). No profit at this point.
• Contribution Margin: The dollar amount remaining after variable costs have
been subtracted from the sales is defined as the contribution margin.
• Selling price –Variable costs of that item
• This is also true for the total of all menu items but in this case is referred to as the
gross margin and the gross profit on sales.
• Unit Sales required to break-even: If one knows the average contribution
margin per sale and the dollar figure for fixed costs, it is then possible to calculate
the number of sales or customers needed to cover fixed costs and the desired
profits.
• Sales units = FC/CM per unit ( BEP), While at a given target profit
• Sales unit = FC + Profit / CM per unit
05-May-20 By Mr. Weru Joshua 32
 • Calculate:
• For example, if the financial records of a small restaurant indicates
sales of $48,000 and variable costs of $18,000 and average
contribution margin is $10 in a given period the number of
customers served can be calculated

05-May-20 By Mr. Weru Joshua 33

 Purchasing & Receiving Control
Introduction

05-May-20 By Mr. Weru Joshua 34

 Introduction
• All types of foodservice establishments must purchase supplies, receive
them when they arrive and someone must verify that the quantity, quality
and price are the same as ordered.
• The food must be appropriately stored, issued to production department
when needed and finally served to customers.

05-May-20 By Mr. Weru Joshua 35

• All the foodservice establishments, then, have the following sequence
of operations;
• Purchasing
• Receiving
• Storing
• Issuing
• Producing
• Selling and serving

05-May-20 By Mr. Weru Joshua 36

• The responsibility of purchasing may be assigned to different persons
depending with the organizational structure and management policies.
• But for control purposes the authority to purchase foods and the
responsibility for doing so should be assigned to one individual.
• The individual will be held responsible for the system of control
procedures set up F & B controller.

05-May-20 By Mr. Weru Joshua 37

• Standards & Standard Procedures for purchasing:
• These ensures a continuing supply of sufficient quantities of
necessary foods, of appropriate quality to its intended use,
purchased at the most favorable price. Standards must be
developed for the following;
• Quality of food purchased
• Quantity of food purchased
• Prices at which food is purchased

05-May-20 By Mr. Weru Joshua 38

• Establishing quality standards:
• Once a menu has been developed the list of required both perishable and
non perishables for the day-to-day operations can be determined.
• Before purchasing, important decisions must be made about brands,
sizes, packaging, grades, and degree of freshness required among other
things.
• If a foodservice operation is to produce products of consistent quality, it
must use raw materials of consistent quality.
• These carefully written descriptions are known as standard purchase
specifications.
• However, these specifications are not fixed but can be revised when necessary.

05-May-20 By Mr. Weru Joshua 39

• Establishing quantity standards:
• All foods deteriorate with time, some more quickly the others. It is the job
of food controller to establish a system to ensure that purchase quantities
match with production needs.
• For purchasing purposes foods are divided into perishables and
nonperishable.
• Perishables:
• Decisions must be made as to total quantities needed.
• Par stock is defined as the quantity of any item required to meet anticipated
needs in some specific upcoming period.
• Taking a daily inventory of perishables is thus a basic requirement of
purchasing routine

05-May-20 By Mr. Weru Joshua 40

• Nonperishable's:
• Do not present the problem of rapid deterioration.
• However, large stock will tie capital, high risk of pilferage and increase
holding cost such as labor and storage space.
• Inventories can be maintained at appropriate levels through; periodic order
method or perpetual inventory method.
• Period Order Method:
• This permits comparatively infrequent ordering in contrast to methods of
ordering perishables.
• The calculation of the amount to order is done as;
• Amount required for upcoming period less amount presently on hand plus
amount wanted at the end of the period to last until next delivery. Bin cards
are used to establish the flow of stock.
05-May-20 By Mr. Weru Joshua 41
• Perpetual Inventory Method:
• This uses perpetual inventory cards similar to bin cards but with
additional information such as name and address of the supplier and is
inform of stores records not fixed on the shelf.
• It also indicates the most recent purchase price, re-order point, par
stock and re-order quantity.

