FOOD AND BEVERAGE CONTROL NOTES

INTRODUCTION TO FOOD AND BEVERAGE CONTROL

DEFINITION

Food and beverage control is the guidance and regulation of all operating costs and revenues in the
catering establishment with the aim of making a profit.

Food and beverage control as is currently practiced in hotel and catering industry is in many respects
different from the old concept of cost control which had its origin in the predominantly cost related
manufacturing industry.

Most sectors of hotel and catering industry are market oriented and their financial success is largely
determined by the factors operating on the revenue side of the business such as the price level, number
of covers, sales mix, gross profit margin, etc. It is for this reason that in controlling a catering operation,
we are concerned with both revenue control and cost control.

The importance of food and beverage control needs no emphasis in majority of hotels, food and
beverage sales account for at least one third of total revenue.

OBJECTIVES OF FOOD AND BEVERAGE CONTROL

1. ANALYSIS OF INCOME AND EXPENDITURE

In financial accounts stress is usually placed on the ascertaining of total quantities eg sales, cost
of sales, gross profit and net profit. In food and beverage control we have a rather different
approach.

First we are concerned with income and expenditure which is relevant to F&B operation.

Secondly, more emphasis is placed on the analysis of income and expenditure thus on the
revenue side of the operation , we are interested in the sales mix, tends in food and beverage
sales, average spending power, number of customers ,etc. On the cost side on the other end we
are interested in food and beverage portion costs, departmental food and beverage cost.

2. PRICING AND QUATATION

Another major objective of food and beverage is to provide a basis for pricing and quotations for
banquete and special functions. Whilst its not proper to fix prices on the basis of costs alone, its
clear that cost considerations must future prominently on the pricing policy of the business.

3. PREVENTION OF WASTE

The main purpose of control in general and also food and beverage control is to ensure that
current results are in accordance with the predetermined objectives of the business. Invaraibly
such objectives are expressed in terms of targets such as food sales, beverage sales, gross profit
 margin, cost ceilings etc. If such targets are to be reached, all possible forms of waste must be
eliminated. The system of food and beverage control must therefore cover the whole field of
operations from purchases of supplies to the sales of foods and beverages.

4. DATA FOR MANAGEMENT REPORTS

Finally a system of food and beverage control has an important function in the provision of data
for the periodical reports on current operations. Its been said that a manager is a judge but his
judgment is only as good as the information provided to him. An efficient system of food and
beverage control is therefore an important pre-requisit of success in food and beverage
operations.

PROBLEMS IN FOOD AND BEVERAGE CONTROL

Some problems specific to food and beverage control are discussed below:

1. UPREDICTABILITY OF THE VOLUME OF THE BUSINESS

Sales instability is inherent in almost all food and beverage operations. The changes which occur in the
volume of catering establishment are of several kinds;

First the intensity of demand of food and beverage will in most cases vary during the day. As a result in
majority of catering establishment, its possible to observe more or less regular peak of activity during
the working day.

Secondly, there are changes in the volume of the business occurring from one day to another in
accordance with more or less distinct weekly pattern.

Finally, in hotels which are to some degree seasonal, turnover in the season may be considerably greater
than that in the off season.

2. PERISHABILITY OF SUPPLIES

Food is perishable both in the form of raw material and as prepared meals. This presents the
establishment with two major problems,

First, when buying perishable food stuffs, its necessary to ensure that whilst the current stock
are adequate, there is no over-buying. This applies particularly to highly perishable food stuffs
like soft fruits, salads and certain vegetables.

Secondly, the quantity of food prepared for each service should be in line with the forecast
demand.

3. DAILY VARIATION IN PRODUCTION

In addition to changes of volume due to sales instability, there is a continual change in the
assortment of meals produced by the establishment. The assortment of meals will change from
 one service to another during the cooking day. Also there are often considerable changes of
emphasis from one item of the menu to another in the course of the break as well as over
longer periods.

4. SHORT CYCLE OF OPERATION

Another characteristic feature of hotel operations which present an acute control problem in
the food service operation is short cycle of operations. While in many industries, the time taken
by the productive process from the purchase of raw material to the sales of the finished
products extends over weeks or months. In hotel cycle the operation is extremely short and the
full production process usually takes less than a few days, hence the speed of operations is such
as to allow little time for many control tasks normally undertaken during the course of
production. Therefore the food and beverage staff cannot produce report at the end of the day.

5. MULTIPLICITY OF LOW VALUE TRANSACTIONS

The spending power of the customer will vary from one type of establishment to the other.
Whilst in some high spending power establishments it may well be excess of £10 per head in the
majority of case its probably less than £2. Even when the customers spending power is high the
total amount spent by the customer consist of a number of small payments for the individual
items comprising his meal.

6. HIGH DEGREE OF DEPARTMENTALIZATION

Whereas some establishments have one selling outlet, there are many which have several
revenue producing departments. This is particularly in the larger hotels some of which operate
several selling outlets for food in addition to bars, kiosks, and shops. Clearly the larger the
number of outlets the more tedious the work of control. Whilst analysis of total revenue
presents some difficulties, even greater difficulties are faced when analyzing the total cost of
food consumed particularly where all the selling outlets are served by one central kitchen.
Where there are several selling outlets eg public bar, cocktail bar, dispense bar, etc, cellar issues
have to be recorded in a manner which will permit the compilation of separate trading results
for each other.

METHODOLOGY OF FOOD AND BEVERAGE CONTROL

These are the methods used to develop an effective system of control. The development of
effective system of control revolves itself into three distinct phases;

Phase 1- consist of basic policy decisions in relation to the financial and catering policy of the
establishment.
Phase 2- consist of the necessary routine operational controls revolving around the catering
cycle.

Phase 3- consist of what may be described as the control after the events or post operational
control.

PHASE 1 BASIC POLICY DECISIONS

In some respects food and beverage control is a by product of the integrity of two basic and
sometimes conflicting considerations. When one reflects on what most forms of catering are
about, the inevitable condition is that in the final analysis, two things may really matter;
profitability and the customer.

The profitability of the establishment is the ultimate objective whereas the provision of a
satisfactory standard of F&B service is the means by which the ultimate objective is reached.
Hence before a system of F&B control is developed, it is necessary to evolve;

a) FINANCIAL POLICY: setting out the intentions of management to the envisaged probability
of the establishment, the determination of departmental profit margin targets and the
planning of the whole pattern of differential profit margin in respect of each menu, wine list,
etc. the financial policy of the establishment should be determined as in the five steps listed
below;

 Determine the overall profit target ie return on capital employed.

 Determine what percentage of net profit and sales must be aimed at.

 By respect to the budgeted volume of sales, the type service and the degree of
comfort to be provided, determine what percentage of revenue can therefore be
available to cover the cost of sales.

 By reference to the projected sales mix, determine the cost of sales for each
department of the business.

 Having determined the overall cost of sales for each department, for the differential
profit margin for each group of items offered on the menu, wine list etc.

b) MARKETING AND CATERING POLICY

An important characteristic feature of the great majority of catering establishment is their

market orientation. This brings the marketing policy to the forefront of business problems.
We must identify customer, quantify his average spending power, decide which menus are
as a result appropriate, determine the type of service, portion size and finally choose the
most appropriate décor atmosphere etc.
 Market orientation means amongst others, that we must always start with the identification
of needs of our customers, its only them that can embark on the most relevant catering
policy. A policy is very much a matter of intentions. The task of F&B control is to ensure that
the policies of the establishment are translated into practice.

PHASE 2 ; OPERATIONAL CONTROL

The second stage could be described as operational control. It consist of a sub total of built-in
check eg ( quantity inspection of incoming goods), technological procedures (yield testing), and clerical
procedures (use of written stores requisitions). We will therefore deal with operational control in
relation to the control cycle which is; a) buying

b) Receiving

c) Storing and issuing

d) Preparation

e) Selling

Each of the above stage constitutes a highly critical stage of food and beverage control. Any system
installed must therefore cover all the five stages.

a) BUYING; There are four main factors considered at this stage.

-First, there is yield testing, we have already evolved a catering policy, identified a type of
customer, decided the type of menu, and established cost and gross profit targets. The main
objective of yield testing is simply to discover the respective yield of a whole range of a
commodity available for any one purpose and so determine the unit of cost involved. Its only on
the basis of yield testing that we may compile the necessary purchase specification.

-purchase specification, this is a concise description of an item of food which helps the caterer
to communicate with the suppliers. Its necessary to ensure that the specification are used not
only by the buying office but also by the goods received office.

-Hence in relation to each group of commodity we must decide whether or not we wish to
purchase by contract, in the open market or to invite suppliers to tender.

-Finally, the clerical procedures: it is necessary to decide who originates, sanctions and places
orders and what source of documentary evidence are used.

b) RECEIVING; There are three points involved here;

-Quality inspection, a person must be made responsible for checking all incoming goods and its
important to direct more attention to the perishable foods. The qualities of most non
perishable items are to remain constant over a long period.
 -Quality inspection; this is done by the receiving clerk, though in smaller establishment, its done
by the storekeeper. A system called Blind Receiving is gaining popularity and merit
considerations.

-Clerical procedures,

c) STORING AND ISSUING; It comprises of ;

-Stock records; Its necessary to decide whether or not these will be kept at all as in smaller units
having weekly stock taking, stock records are not usually required in lager units and stock cards
or bin cards may be used for the non- perishables and some form of a weekly control sheet for
the perishables.

- Methods of pricing; This must be decided on, in other words we must choose one or more of
the following for computing the cost of food consumed:

a) Actual price method

b) Simple average method

c) Weighted average method

d) Inflated method

e) Standard method

f) FIFO

g) LIFO

-Stock taking; decision must be made with regards to its frequency, the pricing of stocks,
methods of dealing with discrepancies, etc

- Clerical procedures;

PREPARATION ( std. yield, vol. forecasting, std. portion size, std. recipes)

This is probably the most critical stage of the control cycle. Basically the cost of food consumed
depends on two factors; -the number meals produced and the food cost of the meal.

In order therefore to control food cost we must be able to:

-control the numbers to be catered for

-control the food cost per meal in advance of production and service ie use a system of
pre-costing (standard recipes or portion control)
Volume forecasting is the method of predicting the volume of sales for a future period. In order
to be practical the volume forecast must;

-predict the total number of covers

- predict their choice of menu items

Volume forecasting is not an accurate method of productions. It does however help to minimize
over and under production of food and is particularly effective in conjunction with a system of
cyclic menus. Pre-costing is a method of controlling food costs in advance of the preparation and
service of food.

SELLING

At this last stage of the control cycle we are concerned with three main problems;

-financial, marketing and catering policies, will have defined the price policy of the business.

-Cash control; we ensure that all amounts received by the waiting staff are paid to the cashier
also that the later banks the whole of each day’s takings.

PHASE 3 – CONTROL AFTER THE EVENT

This is the last phase of control and it is concerned with three main matters;

1. Food and Beverage reporting

2. Assessment of results

3. Corrective action where appropriate

FOOD AND BEVERAGE REPORTING

First, one should know the specific character of food and beverage operations. Food is highly
perishable commodity and whether it is in the form of cooked meals or raw material, cannot be
stored for long.

The demand for catering facilities often shows unpredictable trends and unexpected changes.

The cycle in production is unlike in other industries, they are extremely short. This means that,
current operations must be received frequently and that there is need for a short review period.

With regards to beverage operations, the problem is rather different. Beverages as already
mentioned are not perishable and may be stored for longer periods.

Changes in the volume of the business do not present any problem in this regard. However
 Because of high value of the beverage stocks and possibilities of malpractices on the part of the
staff, it is considered that frequent checks are essential. It is for this reasons that in most hotels
and catering establishments, a bar trading account is prepared at the end of each week.

ASSESSEMENT OF THE RESULTS

This is the second most important aspect of food and beverage reporting and is concerned with
analysis. A catering business unlike most other businesses perform a dual function; production
and selling. Furthermore many establishments are highly departmentalized. The assortment of
production changes from one day to another. This means that analytic reports showing separate
results for each branch of operation are necessary.

