Food and Beverage Cost Control

HMPE 222

ANTHONY B. ANOCHE, MM-HM

Instructor I

Contact Number: 09460926640

Email Address: [email protected]

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 Module in Food and Beverage Cost Control – HRM 21.8

My name is Anthony Belonio Anoche, I am handling different major subjects in

Hospitality Management Department and Tourism Management Department. Since our
education setting is now really changed because of the pandemic crisis experiencing around the
globe. However, I believe that no one can stop in delivering the quality education among
students who aspire to become a better individual. In addition, I am so happy to have this subject
and to deliver the knowledge, skills, and attitude that students will learn along the way. With this
subject, it will cover chapter by chapter will be sliced into modules and consider as instructional
material. As we go on ourselves in a new normal setting, let’s face the challenges to continue
growing and molding yourselves through learning beyond boundaries. You may begin reading
and welcome to our module class.

Let’s internalize first the VMGO.

I. Capiz State University
Vision: Center of Academic Excellence Delivering Quality Service to All
Mission: Capiz State University is committed to provide advance knowledge and
innovation; develop skills, talents and values; undertake relevant research, development and
Extension services; promote entrepreneurship and environmental consciousness; and enhance
industry collaboration and linkages with partner agencies.
University Goals:
 Globally competitive graduates
 Institutionalized research culture
 Responsive and sustainable extension services
 Maximized profit of viable agro – industrial business ventures
 Effective and efficient administration
Core Values: God–Centered Excellence, Integrity, Transparency, Accountability, and
Dedication to Quality Service
Guiding Principles: Academic Freedom, Responsibility, Academic Standards
II. Criteria for Grading
Midterm Performance
Outputs (Drills & Exercises) 30%
Module Evaluation Performance 30%
Midterm Exam 40%
Midterm Grade 100%

Final Term Performance

Outputs (Drills & Exercises) 20%
Module Evaluation Performance 20%
Final Performance Tasks 20%

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 Final Exam 40%
Tentative Final Grade 100%

Computation of Grade
Midterm 30%
Final 70%
Total 100%

III. Table of Contents

Module I Revenue and Cost Concept
 Food Cost and Beverage Cost
 Cost Concept
 Fixed and Variable Cost
 Profit
 Revenue or Sales
 Transaction Count
 Average Check or Cover
 Sales-Cost Relationship
 Expenses
 Food Cost
 Beverage Cost
 Labor Cost
 Operating Expenses
Module II – Sales History, and Forecasting
 Predicting Future Sale
 Sales Variance
 Computing Average
Module III - Control Process
 Control Technique
 Cost Control
 Determining Inventory Level
 Setting Purchase Point
 Preparing the Purchase
 Receiving Record
Module IV – Food Cost
 Beginning Inventory
 Purchase
 Goods Available for Sale
 Ending Inventory
 Cost and Food Consume
 Employee Meals
 Cost of Food Sold
Module V – Beverage Cost
 Alcoholic Beverage
 Forecasting Beer Sales
 Forecasting Wine by the Glass
 Beverage Purchase Order
 Receiving Beverage Product

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 Inventory Turn Over
Module VI – Manpower Cost

 Ten Keys Factor Affecting Employee Productivity

Module VII Operating Cost

Legend: List of References

a. Mendoza, Evangeline O. Food and Beverage Cost Control Systemc.2015
b. Dopson, L.R., Hayes, D.K. and Miller, J. E. Food and Beverage Cost Control, 4th
Edition. Willey and Sons. 2008
c. Dittmer, P. R., and Keefe III, J. D. Principles of Food, Beverage and Labor Cost
Control, 9th Edition. Willey and Sons, 2009

IV. Policies
1. General. Observe health protocol such as wearing of face mask and face shield, social
distancing, washing of hands, etc. always.
2. Deadlines. Submission of evaluation sheet and other requirements two to three weeks
before upon received the modules. Those whose age is below 21, parents or any member of the
family are allowed to get the module in the school.
3. Plagiarism. Each piece of assessable work must be demonstrably the student/s’ own. In
this class, the copying, borrowing or the unacknowledged use of another person’s ideas or
written language as one’s own whether published or unpublished will be penalized. Any piece of
work that is plagiarized in whole or in part will not be assessed.
4. The Student Handbook will serve as a guide for all. Additional guidelines may be issued
by individual faculty to respective classes.
IV. Consultations:
Consultation may be done through facebook, messenger, or through phone calls and texts for
inquiries and verification. The students are encouraged to regularly seek the advice of their
course facilitators. You may also email directly to request for appointment.

Module 1
Revenue and Cost Concepts
Introduction
“An entrepreneur has mathematical formula for success: Gauge Overhead”
Food Cost and Beverage Cost are the cost of sales in the food service industry. The accuracy of
revenue projections for food and beverage is critical to determining whether the business
operation will be successful or not. Not only does the revenue have to pay for all of the other
expenses listed on the projected profit and loss statement, but there should also be money left for
the Profit the owner of the business is hoping to earn.
True enough, food service manager is a very talented individual. He or she is unique
because all the functions of product sales from item conceptualization to product delivery are in
their hands. He is the one in-charge of securing raw materials, producing a product and selling it
–all under the same roof. However, whoever manages a food and beverage operation must have a
clear understanding of other concepts not only from procurement of materials to reconciliations
or problems if there may have procurement of materials to reconciliation or problems if there
may have but also the computations of which to ensure profitability of the business.

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 Management Tasks Checklist
Tasks Food Service Manufacturing Retail
Manager Manager Manager
Secure Raw Materials Yes Yes No
Manufacture Product Yes Yes No
Distribute to End User Yes No No
Market to End User Yes No Yes
Reconcile Problems with the end Yes No Yes
user

General Objectives
At the end of the module, students must have:

1. Understand that Quality Management impacts on Cost Management.

2. Understand the nature of Cost, its role in the management decision process.
3. Develop creative thinking process in comparing standard cost from actual cost and determine
the factors that affect the profitability of the operations.
4. Explain the importance of Cost Management in a service industry and how will it affect the
profitability of the operations.
5. Elevate the spirit of entrepreneurship and proprietorship in reference to cost control system.

Definition
Cost Concepts – Cost for accountants is defined as the expense of a foodservice for goods or
services when the goods are consumed or the services are rendered. Foods and beverage are
considered “consumed” when they have been used, wasted or otherwise, and no longer available
for the purposes for which they were acquired. Thus, the cost of a piece of potato is incurred
when the piece is no longer available for the purpose for which it was purchased because it has
been cooked, served or thrown away because it has spoiled or even because it has been stolen.
The cost of labor is incurred when people are on duty, whether or not they are working and
whether they are paid at the end of the shift or at some later date.

Fixed and Variable Costs – are normally unaffected by changes in sales volume. They are said
to have little direct relationship to the business volume because they do not change significantly
when the number of sales increases or decreases. Insurance premium, real estate taxes and
depreciation on equipment are examples of fixed costs.

Variable Costs – are clearly related to business volume. Food and Beverage costs are considered
directly variable costs. Direct variable costs are direct linked to volume of business so that every
increase or decrease in volume brings a corresponding increase or decrease in cost. As business
volume increases, variable costs will increase; as volume decreases, volume costs decrease as
well. The obvious examples of variable costs are food, beverages, and labor.

Profit – The Reward for Service

Management’s primary responsibility is to deliver a quality product or service to the
customer at a price mutually agreeable to both parties. The quality must be such that the
consumer or end user of the product or service feels that excellent value is received for the
money they have spent. When this level is achieved, the business will prosper. It is important to
remember that guests cause businesses to incur costs. We do not want to get in the mindset of
reducing costs to the point where we think that “low cost” is good and “high cost” is bad.