05-May-20 By Mr. Weru Joshua 42

 • Par Stock & Re-order:
• Par stock can be determined by considering;
• Storage space available
• Limits on total value of inventory prescribed by management.
• Desired ordering frequency
• Usage rate
• Supplier’s minimum order requirements

05-May-20 By Mr. Weru Joshua 43

• Re-order Quantity:
• It is the amount that order will be made each time the quantity of a particular
item diminishes to the re-order point.
• Re-order quantity = Par stock less re-order point plus usage rate until
delivery.
• Bin cards and perpetual inventory cards can be used to monitor stock levels.
• Establishing Price Standards:
• With purchasing specifications and quality to buy, the inventory procedures
and quantity to buy one can turn to the question of price.
• Food supplies should be made on the basis of competitive prices obtained
from several possible suppliers.
• For the perishables the prices may change daily and thus need to determine
the current prices.
05-May-20 By Mr. Weru Joshua 44
• Standard Purchasing Procedure: the steps may include;
• A requisition from an authorized person which should be inform of a
completed requisition form. This should also be accompanied by a purchase
specification.
• Selection of source of supplies. This could be from purchasing records
indicating similar previous supplies or enquiries to new supplies. New
suppliers must be selected based on their quotations indicating price, quality
and delivery performance.
• Place the purchase order by administering a purchase order to selected
supplier
• Receiving of deliveries and noting of any discrepancies in quality and
quantity of goods delivered.
• Transferring of the commodities to the requisitioning department or to the
stores and updating the respective stores records.
05-May-20 By Mr. Weru Joshua 45
• Receiving Control:
• Main objective of receiving control is to verify the quantity, quality
and price of each item delivered if they conform to the order placed.
Any discrepancies should be noted.
• Delivered supplies are accompanied with an invoice which list the
items and prices. Signing of the invoice acknowledges the receipt of
the supplies.
• Directs are food items extremely perishable nature and are purchased
on a more or less daily bases.

05-May-20 By Mr. Weru Joshua 46

• Stores are food items though perishable will not diminish significantly in
quality if not used immediately. They can be held in storage for a day or so.
• Compare quantity and prices in delivery note with that in purchase order.
• Compare quality of delivered items with the purchase specifications.
• A goods delivery note should be completed indicating the details of
commodities accepted and what the company owes the supplier.

05-May-20 By Mr. Weru Joshua 47

 F & B storing and Issuing control
Introduction

05-May-20 By Mr. Weru Joshua 48

 Introduction
• Having accepted a particular level of cost of the food to be served in a
foodservice operation, steps to prevent the development of additional
and unplanned costs before food is sold to customers should be taken.
• These costs may develop from spoilage, wastage, or pilfering.
• Storing Control:
• The standards established for storing food should address the five
principal concerns;
• Conditions of storage facilities and equipments
• Arrangement of food in storage areas
• Security of storage areas
• Dating and storage of stored foods
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• Condition of storage Facilities:
• The factors to consider include; temperature, storage containers,
shelving, and cleanliness.
• Problems with any of these may lead to spoilage and waste.
• Temperature is particularly important for perishables.
• The food controller should keep a log on each refrigeration unit.

05-May-20 By Mr. Weru Joshua 50

• Many food items are purchased in airtight containers, but others
are purchased in unsealed containers-paper bags, boxes, and sacks-
which are susceptible to attack by insects and vermin. Care should
be taken in storing food in whatever manner will best maintain
their original quality.
• At no one time should food products be stored on the floor.
Appropriate shelving, with slatted shelves for perishable foods to
permit circulation of air in refrigerated facilities is preferred.
• Absolute cleanliness should be enforced in all food-storage
facilities at all times.

05-May-20 By Mr. Weru Joshua 51

• Arrangement of Foods:
• Factors to consider include; keeping the most-used items readily available,
fixing definite locations for each item, and stock location.
• The most frequently used items should be stored near the entrance to
reduce time required to move needed items from storage to production.
• With definite locations for the food items it takes less time to locate them
and to monitor inventory.
• The first-in, first out method of stock rotation (FIFO) where older
quantities are used before the new deliveries helps to reduces possibilities
for food spoilage.
• Ensuring that stock rotation takes place is particularly important with
perishables, but should not be neglected with nonperishables.

05-May-20 By Mr. Weru Joshua 52

• Location of storage facilities:
• Storage facilities should be located between the receiving and
preparation areas.
• This facilitates the moving of foods from the receiving areas to storage
and from the storage to preparation areas.
• A properly located storage facility has four effects; speeding the storing
and issuing of food, maximizing security, reducing labor requirements
and reducing infestation of rodents.