Assessment of results is concerned with an appreciation of how far the results of food and
beverage operations correspond with expected results. No assessment is possible unless there is
some sort of yardstick against which correct results can be measured. The two possibilities here
are;

a) To assess current results in relations to those of previous food and beverage review
periods.

b) To assess current actual results in relations to budgeted results. In large

establishments there is large volume of data related to food and beverage
operations. All the facts and figures may be important, there is often a mass of
detail which is difficult to absorb and assess. The best way is to resort to
concentrate on deviations from cost, revenue and profit targets which are outside
permissible limits.

CORRECTIVE ACTIONS
ELEMENTS OF COST

The cost of operating a catering establishment may be analyzed in several different ways. The
conventional analysis of operating cost is one based on the nature of costs. From the point of view its
possible to analyse all operating costs under three headings as follows:

a) Material cost

b) Labour cost

c) Overhead cost

The total of materials, lab our costs, and overheads is described as total cost. This is subtracted from the
sales of the establishment to give the net profit. The relationship between sales, costs and net profit is
shown below,

Material cost 40%

Overheads 20ofit%

Labour 24%

Net profit 16%

Types of cost here include;

1. Raw materials; this may refer to three principle costs;

a) Food cost

b) Beverage cost

c) The cost of sundry eg cigarettes, tobacco, etc. We are hereby mainly in interested in
food and beverage costs. Therefore we can further refer this raw material into two
groups;

a) Direct raw material

b) Indirect raw material

Material cost; it is the amount spent on purchase of raw materials for production and sell.

Material cost = opening stock + purchases – closing stock – staff meal

Example 1

Calculate the cost of food consumed from the following;

Stock at 1st august £72

Stock at 31st august £88

Purchase for the month of august £980

Purchase returns £24

Staff meal £12

Example 2

Stock at 31st march £54

Stock at 1st march £45

Purchases return £18

Purchases for the month of march £720

Example 3

The following information was extracted from the books of a restaurant in respect of June 2002;

Sales £26000

Opening stock 1st June £2500

Closing stock 30th June £3200

Purchases £12300

You are required to calculate food cost and express it as a percentage of sales assuming that £800 of
food cost consumed was used as staff meals

Example 4

From the following information calculate food cost and express it as a percentage of sales.

Sales £3200
Cost of food consumed £1410

Staff meals £66

DIRECT RAW MATERIALS; these are materials which can be identified with finished products eg flour can
be identified with a product such as cake.

INDIRECT RAW MATERIALS; these are materials which cannot be identified with finished products eg
stationary cannot be identified with a finished product such as cake.

2. Lab our cost ; This may be referred to as human effort in production process. It is measured in
man in form of hours and the reward for lab our is wages. Lab our cost may also be classified as
direct and indirect costs. This includes all the remunerations of the employees both in form of
cash and in kind eg. Wages and salaries, overtime, commissions, staff meals, staff
accommodations, national insurance, etc

Lab our cost % = lab our cost ×100

Sales

3. Overheads; they are referred to as expenses. Overheads are all costs which are incurred by the
organization as a whole and for specific activities in order for the business to run smoothly,
other than material or lab our costs eg rent rates depreciation insurance repairs maintenance,
etc

- Direct expenses are those which plays a role in the conversion process and are measurable
eg royalty (commission)

Overhead cost % = overheads ×100

Sales

TOTAL COST; It is obtained by the addition of the three elements of costs.

Total cost = material cost + lab our cost + overhead cost

Material costs 40%

Labour cost 30%

Overhead cost 20%

Net profit 10%

BASIC CONCEPTS OF PROFIT

Three main concepts of profit are used in catering establishment:

a) Gross profit; it is the excess of sales over material cost

Material cost 40%

Gross profit 60%

Gross profit is also called kitchen profit or bar profit depending on whether it is profit on food or
beverage operation.

b) Net profit; it is defined as the excess of sales over total cost.

Net profit = sales – total cost

Total cost 84%

Net profit 16%

c) Net Margin profit; it may be defined as the excess of sales over the cost of material and labour
costs. This is particular concept of profit is used in establishment where the current control of
lab our costs is considered to be as important as the control of material.

Net margin = sales – (material cost + lab our cost )

Example 5

The following information was extracted from the books of Ndungus restaurant in respect of
June 2011

Sales £26000

Opening stock 1st June £2500

Closing stock 30th June £3200

Wages and salaries £5600

Purchases £12300

National insurance £300

Repairs and renewals £1000

Gas and electricity £800

Rent and rates £1800

Insurance £400

Postage and telephone £200

Printing and stationary £300

Depreciation £2000

Calculate the elements of cost, total cost and express each as a percentage of sales, assuming
that £800 of food cost consumed has been used for staff meals.

THE CONTROL PROCESS

These are a series of action which are used by food and beverage control system to produce a
charge that can enable the establishment reach its goals. The processes are:

a) Establishment of standards

Standards are either approved or accepted by the management ie rules or policies laid down
which should be followed by the establishment. Eg use of standard recipes, purchase
specification when purchasing food, budgeting, etc
 b) Communication

The set standard should then be communicated either verbally or in written. They should be
in detail illustrating the importance and how to go about using them. Eg the use of food and
beverage checks should be shown to the staff.

c) Follow up machinery (supervision)

This will reflect any neglect of control procedure or rules to see if they are being followed.

d) Feed- back

These are information received from the follow up machinery and could either be negative
or positive.

e) Corrective action

This is done to rectify any mistakes found in the control system so as to prevent further
mistakes, in so doing, the control system are improved or accomplished. The staff may be
wanted or sacked due to neglecting or ignoring the rules or policies.

ESSENTIALS OF A CONTROL SYSTEM

Any control system should be understandable and should cover all the areas of food and
beverage cycles.

-The cost of maintaining a system should be in relation to the savings to be made.

- It should be easy to operate ie one that staffs of all levels can understand.

-The management should make sure they emphasis on all the phases of control especially
control after the events; whereby they should follow up the proceedings, results and make
sure collective action is taken if there is any differences or discrepancies.

-For control system to be effective, the information should be accurate.

ESTIMATIONS

Quantity requirements

Factors determining the quantity of food to be ordered

1. The type of menu operating eg table d’ hote, a,la carte, functions menus,etc
2. Kind of food used; whether raw or convenience foods. Convenient foods have less
trimming loss and therefore it’s easier to forecast the number of portions.

3. The skills of the cooking staff; with reference to trimming and cooking losses.

The Establishment portion size policy

Different establishment offer different menus according to the management. Many offer
table d ‘hote which requires large portions than the a,la carte menu.

-capital available

-no. of customers to be catered for

-buying price of the food

-storage space available

-the lead time

-stock level

-demand of customers

Factors that determine the no. of staff required to carry different tasks in F&B control

-The amount of work to be done

- Time taken

-skills required

-type of establishment department

-the size of the establishment

Factors determining no. of equipment required

-the number of people to cater for

- Amount of work to be done

- Type of establishment

-the method of cooking to be used

 WEIGHTS AND MEASURES

1. All ingredients must be weighed or measured accurately.

2. When in the cookery room, scale should be used to measure all the ingredients.

3. Use less faster and more accurate measures to measure ingredients than to weigh them
especially if the quantities are small.

Types of scales
a) The spring scale

When using the scale, make sure that the pointer is at zero.

The container of the scale should be lined with a piece for grease proof paper to
keep it clean. The grease proof paper does not weigh much and can be thrown after
use.

Place the ingredient to be weighed.

Once the pointer reaches the required weight, do not add more ingredients.

b) Balance scale

It has two containers; one is for weight and the other for the ingredients

Place the required weight on one plate and spoon the ingredients onto the other.

When the ingredients balance the weight on the other plate and the scale is
stationary, then you have equal amounts.
c) The cooks measure

The cook’s measure is hardly cheap and fairly accurate. Its mainly used for
measuring dry ingredients. The measurement should face you when you hold the
measure. After putting in the ingredients, top the side of the measure to the desired
level of ingredients. The ingredients should reach the level of your required weight.

Measuring liquids

Liquids are measured in plastic or aluminum pint or glass measure. When the
measuring jug is clear, it is easy to read the measurements.

Care of scales and measures

1. Weight measures and scales must be cleaned in order for measurements to be

accurate.

2. Use warm soapy water to clean a cook’s measure.

Other means of measurements

When scales are not available, you can use spoons, glasses, or bowls to measure
ingredients.

In many recipes a spoonful usually means a rounded spoonful. To get a level

spoonful, fill the spoon and then level the ingredients with a knife.
For a quarter spoonfuls, get the level measurements and then divide the ingredients
along the length of the spoon.

Approximate weights and measures

1 rounded tablespoon is equal to 2 level teaspoons

1 level tablespoon = 2 level desert spoons

1 pound equals 15 ounces or approximately 12

1 heaped tablespoon of flour (corn flour) = 10 ounces

1 tablespoon of jam or syrup = 2 ounces

1 rounded dessertspoon of butter or margarine =1 ounce sugar = 6 ounces

1 large egg is approximately 2 ounces

Liquids

1 gill =¼ pint 1 teacup will hold 8 fluid ounces

1 rice bowl = ½ pint 6 dessertspoons will hold 4 fluid oun.

1 pint of liquid = 20 ounces

1 glassful of liquid = 8 ounces

PURCHASING
It is the function responsible for obtaining by purchasing or other legal means the equipment,
supplies and services required by an industry for use in production. Purchasing may also be
defined as a function concerned with search, selection, buying, receipt, storage and final use of
a commodity in accordance with the catering policy of the establishment.

IMPORTANCE OF PURCHASING

Purchasing system in food and beverage operations may present an opportunity for improved
operations and greater success. Effective purchasing practices have beneficial results in several
areas as follows;

Control of costs,

Purchasing takes the risk step in any cost control system. Without first purchasing products and
services, there would be no costs to control, in this regard, effective purchasing system is
important for a successful cost control program me.

Value of purchased products & services

In addition to food and beverage products, catering establishment must purchase other items
such as linens, glassware, cleaning supplies, furniture and capital equipment.

The fact that more revenue from sales is for purchasing products supplies and services, then are
used for any other purpose, call for a strong purchasing control.

Effect on cash flow

The quantity of items purchased, prices and timing of deliveries ultimately affect the amount of
cash that will be required to satisfy payment for such purchases. In the absence of an effective
purchasing practice, serious cash flow problem could occur

This could create a situation where there could be no cash available to pay for the bills when
such bills are due. In certain cases there could be need to defer purchasing (risking depletion of
stock) or purchasing small quantities (risking the possibilities of reduced volume of discount).

When making such decisions the purchasing officer should be involved by the manager and the
management.

Supply of information
The purchasing personnel can be a valuable source of information about new products and
services because they are always in contact with the manufactures, suppliers, and many food
and beverage operations.

Continuity of supplies

To attain customer satisfaction and therefore ensure repeat in business, continuity of supplies
must be guaranteed. An effective purchasing system takes care of this by providing the
necessary items of the right quality on the right time.

Effect on revenue

Records have shown that in hospitality establishment, the highest percentage of the total
revenue comes from room, followed by the food and beverage and lastly, by the sundry sales.
The quality of food served in any hospitality establishment determines the popularity of such an
establishment and by extension of the volume of business and the revenue. Good quality food
and other items can only be provided through effective purchasing system. Poor quality of food
if served would result in guests running away from an establishment and therefore adversely
affecting the volume of the business and revenue in all sales outlets including room division.

Purchasing officer

Assistant Purchasing officer

Head storekeeper

Linen keeper Food storekeeper Stationary storekeeper Equipment

Storekeeper

Porter Porter Porter Porter

Trainees Trainees Trainees Trainees

Characteristics of a purchasing officer

 - He should have formal education

- He should have knowledge of the subject or the function( where the subject is
purchasing)

- Be a person of integrity, no gedibility gap ie space between what is said and done.

- He should be loyal to employer or management.

- He should act fairly without bias or favoritism

- Be prepared to project and keep the company’s secret

- He should be healthy both mentally and physically

- Be a person of good public and human relations eg give respect to senior and junior
staff.

- He should have ability to make decision.

Duties and responsibilities of a purchasing officer

- To maximize purchasing contribution to the company profitability.

- Advise general managements department in marketing trends affecting future plans.

- To manage and control the company’s purchasing department and maintain its
integrity.

- Advice general management and marketing department on purchasing and supply

aspects of product design and marketing sources.

- Maintain list of approved sources of supply and to investigate new or alternative

sources.