Example: A restaurant with P100,000.00 sales per day will undoubtedly have higher costs than
the same size restaurant with P75,000.00 sales. If there are no guests, there will be no costs. In a

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similar vein, when management attempts to reduce costs with no regard of the impact on the
balance between cost management and guest satisfaction, the business will likely suffer.
Revenue – Cost = Profit
People assume that if a product is purchased for P30 and sold for P60, the profit
generated is P30 or 100%. We may call it a Gross Profit (GP) but after all the expenses like
advertising, management salaries, rental, utilities and labor required to generate the sales to name
but a new are deducted, Net Profit is then determined.

Example Problem: A product is sold 70% higher than its initial cost of P135.
a. How much is the selling price?
b. How much is it Gross Profit?
Solution:
70% of P135 is P94.50. Adding this to the initial cost of P135 will give the value of the selling
price.
P135 + 94.50 = P229.50
Gross profit is P94.50 or simply subtracts the selling price and the initial cost.

For non-profit institutions, it is the responsibility of the food service manager to

communicate this message to those who operate the institution. Profit, whether defined as Sales
minus Cost of in terms of reserved for the future, is the result of planning, sound management
and careful decision making.

Critical Point
Profit should not reality be viewed as what is left over after the bills are paid. In fact,
careful planning is necessary to earn profit. Thus, more appropriate formula which rewards the
business owner for the risk associated with business ownership or investment is:
Revenue – Desired Profit = Ideal Expenses
Furthermore, the increase in profit should be equal to the reduction excessive costs. This
is illustrated by the following:
Peso in profit
Peso in profit Actual Standard
Sales P10,000.00 P10,000.00
Food Cost 3,800.00 3,400.00
Gross Profit 6,200.00 6,600.00

It should be immediately apparent that a P400 reduction in actual food costs bringing
actual food cost in line with the standard food cost will bring an identical increase in gross profit.
If this reduction can be achieved without increasing any other costs (e.g. the cost of labor), then
literally every peso or dollar served will be an additional profit.

Revenue or Sales
Revenue levels can actually be managed to some degree. In any business, it is very
crucial to understand revenue and its nature. Revenues are the results of units sold. Some define
it as the amount generated from a transaction in exchange of food or product and services
rendered. It varies with both the number of guests (Transaction Count) and the amount spent by
each guest (Average Check)
Revenue = Transaction Count X Average Check

Revenue or Sales – in the food service industry is used in several ways among professionals.
For the term to be meaningful, one must be specific about the context in which it is used. In
general, the term sales - is defined as revenue resulting from the exchange of products and
services. In our industry, food and beverage sales are exchanges of the products and services of a
restaurant, bar, or related enterprise for value. We normally express sales in monetary terms,
although there are other possibilities can be increased by increasing also the number of guests or
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transactions or by increasing the amount each guest spends, or by combination of both
approaches.

Transaction Count refers to the number of transactions rang up in a cash register. In a food
establishment for instance, five customers may enter to dine-in but only one may pay for the
account of the group, this is just equivalent to one transaction. On the other hand, if each of them
pays for their own account, this is equivalent this time to five (5) transactions.

Average Check is the result of dividing total peso sales by the number of customers. In the food
service industry, this is also known as Covers. Cover is a term used in the industry to describe
one diner regardless of the quantity of food consumes. An individual consuming a continental
breakfast in a hotel coffee shop is counted as one cover. So is another individual in the same
coffee shop who orders a full breakfast consisting of juice, eggs, bacon, toast and coffee. These
two diners are counted as two covers.
Average Check = Sales / Number of Covers
Examples of management’s effort to increase the number of guest’s (transaction count) choosing
to come to the restaurant or food service operation are:
1. Adding seats and drive – through windows
2. Extending operating hours
3. Buy one – take one promotional techniques
4. Building additional foodservice units
5. Discount and Privilege cards
6. Loyalty cards
7. Discount scheme for a particular meal segment.

Examples of efforts to increase the amount of money each guest spends:

1. Suggestive selling by service staff.
2. Creative menu pricing techniques.
3. Discount for very large purchases
4. Freebies for a specific amount of purchase (e.g. – free umbrella for every purchase worth
P500, free flowing coffee for every purchase of P100)

Necessary steps should be taken by the business operators in order to generate sales
because the profit formula begins with revenue. Whatever the focus maybe, whether it is
increasing sales through adding guests, discounting, suggestive selling or by increasing
menu prices, it must be remembered that it is an extreme effective way of increasing
overall profitability but only if effective cost management systems are in place. Effective
cost management when coupled with management’s aggressive attitude toward meeting
and exceeding guest’s expectations can result in outstanding revenue and profit
performance.

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 Sales – Cost = Profit
Or
Sales – Cost = Deficit (Loss)

FOUR QUADRANTS OF S – C Relationship

The above four quadrants shows the Sales and Cost Relationship. When sales is high and
cost is low or enough to cover the expenses of the food service business, as shown by first
quadrant, profit begins to increase, thus, the primary objective of the business is then achieved.

Expenses (Costs)
A good manager knows how to control the four major food expenses in food service
operations. These are categorized into:
1. Food costs
2. Beverage costs
3. Labor or manpower costs
4. Operating expenses (OPEX)

Food Costs
Food costs are the costs associated with actually producing the menu items a guest
chooses. It includes the expense of meats, dairy, fruits, vegetables and other categories of food
items being produced. In computing food costs, it is also necessary to include the costs of minor
paper, wrappers, sticks, straws. In most cases, food cost makes up the largest or second largest
expense category a manager must learn to control.

Beverage Costs
Beverage costs are those related to the sale of beverage. It is a common practice in the
hospitality industry to consider beverage costs of non-alcoholic nature as an expense in the food
cost category. In many cases, costs are for alcoholic beverages are computed separately, and the
accounted items are those items which are part of the beverage like cherries, lemons, olives,
lime, mixers like carbonated beverages, juices, and other items commonly used in the production
and services of alcoholic beverages.

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Labor Costs
Labor costs include the cost of all employees necessary to run a business. This expense
category would also include the amount of any taxes required to pay these employees when they
are included in the payroll. In some cases, the labor expenses for the managers are included in
the administrative costs or in other expenses. If management’s cost is included in the labor cost,
then probably it would be greater than the foods costs.
Labor cost is one of the highest expenses for a typical foodservice operation. Labor cost
can average from 30% to 35% of sales. In some operations, labor costs can be as high as 40% of
sales.

Operating Expenses
Includes all expenses that are neither food, not beverage, nor labor. Examples are
franchise fees, electricity, water, telephone or merely utilities, rent, linens, office supplies, tools
and utensils, janitorial, maintenance, gasoline, cooking gas, advertisement, representation among
others. The ability to control these items is especially critical to the overall profitability of a food
service unit.
In its common form, the % sign is used to express the percentage. The costs incurred in a
food service operation are usually expressed in terms of percentage, thus, it is deemed necessary
that a manager must have a concrete knowledge of basic mathematics such as the decimals,
percentage and its conversions. In a restaurant, the “whole” is usually a revenue figure expenses
and profits are the “parts”.

Module Workshop No. 1

Daily Sales and Covers

Name: _______________________________________ Date: __________

Year&Section: ___________ Course Facilitator: ___________________

Below is the table shows the Primer Bar & Resto Daily Sales and Covers on March 2014.
Help Sir Ejay, the restaurant manager to determine manually the total sales for the day.
Menu Item Number Sold Sales Price Total Sales
Mushroom Soup 25 P35.00 (1.)
The best meatballs 24 80.00 (2.)
Braised beef 56 145.00 (3.)
Veal scaloppini 45 165.00 (4.)
Dinner salad 67 115.00 (5.)
Vegetarian burrito 56 105.00 (6.)
Chicken albufera 36 125.00 (7.)
Antipasto salad 45 90.00 (8.)
Baked tuna 105 120.00 (9.)
Beef stew 120 168.00 (10.)
Rib eye 116 230.00 (11.)
Corn & carrots 76 75.00 (12.)
Rice 540 25.00 (13.)
Iced tea 234 45.00 (14.)
Mango juice 125 80.00 (15.)
Dare devil 256 93.00 (16.)
Total Covers (17.)
TOTAL SALES (18.)