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• Security:
• Food should be stored in manner that discourages pilferage.
• Once in storage, appropriate security must be maintained.
• The storeroom should be entrusted to specific individual and other
employees should not be permitted to remove items at will.
• Dating and Pricing:
• Dating facilitates certainty on the age of all items and making provision for
their use before the can spoil.
• Pricing makes it easy for the stores clerk to prices/ value any issues or
requisitions.
• The prices are later used to calculate the cost of goods issued.

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• Issuing Control:
• There are two elements in the issuing process:
• The physical movement of foods from storage facilities to food
preparation areas and record keeping associated with determining the
cost of the food issued.
• Physical Movement of Issued Food:
• Standards and standard procedures for the physical movement of the
foods must be determined specifically for a given establishment
• In large establishments written requisitions that must be authorized by
specialized personnel are often required.
• In small establishments more informal practices are employed.

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• Record Keeping for Issued food:
• Directs are charged to food cost as they are received, on the assumption
that they are perishables purchased for immediate use.
• Stores are considered part of the inventory until issued for use. Only
issues are charged to food cost.
• Any issues must be on requisition-list of items required and quantities.
This must be authorized by the chef.
• Food & Beverage Transfers:
• Food productions in the kitchen may require to use certain beverage
items, such as wines and liquors, not purchased specifically for kitchen
use.
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• On the other hand, some food items may end up being used in the bars,
such as fruits.
• Food may also be transferred from one kitchen to another or one unit to
another in chain operations.
• Intra-unit Transfers:
• They include transfers of food and liquor between the kitchen and bar, and
between kitchen and kitchen in large establishments.
• As transfers are made, items and amounts are recorded.
• The records are sent to the food controller, who use them to adjust cost
figures for greater accuracy.

05-May-20 By Mr. Weru Joshua 57

 Food production control 1: Portions
Introduction

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 Introduction
• The standards and standard procedures for production control are to ensure
that all portions of any given item conform to management’s plans for that
item.
• Portions of a given menu item should be identical to one another in terms
of; ingredients, proportions of ingredients, production method and quantity.
• Standardization of Menu Items:
• It is necessary to develop the following standards and standard procedures
for each menu item:
• Standard portion size
• Standard recipe
• Standard portion cost
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• Standard Portion Size
• Defined as the quantity of any menu item that is to be served to the
customers at a fixed price, each time that item is ordered.
• Every item on a menu can be quantified in one of three ways by
weight, by volume, or by count.
• Standard portion sizes help eliminate customer discontent and
excessive costs.
• Standard Recipe:
• This is a list of the ingredients and the quantities of those ingredients
needed to produce a particular item, along with a procedure or method
to follow.
• They help to ensure that the quality of any item will be the same each
time the item is produced
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• They help to establish consistency of taste, appearance, and customer
acceptance.
• Standard Portion Cost:
• Defined as the dollar amount that a standard portion should cost,
given the standards and standards procedures for its production.
• This can be calculated for every item on every menu, provided that
the ingredients, proportions, production methods and portion sizes
have been standardized.

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• Calculating Standard Portion Cost
• Several Methods Can be used;
• Formula
Standard Portion cost = Purchase price per unit
Number of portions per unit
• Recipe detail and cost card
• Butcher test
• Cooking loss test

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• Using Yield Percentage:
• Defined as the percentage of a whole purchase unit of meat, poultry,
or fish that is available for portioning after any required in-house
processing has been completed.
• Yield % = Portionable /Edible weight
Purchase Weight
• Yield % can be used to calculate the quantity of purchase and number
of portions.

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 Food Production Control 2:

Quantities

05-May-20 By Mr. Weru Joshua 64

• To control production volume, three standard procedures are required;
• Maintaining sales history
• Forecasting portion sales
• Determining production quantities
• Importance of Forecasting Sales:
• The first question operating managers must ask themselves is very
simple: "How many guests will I serve today?" - "This week?" -
"This year?" The answer to questions such as these are critical, since
these guests will provide the revenue from which the operator will
pay basic operating expenses.

05-May-20 By Mr. Weru Joshua 65

• Sales Histories
• Sales history is the systematic recording of all sales achieved during a
pre-determined time period. Sales histories can be created to record
revenue, guests served, or both.
• Forecasts of future sales are normally based on your sales history since
what has happened in the past in your operation is usually the best
predictor of what will happen in the future.

