FOODANDBEVERAGECONTROL

I
NTRODUCTI
ON

Def
ini
ti
on i
st hegui
danceandregul
ati
onofthecost sandrevenueofoperat
ing
thecater
ingact
ivi
tyi
nhotel
s,r
estaurants,
hospit
als,school
s,
employeerest
aurant
sandotherestabl
ishments.

Costcont
roli
sthemaintai
ningofcostatdesi
rablel
evels.Thiscosti
ncl
udes
mater
ial
,l
abourandoverheadcosts.Costcontroli
sanimportant
f
uncti
onofthemanagement .

Theimportanceoffoodandbever
agecontrolneedsconsi
derabl
eemphasis.I
n
hot
els,f
oodandbev eragesal
esof
tenaccountsforuptohalfthetot
alr
evenue,
whi
leinrestaur
ant
sistheonl
yormainsour
ceofrevenue.

Thecostoff oodandbev eragei ncommer cialsect

orsisusual l
yabout25- 45per
centofthetotaloperati
ngcost s.Inhospital
s,schools,empl oy
eerestaurantand
simil
aroperati
on,foodandbev eragearethemai nday -
to-dayexpendi
ture,whichi
s
control
l
edbyt hebudget sand/ oralevelofsubsidy.
Theamountofcont roli
srel at
edt othesizeoft heoper ati
on.Foreff
ectivecontr
ol
totakeplaceincateri
ngest abli
shment s,t
henacont rolsystem mustbeused.

Despi
tet
heimpor
tanceoffoodandbeveragecont
rolsyst
em,iti
simper
ati
vethat
owner
sandmanagersrecogni
zeitsl
imi
tati
onssothatnofal
seexpect
ati
onsare
madeandthemechani
sm isuti
l
izedopt
imall
y.

OBJECTI
VESOFFOODANDBEVERAGECONTROL

Aft
erdeterminingthelimitati
onsoft hef oodandbev er
agecont rolmechanism or
sy
stems, i
tistimelytolooki ntotheobj ecti
v esmetbyt heuseofcont rolsystems
i
nfoodandbev erageoper ati
ons.
i
. Analysisofincomeandexpendi ture
Theanal ysisissolelyconcernedwi t
ht heincomeandexpendi t
urerelatedt
o
foodandbev erageoper ati
on.
Ther evenueanal y
sisi susuallydonebyeachsel li
ngoutletandinvolves
suchaspect sasv olumeofsal es, t
hesal esmi x,theaveragespending
powerofcust omer satvarioust imesoft heday ,thenumberofcust omer
served.
Theanal ysisofexpendi t
ure( cost s)includesdepar tmentalfoodand
beveragecost ,porti
oncostandl abourcost .Theper f
ormanceofeach
outl
etisexpr essedi ntermsofgr osspr ofi
t,netmar gi
nandnetpr ofit.

i
i
.Est
abl
i
shmentandmai
ntenanceofst
andar
ds

St
anl
eyt
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Page1
 Thef oundat ionoff oodandbev er
ageoper ati
onsi st hei mplement at i
onof
standar dsspeci ficallyappl i
cabl etoaspeci ficoperat i
onsuchasbaror
restaur antoper ations.Wi thoutst andards,manager sandempl oyeeshav e
noideawhatobj ect i
v estheyhav etoaccompl ishandwhatpr ocesst heywi l
l
usei nt heper for manceoft heirtasks.Mor eover,st andardspr ov idet he
measur ebywhi chper f
ormancei sev al
uated.Commonl y,standar dsar eset
outi nmanual s( of t
enknownasst andardoper ati
ngpr ocedur es( SOPs) )
cover ingal lstandar doper at
ingpr oceduresaccessiblet oal lmanager sand
empl oy ees.
Howev er,theest ablishmentofoper ati
ngst andardsf ormsonl yhalfoft he
equat ion.Thi sisbecauset hemor ediffi
culthalfinv ol
v est heconsi stent
maint enanceoft hesest andards.Mai ntenancei sensur edbyconduct ing
regulart rai
ningpr ogramsandget t
ingcomment sf rom cust omer sont he
serviceandt heser viceprov i
der s.I
nformationonf oodandbev eragecont r ol
refl
ect sont hemai ntenanceofst andards.