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 Module Workshop No.2

Name: ______________________________________________ Date: ______________

Year&Section: _______________ Course Facilitator: __________________________

1. The selling price of a plate of chicken a la pastel is P60% higher than its cost which is
computed at P123.65. How much is the selling price?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
_________________________________________________________
2. The cost of goods sold is computed at P6780.00, while the sales are equivalent to 30%
higher than the cost of goods sold. How much is the profit?
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
____________________________________________________________
3. Determine the cost of goods sold if sales is P123,345.00 and the profit is 25% of the
sales.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
____________________________________________________________

Module Workshop No. 3

Transaction Count & Average Check

Name: _________________________________________ Date: ______________

Year&Section: ____________ Course Facilitator: _________________________

Date Revenue (Php) Transaction Count Average Check (Php)

Oct. 1 63,654.12 195 (1.)
Oct.2 58,354.90 184 (2.)
Oct.3 (3.) 211 207.36
Oct. 4 64,765.23 (4.) 287.16
Oct. 5 (5.) 188 276.35
Oct. 6 (6.) 208 254.80
Oct. 7 61,324.28 217 (7.)
Oct. 8 65,453.70 (8.) 208.21
Oct. 9 66,563.60 (9.) 219.35
Oct. 10 70,002.53 306 228.77

10. What is the Total Revenue for the last 10 days? ________________________
11. How much is the total Transaction Count? ____________________________
12. What date posted the highest AC? Highest TC? ________________________

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 Module Workshop No. 4

Name: _________________________________________ Date: ______________

Year&Section: ____________ Course Facilitator: _________________________

Sir Ej, the manager of steak house and restaurant is completing the hourly sales report.
Help him out in completing the said report so he could go home earlier.

Date Sales in Php Accumulated Transaction Accumulated Average

Sales in Php Count (TC) TC Check in
Php
11/1/2013 128,945.75 870
11/2/2013 132,650.75 890
11/3/2013 127,645.80 913
11/4/2013 125,634.67 899
11/5/2013 135,546.70 1011
11/6/2013 143,554.60 1302
11/7/2013 98,654.30 1211
11/8/2013 112,653.50 1200
11/9/2013 125,674.80 1280
11/10/2013 121,200.65 1416
11/11/2013 121,207.50 1228
11/12/2013 120,324.30 1615
11/13/2013 116,196.25 1125
11/14/2013 128,680.15 1122
11/15/2013 121,199.40 1115

a. How much is the accumulated sales?

b. How much is the accumulated TC?
c. Compare the sales between the 1st 7 days and last 7 days.

Note: These evaluations are intended for underpinning knowledge of your learning’s that
covers on this module. Avoid erasures and submit it on time. You will be given two to three
weeks upon receiving the module through email and messenger.

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 Module II – Sales History and Forecasting

Courtesy: yahoo image search

General Objective
To internalized and understand the computing average.
At the end of the module, students must have:

a. Discuss the sales history and its importance.

b. Discuss the predicting future sales.
c. Discuss the importance of sales variance.

Developing Sales History – Is no more than the systematic record of all sales achieved
during a given period to time. In the restaurant business, sales are generally recorded in terms of
peso sales and customers served.

A Sales History is a written record of the number of portions of each menu item sold
every time that the item appears on the menu. It is a summary of portion sales. In some food
service establishments, sales histories are maintained for every item on the menu, from appetizers
to desserts. In others, the only records are only for those items which are being tracked like for
instance new product launched and the existing similar products for comparison. Sales history is
very necessary in tracking down the sales performance of a particular product and is, therefore;
used in predicting future sales or the forecasting and or the popularity index.

Popularity Index = Sales for Item / Total Portion Sales for all Menu items x 100

Predicting Future Sales

Sales to date are the cumulative total of sales reported in the unit. It is also the number we
get when we add today’s sales to the sales of all prior days in the reporting period.

Monday Tuesday Wednesday Thursday Friday

Menu 1 94 38 91 89 96
Menu 2 62 67 47 67 95
Menu 3 109 102 107 101 64

It is important to know that from the vertical analysis of the data, menu 1 to 3 are at its peak on
Monday, while in a horizontal analysis it is menu 3 which gives the highest sales contribution.
From this point of view, a business operator may already use this as a basis in preparing the
following:
a. Extra amount of ingredients for menu 3 should be made available and higher than the
other 2 menus.

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 b. A marketing strategy may be made for menu 2 since it gives the lowest sales contribution.
c. Manpower plotting must be adjusted to oversee the preparation of menu.

After an accurate sales history system has been established, a business operator may begin to see
whether the operation experiences some level of sale variation. This Sales Variances or changes
from previously experienced sales level gives an indication of whether sales are improving,
declining or staying the same.

Many operators use the Significant variation to determine whether a cost is managed or not. A
significant variation is any variation in expected cost that management feels is a case for concern.
This variation can be in costs that were neither higher nor lower than the normal standard amount
that was expected.

Formula for Variance Computation:

Variance = Sales this year – Sales last year

% Variance = Sales this year – Sales last year x 100

Sales Last Year

% Variance = Variance
Sales Last Year

Example:
Sales This Year Sales Last Year Variance Variance %
87345.23 89456.23
79345.54 83218.68
81234.67 81234.67
157234.23 80345.22

Comparative Study:
This pertains to comparison of data out of the gather figure drawn from the history of one
particular establishment.

Variance = Sales this year – Sales Target

% Variance = Sales this year – Sales Target x 100

Sales target

% Variance = Variance x 100

Sales target
Sales History, Variance & Percentage Variance
Sales Sales Variance Variance Sales Variance Variance
This Target % Last %
Year Year
Jan 23456 20000 25000
Feb 56789 58000 54000
Mar 57888 55000 60000
Apr 44250 45000 47000
May 33650 40000 37000
Jun 63457 65000 60000
Jul 48650 46000 49000
Aug 49232 48000 47000

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Sept 52350 55000 50000
Oct 47500 44000 48000
Nov 584000 59000 55000
Dec 68320 65000 63000

Please cut here >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Module Workshop
Name: _______________________________________ Date: __________
Year & Section: ___________ Course Facilitator: ___________________

Sales Variance
Date Sales Today Sale to Date Target Sales Variance Variance %
(Php) (Php) (Php) (Php)
June 1 103,456 110,670
June 2 98,765 108,000
June 3 109,327 105,664
June 4 105,638 104,000
June 5 117,347 110,000
June 6 115,002 108,000
June 7 98,456 103,400
June 8 76,543 102,000
June 9 67,541 102,000
When significant variation exists, the following must be undertaken by the management.
1. Define the problem
2. Determine the cause
3. Take corrective action
Computing Averages
Average is defined as the value arrived at by adding the quantities in a series and then
dividing the sum by the number of items in the series.
Two major types of Averages used in the Foodservice
a. Fixed average – an average in which you determine at specific time period.
b. Rolling average – the average amount of sales over a changing time period.
Fixed Average
Mon Tues Wed Thurs Fri
1 14 18 14 12 14
2 16 12 15 15 15
3 13 15 17 17 5
4 11 17 17 18 23
5 14 14 12 13 20
Fixed Average

Rolling Based Average

Date Sales 1-4 2-5 3-6 4-7 5-8
June 1 1,634 -
June 2 1,786 -
June 3 1,897 -
June 4 1,867 -
June 5 1,948
June 6 1,534
June 7 1,170
June 8 1,768
RBA

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 Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

Fixed and Rolling Base Average

Determine the Fixed Sales Average of the best bar and resto on a weekly basis.