05-May-20 By Mr. Weru Joshua 66

• A sales forecast predicts the number of guests you will serve and the
revenues they will generate in a given future time period.
• You can determine your actual sales for a current time period by using a
computerized system called a point of sales (POS) system that has been
designed to provide specific sales information
• Sales may be a blend of cash and non-cash.
• With accurate sales records, a sales history can be developed for
each foodservice outlet you operate and better decisions will be
reached with regard to planning for each unit’s operation.
• Sales to date is the cumulative total of sales reported in the unit.
05-May-20 By Mr. Weru Joshua 67
• Guest count is the term used in the hospitality industry to indicate the
number of people you have served, and is recorded on a regular basis. For
many other foodservice operations, sales are recorded in terms of sales
revenue generated.
• Most POS systems are designed to tell you the amount of revenue you
have generated in a given time period, the number of guests you have
served, and the average sales per guest.
• When managers record both revenue and guest counts, information needed
to compute average sales per guest, a term also known as check average, is
provided.

05-May-20 By Mr. Weru Joshua 68

• Maintaining Sales Histories
• Sales history may consist of revenue, number of guests served,
and average sales per guest. You may want to use even more
detailed information, such as the number of a particular menu
item served, the number of guests served in a specific meal or
time period, or the method of meal delivery (for example, drive-
through vs. counter sale).

05-May-20 By Mr. Weru Joshua 69

• Sales Histories are likely to be arranged in one of three ways:
• By operating period, such as one week or month, so that all sales
records for an entire operating period can be viewed together on
one page, card, or screen
• By day of the week, so that all sales records for a given day
(Tuesday, for example) for a period of several weeks can be
compared.
• By entrée item, so that the degree of popularity of a given item can
be seen over time.

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 • Other Information in Sales Histories
• One of the most common of these conditions is the weather. Most
foodservice operators find that weather conditions have a
noticeable impact on sales volume. In many establishments, bad
weather has a clearly negative impact on sales volume.
• Hotels and motels in major metropolitan centers often find the
impact of weather on sales to be the opposite: Bad weather seems
to increase food and beverage sales in these properties, probably
because it discourages guests from going out to nearby restaurants.

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• Special events can decidedly influence sales and are often included in
sales histories. The occurrence of a national holiday on a particular day or
the presence of a particular convention group in a hotel can affect sales
considerably. So can such varied conditions as faulty kitchen equipment, a
torn-up street in front of the restaurant, or a major sale at a nearby store.
• Popularity Index:
• In addition to keeping records of numbers of portions sold, many
foodservice operators use the data to determine a popularity index.
• Popularity index is defined as the ratio of portion sales for a given
menu item to total portion sales for all menu items.
• Popularity index = Portion sales for Item A
Total portion sales

05-May-20 By Mr. Weru Joshua 72

• Sales Forecasting:
• A usual first step in forecasting is to predict total anticipated volume:
total numbers of customers anticipated for particular days or particular
meals.
• To arrive at a figure, one refers to the sales history to find the total
number of sales recorded on each of a number of comparable dates in
the recent past.
• When great differences are apparent, reasonable efforts must be made
to determine the reasons for the differences.

05-May-20 By Mr. Weru Joshua 73

• When the effects of surrounding conditions have been evaluated, the
next step is to judge the extent to which these conditions will exist and
affect sales on the particular date or dates for which one is preparing the
forecast.
• This may involve checking a local calendar for coming events,
following weather forecasts, and looking into various other relevant
sources of information.

05-May-20 By Mr. Weru Joshua 74

• After these steps have been taken, it is possible to estimate the total
business volume that may be anticipated for the day or dates for which
the forecast is being prepared.
• For example, if recent history indicated 300 to 315 sales for dinner
on Mondays in pleasant weather, one could reasonably anticipate
that the next Monday would bring approximately the same volume
of business if good weather were expected. In this case, it would
probably be safe to predict 315 sales.