i
i
i.Prici
ng
Food and bev er
age controlprov i
des basi
sf ormenu f orbothr egul
ar
operationsandf orspecialfunct
ions.Thedet erminati
onofanaccur ate
foodandbev erageprici
ngdependsuponconcur r
entl
yr el
iablei
nfor
mat i
on
from foodandbev er
agecontrolsuchast hecosts,spendingpowerofmost
customer s,
pricesofcompet i
tors,andacceptabl
emar ketpr i
ces.

i
v.Prev entionofwast e
Perf ormancest andardsinthef oodandbev er ageoper ationsareachieved
throught heest abli
shmentofcost ,r
ev enueandpr ofi
tt argets.Thedesired
performancel ev eli
sachievedonlythroughthemi nimizat i
onofwast eofall
resour ces.The wast age can be caused by such i nstances as poor
prepar ation,over-pr
oducti
on,fail
uretousest andardr ecipeset c.Wastageis
prev entedt hrought heimplementati
onofadet ai
l
edandf ocusedfoodand
bev eragecont r
olwhi chcoversthecompl et
econt rolcy cle, f
rom pl
anningto
themanagementcont r
olaf
tertheevent .

v
.Pr ev
entionoff raud
Contr
olsy st
emsshoul dpreventoratl eastrest
ri
ctanypossi bleareasof
fr
audcausedorper pet r
atedbystaffandcust omers.
Examplesoff raudsbycust omers
 Del iberatelywalkingoutwithoutpay i
ng.
 Unj ust i
fi
ablyclaimingthatthef oodordrinkthatt
heyhadpar tl
yor
totallyconsumedwasunpal atabl
eandi ndi
cati
ngt hattheywil
l
notpayf orit.
 Di sput i
ngt henumberofdr inksser v
ed
 Maki ngpay mentsbystolenchequesorcr edi
tcards.
Examplesoff raudsbyst aff

St
anl
eyt
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Page2
  Ov er
chargi
ngforfoodit
emsserv
ed
 Underchargi
ngforfoodit
emsserved
 pil
feri
ngoffood,dri
nkorcash
Contr
olsyst
emsser vesasauditmechani
sm forpr
event
ingt
hepossi
bil
i
ty
offr
aud.

v
i.Managementi nformat i
on
Everyfoodandbev eragefirmr equi
resthecr eat
ionofperi
odicreportson
theoper at
ionsoft hebusi ness.Theinfor
mat ionshouldbeaccur at
eand
ti
mel yinordert
obecomeani mportantsourceofi nf
ormat
ionforstrategy
formulati
onanddeci sion-making.Infor
mationr eport
ediscompar edwi th
standardssetfort heper iodtoev aluatetheext entofcompliancewi th
budgetandpr of
itstandards.

SPECI
ALPROBLEMSOFFOODANDBEVERAGECONTROL

Foodandbever
agecontr
olt
endst
obemor edif
fi
cul
tthant
hecont
rol
ofmat
eri
als
i
nanyotheri
ndust
ri
es.Themainr
easonsf
orthi
sare:
-

i
. Theper
ishabi
l
ityoft
hepr
oduce

Foodwhet hercookedorr awisaper i

shabl ecommodi t
yandhasal imited
l
ife.Thecaterer,
ther
efore,hastoensur ethathebuy sproduceint
he
correctquali
tyandquantit
yinrelat
iontoest i
mat eddemand, andt
hatitis
correctl
ystoredandprocessed.(Beveragesar enormall
ynotasperishable
asf oodandt hi
scontr
ibutestothei
reasi ercontr
ol)

i
i
.Theunpr
edi
ctabi
l
ityoft
hev
olumeofbusi
ness

Sal
esi
nstabi
li
tyisi
nherenti
nalmostal
lcat
eri
ngest
abl
i
shment
.Ther
eis
oft
enachangeinthevolumeofbusi
nessfr
om dayt
oday,
andi
nmany
est
abl
i
shmentf r
om hourtohour.

Thi
scausesbasi
cproblemswi
thr
egar
dtothequanti
ti
esofcommodi
ti
es
tobepur
chasedandprepar
edaswel
last
othestaff
ingrequi
red.

i
i
i.Theunpr
edi
ctabi
l
ityoft
hemenumi
x

Toaddt ot
hecaterer
’sprobl
emsisthefactthatt
obecompet
it
iveand
sat
isf
yaparti
cularmarket,i
tisof
tennecessar
ytoof
ferawi
dechoiceof
menuitemstothecustomer .