Date Sales (Php) Date Sales (Php)

Oct 1 34,235.00 Oct 8 37,456.00
Oct 2 35,478.00 Oct 9 35,237.00
Oct 3 23,321.00 Oct 10 34,256.00
Oct 4 32,765.00 Oct 11 33,435.00
Oct 5 36,547.00 Oct 12 35,092.00
Oct 6 52,456.00 Oct 13 36,236.00
Oct 7 34,638.00 Oct 14 33,123.00
Total Total
What particular date/s significant variations were experienced by the Bar?

Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

Rolling Base Average

Determine the Seven Day Rolling Sales Average of Ubalda’s Sports Bar.

Date
1 35,000
2 32,000
3 39,000
4 44,000
5 42,000
6 45,800
7 45,000
8 46,000
9 41,000
10 44,000
11 47,000
12 46,000
13 41,800
14 49,400
Total
Average

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 Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

Sales History and Variances

Sales Sales Variance Variance Sales Variance Variance

This Target % Last %
Year Month
Feb-01 23456 20000 25000
Feb-02 56789 58000 54000
Feb-03 57888 55000 60000
Feb-04 44250 45000 47000
Feb-05 33650 40000 37000
Feb-06 63457 65000 60000
Feb-07 48650 46000 49000

Note: These evaluations are intended for underpinning knowledge of your learning’s that
covers on this module. Avoid erasures and submit it on time. You will be given two to three
weeks upon receiving the module through email and messenger.

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 Module III

The Control Process

Control in the Food and Beverage business is defined as the process by which managers
attempt to direct, regulate and restrain the actions of people in order to achieve desired goals.
The Control process consists of four steps:

1. Establish standards and standard procedures for operation.

2. Train all individuals to follow established standards and standards procedures.
3. Monitor performance and compare actual performances with established standards.
4. Take appropriate action to correct deviations from standards.

Oftentimes, further checking and monitoring reveals that an established standard is actually
unrealistic or inappropriate and if this is the case, then business operator should consider
changing the standard or calibrating it.

Control Techniques
The control techniques include the following:

1. Establishing standards
2. Establishing procedures
3. Training Personnel
4. Setting examples
5. Observing and correcting employee actions
6. Requiring records and reports
7. Disciplining Employees
8. Preparing and following budgets

Cost Control
Two of the principal causes of excessive costs are inefficiency and waste. For example,
storing vegetables in a room temperature may lead to wilt and dry resulting to wastages. When
these vegetables are thrown into the trash can, the cost of food will increase but sales are not.
Clearly, the management must take steps to guard against such excessive costs, thereby requires
Cost Control. Cost Control is defined as the guard against excessive costs. It is an ongoing
process and it is involved every step in the chain of purchasing, receiving, storing, issuing, and
preparing food and beverage for sale.

SELLING INVENTORY ORDERING/PURCHASING

FOODPREP STORING HANDLING RECEIVING DELIVERY

With the knowledge of what is likely to be purchased by our customers (Sales Forecast)
and a firm idea of the ingredients necessary to produce these items (standardized recipes), the
food service operator must take decisions about inventory levels. The desired inventory levels
are simply the answer to the question “How much of each needed ingredients should I have on
hand at any given time?”
Inventory management seeks to provide appropriate Working Stock, which is the
amount that will be used between deliveries and minimal Safety Stock, which is the extra
amount of a food product we will keep on hand. The ability to effectively manage the inventory
process is one of the best skills a food service manager can acquire.

Costcontrol_aba26
 Taking physical inventory requires counting the actual number of units on hand of each
item in stock and recording that number in appropriate place. The purpose of this process is to
provide a list of goods on hand so that the value of the goods maybe determined and recorded.
Physical inventory may be recorded in an inventory logbook or in some other type of permanent
business record.

Determining Inventory Levels

Inventory levels are determined by variety of factors. Some of the important ones are as
follows:
1. Storage Capacity
2. Item Perishability
3. Vendor delivery schedules
4. Potential savings from increased purchase size
5. Operating calendar
6. Relative importance of stock outages
7. Value of inventory peso to the operator

Storage Capacity
Operators must be careful in determining inventory levels in a way that will overload
storage capacity. When storage is too great, the tendency of the manager is to fill the space. It is
important that this is not to be done for the following reasons:
a. Increased inventory of items generally leads to greater spoilage.
b. Loss of items due to theft.
c. Large quantities of goods on the shelf tend to send a message to employees that there is
“plenty” of everything.
d. Overstocking may result in the careless use of valuable and expensive products.
e. Too many stocks can result in difficulty in finding items.

Item Perishability
If all food products had the same shelf life, that is, if all items would retain their
freshness, flavor and quality for the same number of days, the food service operator would have
less difficulty in determining the quantity of each item he or she should keep on hand at any
given time.
The needs for a balanced inventory of perishable items are being considered because of
the following factors:
a. Serving items that are too old is a sure way to remember a customer complaint.
b. Over stocking of perishable items may lead to moldy, soft, overripe or rotten food
items-a clear indication that the managers does not have a feel for inventory levels
that is based on the need of the operations. It is a sign that sales forecasting methods
either are not in place or have broken down.
Vendor Delivery Schedule
It is the fortunate food service operator who lives in a large city with many vendors some
of whom may offer the same service and all of whom would like to have the operators business.
In some cases, however, the food service operator does not have the luxury of daily delivery. In
all situations, it is important to remember that the cost to the vendor for frequent deliveries will
be reflected in the cost of goods to the operator.
Vendors will readily let an operator know what is their delivery schedule to a certain area
and it is up to the manager to use this information to make educated decisions regarding the
quantity of that vendor’s product , he or she will require to have both in working stock and safety
stock.
Potential Savings from Increased Purchase Size
Some food service operators find that they can realize substantial savings by purchasing
large quantities and thus receiving a lower price from the vendor. But as a general rule, operators
should determine their actual product inventory levels and then maintain their stocks within the

Costcontrol_aba26
need range. Only when the advantages of placing an extraordinary large order are very clear
should such a purchase be attempted.
Operating Calendar
When an operation is involved in serving meals seven days a week to a relatively stable
number or customers, the operating calendar makes little difference to inventory level decision
making. If however, the operation opens on Monday to Friday and closes for Saturday and
Sunday as in the case of many schools, the operating calendar plays a large part in determining
the desired inventory levels. This is especially true when it comes to perishable items at week’s
end. They prefer to work highly perishable items such as fresh seafood’s and some meats into the
early or mid-part of their operating calendar.
Relative Importance of Stock Outages
In many food service operations, not having enough of a single food ingredient or menu
item is simply not that important. In other operations, the shortage of even one menu item might
spell disaster. A strong awareness of how critical an outage can be helping determine the
appropriate inventory level. The food service operator who is determined never to run out of
anything must be careful not to set inventory levels so high, as to actually end up costing the
operation more than if realistic levels were maintained.
Peso to the Value of Inventory Operator
In some cases, operators select to remove peso from their bank accounts and convert
them to product inventory. When this is done, the operator is making the decision to value
product more than peso.
Setting the Purchase Point
A purchase point, as it relates to inventory levels is simply that point in time when an
item should be reordered. This point is typically designated by one of the two methods:
1. As Needed
2. Par Level
As Needed
When operators use the: as “Needed” method of determining inventory level, they
basically are purchasing food based on their prediction of unit sales and on the sum of the
ingredients from standardized recipe necessary to produce sales.
Example: In a hotel foodservice operation, the demand for 500 servings of
raspberries and cream torte dessert, to be served to a group in the hotel next week would cause
the responsible person to check the standardized recipe for this item and thus, determine the
amount of raspberries that should be ordered.
Par Level
Food service operators may set predetermined purchase points called par levels. When
demand for a product is relatively constant, we may set inventory level by determining purchase
points.
When determining par levels, both minimum and maximum amount required must be
established. Many food service managers established minimum par level by computing working
stock, then by adding 25 to 50 percent more for safety stock. Then, appropriate purchase point
can be determined.
Reminder: As a rule, highly perishable items should be ordered on as needed basis.