05-May-20 By Mr. Weru Joshua 75

• The next step is to forecast the anticipated number of sales of each item
on the menu. This is simpler to do if the menu is identical to those that
have appeared on Mondays in the past.
• However, it can also be done for changing menus if the sales history is
set up to reflect the relative popularity of individual items as compared
with a changing variety of other items appearing on the same menu.
This type of forecasting is more difficult, but by no means impossible

05-May-20 By Mr. Weru Joshua 76

• Determining Production Quantities: The Production Sheet
• A production sheet is a form on which one lists the names and
quantities of all menu items that are to be prepared for a given date.
Production sheets translate management's portion sales forecasts into
production targets. Production sheets list menu items and quantities in
terms that the chef and staff can use in production.
• The production sheet is best viewed as a tool used by management to
control production and eliminate waste

05-May-20 By Mr. Weru Joshua 77

• Production sheets vary in form and complexity from one kitchen to
another.
• It would be filled out by a manager and forwarded to the chef as many
days in advance as possible.
• Upon receiving it, the chef would have valuable information about both
total anticipated volume for a particular meal and the number of portion
sales anticipated for each item on the menu.
• With this information in hand, a chef is better equipped to determine
needs for perishable and for nonperishable foods.

05-May-20 By Mr. Weru Joshua 78

• Monitoring quantity production: Reasons
• To determine whether the sales forecast has been reasonably accurate
in predicting both the total number of customers and their individual
preferences for particular menu items
• To judge how closely the chef has followed the production standards
established on the production sheet.

05-May-20 By Mr. Weru Joshua 79

• Void Sheet:
• Whenever a portion is returned, an authorized individual, such as a
kitchen supervisor or chef, records it on the void sheet, indicating the
name of the item, the number of the check on which it appeared, and
the reason for its return.
• If the number of returns is consistently high and evenly distributed
among job classifications, investigation may indicate general
understaffing. This finding may suggest a need for additional
personnel to improve customer service.

05-May-20 By Mr. Weru Joshua 80

• If all returned portions must be recorded on the void sheet and attested
to by a member of the management team, it is more difficult for
kitchen personnel to be careless with food.
• The recording of returned portions makes possible the reconciliation
of kitchen records of portions produced and records of portions sold

05-May-20 By Mr. Weru Joshua 81

 Monitoring Foodservice Operations
Monthly Inventory & Monthly Food Cost

05-May-20 By Mr. Weru Joshua 82

 Introduction
• The most common approach to monitoring food service operations is
completing various procedures and calculations at the end of each month.
• These includes taking monthly inventory and procedures for determining
monthly food cost and food cost percentage.
• Monthly Inventory:
• This is done by taking physical inventory at the close of an accounting
period.
• Helps to determine the actual cost of the foods and beverages used during
the month, to monitor how well control measures have worked.
• Taking physical inventory requires counting the actual number of units on
hand of each item in stock and recording an appropriate books.

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• Valuing the Physical Inventory:
• Principal difficulty is assigning unit value for each item because all
purchases may not have been made at the same price.
• There are five possible ways of assigning values to units of product: actual
purchase price methods; first-in, first-out method; weighted-average
purchase price method; latest purchase price method and last-in, first-out
method. The following example explains the inventory valuation;
Use the following information to calculate the value of inventory on hand on Mar 31, using both
FIFO and Weighted Average Method. (6mks)
Mar 1 Beginning Inventory 50 units
5 Purchase 130 units
14 Sale 100 units
29 Sale 20 units

05-May-20 By Mr. Weru Joshua 84

 • Monthly Food Cost Determination
• Food cost is determined by means of formula;
Opening Stock
+ Purchase
= Total Available
- Closing Stock
= Cost of Food
Food Cost % = Food Cost/ Sales * 100

05-May-20 By Mr. Weru Joshua 85

• Example:
• The financial records of Indatwa Restaurant reveal the following figures
for the month of January 2011.Calculate the cost of food issued.
i. Opening stock $ 9,010
ii. Food Purchases $ 23,570
iii. Closing Stock $ 9,356
iv. Food Sales $ 65,420
• Adjustments to Cost of Food Issued
• Transfers to and from the kitchen affect the cost of food issued. Any
transfers to the kitchen such as cooking liquor from the bar increased
the food cost while transfer of food to bar decrease the food cost.
• Other factors affecting cost of food issued include steward sales,
promotion expense and gratis to bar.
05-May-20 By Mr. Weru Joshua 86
• Calculating Cost of Food consumed & cost of Food sold
• During the same month of January the following adjustment were
available.
i. Cooking Liquor $ 200
ii. Food to bar $ 170
iii. Steward sales $ 80
iv. Gratis to Bar $ 290
v. Promotional Expense $ 250
vi. Cost of employee’s meals $ 1,050