- Participate on the formulation of purchasing specification and standards.

- Determine method of purchase

- Determine source of supplies from which offers will be invited, invite offers, evaluate
them and decide on the most advantageous offers.

- Place an order for contact, care must be taken so that progress deliveries arrive in
time when required.

- Ensure in liaison with other departments that adequate arrangements are made for;
 1. Quality control

2. Certification of payment to suppliers

- Represent the company in dealing with suppliers

- To establish and maintain an intelligent record system.

PURCHASING RESEARCH

Research in purchasing is not undertaken frequently in the purchasing departments in hotel

and catering industry. The reason for this is often lack of time available in the working week or
because purchasing officers tend to become too involved in the day to day running of the
department and don’t delegate routine jobs to juniors. Research needs to be done in a
systematic manner in the following areas;

a) Market and materials

Details of prices can be produced on graph papers, trends observed, evaluated together
with the market information and used as an aid to budgeting. This would enable correct
action to be taken to ensure that prices paid for supplies are relation to the prices
charged to customers and also to ensure all time continuity of supply by either entering
into a contact or by bulk buying in advance of scarce commodities.

b) Cost analysis

This should be done with full cooperation of the production department to ensure that
what is being purchased is satisfactory with regards to final quality and yield obtainable.
This checks out what exactly what the cost of a portion of an item really is by taking into
account and obtaining figures on the storage loss, preparation loss, cooking loss and
service loss.

PURCHASING PROCEDURE

The various stages in the purchasing procedure are;

1. The initiation of a request to purchase goods by an authorized member of staff as head

barman or restaurant manager.
 2. The determination of source of supply from which the goods are to be purchased and
the price to be paid.

3. Entering into a contract with the selected firm.

4. Obtaining a satisfactory delivery performance from the suppliers with regards to time,
date and place of delivery.

5. The acceptance of the goods ordered and their transfer to the ordering departments or
to the store or cellar.

THE SELECTION OF A SUPPLIER

Ideally the suppliers should be selected from three main categories;

a) From those with whom business has been done before as the standard of goods
obtained and service offered would be known.

b) Suppliers may also be selected from one or two recommendation to the purchasing
officer by a fellow purchasing officer of good standing.

c) New suppliers of items may become available as a result of an approach by the

purchasing officer himself or from a suppliers representative. The basic information
required from new suppliers would include the following;

i. Full details of the firm. This would include not only information of their complete
range of products, the address of their head office, but also the name of their
banker if they were not a nationally known firm, so that references may be
obtained.

ii. The information of other customers of their products. This would not only
enable the buyer to check that these customers actually did use the products
claimed by the salesman, but also obtain in confidence some evaluation from a
user of the product and the ability of the selling company’s delivery
performance.

iii. Printed copies of recent price lists are also necessary as without them any price
comparison with other products cannot be carried out nor are any offers of
discounts meaningful.

iv. Details of trading terms such as cash trade, and group or company discount.
 v. Samples of products for testing and tasting. These are normally free although the
size of the sample may be limited.

vi. A visit to a new firm is also necessary as the claims of the salesman, the size for
the company, its storage facilities, and transport can then be checked as well as
the attitude of the firm to a new customer.

SUPPLIER RATING

It is necessary to compare suppliers of the same products, the best supplier is known. The best
supplier is the one who provides the firm with the most efficient products with regards to
quality, quantity, and price and delivery performance. The information as to quantities that the
supplier is to have readily available for sale and the price will be the information that the
purchasing officer should have at their finger tips. What often further evaluate the supplier are
records far of;

a. The total value of goods delivered by each supplier

b. The number of items rejected with their value.

c. The percentage value of goods rejected.

d. Any late delivery of goods with further particulars if necessary.

This information can be used to make the supplier aware of his poor performance, can
also be used by the receiving department in that they would be aware of the suppliers
whose goods would need a closer inspection.

STANDARD PURCHASE SPECIFICATION

It is a concise description of the quality, size and weight or count factors required for a
particular item. It is a standard which is particular to an establishment and which has been
determined by its management after a study of the menu with its price structure and the
catering policy of the firm. The printed copies of these should be freely available to the
purchasing staff, copies of particular section eg vegetables, fruits, fish, etc, and must be seen to
fully understand by all the firms approved suppliers.

OBJECTIVES

1. To establish a buying standard for a particular commodity for an establishment.

 2. To inform the supplier in writing

3. To establish common denomination between the purchasing officer and the approved
supplier for setting the price of a commodity.

4. To inform the receiving clerk and the store man what to accept

5. To obtain a standard product for production and selling department.

6. To obtain a standard product so that the measurement of performance of department

can be more accurate.

METHODS OF PURCHASING

Purchasing by contract

A contract is a binding agreement between two or more persons that specifies the obligations
of each individual. A contract consists of an offer by one person and acceptance by another. In
any contract considerations must be present. This consideration mainly consists

Of payment by the purchaser for the products and services delivered by the seller.
Consideration could also be form of a promise to deliver or make payment on delivery. This
method is mainly used in large establishment. Basically there are two types of purchasing by
contract. Ie

a) Time contract

This covers a specific period of time normally ranging from three months (short term) to
about one year (long term)

b) Quantity contract

This contains specific quantities of items over a period of time. It is mainly used for
frozen foods and dry goods to buy a set quantity of goods during that trading period,
but with delivery phased at weekly, fortnightly, or monthly intervals according to their
needs.

Factors to consider when preparing a contract

I. The effects of the contract

 II. The decision of any body mainly in the regard of misunderstanding

III. Time to purchase the item, then supplier to cater for the cost.

LEGAL IMPLICATIONS OF A CONTRACT

i. Period of the contract

ii. Estimated quantities as accurate as possible

iii. The reservation of the establishment to divide a contract, if necessary between

suppliers.

iv. The purchase specification for the item concerned.

v. The removal of any rejected goods to be undertaken by the supplier.

vi. Containers chargeable must be credited to the establishment in full when returned.

vii. Power to purchase in default; should a supplier not be able to supply a commodity, the
establishment reserves the right to purchase the commodities from another source.

viii. In case of a major dispute, then the decision of an agreed independent body should be
accepted by both parties.

ix. Indemnity against damage; the supplier to be responsible for damage to property or
injury to persons caused in conjunction with the execution of the contract.

x. Prevention of corruption; the establishment reserves the right to cancel the contract
should any unethical practices such as bribery of any member of staff be known. Any
cost incurred from the cancelling of the contract to be recovered from the supplier.

xi. The place of delivery; at times particularly on group purchasing, goods are required to
be delivered to several different addresses.

xii. Invoices to be supplied within a specified time after delivery has taken place. They
should be sent to particular addresses.

xiii. Payment of Invoices; information to be given to the suppliers as to when payments will
be made.

xiv. Service of notice to break a contract, the period of time to be given by either party to be
specified and to whom notice is served.
 The clauses are normally printed at the back of the contract form, the front of the form
being designed to give sufficient space for the purchase specification to be detailed.

Advantages of contract purchasing

1. Continuity of supply at a fixed price

2. Time saving by eliminating price and supply negotiations

3. Avoiding over ordering of items

4. Avoiding need to hold high stocks to gain bulk buying discounts

5. Regular re ordering and delivery performance are set

Disadvantages

1. Inflexible in the choice of supply and in some cases the commodities available

2. Special offers or price cuts outside the contract cannot be enjoyed

3. The suppliers may take the customer for granted

4. Incase of specific quantity contract for certain items it may lead to high stock
holding should there be a change in customer demand.

5. The difficulties involved in changing supplier should a supplier prove inconsistent

in the service or goods provided.

Centralized purchasing

This is normally used by chain operations or group establishment and occasionally by small
groups of independent operations who may have similar needs. In this case requirement of one
individual unit within the group are related to a central office which would determine total
requirement of all units within the group and purchase to total. Delivery may be done directly
to the units to a central point or location for distribution to the units by the groups themselves.

Advantages

1. Price reductions due to bulk buying

2. Wider choice of market due to volume trade

3. Greater range of stock items available

 4. Specification of purchase may be more precise

5. Purchase and quality are easier to control due to volume of trade

6. Control over dishonesty by unit measures

Disadvantages

1. Units don’t have freedom to purchase stock items which may be peculiar to their
particular needs.

2. Standardization of menus and products limits the freedom of units to change.

3. The advantage of localized price reduction cannot benefit the unit.

4. Centralized delivery may cause distribution problems.

PURCHASING BY MARKET LIST QUOTATION

This method is practiced by larger establishment either on a daily for perishable foods or
weekly, fortnightly or monthly basis for any goods and grocery commodities.

The purchaser calls the supplier and request for a price quotation for the required goods.
According to standard purchase specification sent earlier on to the supplier, the supplier with
the most competitive price is given the order.

In some cases the establishments send their own quotation sheets for suppliers to complete.

Advantages

1. It is possible to select the most competitive price from different suppliers.

2. Suppliers price quotations are rendered more competitive

3. Suppliers only quote against their purchase specification

4. It assist purchaser in selecting most economic ordering quantities.

Disadvantages

1. It may be time consuming

 2. It is impracticable for small establishments due to the volume of suppliers required
making it uneconomical for suppliers to quote or offer such services.

3. Suppliers who offer better service to others may not be as competitive in price thus the
establishment may not benefit from such a service.

PURCHASE FROM VAN SALES

This is practiced mainly in rural areas by smaller establishments in general. The suppliers use
vans carrying a range of products and visit establishments on a regular basis for the purchaser
to buy his purchases directly from the van and pay on a monthly account.

Items mostly sold in this method are fruits, vegetables, bread, dairy products and frozen foods.

Advantages

1. The caterer is able to see the goods available and any alternative.

2. Special offers can be taken immediately

3. Stock holding can be easily controlled

Disadvantages

1. Products may on occasions not be available

2. Prices may not be as competitive as wholesale or market prices

3. It may limit choice of suppliers.

PURCHASING BY CASH AND CARRY

It is used by small establishment, it involves the purchaser visiting local wholesale warehouse to
carry establishment services exclusively and traders have a full range of foodstuffs.

Advantages

1. Prices are competitive

 2. There are no minimum order levels.

3. Their accessibility means that caterers can make frequent visits according to their own
requirements.

4. Stock levels can be kept to a minimum

5. The caterer can see a range of products available to him and experiment with them

Disadvantages

1. In most cases there is no delivery services

2. Credit is not available to the purchasers.

RECEIVING

The main objective of receiving is to ensure that the establishment is obtaining food and
beverage of the correct quality and quantity ordered in the agreed price. The total value of
goods being received into the establishment requires a fully trained person in this department,
having a knowledge of receiving procedures and documents and knowledge of different types
of food and beverages.

For receiving to be effective, the receiving department should be located in a position that;

i. The can be quickly loaded and easily distributed in the building to the stores, cellars,
kitchen and other user departments

ii. To necessitate being near to goods lifts, mostly when the receiving department is in a
different floor level with stores, kitchen, cellars, etc.

iii. It should be large enough for offloading and checking to be carried out effectively.

iv. It should be well lighted for checking quantity, quality of food and beverages is not
hampered and adequately ventilated.
 v. The finish of the floor and walls should be such that they are easy to clean and
conducive to adequate hygiene.

vi. A full set of purchase specification should be located in the department for quick
reference, and the mostly used specifications possibly displayed on one of the walls
near the unloading bay.

RECEIVING PROCEDUERE

The receiving clerk should be in possession of particulars of all goods which have been ordered
and should have these filled by day of delivery and by supplier. The procedure is as follows;

i. A quick cross check is made against the delivery note and a copy of the order to check
that most of the goods are being delivered. In case of any difference between the
delivery note and the order placed, it should be queried immediately because late or
non delivery of wine can affect the production department and banqueting department
respectively.

ii. The goods on delivery or unloaded, are checked for quality. A basic knowledge of the
units in which food is purchased is essential at this stage. If any order is found not to
equal the quantity stated on the delivery note, it should be brought to the attention of
the delivery man and a credit note made and signed by the delivery man.

iii. Quality inspection; the goods having been checked for quantity, are checked for quality
in accordance with the purchase specification. The receiving clerk should have a
thorough knowledge of food and beverage and trade terms used. Extreme care must be
exercised at this stage as inferior quality produce cannot be improved by the production
or user department as inferior quality results in;

a) Quicker deterioration of produce if stored.

b) A lower yield

c) Increased lab our handling

d) Lower gross profit

e) Dissatisfaction of customers.