Purchasing
Regardless of the method used to determine inventory levels, each food service operator
must turn his or her attention to the extremely important area of purchasing. If we know the
number of guests who will be coming from the sales forecast and what are likely to select from
our menu, we must purchase the ingredients needed so that our workers can prepare those items.
Purchasing is essentially a manner of determining the following:
1. What should be purchased?
2. What is the best price to pay?
3. How can a steady supply be assured?
What should be Purchase?

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 Just as it is not possible to determine inventory levels without standardized recipes, it is
not possible to manage costs where purchasing is concerned without the use of product
specifications. A product specification is simply a way for the food service director to
communicate specifically with a vendor so that the operator receives the exact item requested,
delivery after delivery. A food service specs generally lists the following types of information:
1. Product Name or Specs Number
2. Packaging or unit on which a price is quoted.
3. Standard or grade, if established
4. Weight range
5. Type of processing or packaging
6. Size of the basic container
7. Other information such as product yield.
Other information maybe included if it helps the vendor understand exactly what the operator has
in mind when the order is placed.
Preparing the Purchase
Purchase order preparation can be simple or complex but in all cases, the written
purchase order from should contain the following information:
a. Item Name
b. Spec Number, if appropriate
c. Quantity Ordered
d. Quoted Price
e. Extension Price
f. Vendor Name
g. Date Ordered
h. Delivery Date
i. Ordered By
j. Received By
k. Delivery Instructions
The Receiving Area
Once the purchase has been prepared by the purchasing agent, it is time to prepare for the
acceptance or receiving of the goods. In a large operation, this function is performed by the
receiving clerk but in a smaller operation, it may be done by the manager or his designee.
There is probably no area of the foodservice establishment more ignored than the area in
where receiving takes place. Receiving area is where we are ensures that the products we ordered
are in the best quality. Proper receiving includes all of the following features:
1. Proper location
2. Proper Tools and Equipment
3. Proper Delivery Schedules
4. Proper Training
 Proper location
The “back door” which is usually reserved for receiving, is often no more than that-just
an entrance to the kitchen. Receiving area must be:
a. Large enough to receive and check the goods delivered against both invoice with the
PO.
b. It should be kept clean to avoid contamination of incoming food.
c. It should be well lit and properly ventilated. Excessive heat can quickly damage
delivered goods especially if they are frozen products.
 Proper Tools and Equipment
Standard items needed in receiving operation:
a. Scales
b. Wheeled equipment
c. Box cutter
d. Calculator
e. Records Area

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  Proper Delivery Schedule
Acceptance hours- In an ideal world, the foodservice manager would accept delivery of
products during only designated hours. These times would be scheduled during slow
periods when there would be plenty of time for thorough checking of products delivered.
Refusal hours- time wherein the operation may refuses to accept deliveries.
 Proper Training – Receiving clerks should be properly trained to verify the following
product characteristics:
a. Weight – One of the most important items to verify when receiving food products if
of course their weight.
b. Quantity – The counting and weighing of products are equally important. Suppliers
make more mistakes in not delivering products than they do in excessive delivery.
The counting of boxes, cases, sacks, barrels and this must be a routine for a receiving
clerk.
c. Quality – Checking for quality means checking the entire shipment for conformance
to specifications. The effective receiving clerk should develop a keen eye for quality.
d. Price – In the area of training for price, the following two major concerns are to be
addressed:
1. Matching PO unit price to invoice unit price.
2. Verifying Price Extensions
If the receiving clerk has a copy of the purchase order, it is a simple matter to verify the
quoted price and the delivery price. If this two do not match, suppliers should be notified
immediately.
Contract Price – Simply a price agreed by the suppliers and the operator. It
covers a certain product for a prescribed amount of time.
 Verifying Price Extension
Price extension is just as important as the ordered or unit price. Price extension or
extended price is simply the unit price multiplied by the number units delivered.
Unit Price x No. of Units/Quantity = Extended Price

Example:
Items Unit Price (Php) Quantity/No. of units Extended Price (Php)
Tomatoes 18.50 3 55.50
Potatoes 12.90 6 77.40
Carrots 18.29 4 73.16

Receiving Record or Daily Receiving Sheet

Some large operations use a receiving record rather than a copy of the actual purchase
order when receiving food items. This method, while taking more administrative time to both
prepare and monitor have some advantages. A receiving record generally contains the following
information:
a. Name of Supplier
b. Invoice Number
c. Item Description
d. Unit Price
e. Number of Units Delivered
f. Total Cost
g. Storage Area
h. Date of Activity

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 Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

Extension Price and Par Value

The following data is available in EAOM restaurant. If you will be assigned to determine
the actual amount of purchase so that the check can be prepared and ready for release, how will
you compute this using other conditions given below?
a. Delivery Schedule id every 3 days.
b. Buffer for Non Food id 50%, and 30% for Food Items.
Item Par Level or Buffer Totals Ending Actual Unit Extension
Stock Build or Safety Items Inventory Order Price Price
Up Stock Needed
Milk 48 tins (1) (2) 8 tins (3) P46/tins (4)
Trash Bag 30 pcs. (5) (6) 3 pcs (7) 7/pc. (8)
Dishwashing liquid 15 bot. (9) (10) 4 bot. (11) 203/bot. (12)
Carrots 25 kgs. (13) (14) 5 kgs. (15) 90/kg. (16)
Beans 3 kgs. (17) (18) .75kg (19) 130/kg. (20)
Spinach 10 bundles (21) (22) 0 (23) 20/bund (24)
Plastic Bag 100 pcs. (25) (26) 22 pcs. (27) 3/pc. (28)
Tapioca 1 kg. (29) (30) .25 kg (31) 120/kg (32)
Cheese 1 kg (33) (34) 0 (35) 385/kg (36)
Mop head 5 pcs. (37) (38) 1 (39) 190/pc. (40)
Gelatin 15 sachets (41) (42) 3 (43) 68/sachet (44)
Total (45)

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 Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

Safety Stocks and Working Stocks

Determine the Working Stock, safety stocks, and the total stocks that have to be ordered by the
manager of Grand Hotel given its 1 week usage as a basis of ordering.
Items July 20 July 21 July 22 July 23 July 24 July 25 July 26 Working
Stocks
Dry Items
Tissue rolls 125 167 153 134 145 176 157 (1)
Bath soap 102 123 134 123 111 125 113 (2)
Shower 87 82 78 75 86 87 83 (3)
caps
Shower gel 78 75 83 84 79 80 76 (4)
Total Dry Items (5)
Frozen/Wet Items
Sausages 15 18 16 12 14 20 16 (6)
(kg)
Egg (pcs) 112 125 118 154 163 145 156 (7)
Bacon 21 26 21 27 28 20 19 (8)
(packs)
Ham 12 14 11 15 13 17 15 (9)
(packs)
Cheese 112 114 113 116 124 135 110 (10)
(pcs.)
Strawberry 87 82 75 65 78 82 75 (11)
Jam
Total Frozen Items (12)

Note: 75% Buffer is assigned to all frozen and wet items while 85% Buffer assigned to all dry
items.