Iti
sther
efor
enecessar
ytobeabl
etopredi
ctnotonl
ythenumberof
customer
swhowi l
lbeusi
ngthef
aci
li
tyatapart
icul
arper
iodi
nti
me,but

St
anl
eyt
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Page3
 al
sowhatt
hecust
omer
’ssel
ect
ionwi
l
lbef
rom t
heal
ter
nat
ivesof
fer
edon
amenu.

Iti
sseldom possibl
et obe100percentaccur
ate,buti
nordert
ocontr
ol
costeff
ecti
vely
,itisnecessar
ytohavesomemet hodofv
olumefor
ecast
ing
aspartofthetotalfoodandbever
agecontrolsystem.

i
v.Theshor
tcy
cleofcat
eri
ngoper
ati
on

Thespeedatwhichcateri
ngoper at
ionstakeplace,r
elati
vetomanyother
i
ndustr
ies,al
lowsl
i
ttl
etimef ormanycont rolt
asks.I
tisnotuncommont hat
i
temsor der
edonedayarer ecei
ved,processedandsol dthesameornext
day.

I
tisforthisreasonthati
nl argercateringest abl
ishment scostrepor
ti
ngis
donedailyoratleastweekly.Fur t
herproblems, part
icul
ar l
ywithperi
shabl
e
foods,ar
et hatwit
hashor tli
fef orproduce, i
temscannotbeboughtv ery
muchi nadv anceofthei
rneed; andthepr oblem ofav ai
labil
it
yattimesof
producerelati
vetothepri
cet hatcanbeof feredinrelat
iontot hesel
li
ng
pri
ce.

v
.Depar
tment
ali
zat
ion

Manycat eri
ngestabli
shment shavesever
alpr
oducti
onandservi
ce
departments,off
eri
ngdiffer
entproduct
sandoperati
ngunderdi
ffer
ent
poli
cies.I
tis,t
heref
ore,necessarytobeablet
oproducesepar
atetr
adi
ng
resul
tsforeachofthepr oducti
onandsell
ingact
ivi
ti
es.

v
i.Mul
ti
pli
cit
yofl
ow-
val
uet
ransact
ion

Thespendingpowerofcustomerswill
v ar
yfrom onetypeofestabl
i
shment
toanot
her.Evenwherethecust
omer s’spendingpowerishi
gh,thetot
al
amountspentbythecustomerconsist
sofanumberofsmal lpaymentsf
or
thei
ndi
viduali
temsoffoodcompr i
singhismeal .

Theturnoverofthecater
ingest
abl
i
shmenti
stherefor
etheresul
tof
multi
pli
cit
ytransact
ions,
smalli
namount
,whichpresent
sseveralcont
rol
probl
ems.

Contr
oltaskssuchaspredi
cti
onofthecompositi
onoftotal
sales,
stor
es
andcell
arcontrol
,menuandwineli
stpri
cing,
contr
olofcashtaki
ngsand
credi
tsal
es,arethusmademor edi
ff
icul
t.

St
anl
eyt
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Page4
LI
MITATI
ONOFCONTROLSYSTEM

i
. Acontrolsystem i
ni tsel
fwi l
lnotcureorpr eventproblemsoccur r
ing.This
i
sbecauset hecontrol system i
shighlydependentuponaccur ateandup-to-
datepoli
ciesandoper at
ionsprocessestobecomer eli
able.Butthesystem
shoul
di denti
fyproblemsandt rendsi nthebusiness.( f
oodandbev er
age
contr
olmechanism isnei therasolut
ionnorapr eventi
vemechani sm)

.I
i
i trequiresconst antmanagementsupervi
siontoensur
et hatitfuncti
ons
effi
ciently.Foodandbev er
agecont
rolsyst
em isnoti
nitsel
findependentl
y
functioningbecauseitneedsknowl
edgeableandski
ll
edpeopletodirectit
s
uti
li
zat i
ont owardsdet
erminedgoal
s.

i
i
i.Itneedsmanagementact
iont
oev
aluat
ethei
nfor
mat
ionpr
oducedandt
o
actuponi
t.