Therefore it is necessary to open crates and cases and inspect for quality. It is essential in all
circumstances that the supplier is fully aware that;
 a) Delivery note must accompany all deliveries

b) Everything delivered should be checked in details for quality and quantity.

c) The receiving clerk will not allow themselves to be hurried when inspecting goods.

d) A credit note will be required for all shortages or rejected goods.

Time tabling deliveries; For cooperation between suppliers and receiving clerks, there must be
time table showing when the supplier is supposed to deliver his or her supplies. This will,

- Minimize time wastage by supplier.

- Give the receiving clerk enough time for the job

It is usual for perishables to be delivered in the morning and other items in the afternoon.

Dispatch to stores or user department;

All goods received satisfactory to quality and quantity and price, should be cleared from the
receiving department to pave way for the other deliveries and for issues to the store,
kitchen, cellar, etc. all perishable food should be taken directly to the kitchen, stores, for all
other items of food and all beverages to the cellar.

RETURNABLE CONTAINERS

Many goods are received in returnable containers which are charged by the suppliers.
Therefore returnable containers received and returned book is kept. If a duplicate is kept,
the top copy goes to the accounts department and the second copy is left in the book.
When containers are returned to the supplier a credit note is written, hence sent to the
accounts department at the end of every day. Examples of returnable containers are; cases,
crates, bottles, trays, sacks, boxes, cylinders, etc.

BLIND RECEIVING

The main purpose of this system is to compel the indifferent or lazy receiving clerks to
weigh and count all goods incoming into the establishment. It is usually found that blind
receiving results in better receiving performance, which has a direct bearing on trading
results of the establishment. The receiving clerk is sent a copy of purchase order that lists
 the goods to be purchased minus their quantities. Other documents like invoices and
delivery notes are sent directly to the accounts office, and therefore he has no access to
them. He is expected to record the quantities of all incoming good, he must therefore count
and weigh.

CLERICAL PROCEDURES AND FORMS USED

Purchase orders

Purchase orders are sent out to suppliers giving details of the quantity and quality of items
required to be delivered. The purchase orders are often made in five copies, each copy
being color coded to aid in distribution of them;

- White top copy – sent to supplier

- Yellow copy – sent to accounts department

- Green copy – sent to receiving department

- Pink copy –retained in the purchasing office and filled under supplier

- White bottom copy – retained in purchasing office & kept in date order until goods are
received and then filed under order number.

The receiving clerk should have a copy of the purchase orders or daily quotation sheets,
which would be compared with delivery notes accompanying any delivery.

Delivery note

It accompanies all deliveries and is compared with a copy of purchase order. It is necessary to
check the delivery note which is normally in duplicate. The top copy is retained in the receiving
department, while the second copy is signed by receiving department and returned to the
delivery man.

Goods received book

It shows the delivery note number, name of suppliers, purchase order number, etc. A remarks
column is used when purchase order and delivery note do not match. It is used in small
establishments but in large ones an analysis good receiving book is used:

- Analysis of goods received can be measured against standards

 - Enables receiving department to undertake analysis of purchases in the afternoon and
this relieves the control office this additional work.

Credit note

It is a document used to correct an overcharge in an invoice. It is written under the following

circumstances;

- When goods are rejected

- When insufficient quantities are delivered

- When there is price discretion

- When inferior qualities are delivered

Invoice

It is a document that is used to demand for payment. It is brought by the delivery man together
with the goods.

Receiving of foods

The method of receiving foods follows the procedure outlined at the start. The procedure
applies even when receiving beverages.

Receiving of expensive commodities

Although every item must be checked for quality, special attention is given to most expensive
items such as meat and smoked salmon. A meat tag is used after checking it for quantity and
quality.

A tag; it is a label made from a hard and durable piece of paper attached to an item. It consists
of name of item; price per unit, total value, supplier, date received, total weight, tag number,
etc.
Tagging; the act of labeling expensive items received using tags.

Purposes of a meat tag;

- Provides a basis for control for an expensive item of food.

- Ensures that the receiving clerk weighs each joint.

- The checking of individual weight of each joint is done against the specification weight
range of a commodity.

- It provides a reference number to aid issuing to the kitchen and when yield testing.

- Assists in stock rotation.

- Assists when taking weekly or monthly inventories as the purchased weight is recorded.

Assessing performance of receiving department

- Take spot –check in different suppliers

- Ensuring that all necessary paper work is done properly and in time.

- Check that receipt of goods is done as quickly as possible. If this is done the receiving
department will be efficient and there will be no collision with supplier or delivery man.

STORING AND ISSUING

The basic objective of a food store and beverage cellar is to maintain an adequate supply of
food and beverages for the immediate needs of the business with the very minimum loss
through spoilage and pilferage. The stores should be near the receiving department, goods lifts,
to reduce lab our costs for internal deliveries and pilferage.

Qualities of a good store

- The stores should be well ventilated and lighted.

 - The stores should be large enough for checking in goods, unpacking and assembling of
order prior to delivery and collection.

- Should be constructed with materials that are easy to clean, and free from vermin and
rodents.

- Security is essential in the stores therefore windows should be barred, refrigerators and
cold rooms should have strong locks and doors to have heavy duty locks.

- When opened only authorized persons should be allowed in and senior staffs like
purchasing officer and food and beverage manager.

- All keys to be held by the storekeeper or cellar man, with a duplicate kept in the
purchasing office.

- A general store where non- refrigerated items would be kept should be fitted with
mobile adjustable shelving racks made of steel, to allow changing the layout of the store
area, assist in cleaning the area and cleaning the shelves.

- A wash hand basin, soap, nails brush, and drier should be provided for staff and also a
first aid box.

- Steps for staffs to reach goods on high shelves and appropriate trolley should be
provided.

- There should be ample well arranged store space with shelves of varying depths and
separate sections for each type of food. These sections may be deep freeze cabinets,
cold rooms, refrigerators, chill room, vegetables bins and container stores.

Typical layouts of stores

- Those having all items arranged in the stores in alphabetic or numerical orders.

- Those having all items which are frequently issued located near the door where issues
are made and others arranged in alphabetic and numerical bin sequence.

- Those grouping commodities together eg, all canned items arranged in sections for
fruits, veges, fish, etc or all sparkling wines together, etc

- Those arranging heavy items on the lower shelves while the light one on the upper
shelves.
Qualities of a good storekeeper

- Should be experienced

- Should have knowledge to handle, care for and organize the stock in his or her charge.

- Must be honest.

- Must like his job.

- Must have a quick grasp of items.

- Must have steady mind and sense of detail.

- Must be tidy.

Duties of a storekeeper

- In charge of cleanliness of store and arranged.

- Ability to identify important stock and have sample of stock.

- Should keep pricing list

- Should keep a set of bin cards.

- Keep all delivery notes, credit notes, and invoices.

- Update the records

- Should keep a list of all suppliers.

- Should have a report

- Should keep a data for management report.

Documents used in store keeping

i. Bin card

A bin is simply a container, receptacle, drawer, shelf, cupboard, or room in which any
stock item is physically held. Each stock item has a separate bill allocated to it. One bill
should hold one particular stores item only. One bin card is maintained for each bin. In
 larger stores, the bin card is kept next to the relevant bin but in smaller stores all bin
cards may be retained in the stores office. All entries are made in the bin cards in terms
of quantities only, values are not shown.

Item name should be very specific to avoid confusion and to ensure proper
identification the product code should also be clearly shown.

The unit is the standard measure in which the material is received and issued. It could
be kilogram, a liter, a tin of 5kg etc. It is important to note that all entries in the bin card
are made in terms of units.

If bin cards are held in the stores office, showing bin no. on the card helps in location of
the relevant bin. Maximum, minimum, and re-order levels are shown on the cards to
enable the stores personnel to regulate the ordering and issues of stock items
accordingly.

ii. Stock ledger

This is kept in the costing department and records movements in both physical
quantities and monetary values of all stock items. It is maintained on the same debit and
credit principles as are all financial ledgers. A balance column is also maintained to show
both the quantity and value of items in stock at any given time.

iii. Perpetual inventory system

This refers to a procedure which ensures that the quantity and or value of each stock
item at any given moment is readily available. This is a very useful tool of stores control
as it assists in immediate verification whenever a regular or surprise stock card is carried
out.

Perpetual inventory system is only a stock records technique which prescribes that
balance must be computed and recorded after each receipt and issues. This is not stock
taking.

iv. Stock cards

It is an alternative to a bin cards, kept in a loose- leaf holder or tray file in stores or
cellar. It is kept for every item and contains the information on a bin cards but in
addition, it contains the details of the re-ordering quantity of a commodity plus signal
devices (a small red plastic indicator) which draw attention when a commodity is at low
level. It should be updated daily and check that the balance on the card agrees with the
actual quantity of the item held in the stores or cellar.
v. Departmental requisition book

Each department needs to be provided with a requisition book in order to draw goods
from the stores. Whenever goods are drawn from the stores a requisition must be filed
at when a storekeeper issues the goods, he will check them against the requisition and
tick them off.

Details found in requisition sheet

- Serial number

- Name of department

- Description of goods received

- Unit

- Date

- Price per unit

- Quantity of goods issued

- Cash column

- Signature

vi. Order book

This is a duplicate and has to be filled in by the storekeeper every time he or she wishes
to have goods delivered. Whenever goods are ordered, an order sheet must be filled in
and sent to the supplier, and on receipt of goods they should be checked against both
delivery note and duplicate order sheet. All order sheets must be signed by the
storekeeper. It contains;

- Name and address of the catering establishment

- Name and address of the supplier

- Serial number of the order sheet

- Quantity of goods

- Description of the goods to be ordered

 - Date of delivery if a specific date is required

- Signature

vii. Stock sheets

Stock should be taken at regular intervals of either one week or more ie one month.

Spot checks are advisable about every three months. This should be done by an
independent person thus preventing the chances of pilferage and fiddling taking place.
Details contain;

- Description of goods

- Quantity received, issued, and remaining balance

- Price per unit

- Cash column

Stock sheet is usually printed in alphabetic order.

viii. Transfer note

It is used by an individual department to order for items from either department

without recording from stores.

ix. Breakage or damage goods book

It is used to record all goods damaged. It contains; name of the item, cause of damage,
date of the accident, the staff in charge, remarks.

STOCK CONTROL

It is the store keeping activity of controlling the amount of stock or material in the store.
Stock levels;

This is the level at which any item of stock is to be held. These levels are difficult to determine
with the two dangers of stocking;

I. Overstocking

II. Under stocking

Overstocking; this is the keeping of stock beyond the maximum stock level

Dangers of overstocking

- Deterioration of stock value

- High insurance cost

- High personnel cost

- High risk of pest invasion

- High risk of pilferage or fraud

- Holding up of capital

Under stocking; this is the keeping of stock below the minimum stock level

Dangers of under stocking

- Idle lab our and machinery

- Loss of customers

- Loss of revenue or income

- Higher fixed cost

Types of stock levels

They may be expressed as follows;

Maximum stock levels;

This is the largest amount that a store can hold in a given period.

Re-order stock level; it is the level at which when stock reaches then a new order has to be
placed. This is the level at which an order has to be placed for replenishment.

Minimum stock level; this is the lowest amount of stock that a store can hold in a given a
period of time.

Economic order quantity; it is the economic amount to be purchased in a given period and it
varies from one item to the other.

Re-order quantity; this is the quantity for which a replenishment order is placed. The quantity
is influenced by such factors as cost of ordering, seasonality or otherwise, of the availability of
stock items, credit terms allowed by the supplier.

Average stock level; this is the midpoint between the maximum stock level and the minimum
stock level and represents the average investment in stock of that particular item throughout
the year though at any given time stock level may be higher or lower than this mark.

Buffer or safety stock; it is the minimum stock which will always exist if purchasing goes
according to plan.

