Monitoring Foodservice Operations I: Monthly Inventory and Monthly Food Cost

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Monitoring Foodservice Operations I Monthly
Inventory and Monthly Food Cost

• HRT 276 Chapter 9
• Part II Food Control

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Thanks to

• The information in this presentation comes from
  Chapter 9
• Principles of Food, Beverage, and Labor Cost
  Controls
• By Paul R. Dittmer
• 7th Edition. 2003. New York John Wiley Sons

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Introduction

• Previous chapters covered control methods in the
  flow of food through the operation
• Now we have a chance to theoretically stop the
  operation to measure results
• Food Cost Goal is a desired result
• The Control Process contains strategies and
  actions to aid in achieving the results
• Physical Inventory measures the actual results

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Inventory Valuation

• Perpetual inventory a running record of product
  amounts on hand and in storage
• Physical inventory an actual count of product
  conducted at a moment in time

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Inventory Valuation

• Perpetual inventory a running record of product
  amounts on hand and in storage
• Updated whenever product is received or issued
• Managed by the steward, receiver, or manager
• Tracks movement of product and dollars
• Available for use in the purchasing process

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Inventory Valuation

• Physical inventory an actual count of product
  conducted at a moment in time
• Conducted by two people
• Taken by storage location
• Consistency is paramount

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Physical (Monthly) Inventory

• Conducted by two people
• One person counts and calls, the other records
• Since it is a control tool, one person should be
  someone other than the purchaser or receiver
• If written (rather than scanned), inventory
  should be done in pen

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Physical (Monthly) Inventory

• Taken by storage location
• Each location complete before moving on to the
  next
• Start from the upper left-hand corner of a room,
  and inventory shelves across and then down
• The process is easiest if inventory sheets follow
  the flow of the actual products

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Physical (Monthly) Inventory

• Consistent
• Unit of measure
• Partial or open containers
• Food product in process
• The inventory sheet should list unit of measure
  for each product, so products are counted the
  same way each time

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Physical (Monthly) Inventory

• One periods closing inventory (EOM) is the next
  periods opening inventory
• FIFO is used to rotate product
• LIFO is the most appropriate method for assigning
  value to products (caution the book calls this
  Latest Purchase Price)

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Inventory Valuations Methods

• Actual Purchase Price
• All prices for the period are considered
• Every unit is literally marked with a price
• Assumes FIFO was used to store and issue products
• Considered most reasonable (but is it
  appropriate?)
• FIFO method for valuation
• Alternate for the above method, but prices are
  not marked
• Assumes FIFO was used to store and issue products
• Effective treats each unit as an average for the
  latest purchased

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Inventory Valuations Methods

• Weighted Average Purchase Price
• All prices for the period are considered
• Assumes FIFO was used to store and issue products
• Each unit is assumed to have a value equal to the
  average cost per unit for the period
• Latest Purchase Price
• Called by some LIFO method for valuation
  although this author uses another common name
• Uses the most current price
• Considers the issue of replacement cost
• Considered the most appropriate method

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Inventory Valuations Methods

• Earliest Price (considered lowest price by
  some)
• Called by the author LIFO, but makes one
  assumption
• The earliest price was less than the latest price
• This may not be true and if not then it
  defeats the purpose of this rare procedure
• The design is to value inventory at its lowest
  level to minimize profits (increase costs)
• Might be used when tax rates or inflation is high
• Once made, IRS does not allow frequent changes

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Food Cost Determination

• Theoretical food cost
• Purchase food cost
• Actual food cost
• Opening or beginning inventory
• Plus purchases
• Plus or minus adjustments
• Minus closing or ending inventory
• Equals the cost of food (in dollars)
• Food Cost / Food Sales FCOGS ()

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Adjustments to Food Cost

• Transfers (from , to -)
• Intra-unit
• Inter-unit
• Grease sales (-)
• Steward sales (-)
• Gratis to bar (Happy Hour food) (-)
• Promotion expense (-)
• Discounts, rebates, allowances (-)
• Employee Meals (-)

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Reporting

• Management
• BOH supervisors BOH personnel
• What happens with the information?
• A control to monitor performance
• Helps determine training and development needs
• Used for corrective action
• With people
• With products and handling
• Used in decision-making

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Inventory Turnover

• In accounting, this is an Activity ratio
• This ratio tells you how quickly inventory is
  used, on average
• Challenges
• Spoilage
• Use of cash (or lack of cash)
• Labor costs
• Space
• Opportunity for theft

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Inventory Turnover

• Average inventory BI EI
• 2
• Inventory turnover Food Cost (in )
• Average Inventory
• Value is the number of times inventory turns over
  in the period