Items Buffer Safety Stocks Total Stocks for

Ordering/Purchasing
Tissue rolls
Bath soap
Shower caps
Shower gel
Sausages
Egg
Bacon
Ham
Cheese
Strawberry Jam

Note: These evaluations are intended for underpinning knowledge of your learning’s that
covers on this module. Avoid erasures and submit it on time. You will be given two to three
weeks upon receiving the module through email and messenger.

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 Module IV
Food Cost
At the end of this module, the students must be able to:
1. Understand the importance of standardized recipe in food cost.
2. Appreciate the role of food costing in profitability of a business.
3. Be equipped with the skills in quantifying recipe and food.

Standardized Recipes
A standardized recipe contains a variety of information about the recipe, its yield and the
number of portions it produces. The actual form may vary from one operation to another but the
information contained is the same.
While it is the menu that determines what is to be sold and at what price, the
Standardized Recipe controls the end product. The standardized recipe ensures that each time
customers order an item from the menu, they get the same item. Standardized recipe contains the
following information:
a. Item name
b. Total yield
c. Portion size
d. Ingredient list
e. Preparation/Method section
f. Cooking time and temperature
g. Special Instructions, if necessary
h. Recipe Cost(optional)

Standardized Recipe
Menu Item: Slow Roasted Beef Belly
Yield: 7 Special Instructions: Serve with steamed asparagus, zucchini and
roasted tomatoes
Portion Size: 100g
Portion Cost:

Amount Ingredients
1 pc (3/4 kg) boneless beef belly or short plate
½ cup whole peppercorns (crushed)
½ cup rock salt
2 heads garlic

Horseradish Sauce
1cup prepared horseradish
1 cup milk
1 tsp chopped parsley
Salt and pepper (to taste)
Procedure/Method:
1. Preheat oven to 2 0F
2. Combine crushed peppercorns, salt and garlic into paste. Rub on top of beef.
3. Place beef on a rack onto a roasting pan. Place in oven, cook at 2 0F for 4 to 5 hours or
until tender. Test for tenderness with a kitchen fork after 4 hours.
4. To make the horseradish sauce, combine all the ingredients and mix well.
5. Once beef is done, remove from oven and rest for at least 1 hour before slicing. Serve
with horseradish sauce.
6. You may cook beef up to 2 days ahead and keep it in a refrigerator. To reheat, slice beef
while cold into 1/3 inch thick slices. Arrange beef slices overlapping each other in a
baking tray, pour cup of stock or water over the beef. Cover with foil, baked in a 350F
oven for about 15-20 minutes or until heated through it.

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 Many operators refuse to take the time to develop standardized recipes. The following
list contains some of the arguments often used against developing standardized recipes:
1. They take too long to use.
2. My people don’t need recipes; they know how we do things here.
3. My chefs refuse to reveal his or her secrets.
4. They take too long to write up.
5. We tried them but lost some, so we stopped using them.
6. They are too hard to read, or many of my people cannot read English.

Reasons for incorporating a system of standardized recipes include the following:

1. Accurate purchasing is impossible without the existence and use of standardized recipe.
2. Dietary concerns require some food service operators to know exactly the name of
ingredients and the correct amount of each.
3. Accurate recipe costing and menu pricing is impossible without standardized recipe.
4. Matching food consumed to cash sales is impossible without Standardized recipe.
5. New employees cannot be trained without it. If the chef quits for instance, you are stuck!
6. The computerized of a food service operation is impossible unless the elements of
standardized recipes are in place.

Reasons why there must be an effective use of Standardized Recipe:

1. Customer’s dissatisfaction if menu selected is not standard in taste.
2. Producing too many of any of the menu item would create excess products.
3. Profitability level would likely to be in its lowest point due to its food cost.

When adjusting for recipe quantities, the following two general methods maybe employed:
1. Factor method = Yield desired/Current yield = conversion factor
Example: Current recipe is 50 portions, and the number of portion that make it, then the formula
applies: 125/50=2.5
Ingredients Original Amount Factor New Amount
A 4 lbs 2.5 10 lbs
B 1 qt 2.5 2 ½ qts
C 1½T 2.5 2 ¾T
2. Percentage method:
a. Deals with the recipe weight rather than with a conversion factor.
b. Sometimes more accurate than using a conversion factor alone.
Example: Assume that an operator has a recipe with a total weight of 168 ounces. If the portion
size is 4 ounces, the total recipe yield would be 168/4 or 42 servings. If the operator wishes to
prepare 75 servings, he or she would need the following total recipe weight:

75 servings x 4 oz per serving = 300 oz

Percentage Method
Ingredient Original Oz % of Total Total %of Total New
Amount Required Amount Amount Recipe
A 6 lb& 8 oz 104 61.9 300 61.9 185.7
B 12 oz 12 7.1 300 7.1 21.3
C 1 lb 16 9.5 300 9.5 28.5
D 2 lb&4 oz 36 21.5 300 21.5 64.5
Total 10lbs&8oz 168 100.0 300 100.0 300.0

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 Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

Factor Method

Refrigerator Pinwheel Cake

Yield – 12 servings

Ingredients: Market Price:

1 ½ cups flour P65/kg; 1kg= 1000g; 1 cup=240g
¼ teaspoon salt P10/500g; 1t=7g
½ teaspoon baking powder P14/pack; 1 pack=50g; 1t=5g
½ cup shortening P35/400g; 1cup=240g
½ cup sugar P28/500g; 1 cup=240g
1 egg yolk P5/egg
1 ½ teaspoon vanilla extract P15/350g; 1t = 7g
3 tablespoon milk P28/375 ml; 1 ml=1g; 1t=15g

Cost per serving of a cake shown below is: (10 points)

a. P3.20
b. P4.18
c. P6.17
d. P7.25

Total cost of the given recipe is 5 pts

a. P45.12
b. P49.01
c. P50.17
d. P52.65

Show your computations here:

Costcontrol_aba26
FORMULA:
% Food Cost = Food Cost Sold / Sales x 100
% Beverage Cost = Beverage Cost Sold / Sales x 100
% Manpower Cost = Payroll Cost + Other Employee Cost /Sales x 100
% Other Expense = Cost of other expenses / Sales x 100

Terms being used in determining the cost of food

Beginning Inventory is the amount or value of all food on hand at the beginning of the
accounting period. It is determined by completing an actual count and valuation of the products
on hand.

Purchases are the sum cost of all food purchased during the accounting period. It is determined
by adding all properly tabulated invoices for the accounting period.

Goods Available for Sale is the sum of the beginning inventory and purchases. It represents the
value of all food that was available for sale during the accounting period.

Ending Inventory refers to the amount or value of all food on hand at the end of accounting
period. It is also determined by completing a physical inventory.

Cost of Food Consumed is the amount or value of all food used or consumed by the operation.
Again it is important to note that this is not merely the value of all food sold but rather the value
of all food no longer in the establishment and includes the value of any meals eaten by
employees.

Employee Meals is a labor related not food related cost. Free or reduced cost employee meals
are a benefit much in the same manner as medical insurance or paid vacation. Therefore, the
value of this benefit, if provided should be transferred and charged not as a cost of food but as a
cost employee benefits.

Cost of Food’s Sold is the actual amount or value of all food expense incurred by the operation
except for those related to employee meals. It is not possible to determine this number unless a
beginning inventory has been taken at the start of the month followed by another inventory at the
end of the month.

Comparing Similar Periods

Daily reports allow management to accurately assess daily costs and sales, but
management often wishes to compare these costs and sales with similar periods. Doing this
allows management to better assess operations and cost control measures. The following report
can be a useful tool in identifying food cost, food sales and food cost percent for any specific day
and for all the days to date in the period.