Factors determining stock levels;

The following factors should be paid to when setting up stock levels for various stock items:

a) If a particular material item is freely available throughout the year, a smaller stock level
can be conveniently maintained. But if the item is available only in seasonally, or if its
price fluctuates drastically, larger stock levels will have to be maintained.

b) Lead time is the period that elapses between the day an order is placed and the material
is actually received from the supplier in the warehouse. Materials with a shorter lead
time can be stocked in smaller quantities and vice-versa and ordered in good time to
avoid stock-outs.

c) While the stock lies in the store, it incurs certain costs like the cost of capital tied down,
rent, rates, maintenance of warehouse, insurance, breakages, etc. hence only those
items which must be carried in larger quantities for production or other economic
reasons should be carried, others should be kept to as low a level as possible.
 d) Preparation for an order to be placed with a supplier, particularly an overseas supplier,
can involve considerable expenses. If the cost of making an order is high, it would be
prudent to make as few orders as possible. This implies making orders for larger
quantities and hence carrying larger stocks.

e) Nature of items being stored is also important. Some items can just not be stored for
long and must be acquired frequently, eg fruits.

f) The rate at which each stock item is used up by the production department is very
important. Through experience, it is possible to determine for each item as to what are
its rate of maximum consumption, minimum consumption, and average (normal)
consumption per week. These rates are then used in deciding upon various stock levels.

FORMULARS

Maximum stock level= re-order level – (minimum consumption × min. re-order period) + EOQ

Minimum stock level= re-order –(normal consumption × normal re-order period)

Re-order level = maximum consumption × maximum re-order period

Example 1

You are a storekeeper at unbwogable restaurant; you are required to calculate;

I. Maximum stock level

II. Minimum stock level

III. Re-order level

Given that:

Maximum consumption = 1300 units

Re-order period = 5-8 weeks

Minimum consumption = 1000 units

Normal consumption = 1200 units

Economic order quantity = 800 unit

Example 2

Given that:

Maximum consumption = 300 units 400 units

Minimum consumption = 100 units 150 units

Normal consumption = 200 units 250 units

EOQ = 750 units 1000 units

Re-order period = 3-6 weeks 4-6 weeks

Calculate;

I. Maximum stock level

II. Minimum stock level

III. Re-order level

Economic order quantity = [Link].D

CC OR [Link].D
CC (1-D/R

Where; CO = ordering cost per order

Cc= carrying cost per item per annum

D = demand per annum

R = replenishment rate per annum

RATE OF STOCK TURNOVER

Stock turnover means the rate at which stock or goods go in and out of the store.

Rate of stock turnover = cost of food consumed

Average stock at cost

Example 1

£ 2900 of food purchased was consumed in a 28 days trading period.

The opening stock on day 1 was valued at £750; the closing stock on day 28 was valued at £650.
Calculate the rate of stock turnover.

Solution; RST = £ ( 2900

½(750 + 650) =2900

700 = 4.14 times

This means that the total value of stock turnover is 4.14 times in the 28 day trading period ie
less than a week.

Problems of low stock turnover

- Capital is held up and cannot be used elsewhere in the business.

- There is high risk of spoilage.

- The insurance cost is higher than is necessary

- The payroll may be greater; with unnecessary stock turnover

STOCK TAKING

It is the storekeeping activity of counter checking the physical stock from the book value stock.
In addition to the daily check kept on the receipt and issue of items from the store sand cellars,
a periodic stock taking is necessary for a number of reasons;

- The main objective of stock taking is ascertaining of the actual value of goods on hand as
distinguished from the book value of the stock.

- It is essential for determining the value of goods on hand as distinguished from the book
value of the stock.

- The value of goods on hand is necessary for the profit and loss account and for the
balance sheet.

The physical stock take is an important task which should be undertaken by senior staff from
the accounts department aided by a member of staff from F&B department or from the
purchasing department who will be able to assist with the nomenclature of goods and their
units. In smaller hotels, the physical stock take would be done by the manager. Properly printed
stock sheets should be prepared in advance to assist in recording the information as quickly and
as accurate as possible. The time stock taking is done is very important; it must be done at the
end of one trading period before the next.

This usually means that it will take place at the close of the business on the last day of the
trading period. Should any business be done before the stock taking has been completed, the
requisition note for issues should be kept separately and any item that had not been taken,
stock was extracted from the requisition note and added to the stock of that item. Any goods
received should be kept separately until stock taking is completed. Once completed, and all
discrepancies investigated, the stock records should be adjusted to show the actual quantities
of each item in hand.

Physical stock taking may be carried out periodically or on a continuous basis

a. Periodic stock taking

This takes place at fixed intervals, say every quarter or six months. Most business has at
least one physical stock take every year which is referred to as annual stock taking.
Those who carry out the exercise should preferably not be those who are responsible
for maintaining the bin cards or stock ledgers. They should not have any idea of what
quantities to expect in each bin otherwise some lazy clerks can skip actual counting and
simply record the quantities as shown per bin cards as actual quantity on the annual
stock sheets.

b. Continuous stock taking

For even a greater control and to ensure that stock records are always close to the
actual quantities held in stock, some company’s employ a continuous stock taking
system. Under this system there is a specially assigned staff whose main duty is to count
stock items on a regular basis and to update the stock records.

Clearly, a system of continuous stock taking can be effectively used only if a company
maintains its stock records on a perpetual inventory basis, because no verification can
be done unless the balances per bin card are readily available.

The main causes of differences between actual and book balances of stock are as follows:

a) Evaporation or absorption of moisture, or effects of changes in temperature.

 b) Unavoidable approximations of quantities issued

c) Deterioration of food through effects of weather eg rusting, spoilage, contaminations,

etc

d) Petty thefts or misappropriations

e) Breakages; arising out of careless handling

f) Errors in books where entries are made incorrectly in bin cards or stock ledger sheets
from source documents

g) Erroneous over or under issues

h) Illegible handwriting

i) Addition or subtraction errors.

j) Figures not well written

ISSUES

There are several methods of ascertaining the value of items being issued from the stores. The
differences in the methods arises because of the prices of the items being purchased and later
issued to production departments keep on changing and it therefore becomes necessary to
decide as to what price should be attached to any particular issue. The valuation is important as
it would determine the material cost of whatever job, or product, or process the items are
issued for. Hence need for careful handling. The following are some of the methods used:

a) First In, First Out(FIFO) method

b) Last In, Last Out(LIFO) method

c) Simple Average Method

d) Weighted Average Method

e) Standard Cost Method

f) Replacement Method
Illustration;

To clearly bring out the difference in the various methods of valuing stock issues, we will record
the following transaction in the store ledger sheets under each method;

March 1st received 1000 units at shs. 12 each

March 4th received 500 units at shs. 13 each

March 9th issued 400 units

March 15th issued 700 units

March 21st received 800 units at shs. 14 each

March 25th issued 500 units

March 28th issued 400 units

Standard cost for this item is shs. 12.50 Each.

An order for 1000 units at shs.13.50 has been placed for delivery on April 1 st.

FIRST IN FIRST OUT METHOD

Under this method it is assumed, for book-keeping purposes only, that issues are made out of
the earliest consignment or batch received until exhausted, then from the next consignment
and then the next. Thus the price for first consignment is used for all issues, till all the units
from the first consignment have been issued after which the price of the next consignment
received becomes the issue price. Upon that consignment being fully issued the price of the
next consignment is used and so on.

This method is relatively simple to understand and operate.

It is relatively accurate valuation of stock issues during the period of stable prices.

Valuation of the remaining stock being at latest purchase price is closer to the prevailing market
price.

However, if the prices change frequently or if they continue rising, this method tends to value
stock issues at less than the prevailing market values which may lead to under stocking of cost
centers and hence perhaps a lower charge being made to customers.
STORES LEDGER SHEET (FIFO)

Receipts Issues Balance

Date quantity price value quantity price value quantity value

Mar.1st 1000 12 12000 1000 12000

Mar. 4th 500 13 6500 1500 19500

Mar.9th 400 12 4800 1100 13700

Mar.15th 600 12 8500 400 5200

100 13

Mar.21st 800 14 11200 1200 16400

Mar.25th 400 13 6600 700 9800

100 14

Mar.28th 400 14 5600 300 4200

LAST IN FIRST OUT

Under this method, we issue materials out of the last consignment received into the stores first,
that is, the procedure is exact reverse of the FIFO method.

The greatest advantage of this method is that the charge to produce is out of the most recent
purchase and hence quite close to the prevailing market price. It is also relatively simple to
compute and explain to workers.

Its major disadvantages is that, the stock in the store is always carried out of very old purchases
which may be priced at far below the current market values, and if the prices are failing, the
stock may in fact be over-valued.
Date quantity price value quantity price value quantity Value

Mar.1st 1000 12 12000 1000 12000

Mar.4th 500 13 6500 1500 18500

Mar.9th 400 13 5200 1100 13300

Mar.15th 100 13 1300 400 4800

600 12 7200

Mar.21st 800 14 11200 1200 16000

Mar.25th 500 14 700 700 9000

Mar.28th 300 14 4200 300 3600

100 12 1200

SIMPLE AVERAGE METHOD

Under this method, a simple average of prices of all lots in stock is computed and used for
pricing the issues. At the same time the balance column is maintained on a strict FIFO basis. So
that when the earliest lot is fully exhausted, the simple average is computed on the basis of
prices per unit of the lots in stock only. Also remember that when computing the average, only
the per unit prices of lots in stock is considered, not their respective quantities or total values.

Simple average can be fairly complicated to compute at times, particularly where there are
frequent receipts or issues. Also as the issue price is not the actual cost, a small profit or loss
may occur out of each issue which may be difficult to control or account for.

Receipts issues balance

Date quantity price value quantity Price value quantity value

Mar.1st 1000 12 12000 1000 12000

Mar.4th 500 13 6500 1500 18500

Mar.9th 400 25.50 5000 1100 13700

Mar.15th 600 12.50 7500 400 5200

100 13 1300

Mar.21st 800 14 11200 1200 16400

Mar.25th 400 13.50 5400 700 9800

100 14 1400

Mar.28th 400 14 5600 300 4200

WEIGHTED AVERAGE METHOD

Under this method the unit price is ascertained after each receipt. The total value of all units in
stock is divided over the total number of units in stock to arrive at weighted average price per
unit. This unit price is used for all subsequent issues till such a time that anew lot arrives where
upon the total value is divided over total number of units now in stock to arrive at the new
weighted average units price.

This method is more complicated and involved than the other methods discussed thus far. It
also results in issue price being different from actual cost thereby giving rise to a small profit or
loss on issue which may be difficult to control and account for.

Date quantity price value quantity price value quantity value

Mar.1st 1000 12 12000 1000 12000

Mar.4th 500 13 6500 1500 18500

Mar.9th 400 12.33 4933 1100 13567

Mar.15th 700 12.33 8633 400 4934

Mar.21st 800 14 11200 1200 16134

Mar.25th 500 13.45 6723 700 9411

Mar.28th 400 13.45 5378 300 4033

NEXT IN FIRST OUT (NIFO) OR REPLACEMENT METHOD

Under this method, the issues are valued at the prevailing market or replacement cost, ie the
unit price of the next lot to be bought. The idea is to charge the same value to issues as it would
cost to replenish the stock. However remember the value in balance column is computed
strictly on FIFO basis.

The advantages of this method are that issues are more realistically valued, particularly during
periods of rapid price increases. The difficulties may, however, arise in ascertaining the unit
price of the next purchase, particularly if acquisitions are not very frequent.

Date quantity price value quantity price value quantity value

Mar.1st 1000 12 12000 1000 12000

Mar.4th 500 13 6500 1500 18500

Mar.9th 400 14 5200 1100 13700

Mar.15th 700 14 9800 400 5200

Mar.21st 800 14 11200 1200 16400

Mar.25th 500 13.50 6750 700 9800

Mar.28th 400 13.50 5400 300 4200

STANDARD COST METHOD

Under this method, all receipts and issues are recorded in the stores ledgers at a preset
standard cost. When material is acquired, the difference between the standard cost and the
actual purchase price is immediately written off, all records being made at standard costs.
If the standards are carefully set and there are no frequent fluctuations in prices, the standard
costs are fairly accurate and very simple to operate. Making entries is very easy which eliminate
complicated computations and possibilities of errors.

STOCK RECORDS

I. Cellar inward book

Owing to the high value of stock held it is usual for the person in charge to keep
separate records of all beverages received. This provides posting data for cellar man’s
bin card or stock ledger and a useful check, if necessary against perpetual inventory
ledger held in the control or accounts office.