05-May-20 By Mr. Weru Joshua 87

• Once the food cost and food cost percent have been calculated, they should
be reported to management.
• These should be within acceptable limits, provided there have been no
significant changes in menu or operating procedure and no significant drop
in sales.
• If the figures are unacceptable corrective measures should be taken.
• Inventory Turnover:
• Managers are responsible for ensuring that sufficient supplies of appropriate
foods available for use when needed.
• Are also expected to prevent the accumulation of excessive quantities of
food.
• To measure how often a food inventory has been consumed and replenished
during an accounting period foodservice managers calculate the inventory
turnover.
05-May-20 By Mr. Weru Joshua 88
• Inventory turnover rate is calculated by means of the following formulas:
• Average inventory = Opening S. + Closing S.
2
• Inventory turnover = Food Cost
Average inventory

05-May-20 By Mr. Weru Joshua 89

 Daily Food Cost
Introduction

05-May-20 By Mr. Weru Joshua 90

 Introduction
• Monthly reports may delay correction of errors that may have been made.
• To avoid the delay and to make figures more timely on which to base day-
to-day operating decisions, a number of larger and better organized
foodservice operations use daily food cost calculations.
• To determine daily food cost directs and stores issued for the day must be
established.
• Thus, the daily cost of food can be determined in the following way:
Cost of directs
+ Cost of stores
+ Adjustments that increase daily cost
- Adjustments that decrease daily cost
= cost of food consumed
- cost of employee meals
= daily cost of food sold
05-May-20 By Mr. Weru Joshua 91
• Example:
• The financial records of Indatwa Restaurant reveal the following figures
for the January 5 2011.Calculate the cost of food sold & food cost
percent.
i. Cost of directs $ 218.75
ii. Cost of stores issued $ 955.45
iii. Cooking liquor $ 90.00
iv. Steward sales $ 10.00
v. Food to bar $ 20.00
vi. Gratis to bar $ 20.00
vii. Employee meals $ 89.65
viii. Total sales $ 3,068.95

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• Food Cost Percent Today & To date:
• The daily food cost may not be accurate as the value of directs and stores
issues will vary daily.
• The issues and directs on a given day may be covering a number of days
yet they are charged for one day.
• To help overcome the problem of artificially high food cost percent one
day and low food cost percent the next, most operations also Calculate
food cost percent to date.
• Food cost percent to date is defined as the cumulative food cost percent for
a period.
• It takes into account all food costs and food sales for all days so far in the
period.
• Food cost % to date = Food cost to date
• Food sales to date
05-May-20 By Mr. Weru Joshua 93
 Simple Daily Cumulative Cost Record
Adjustments Total Cost Total Sales Food Cost %

Date Directs stores Added Subtr Today To Date Today To Date Toda To
acted y date
1 Jan $ 254.2 $ $ 57.2 $ $ $ $ $ 37.2 37.2%
977.3 255.3 1,033.4 1,033.4 2,7778. 2,778.0 %
0
2 Jan $ 326.7 $ $ 86.2 $ $ $ $ $ 37.8 37.5%
944.3 253.4 1,103.6 2,137.0 2,919.2 5,697.0 %
3 Jan $ 262.5 $ $ 88.6 $ $ $ $ $ 39.7 38.3%
1,040. 177.8 1,213.7 3,350.7 3,056.9 8,754.15 %
4 5
4 Jan $ 256.4 $ $ $ $ $ $ $ 36.3 37.7%
965.3 120.0 220.0 1,121.65 4,472.35 3,094.2 11,848.3 %
05-May-20 By Mr. Weru Joshua
5 94
• Conclusion:
• When food costs and food cost percents are determined daily and to
date and used as monitoring devices, the effects of these measures
can be assessed daily, with the expectation that at the end of the
operating period, costs will be in line with magt’s goals.