Eight E’s Food Cost Report

Date: March 8, 2014
Today Same Day To Date To Date
Last Week This Week Last Week
Food Sales P15,467.00 P14,423.00 P126,000.00 P118,316.00
Food Cost 5028.00 4923.45 32,785.00 29,756.00
Cost % 32.51% 34.14% 26.20% 25.15%

Variations on the basic cost of food sold formula

One of the most important point to remember; however, is that all of these formulas
should seek to accurately reflect actual cost of food sold by the operation for a given time period.
Costcontrol_aba26
Formula for Cost of Food Sold:

Cost of Food Sold

Unit Name: _________________________________

Accounting Period: __________________________

Beginning Inventory P xxx.xx

Plus
Purchases + xxx.xx
______________
Goods of Available for Sale xxx.xx
Less

Ending Inventory - xxx.xx

______________
Cost of Food Consumed xxx.xx
Less

Employees Meal - xxx.xx

______________
Cost of Food Sold P xxx.xx

Table 1: Cost of Food Sold

Unit Name: ________________________

Accounting Period: ___________ to ______________

Beginning Inventory P xxx.xx

______________
Purchases + xxx.xx
Goods Available for Sale xxx.xx
______________
Ending Inventory - xxx.xx
Cost of Food Consumed xxx.xx
______________
Employees Meal - xxx.xx

Cost of Food Sold P xxx.xx

Once Cost of Food sold is determined, we may now compute for the % Food Cost using
the Formula:

% Food Cost = Cost of Food Sold / Sales x 100

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Table 2: Cost of Food Sold when products are transferred from one unit to another

Unit Name: ____________________________

Accounting Period: ____________ to __________

Beginning Inventory P xxx.xx

Purchases + xxx.xx
______________
Goods Available for Sale xxx.xx
Ending Inventory - xxx.xx
______________
xxx.xx
Transfer Out - xxx.xx
______________
xxx.xx
Transfer In + xxx.xx
______________
Cost of Food Consumed xxx.xx
Employees Meal - xxx.xx
______________
Cost of Food Sold P xxx.xx

Table 3: No Employee Meals are Provided

Unit Name: _____________________________

Accounting Period: _____________ to ___________

Beginning Inventory P xxx.xx

Purchases + xxx.xx
_____________
Goods Available for Sale xxx.xx
Ending Inventory - xxx.xx
_____________
Cost of Food Sold P xxx.xx

Table 4: If there are wastages or spoilages

Cost of Food Sold

Unit Name: ______________________

Accounting Period: _______________

Beginning Inventory P xxx.xx

Purchases + xxx.xx
______________
Goods Available for Sale xxx.xx
Ending Inventory - xxx.xx
Wastage and Spoilage - xxx.xx
______________
Cost of Food Sold P xxx.xx

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Problem No. 1
Determine the % food cost of an Ice Cream store with Sales of P98,000 given the
following conditions:

Beginning Inventory P22,500

Purchases 39,000
Ending Inventory 27,500
Employees Meals 725

Solution:

Cost of Food Sold

Unit Name: Ice Cream Store

Accounting Period: June 1 to 7

Beginning Inventory P 22500

Purchases + 39000
______________
Goods Available for Sale 61500
Ending Inventory - 27500
______________
Cost of Food Consumed 34000
Employees Meal - 725
______________
Cost of Food Sold P 33275

Therefore:

% Food Cost = Cost of Food Sold x 100

Sales

= P33,275.00 x 100
P98,000.00

= 34 %

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 Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

Saint Michael’s Hospital Food Service Director has a problem. He has the following
information about his operation but has forgotten to compute for the cost of food sold for the
month. Use Herman’s figure to compute for the actual food cost sold and its equivalent % of his
operation if sales is P105,000.00

July 1 Beginning Inventory 22,184.50

Purchases
Meat 21,501.00
Dairy 6,300.00
Fruits & Vegetables 11,641.00
All Other Foods 42,384.00

Trans Out (borrowed by sister canteen)

Meats 4,675.00
Dairy 965.00
Fruits & Vegetables 1,241.00
All Other Foods 2,218.00

Ending Inventory
Meats 1,845.00
Dairy 1,965.00
Fruits & Vegetables 1,278.00
All Other Foods 2,234.00

Wastages 2,786.00

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Estimating Daily Cost of Food Sold
Many operators would like to know their food usage on a much regular basis than once
per month. When this is the case, the physical inventory maybe taken as often as desired.
Counting food and beverage inventories have traditionally been a very time consuming task;
however, because of the technology, counting has become easy nowadays.

Shown below is a Sic Column Form which can be utilized to estimate daily or weekly
Cost of food.

Sales Purchases Cost

Day Today To Date Today To Date Today To Date
Monday 850.40 1,106.20
Tuesday 920.63 841.40
Wednesday 1,185.50 519.60
Thursday 971.20 488.50
Friday 1,947.58 792.31
Saturday 2,006.41 286.20
Sunday 2,404.20
Total 10,285.42 4,034.21

Six Column Food Cost % Estimate:

1. Cost % Today = Purchases Today

_______________ x 100
Sales Today

2. Cost % To Date = Purchases To date

_________________ x 100
Sales To date

Note: Question like how will you determine the Inventory Value of the food items may be
asked by food service operator. The table below may answer this question.

Inventory Value Sheet

Inventory Date:
Unit Name: Tree Grill Sunday, January 21
Extended by: Demy Moore

Counted by: Barry Low

Item Unit Item Amount Item Value Inventory Value
Straw Packs 2.5 packs P345.00/pack
Plastic bag (small) Packs 3 pack & 45 pcs. P235.00/pack
(1pack =
100 pcs.)
Noodles Case 4 cases & 2 packs P1,980.00/case
(1=5
packs)
Chocolate chips kilograms 750 grams P350.00/kg

Costcontrol_aba26
 Module Workshop

Name: _______________________________________ Date: __________

Year & Section: ___________ Course Facilitator: ___________________

What is the inventory value of the following bar items?

Item Ending Inventory Unit Price Inventory Value

Coke in can 5 cases & 7 cans P480.00/case; 1 case
= 24 cans
Sugar 8 ¼ kgs. P42.00/kg
Coffee (sachet) 3 boxes and 18 pcs P72.00/boxes; 1 box
– 24 pcs
Vodka 4 ¾ bottles P5,645.00/bottle
Miller in can 26 cans P38.00/can
Lime juice 6 boxes and 3 packs P550.00/box; 1 box =
6 packs

Show you computations here:

Costcontrol_aba26
 Module V

Beverage Cost

At the end of the period, the students should be able to:

1. Use sales histories and standardized recipes to develop a beverage purchase order.
2. Compute the value of bar transfers both to and from the kitchen.
3. Compute an accurate cost of goods sold percentage for beer and spirits.
4. Understand and appreciate the importance of beverage costing in Food Industry.

Beverage Cost are those related to the sale of alcoholic beverage. It is interesting to note that it
is common practice in the hospitality industry to consider beverage costs of non-alcoholic nature
as an expense in the food cost category. However, for alcoholic beverages, cost category include
beer, wine, and liquor which will be categorized as to include the costs of ingredients necessary
to produce these drinks such as cherries, lemons, olives, limes, mixers like carbonated beverages
and juices and other items commonly used in the production and service of alcoholic beverages.

Alcoholic Beverages are simply those products that are meant for consumption as a beverage
and that contain a significant amount of ethyl alcohol. These products are generally classified as:

1. Beer – a fermented beverage made from grain and flavored with hops.
2. Wine – a fermented beverage made from grapes, fruits or berries.
3. Spirits – fermented beverages that are distilled to increase the alcohol content of the
product.

May operations include alcohols a major component of the products they offer to guests. There
are three types of operations that serve alcoholic beverages. These can be grouped as:

1. Beverage Only
In this facility, a snack such as pretzels, chips and nuts are served nut beverage
service is clearly more important. Beverage only bars are oftentimes neighborhood
gathering places.