II. Cellar control and daily issues record

The purpose of this ledger is to record the deliveries and daily issues of each beverage
from the cellar. The information re-entered in the record should counter-check with the
bin cards, the inventory of beverage held in accounts or control office and the physical
stock take of the items.

III. Empties outward book

As many containers of beverage (sodas, beer, bottles, crates) are charged against a unit
on delivery, it is essential that strict control is maintained of these items and that a
record is kept when they are returned to the suppliers. This information should cross-
check against the credit note obtained from the suppliers’ delivery man.

IV. Ullages and breakages book

The damage to the product is normally caused by a faulty cork. The sub-standard items
are certified as such by the head cellar man or the departmental head responsible that
would authorize the return of the item and sign in the ullages and breakages book.

V. Cellar issues

Issues from cellars are to selling areas such as bars, dispense bar, floor service functions,
and also to the kitchen whenever necessary. Issues ideally should be time tabled
whenever possible so that the issuing from the cellar may be done in an orderly manner.
The bar staff should collect their requirements from the cellar and sign for the items.
 All issues are made against requisition notes color coded with different colored note for
each of the selling outlets.

PREPARATION

This is the advance readiness of an item or getting an item ready for production. The
main objective of food and beverage during preparation is:

- Reduce wastage through or as a result of over- production

- Reduce loss from inefficient purchasing and processing.

- Reduce loss from excessive portion size.

To control in both controlling of cost and maximizing profit, the following stages must
be undertaken.

a) Volume forecasting

b) Standard yield

c) Standard recipes

d) Standard portion size

VOLUME FORECASTING

This is often referred to as production planning in other industries. It is a method of predicting

the volume of sales of an establishment for a specified period of time. It analyses the sales
information and helps to minimize common problem of shortages or overproduction of items.

Objectives of volume forecasting

 To predetermine the total number of meals to be produced.

 To predict the choice of menu items by customers.

 To facilitate purchasing
  To ensure availability of all necessary ingredients

 To ensure that appropriate stock levels are held.

 To control food cost in relation to sales within the cost limit

 To enable the comparison of actual volume of business and the budgeted. It can be in
form of sales, number of covers and number of meals.

In order to achieve the above objectives two methods or stages are used to forecast:

Initial forecast

Final forecast

INITIAL FORECAST

It is prepared a week in advance and it shows;

 The estimated total of each menu item for each day of the following week’s menu.

 The estimated number of meals to be taken.

Initial forecasting is based on:

 Past records or sales history

One should look at the figures recorded for the same period last year. This helps to
know if there is any likelihood of a particular trend at the period in the year.

 Advance booking / reservations

One has to consider advance accommodation booking either in banqueting, party

booking, seat booking, room etc.

 Current trends

The establishment should know the changes taking place with customers. Some trends
can be unfavorable to the business and if it can be corrected, then it must be done.

 Current events

The establishment has to take in mind all the events that will take place in their
surrounding eg exhibition, conferences, shows, games, etc.
 Note

The initial forecasting will help in changing the predicted sales into quantities of food
stuffs. Assistance of standard recipes and standard portion size will be needed. And
assist purchasing officer in placing the order.

FINAL FORECASTING

This is the most accurate forecasting which usually takes place a day before the
preparation and service.

Factors to consider when doing final forecasting;

- Previous day’s food production and food sales figures. Check whether there was
an increase or decrease in business as forecasted.

- The weather conditions

- The amount of leftovers.

If there is any alteration in the initial forecast, any purchase order sent to the suppliers should
be amended as soon as possible. Copies of the final forecast must be sent to;

a) Food and beverage controller

b) Food and beverage manager

c) Head chef

d) Restaurant manager

e) Purchasing officer

f) Head store man

AIDS TO VOLUME FORECASTING

Cyclic menus; these are a series of fixed or semi-fixed menus which are replaced at a set period.
They are offered in hospitals, hotels, schools, canteens, etc.
Advantages;

- They show clear a trend in customers likes and dislikes according to demand of menu
items.

- Staff requirements may be worked out, helping in the preparation of duty rotas, day
offs, holidays, reducing unnecessary staff.

- Saves time and labour for daily task of compiling menus

STANDARD YIELD

Yield; the term yield stands for the edible or usable parts of a food item which is available after
preparation or preparation and cooking.

Standard yield; it is the yield obtainable when an item is prepared in a particular standard
method of preparation, cooking, and portioning of an establishment.

Objectives:

- To establish a standard for quantity and quality and number of portions obtainable for a
specific item of food.

- To establish a standard for comparison with operating results hence measuring

efficiency of production department.

- Helps in evaluating standard purchase specification

- To establish a standard cost for the item of food

- Assist in menu costing and pricing

- Assist in converting forecast requirement into raw material requirement

Yield testing can be done to all commodities but the most expensive commodities are
prepared eg meat, fish, poultry, etc

The testing of yields is to know; original weight of an item, weight after trimming, bonning,
and cooking, weight loss percentage, weight of servable portions and percentage, cost per
servable kg, cost per portion.
FORMULAR

Servable weight = original weight – loss weight

Servable weight percentage= servable weight ×100

Original weight

Loss weight = original weight – servable weight

Cost per servable kg = original weight × purchase price

Servable weight

Yields / portions obtainable = servable weight

Standard portion size

Cost per portion = cost per servable kg

No. of portions per kg

Example1

Name of item: smoked gammon

Piece: 1

Price per kg: @ 250

Purchase weight: 14kg

Loss by trimming, bonning: 3kg

Standard portion: 120gms

Example 2

The following was obtained from a yield test of beef sirloin with bones at George eves
restaurant;

Meat cuts: beef sirloin with bones

No. of pieces: 2

Purchase weight: 16kgs

 Loss due to trimming: 6.55kgs

Price: 180 per kg

Portion size of beef sirloin: 0.225kg

Calculate to two decimal places the following;

- Yield

- Servable percentage

- Cost per servable kg

- Quantity in kg of beef sirloin with bones to be purchased when 75 portions sirloin

steak is needed for a party.

Example 3

YIELD TEST SUMMARY SHEET

Item: ribs of beef

Purchase specification no.

Std. recipe no.

Total raw weight: 25kg

Cost per kg; 150 shs.

Loss from trimmings, curving, bone loss: 9.2kg

Example 4

A joint weighing 20kg is purchased at 120 per kg. the bone and cooking loss is 50%. Showing the
formula used, calculate the following;

Cost price per kg of served meat

The number of 200g portions obtainable from the curved meat

The cost per portion of curved meat

 The price per kg of curved meat

Example 5

A joint weighing 8.1kg is purchased at £1.80 per kg. After cooking and carving it is found that 50
of 90g portions are obtained. Calculate;

The cost of 90g portions of served meat

Cost per servable weight

Example 6

If bone loss and cooking loss together amounts to 45% of the weight of raw meat costing £1.84
per kg. What is the cost per kg of cooked meat?

Example 7

A joint weighing 6.2kg is purchased at £1.65 per kg, after cooking and carving, it is found that 38
of 90g portions are obtained. Calculate:

Servable weight

Cost of 90g portions of carved meat

Cost per kg of served meat.

STANDARD RECIPES

This is a written formula for producing a food item of a specified quality and quantity for use in
a given establishment. It shows the precise quality and quantities of the ingredients together
with the sequence of preparation and service.

It enables the establishment to have a greater control over the cost and quality.

Objectives of preparing standard recipes

- To predetermine

The quantities and quality of ingredients to be used stating the purchase specification
 The yields obtainable from the recipe

The cost per portion or recipe

The nutritional value of a particular dish.

- To facilitate

Menu planning

Purchasing and internal requisition

Food preparation and production

Portion control

- To produce an accurate source of reference to all staff concerned. These can be

facilitated by use of photographs or drawings illustrating the finished products.

DISH COSTING

Example 1

The following ingredients are necessary to produce 15 portions of lemon pancake.

1 liter milk @ 40 shs per liter

400g flour @ 140 shs per 2kg

4 eggs @ 12 shs each

300g caster sugar @ 80 shs per kg

4 lemons @ 5 shs each

Calculate;

- Total recipe cost

- Cost per portion

- The selling price per portion to produce a 60% gross profit.

Example 2

The following quantities are required for sole fillet for 12 covers:
6×50g sole @ 250.80 per kg

100g onion @ 52.45 per kg

100g shallots @ 96.90 per kg

500g mushrooms @ 159.60 per kg

1 bottle white wine @ 104.90 per kg

350g butter @ 153.90 per kg

300ml cream @ 131.00 per litter

3 eggs @ 66 per dozen

500g parsley @ 15.95 per kg

You are required to prepare a dish costing sheet and show;

a) Total food cost

b) Food cost per cover

Example 3

The ingredients necessary for 12 portions of veal stew are as follows:

1.4 kg stewing veal @ 295 per kg

200g butter @ 195 per kg

100g flour @ 140 per 2 kg

700g onions @ 40 per kg

500g mushroom @300 per kg

3 eggs @180 per tray

Bouquet garni

1.5 liters white veal stock

Seasonings.
Note

Given that, stock is apportioned a token amount of shs. 15, seasoning at shs. 6 and bouquet
garni at shs.7.50, you are required to calculate;

a) Food cost per portion

b) Total dish cost

STANDARD PORTION SIZE

It is a means of regulating the size or the quantity of food to be served to each customer

Factors to consider when deciding the portions to give:

 The sex of the customer; male or female

 Occupation of the customer; there will be a difference in the portion of food served to
industrial workers and female clerical workers.

 Quality of food; good quality food usually yield a greater number of portions than poor
quality food eg poor quality stewing beef often need so much trimming hence less
portions per kg and loss of time and energy, while a good quality stewing beef often
gives eight portions per kg with much less time and labour required for preparation.

REASONS FOR PORTION CONTROL

1. Fair pricing: this is to avoid disappointed or embarrassment in the service area.

Therefore the quantity of food served should equal the amount paid by the customers.

2. Costing: portion control helps in costing because one will be able to know the quantity
of food to be served per day and this helps to get the targeted net profit.

3. Control wastage: the preparation of food should be done correctly to avoid wastage
hence the required portion is attained.

4. Efficiency

5. Standards
Portion control equipment

There are certain equipment which can assist in maintaining the control of the size or portions
of food to be served per customer. These include;

- Scoops- used for ice cream, mashed potatoes, rice, matoke, ugali,

- Lardle- for soups and sauces

- Butter machine- used for measuring butter and can be regulated from 1g onwards.

- Fruit juice glasses: for juices, water,

- Soup plates- for soups

- Milk dispenser and measuring machines; for measuring tea and milk

- Individual milk and tea pots

- Pie dish

- Moulds

- Scales

- Slicing machine

- Measuring jugs

Even with all the equipment, portion control is still not complete without the following;

- Standard recipes

- Portion charts

- Regular checks or sport checks

Methods of portion control

1. Use of portion control equipment

2. Use of standard size recipes; they must know what these portions are, charts showing
these portions are therefore displayed at convenient places in the kitchen for easy
reference.
 3. Regular checking and spot-checks; supervision must also be automatic so that there is
no thought of varying the system. These way correct habits are developed and need no
special supervision.

4. Buying portioned foods; eg individual sachets of sugar, sauce, salt, etc

- Individual carton or packet of milk

- Sausages, sodas, biscuits, cereals, etc.

SELLING

The main factors involved in selling are:

- Pricing of meals and beverages

- Restaurant checking system

- Cash control

With higher proportion of fixed cost, pricing is particularly difficult because if an

establishment is operating at higher margins, there is a wide range of price discretion.
For example, a retailer whose gross profit margin tends to be quite narrow buys an
article at 20.00 and sells it at 25.00 in order to make some profit. If most of his/ her
competitors charge 25.00, he/she would find it difficult to charge more than that. In
such a situation, the range of price discretion is narrowed and pricing made a simple
process.

PRICING OBJECTIVES

1. To earn a satisfactory profit; most establishment enjoy where there is no control of

prices ( monopolistic location) as they are able to charge very high prices, but this
should be limited as this invites competitors. Therefore to attract customers, many
establishments fix their prices at a fairly low level.