05-May-20 By Mr. Weru Joshua 95

 Beverage Production Control

Introduction

05-May-20 By Mr. Weru Joshua 96

Introduction
• Control over beverage production is established to achieve two
primary objectives:
• Ensuring that drinks are prepared according to management’s
specifications.
• Guarding against excessive costs that can develop in the production
process.
• Specifications for drink production must take into account both the
tastes of expected customers and management’s desire to prepare
drinks of appropriate quality and volume.
• A customer who is served a cocktail that does not meet expectations
may be dissatisfied and complain, or simply not return.
05-May-20 By Mr. Weru Joshua 97
• Standards and Standard Procedures for Production:
• Standards for the quantities of ingredients used in drink preparation, as
well as for the proportions of ingredients in a drink should be established.
• This assures the customers that a drink will meet their expectations every
time its ordered.
• When drinks are prepared by formula and served in standard portion
sizes, one portion of any drink prepared should always cost the same.
• The sales prices for drinks being fixed, the cost-to-sales ratio for one
portion of any drink should be the same for every other portion of that
drink.
• The beverage cost percent for the overall operation should be reasonably
stable, provided the sales remain relatively constant
05-May-20 By Mr. Weru Joshua 98
• Establishing Quantity Standards:
• The management must determine in advance the specific quantities to
be used for the production of drinks and then provide the bartender
with a means of measuring those quantities.
• This fixed quantity is then given to a customer in return for a fixed
sales price of a drink.
• Devices for Measuring Standard Quantities
• The short glass. These are small glasses provided to bartenders for
measuring. They are either plain or lined.
• The jigger. A double-ended stainless steel measuring device.
• The Pourer. A device fitted on top of a bottle, that measures the
quantity poured from the bottle, limiting that quantity to a
predetermined amount.
05-May-20 By Mr. Weru Joshua 99
• In addition to controlling the quantity of liquor used in preparing each
drink, it is desirable to control the overall size of drinks.
• Standardizing the glassware used for service makes this comparatively
simple.
• The management should establish the standard portion size for each
type of drink and provide bartenders with the appropriate glassware.

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• Quality Standards and Standard Procedures
• In order to control costs standard recipes must be established. This is
particularly important for mixed drinks.
• The recipes also makes it possible for the customer to get a similar drink
every time they order a given mixed drink.
• With standard portion size, standard portion cost should be determined
and standard sales prices calculated

05-May-20 By Mr. Weru Joshua 101

 Monitoring Beverage Operations
Introduction

05-May-20 By Mr. Weru Joshua 102

Introduction
• There are three general approaches to monitoring beverage operations.
These include;
• Determining the cost of beverages sold, and comparing with standard
cost.
• Comparing the volume of beverages sold with the volume of the
beverages consumed.
• Comparing the potential sales value of beverages consumed with the
actual beverage revenue recorded.

05-May-20 By Mr. Weru Joshua 103

• Cost Percent Methods:
• All beverage operations should compare cost and sales figures on a regular
basis to see whether the planned cost-to-sales ratio is being maintained.
• Cost percent method follows a formula;
• Opening stock plus purchases then less closing stock to get the value of
beverages issued to the bar.
• There are various possible adjustments to beverage cost which must be
accounted for.
• These include food and beverage transfers from bar to kitchen and vice
versa, promotional drinks, drinks consumed by managers etc.

05-May-20 By Mr. Weru Joshua 104

• Example:
• The financial records on Muhima Bar for the month of February provide
the following information. Calculate the beverage cost percent.
i. Opening beverage stock $3,201.80
ii. Beverage purchases $3,666.80
iii. Closing stock $3,875.40
iv. Food to bar $59.70
v. Mixers $115.60
vi. Bar to kitchen $32.70
vii. Management’s Drinks $ 7.35
viii. Special promotions $20.00
ix. Net sales $11,461.90

05-May-20 By Mr. Weru Joshua 105

• The Liquid Measure Approach:
• This involves taking daily physical inventory of bar stock, determining the
number or volume of beverages consumed each day, and calculating the
number or volume sold each day from detailed sales records.
• Ideally the number of ounces consumed each day should equal the
number of ounces sold.
• Modern technology is now available for volume-control procedures such
as the Walter scale

05-May-20 By Mr. Weru Joshua 106

 Food & Beverage Sales Control

Introduction

05-May-20 By Mr. Weru Joshua 107

 Introduction
• A control system covering the sale of all food and beverages in a
foodservice operation is essential to maximise returns.
• The type of control system used will vary from one operation to another.
• To control sales or revenues, then, one must institute the process,
beginning by establishing standards and standard procedures.
• Standards and standard procedures for revenue control are aimed at one
clear and simple goal: to ensure that all food and beverages served
produces the appropriate revenue for the enterprise.
• For any menu item served to a customer, appropriate revenue is the price
stipulated in the menu.
05-May-20 By Mr. Weru Joshua 108
• For food or beverage served to an employee at the discretion of
management, appropriate revenue may be a menu price, a discounted
price, or no price at all, depending on management’s policies.
• In any case, all food or beverage served must be accounted for
appropriately.
• All control systems should be as simple as possible, making it easier
for the food and beverage ser vice staff to operate, and for the control
and accounts department staff to check for any errors and omissions
and have them rectified.