Examples:
Neighborhood bars, taverns, hotel bars, airport bars, bus terminal bars, breweries,
and wineries.
2. Beverage and Food
Beverage and food operations are the predominant types of beverage operations.
Restaurants serving wine, beer, and liquor as well as bars that serve light meals are
examples of this type of service. Many alcoholic beverages were created because they
are enjoyed most when combined with food. Beverage and food operations can
include quick service restaurants, full service restaurants; self-service and cafeterias,
airport bars, sports complex such as arenas, stadiums, grocery store carryout, brew
pubs, hotel room, service banquets & country clubs.
3. Beverage and entertainment/activity
This exists because many people want to something while they consume their
favorite alcoholic beverage. There is enormous variety in the types of entertainment
and activities that can accompany beverage service, ranging from dartboards and pool
tables to elaborate stage shows in nightclubs and cabarets. Beverage and
entertainment clubs, sports complexes, full service restaurants, brew pubs, night
clubs, country clubs, dance & music clubs and bowling alleys.

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Forecasting Beer Sales
Alcoholic beverages can forecast sales either by:
a. By the bottle/can
b. By the glass

Forecasting sales by the bottles is essentially the same as forecasting any regular menu
item. That is, given a choice of beverage products, some percentage of your guests will
likely choose beer. However, the questions you must answer to effectively manage your
costs are, “What percentage of my guests will choose beer? And “Which kind of beer?”
and “In what packaging format will they choose that beer?”

By either manual tracking, you will know exactly which beers by brand and packaging
form you have sold in a bar on a daily basis. A tally of guests will also furnish you with
the same information but such a system is labor intensive, time consuming and subject to
inaccuracy. Regardless of the tracking method used, the goal is the same as that of
tracking a food item sale. That is, with a good idea of what guests have purchased in the
past. We are better prepared to order the products in their proper packaging form that we
believe this guests will purchase in the future.

Example: Al Fresco Bar Beer Sales

Beverage Sales Date: July 1-8

Product Number of Bottle Sold Percentage Sold

Budweiser 45
Coors Bottle 18
Miler Cans 61
Budweiser Draft in Can 68
Coors in Can 115
Harps Draft 93
Total

To determine the sales of each beer product, it is important to know the cost either by the
bottle or by the case since most of the time, bar owners purchased beer by case and not by piece
for the reason that it is cheaper to buy in bulk rather by buying per piece.
In the above example, assume that the product beer have the following prices per case,
and 1 case contains 24 bottles or 24 cans, therefore sales for these product can be determined
thru conversion.
Product Beer Unit Price/Case (Php) Sales
Budweiser bottle 915.00
Coors bottles 1,350.00
Miller in can 925.00
Coors in can 890.00
Budweiser draft 750.00
Harps draft 820.00
Total

Cost of Beverage Sold and % Beverage Cost

Similar to finding the cost of Food Sold and its equivalent percentage, the cost of
beverage sold can be determined through Inventory Method, that is by summing up
all the beginning inventory value, purchases, borrowed stocks and subtracting from it
the ending inventories, products that are transferred from the bar, breakages among
others.

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 Using the data of LeRae’s Bar and considering some other data given below, %
beverage:

Cost is computed using the formula:

% Beverage Cost = Cost of Beverage Sold

__________________ x 100
Sales

Other Data:

Beginning Inventories
Budweiser bottle 6 cases
Coors bottle 3 ½ cases
Miller in can 14 cases
Budweiser draft 9 cases
Others P21,316.00

Transfer from Other Store 5 cases Miller in cans

Transfer to Other Store 12 cases Budweiser draft
Breakages 6 bottles harps draft
12 Miller bottles

Ending Inventory P14,350.00

It is important to note that the marginal profit in beverage business is generally much
higher than in food business. The proper computation of beverage cost percentage is identical to
that of cost percentage with one important difference. Typically, there is no equivalent for
employee meals since the consumption of alcoholic beverage products by employees who are
working should be prohibited. Thus employee’s drinks would never be considered as a reduction
from all beverage cost.

Forecasting Wine by the glass

Generally, forecasting the sale of house wines, wine served to a guest who does not
stipulate a specific brand when ordering or any wine sold by the glass is done in a manner similar
to that used in forecasting beer sales.
However, forecasting SPIRIT BY THE GLASS is very difficult and tracking maybe
somewhat complicated largely because they may be ordering the same brand but distinct items
and flavorings. What is important here is that, the operator must be able to carry out the
recording of each item sold for monitoring and computation purposes. Examples are Kahlua on
the rocks, Kahlua and coffee, Kahlua and cream, and Kahlua and coke.
Consider a 750 ml wine at P950/bottle. How many servings would there be if each shot
contains 1.5 oz? What is the cost per shot or per serving? If the product is sold 80% higher than
it’s the original cost, what is the estimated profit? (Assume 1L – 33.8).

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 Beverage Sales Date: Jan. 1 to 8
Product Number Sold by Glass Percentage Sold
Merlot 16
Chardonnay 30
Zinfandel 62
House Zinfandel 52
Total 160

Beverage Purchase Order

As a general rule, wine, beer, and spirits are purchased by the case. Beer of course may
also be bought by full or reduced size kegs. As with food products, small container size usually
results in higher cost per ounce. It is important to remember that quality product and size of the
container are critical when deciding what to buy.

Receiving Beverage Products

The skill required to receive beverage products is somewhat less than what is needed for
receiving food. The reason is that beverage products do not vary in quality in the same manner
food products do. As with food, the receiving clerk needs proper location, tools and equipment.
In addition, proper delivery schedules must be maintained. The training required in beverage
receiving however, is reduced due to the consistent nature of the product received. A case of
freshly produced Coors beer, for example, will be consistent in quality regardless of the vendor,
and if the product is freshly produced, that is the date is stamped on the product to indicate its
freshness, very little inspection is required to ensure that the product received is exactly what
was ordered. When receiving beverage products, the following items are of concern and should
be verified:

Key Beverage Receiving Checkpoints

a. Correct Brand
b. Correct Bottle Size
c. No broken bottles or bottle seals
d. Freshness dates (beer)
e. Correct vintage, or year produced (wine)
f. Refrigerated state (if appropriate)
g. Correct Unit Price
h. Correct price extension
i. Correct invoice total

If errors are detected, a credit memo should be filled up and signed by both the
delivery person and the receiving clerk.

Inventory Turn Over

Effective of computations and inventory is reflected in the frequency of ordering and or
purchasing better known as inventory turn-over. The higher frequency of ordering, the higher
inventory turn-over is. Inventory Turn-over is determined by the formula:

Inventory Turn Over = Cost of Beverage Sold

__________________
Average Inventory

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Whereas: Average Inventory is

Beginning Inventory + Ending Inventory

_________________________________
2

Ideal inventory is estimated up to 2 only. If the value is more than this, then, stock build
up must be reviewed and revised when necessary.

Sample Problem:
Operating Data – Rigg’s Bar

Beverage Sales P250,000.00

Beginning Inventory 24,405.00
Ending Inventory 18,741.25
Purchases 21,986.40
Transfer to bar 2,140.00
Transfer from bar 1,572.00
Breakages 872.00

% Beverage cost is computed similar to the computation of % Food Cost, however, different
variables are being used.

Unit Name : Rigg’s Bar

Accounting Period: __________ to ________

Beginning Inventory P 24,405

Purchases + 21,986
______
Goods available for Sale 46,391
Ending Inventory - 18,741
______
27,650
Transfer Out - 1572
______
Transfer In + 2140
______
Cost of Food Consumed 28,218
Breakage - 872
______
Cost of Food Sold P 27,346

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