2. Setting menu prices; this is the setting of selling prices of an item.

3. Calculation of selling prices;

4. Cash control

Gross profit; when a caterer prepares a dish costing 30.00 and sells it at 75.00, the
difference between the cost price and the selling price is called gross profit.
 Gross profit = sales – food cost

Gross profit (kitchen profit) has to be efficient to pay for all the expenses running a
business and have a reasonable amount left called net profit.

Mark up

This is the amount added to the cost price of an item to give the selling price.

Eg. Mark up of an establishment is 50%

Selling price is normally 100%

X +50% = 100%

X% = 100-50

X%=50%

Margin; this term is used when the gross profit is expressed as a percentage of the selling price.
The selling price is usually 100%

When fixing the selling price the caterer must determine what percentage of gross profit will be
required to cover labour cost, overheads and give a reasonable reason. He can then cost the
dishes in purposes to sell and mark up the cost of the dish to yield the gross profit margin
required.

Supplement; this term is used when the amount added to the food cost is expressed as a
percentage of the food cost. Eg selling price of a dish is £ 40.00

Food cost £ 25.00

Supplement £15.00

Therefore supplement = supplement × 100 = 15×100 = 60%

Food cost 25

Problems encountered during menu pricing

1. Competition
 2. Differential profit margin

3. Departmental profit margin

4. Value added tax

5. Service charge

6. Minimum charge

Factors to consider before price levels are set.( 4 pricing problems)

Before any price level decision is made, there are four major areas that must be investigated.

Overall percentage gross profit and basic price levels:

The management must consider the gross profit they give in order to get the targeted profit.
Also, the following factors will determine the basic price levels;

1. The type of establishment

2. Average spending power

3. Type of client

4. Portion size

5. Food quality standard

6. Competitors

7. Location

Departmental profit margin

A business with different departments may have different price levels and may operate at
different percentage of gross profit in each department. Eg a hotel may aim at 65% GP on all
banqueting sales and 55% in all other food sales. When formulating a price policy it is necessary
to identify all the selling outlets and determine the correct gross profit margin of each outlet.

Gross profit differentials

In most establishments, they normally don’t apply a uniform rate of GP to all items on a
particular menu. Some items will have higher % while others will have a lower one. The
projected sales mix will determine the cost of sales for each department of the business eg
food, beverage, tobacco, sundry, etc.

Other related matters

Most catering establishment has additional charges to their prices of meals or in their [Link]

1. 5% cover charge; this is the charge to customers before entering the establishment. It
discourages people going in for fun in the establishment without any aim.

2. Minimum charge; its charged in an establishment operating in full capacity and is to

exclude low spenders in order to have space for those who can afford. It is mostly
introduced during peak period.

3. Service charge; this is a charge to customers for all the services offered.

4. Value added tax; this was introduced in 1975 in the UK. VAT is chargeable at a standard
rate of 15% on the supply of food and drink for consumption on the premises in which it
is supplied or for immediate consumption near the place of supply. This means sales by
restaurants, cafes, hotels, pubs, snack bars etc. the following items are not chargeable;

a) Accommodation where the stay is in excess of four weeks.

b) Visitors paid out

c) Newspapers sold to guests.

Duties of a registered firm

1) Charge the appropriate rate on sales.

2) Issue tax invoices if required

3) Record all sales and expenditure

4) File VAT returns with customs and excise

5) Keep a VAT account

VAT = % rate of VAT × gross amount

 100+% rate of VAT

Price inclusive of VAT=VAT + % rate of VAT × gross amount

100

Example 1

A brand of bottled beer costs, £o.18 per bottle. The pricing policy is 55% margin. Set the bar
selling price inclusive of VAT at 15%.

Solution;

Selling price = cost price ×100

Cost price %

=£1.80 ×100

45% = £0.40

Price inclusive of VAT =115 × £0.40

100 = £0.46

Example 2

A cup of coffee costs 5p. it is produced and sold at 25p including VAT. Calculate the GP
percentage.

25p = 100%

GP = 20p

If 25p = 100% therefore, 20p = 20 ×100

25 = 80%

Example 3

A wedding reception has ordered for 100 guests. Precise details of food per guest has been
given and costed at £4 per head. The labour and overheads will cost £230 for the function.

As a function manager determine the price per guest both inclusive and exclusive of VAT. The
policy of the hotel is 10% net profit on banquette sales.
Solution;

Sales = food cost + overheads + labour +net profit

= 100×4 +230+10% of sales

=630 + 10s

Using the normal arithmetical techniques and deducting 10% of sales from both sides of the
equation, therefore 10% of s = 630 hence s = £700 or £7 per head ( excluding VAT)

Price per guest inclusive of VAT = £7×1.15=£8.05

S= 630+10s

S = 630 + 10s

100

Example 4
A rugby club is to hold its annual dinner dance. There will be 250 guests, the food and
beverage costs will be £4 per head. The charge for the disco will be £100 plus flowers for
the dignitaries wives £50. Labour and overheads are costed at £600. The hoteliers
require a net profit of £250. Determine the sales exclusive and inclusive of VAT (per
guest).

Sales = 250×4 +600 +150+250 = £2000

Price per guest =2000÷250=£8 exclusive of VAT

Price inclusive of VAT = (115÷100×8) =£9.20

Other questions

1. Quote an exclusive price for a banquete for 100 people requiring a food and
beverage cost of £5 per head. The labour and overheads expenses are standard at
£4 per head for special functions and the expected net profit is 25% of sales
exclusive of VAT.

2. A function has been prepared for 50 people. It is estimated that the food would cost
the hotel £1.95 per person and that the other costs would be the casual waitresses
£23.60 and overheads £25.00. The normal profit target of the establishment is 13%
(net profit). What would you charge the party person inclusive of VAT at 15%.

Sales=167.93 ex. Price=£3.36 inc. price=£3.86

3. Explain what you understand by the concept of “range of price discretion”, with
reference to high fixed cost and low fixed cost sections of hotel and catering
industry.

4. A hotel account of £35.21 is subjected to VAT at a standard rate of 15% and 10%
service charge. Calculate the total amount due.

5. A restaurant bill of £29.01 is inclusive of 12% service charge and a VAT at the
standard rate of 15%, calculate

a) The amount of VAT

b) The amount of service charge

c) The amount exclusive of VAT and service charge.

6. Calculate the selling price of a dish costing 62p where the required gross profit is
60%. Selling price = cost price ÷cost price % ×100
 = 62 ÷40×100 = 155p

7. The selling price of a dish including VAT at the standard rate of 15% is £3.95.
calculate the gross profit percentage if the cost price is £1.48

Gross profit = sales – cost price

3.95- 1.48 = 2.47

g.p % = 2.47÷3.95 ×100

=62.5%

METHODS OF MENU PRICING

There are two methods used in setting the menu prices;

a) Subjective method

b) Objective method

SUBJECTIVE METHOD

This is a method where by the establishment sets prices without relating to profit requirement.
This method is base on assumption and guess work by manager. It is an effective tool for
evaluating menus in terms of marketing plans and financial goals of the establishment. The
methods of subjective pricing are as follows;

 Reasonable prices method; the manager sets prices which they think will present value
to a guest, they look at the prices as fair and equitable from the guests point of view i.e
according to what the guest can be able to pay.

 Highest price method; the management sets the highest price which they think the
guest will be able to pay according to locality and type of establishment.

 Loss leader price; sometimes low prices are set for some items so as to attract
customers to the establishment with the hope that the guest will select the most
expensive item.

 Intritive method; the managers’ guess the selling prices. This is the trial and error plan.
When the prices are too low, it means that the items are in season, and vice versa.
There is less direct value attached as compared to reasonable pricing method where the
prices present value to the guest.
OBJECTIVE METHOD

This is a method whereby the management sets prices with the aim of achieving the required
profits. These methods include the use of margin, mark-up, supplement, profits etc.

RESTAURANT CHECKING SYSTEM

The main restaurant checking systems in the restaurant are;

1) Duplicate checking system

2) Triplicate checking system

3) Singles checking system

Duplicate checking system

This check consist of two copies which are serial numbered, the top copy of the check always go
to the supply point and the second copy acts as a guests bill. The waiter has to ensure that
everything served is charged and paid for.

Triplicate checking system

The check consists of three copies which are serial numbered. The first copy goes to the supply
point, second copy to the cashier for billing and the third copy is retained in the book for
control purposes.

Differences between duplicate and triplicate checking system;

 Triplicate is mainly used in first class establishments operating on an extensive a’la carte
menu while duplicate is used in popular price restaurant/ cafes where a table d’ hote
menu is in operation.

 Triplicate has three copies while duplicate is in two copies.

 In triplicate, the cashier makes out the guests bill which is in triplicate while in duplicate,
the bill is in duplicate and is made out by the waiter.
  In triplicate the guest pays the cashier through the waiter who returns the receipted bill
and any change to the guest while in duplicate, the guest may pay the cashier direct/
pay the waiter according to the policy of the establishment.

 In triplicate, at the end of service the cashier completes the summary sheet and hands it
over with cash and the duplicate bill checks to the control department, while in
duplicate, in addition to the waiters accepted slip and stubs from his check pads must be
handed on by the waiter together with cash received by him.

BILLING METHODS

The following are the billing methods;

a) Bill as cheque

b) Separate bill

c) Bill with order

d) Prepaid

e) Deferred

f) No charge

g) Voucher

BILL AS CHEQUE

It is duplicate checking system or a check bill book system. After meals the waiter checks that
everything entered on the duplicate copy of the food and drinks checks, totals up the bill.

After payment the waiter usually keeps the bill but if the guest wishes to have a receipt, then a
special bill is written out and receipted.

SEPARATE BILL

It is always found running in conjunction with the triplicate checking system. The cashier opens
a bill in duplicate according to the table no. of the food check. When all is finished, the top copy
of the bill is presented to the guest on a side plate and folded in half with one corner turned up.

BILL WITH ORDER

Service to order and billing at the same time eg bar or take-away method. The customer order
is rung up as requested on a pre-set electronic keyboard. Each key relates to a specified drink
and its cost and a monitor is on view to the customer showing the order as it is rung up and the
prices charged. This method is fast when billing the customer and it also allows specific control
over cash received and change given as well as controlling all stock items held.

PREPAID

This is where the customer pays money before the day of the occasion or the day of the
consumption and the customer has to have a ticket or receipt showing he had paid. Mainly
used for seminars, outside catering etc.

VOUCHER

The customer is issued with a credit by a third party in the form of a luncheon voucher. The
voucher has to be used in the value of what has been indicated in it. If incase one consumes
less than the amount indicated then he is not refunded any money and if at all he/she spends a
lot more than indicated the customer pays for the extra shilling spend.

NO CHARGE

The customer pays nothing, all he does is signing for the goods / services received and the bill
should then be sent to the firm or company supplying the hospitality.

DEFFERED

Payment in this manner will normally relate to function catering whereby an organizer or
company pays for total after the event.

STAFF CONTROL

-Ways of retaining staff

-explain ways of efficient use of staff

- Ways of attaining maximum output from the staff.

Management; it is the art or science of achieving the objective of a business in the most
efficient way. Management involves direction, control, and organization of people.

FUNCTIONS OF MANAGEMENT
1. Forecasting

Before making plans it is necessary to look ahead to see possible and probable outcome
and to allow for them. For a supervisor, forecasting is the good use of judgement
acquired from previous knowledge and experience.

2. Planning

Planning involves the arrangement of things to be done in the future eg how many
needs to be prepared, how much to have in stock, how many staffs will be needed, how
much capital is needed to cater for the fixed stock or variable,plan for some training of
staff, any repairs and renewals should be included and how much it will cost.

3. Organizing

This includes allocation of duty to staffs. It consist of ensuring that what is, where,and
when it is wanted in right amount and at the correct time. If all these details are not
properly organized, problems could occur.

4. Commanding

Supervisor or management has to give instructions to staff on how, what, when and
where. Therefore orders have to be given and a certain degree of order and discipline
maintained.

5. Co-ordination

This is the skill required to get the staffs to cooperate and work together, to achieve
this, the supervisor or management has to be interested in the staff to deal with their
problems and questions, to listen to them, to maintain good relations with other
departments, etc.