05-May-20 By Mr. Weru Joshua 109

• The purpose of a revenue control system is to monitors area where
selling takes place.
• There must be efficient control of all food and beverage items issued
from the various departments.
• The system should reduce any pilfering and wastage to a minimum.
• Management should be provided with any information they require for
costing purposes and so that they may estimate accurately for the coming
financial period.
• The cashier should be able to make out the customer’s bill correctly so that
the customer is neither overcharged nor undercharged.
• The system should show a breakdown of sales and income received in order
that adjustments and improvements may be made.

05-May-20 By Mr. Weru Joshua 110

• The main control methods in use in foodservice establishments are:
• Order taking methods
• Billing methods
• Sales summary sheets
• Operational statistics
• Order taking methods:
Method Description
Bill as check Second copy of order used as bill
Separate bill Bill made up from duplicate check and presented to customer
Bill with order Service to order and billing at same time, for example bar or takeaway service methods
Pre-paid Customer purchases ticket or card in advance, either for specific meal or specific value
Voucher Customer has credit issued by third party for either specific meal or specific value, for example a
luncheon voucher or tourist agency voucher
No charge Customer not paying – credit transaction
Deferred Refers to, for example, function catering where the bill is to be paid by the organiser, or customers
who have an account
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• All billing methods are based upon these seven concepts.
• Methods of payment: There are various ways of making payment for
food and beverages. These include:
• Cash: The amount of cash received by the operator should always be
checked in front of the customer and when change is given it should be
counted back to the customer. Any notes received by the operator should be
checked to ensure they are not forgeries. An itemised and receipted bill
should always accompany the change.
• Cheque: The use of cheques is declining. The acceptance of cheques is
now mostly restricted to the payment of invoices, for example for
monthly accounts.
• Credit cards/debit cards/charge cards: On receipt of a credit, debit or
charge card the operator should check that it is still valid by looking at the
dates on the card.

05-May-20 By Mr. Weru Joshua 112

 • Travellers’ cheques: These may be issued by either a travel agent or bank in
the traveller’s own country. They may be issued in sterling, US dollars,
Euros and other currencies.
• Vouchers and tokens: These may be offered in exchange for food in
those establishments that accept them. The vouchers have an expiry date.
Should food be purchased above the value of the voucher, the difference
must be paid for in cash.
• Sales summary sheets: Sales summary sheets are also known as
restaurant analysis sheets, bill summaries or records of restaurant sales.
• They provide for:
• the reconciliation of items with different gross profits
• sales mix information
• records of popular/unpopular items
• Records for stock control

05-May-20 By Mr. Weru Joshua 113

• The revenue control system can be summarized in a flow chart as
follows:

05-May-20 By Mr. Weru Joshua 114

• There are two basic approaches to recording and controlling food
and beverage sales.
• A manual system – which is commonly used in small and in exclusive type
catering units.
• An automated system – which is commonly used in units with several
outlets, in units with a very high volume of business and in up-to-date
companies with many units.
• A manual revenue control system uses guest checks are used to record
and collect income due for products and services sold.
• Some operations use duplicate or triplicate guest checks depending on
the level of control desired and particular accounting requirements.
• One copy may be given to the guest, another copy to the manager or to
the person who accounts for revenues, and a third to the kitchen or to
the bartender to prepare the meals.
05-May-20 By Mr. Weru Joshua 115
References
1. Dittmer P. R. and Keefe III. J. D. (2006). Principles of Food,
Beverage and Labor Controls, (8th Ed). Hoboken, New Jersey:
John Wiley and Sons, Inc
2. Miller J. E., Hayes D. K. and Dopson L. R. (2002). Food and
Beverage Cost Control New York: John Wiley and Sons, Inc
3. Davis D., Lockwood A. and Stone S. (1998). Food and Beverage
Management, (3rd Ed). Burlington, MA: Elsevier Butterworth-
Heinemann
4. Kotas R. and Davis B. (1981). Food and Beverage Control, (1st
Ed). New York: Blackie Academic and Professional

05-May-20 By Mr. Weru Joshua 116