6. Controlling

Includes controlling of people and products, preventing pilferage as well as improving

performance, checking that staff arrive on time, staff don’t leave before time, no time
wastage by staff, food and products should be of the right standard, preventing
wastage, ensure that portion control system is operated correctly and efficiently.
Controlling may also include inspecting dustbins for any wastage, checking on quantity
of food, for shrinkage, etc. the success or standard of any catering establishment is
determined by the efficiency of the supervisor.

7. Staff motivation
Staffs should be motivated so as to work more efficiently and smoothly through;

a) Their payment; any leave, off duty, holiday, etc must be paid. The payment should
be arranged earlier before the end of the month so that the staffs are paid on time
and this makes them feel recognized.

b) Overtime; according to Kenyan rule, the staff should work for 8hrs. any extra work
or overtime, the staffs must be compensated with a day off. The management or
supervisor should show interest to their staffs and recognize them. Staffs should be
given annual leaves and holiday. Incentive bonuses should be given ie extra money
once in a while for good work or presents.

c) Staff meals; staffs should be given sufficient time to take their meals either at home
or at the staff canteens. The management should see that there are enough tables,
seats, and equipment and staffs can enjoy their meals. Any problem concerning the
meals should be solved by the management and the caterer.

d) Accommodation; the staffs should be given their own houses and if possible be
given house allowances.

e) Security; the staffs should also be provided for in the compound and management
should ensure that the compound is clean. The compound should have a watchman
or contract a security firm. Supervisors must have the control of the use of keys so
that only the heads of department are responsible. They should control equipment
and material used.

f) Transport; the company should provide transport to their non residential staff. If it is
not possible, then transport allowances are given.

g) Fringe benefits; staffs should be given gifts or presents eg caps, t-shirts, mobiles,
cars, etc. certificates awarded for their good work, annual party, training etc.

h) Communication; it is concerned with transfer of information between different

people in the establishment. Management must see to it that there is good
communication between different levels of the establishment.

STAFF CONTROL MEASURES

Staffs can be controlled by;

- Allocation of duties in a duty Rota.

 - Job specification

- Job analysis card for each individual staff

-time shifts, helps in controlling time and staffs.

- Payroll; should show staff specification wages, salary reduction, benefits not paid etc.

EFFICIENT USE OF STAFF

Management has to do the work study by examining critically, the work that is performed by:

a) Good work organization and control of wages.

b) Avoidance of overtime

c) Avoidance of overstaffing

The management should be able to organize work and this can be achieved if there is work
study.

WORK STUDY

It is the critical exam of work with the objective of making the most economic and effective
use of material, equipment, and workers available. The work study is concerned with;

1. Effort

2. Time

3. Material

4. Equipment and space

Techniques of work study

- Method of motion study; is the way work is performed and the procedures followed.

- Work measurement; is concerned with measurement of time required in performing a

particular work task.

Note; methods of performing work involves;

a) Layout of work and management of equipment

 b) Handling of materials

c) Physical conditions under which work is performed eg lighting, ventilation, space

available, etc

- Maximum and best use of machines

- Motion study; improving movement in performing a specific job in the best way and less
tiring.

When the management is able to allocate duties properly and organize, the staffs are used
efficiently for goo output production to save money and effort.

LABOUR CONTROL

Direct wages or costs incurred through workers or employees. Labour cost consist of

- Basic pay either daily, weekly, or monthly wspentme ages

- Labour related costs ege holiday, overtime, bonus, etc

METHODS OF DETERMINING WAGES

This refers to the basis of determining what is to be paid according to the performance or
the time spent by an employee. The management must also lay down the principles for a
good wage plan. A part from the services to be paid for, some incentives must be given to
motivate the workers for the hard work. Wages must also be related to the budget of the
business. The various methods of determining wages include;

a) Time rate method

Under this method payment is made on the basis of time which may be hour, day, week,
month, ie the workers are paid according to the number of hours worked during a
particular period. Hourly rate is determined in advance at the time a worker is
employed. This hourly rate is multiplied by the number of hours worked in a particular
period.

Advantages

- It is a convenient method and the wages can be determined easily.

- Employees can forecast their income and they are ensured to receive it.
 - This method eliminates the need to measure the performance of the workers.

- It is more suitable for jobs where work cannot be divided into smaller units eg work for
drivers, secretaries, accountants, etc.

Disadvantages

- It discourages efficient workers because they receive the same amount which is
received by the insufficient and lazy workers.

- This method requires close supervision of the employees.

b) Piece rate method

Here an employee is paid per unit of product, article or per job completed. This method
is only used if the job can be divided into uniform pieces as is often possible for factory
jobs eg textile, house of manji, etc.

A worker at house of manji can be paid kshs. 100 for every 400 pieces of biscuits he
produces, this is called piece rate.

Advantages

- It produces an incentive to the more efficient workers. They are paid according to the
work done, so they get more income.

- Does not require more supervision of employees.

- Provides the employer with an easy way of determining labour cost per output of a
product.

- It minimizes pilferage as workers take care of their products.

Disadvantages

- Workers can produce poor quality products in order to produce greater quantities in a
short time.

- This method cannot be applied to those jobs that are not easy to divide into smaller
pieces.

- This method does not ensure a stable monthly income for workers.

c) High time rate for overtime

 Under this method normal working hours are paid at the normal time rate, but for
overtime worked during weekdays and weekends, a high rate is paid in order to make
the workers to work for more hours. Usually the normal working days and hours are
Monday to Friday and eight hours a day respectively. While on Saturday it is five hours.
Therefore, in a week normal working hours are 45.

During weekdays, an extra time worked hourly, the rate is 50% higher than the normal
hourly rate. While for Saturdays and any public holiday, it is double the normal hourly
rate.

Example;

Anthony’s hourly rate is shs.10.50. During a particular week in the month of June, he
worked for 60hrs. Including 8hrs. on a Madaraka day.

Solution

Total hrs worked = 60hrs

Normal working hrs = 45hrs

Therefore extra hours worked = 60- 45 = 15

Wage for normal hours = 45 × 10.50 = 472.50

Overtime

Weekdays =7 ×10.50×150 ÷ 100 = 110.25

Madaraka day = 8 ×10.50 × 2 = 168

TOTAL WAGE = 472 + 110.25 + 168 = 750.75

d) Piece rate with guarantee

Under this method a specific amount is paid to the workers on monthly or daily basis
irrespective of units produced by him or her during that period, but if his/ her output
exceeds a minute’s unit, he/she is paid according to piece rate method. This method
ensures a specific daily or monthly income of workers. Lower output in a specific period
may result due to reasons not related to the efficiency of workers such as;

- Shortage of materials

- Power failure
 - Shortage of water

- Machinery breakdown

In such cases, then the guaranteed wage is paid to the workers.

Example

The guaranteed wage of miss Y is shs.1500 and is paid shs. 5.00 per unit produced. Determine
her monthly wage on assumption that she produces in a month;

a) 500 units

b) 270 units

Solution

a) Total wage = 500 ×5 = 2500

This wage is more than the guaranteed wage therefore she will receive shs. 2500

b) Total wage = 270 ×5 = 1350

This wage is less than the guaranteed wage therefore she will receive shs. 1500

e) Differential piece rate

One objective of piece rate system is that, because a flat rate per unit is paid, the
incentive effect at a higher production levels declines. Differential piece rate seeks to
overcome this by increasing the rate progressively at various production levels eg

- Up to 100 units per day 10p / unit

- 101-150 units per day 12p / unit

- 151-200 units per day 15p / unit

Differential piece rate would normally be accompanied by the usual safeguards of

guaranteed day rates.

f) Group incentive scheme

Although individually based incentive schemes are common and frequently successful,
on occasions they are inappropriate and some form of group scheme is used. These
schemes are likely to be more appropriate;
 - Where production is based on a group/ gang basis eg road surfacing, coal mining

- Where production is integrated and all efforts are directed towards the same ends, eg
all forms of production line manufacture, cars, and domestic appliances.

- Where production methods or products makes it impossible to measure individual

performance.

Advantages

1) May engender closer cooperation in the group and a team spirit

2) It is administratively simpler with far less recording of labour time, production rates etc.

3) It support ; workers not directly associated with production can easily be included in the
scheme

4) May encourage more flexible arrangements within the group

Disadvantages

1) Less direct than individual schemes so may not provide the same incentive

2) Less hardworking members of the group receive the same bonus and this may cause
friction

3) Not always easy to obtain agreement on proportion of the bonus which group members
will receive

HALSEY SCHEME
Under this scheme the worker is paid a basic wage plus a bonus. The basic wage is arrived at as
follows

Basic wage = (time taken * the normal rate)

Bonus consists of half the wages for time saved

Bonus = ½ (time saved * normal rate)

Time saved is arrived at by deducting the time taken from time allowed

Exaple 1

Nasim completed a task in 40 hours for which 48 hours were allowed. His basic rate is shs 12
per hour. Compute his total wage

Solution

Time allowed 48 hrs

Time taken 40 hrs

Time saved 8 hrs

Basic rate shs 12 per hr

Therefore the basic wage = TT *NR

40 * 12 = shs 480

Bonus = ½ (TS * NR)

= ½(8 * 12)

= shs 48

Total wage = 480 + 48

= shs 528

Example 2

A casual waiter was allowed 12 hrs to clear up dishes used for a function. He completed in 8
hrs. Calculate his wage according to Halsey scheme 6mks

Solution
Basic wage = (T.T* NR)

= (8 * 10)

=shs 80

Bonus = ½ (TS * NR)

=1/2 (4 * 10)

= shs 20

Total wage = 80 + 20

= shs 100

Example 3
Compute the total wage from the following data using Halsey scheme 12mks

WORKERS JUMA RONO ASHA

Time allowed 48 50 32

Time taken 36 40 30

Rate (shs per hour) 160 210 240

Solution

JUMA: Basic = (TT * NR) = 160* 36 =5760

Bonus = (TS *NR) =½ (12 * 160) =960

Total wage 5760 +960 = 6720

RONO: basic = (TT * NR) = 40 * 210 = 8400

Bonus = ½ (TS * NR) = ½ (10 * 210) = 1050

Total wage = 8400 + 1050 = 9450

ASHA: basic (TT * NR) = 30 * 240 = 7200

Bonus (TS * NR) = ½ (2 * 40) = 240

Total wage = 7200 + 240 = 7440

TOTAL WAGE =6720 + 9450 +7440 = 23610

HALSEY WEIR SCHEME

This scheme is quite similar to the previous scheme, except that under this scheme, the bonus
to workers is computed at one-third of the wages for time saved. Hence bonus =1/3 (TS * Rate)

ROWAN SCHEME

Under this scheme, the bonus bears the same proportion to basic wage earned as time saved
does to allow. Hence

Bonus = (time saved/time allowed) * time taken * Rate

 = (TS/TA) *TT * NR

Example 4

A company expects its employees to produce 5 units of output in one hour. Its standard rate of
pay is shs 4 per hour. During the week under consideration an employee produces 250 units in
40 hours.

Required:

i) Calculate the piece rate per unit

ii) Calculate the employee’s gross pay under the following methods of remuneration:

a) Straight piece-work

b) The Halsey scheme

c) The Rowan scheme

Example 5

An employee in an organization is paid 50% bonus for time saved. During the first week of
January 1979 an employee whose basic hourly rate was shs 10 was assigned the following jobs:

Job no. Time allowed Time taken

A 18 hrs 15 hrs

B 22 hrs 18 hrs

You are required to calculate

1) The employees bonus for each job

2) The employee’s remuneration for the week.

PRODUCTION CONTROL
There are three main areas to be covered;

-preproduction control or control prior to production

- Control during production

- Control after production

1) Control before production

a) purchasing; when purchasing the goods one should use the standard purchase
specification or LPO, so as to get the correct quantity and quality required thus not over-
buying or under buying.

b) When receiving the goods, the receiving clerk should compare the delivery note
against the purchase order, inspect the items physically for quantity, do the counting
and weighing so as to get the right quantity.

c) Storing after receiving the goods; they should be stored with their own document
either bin cards, or a stock card.

d) Issuing; when issuing the goods the store keeper should weigh, count, and record all
the goods using a requisition sheet from an authorized person.

e) Menu planning; plan for the following

- yield/portions

- Time allocation to stages and sequences of production

-equipment, staff, activities, ingredients available etc.

IMPORTANCE OF MENU PLANNING