REVI
SIONQUESTI
ONS

1.Expl
aineachoft
hef
oll
owi
ngobj
ect
ivesoff
oodandbev
erage:
-

i
. Est
abl
i
shmentandmai
ntenanceofst
andar
ds

i
i
.Pr
ici
ngandquot
ati
ons

(
4mar
ks)

2.Expl
ainhowt
hef
oll
owi
ngaf
fectt
hecostcont
rol
off
oodandbev
erage:
-

i
. Shor
tcy
cleofoper
ati
on

i
i
.Dai
l
yvar
iat
ioni
noper
ati
on

(
7mar
ks)

3.Explai
nthei
mport
anceoff
oodandbev
eragecont
rol
int
hehot
eland
cateri
ngest
abl
i
shment.

(
3mar
ks)

4.Expl
aint
hreel
i
mit
ati
onsofcont
rol
syst
ems.

(
6mar
ks)

5.Sal
esi
nst
abi
l
ityi
sinher
enti
nmostcat
eri
ngest
abl
i
shment
s.Di
scuss.

(
10mar
ks)

St
anl
eyt
hoi
thikagwi
Page5
 6.Giv
ingaremedyi
neachcase,
expl
ainanyt
hreepr
obl
emsoff
oodand
bever
agecont
rol
.

(
9mar
ks)

7.a) i
) Expl
aint
het
erm cont
rol
asusedi
nfoodandbev
erage.
(
2mar ks)

i
i
) I
denti
fyfi
vepr
obl
emst
hataf
fectf
oodandbev
eragecont
rol
pr
ocess. (5
marks)

8.St
atet
hreef
unct
ionsofcont
rol
inanest
abl
i
shment
.

(
3mar
ks)

9.Giv
ingaremedyineachcase,hi
ghl
ightanyt
wof
raudsper
pet
rat
edbyst
aff
andthr
eeperpet
rat
edbycustomers.

(
10mar
ks)

10.
Explai
nhowt
hef
oll
owi
ngpr
obl
emsaf
fectf
oodandbev
eragecont
rol
process:
-

i
. Per
ishabi
l
ityofsuppl
i
es (
2mar
ks)

i
i
.Shor
t-
cycl
eofoper
ati
ons (
3mar
ks)

i
i
i.Dai
l
yv ar
iat
ioni
npr
oduct
ion (
2
marks)

11.

Ref
erences:
-

i
. Kot
asRi
char
dandDav
isBer
nar
d(1986)
;Foodandbev
eragecont
rol
,

St
anl
eyt
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Page6
 I
nternati
onaltextbookcompanyl td,3rdedi
( ti
on)greatBrit
ain.(pg1-4)
.
i
i
.Dav isB.Etall(2004) ;FoodandBev er
agemanagement ,Butt
erwor t
h
Heinemann, 3rdedi
( t
ion)U.k.(pg95-98).
i
i
i.DavisBernardandSt oneSally(1985);FoodandBev eragemanagement ,
HeinemannPr of essionalPubli
shingLtd,(1stedi
ti
on),OxfordLondon.( pg
37-39).
i
v.Sal
eemi AhmadNi sar(1990);Costaccount i
ngsimpl i
fi
ed,N.A.Saleemi
publi
shers,Nairobi.(pg2).

THEFUNDAMENTALSOFCONTROL

(
METHODOLOGYOFFOODANDBEVERAGECONTROL)

Thedevel
opmentofaneff
ect
ivesyst
em ofcont
rol
rev
olv
esi
tsel
fint
othr
ee
di
sti
nctorbr
oadphasesnamely:
-

i
. Basi
cpol
i
cydeci
sionorpl
anni
ngphaseorphaseI

St
anl
eyt
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Page7
 i
i
.Oper
ati
onal
cont
rol
orcat
eri
ngcont
rol
cycl
eorphaseI
I

i
i
i.Cont
rolaf
tertheeventormanagementcont
rol
aft
erev
entorpost
-
oper
ati
onalcontr
olorphaseI
II

BASI
CPOLI
CIESOFCONTROL(
PLANNI
NGPHASE)

I
tisdif
fi
culttorunanef
fect
ivecat
eri
ngoper
ati
onwi
thouthav
ingf
ir
stdef
inedt
he
basi
cpoli
cies.

Pol
i
cies -ar
epr edetermi
nedgui
del
i
nesl
aiddownbyseni
ormanagementof
anorganisati
on.

Thecommonf
ormsofcat
eri
nganal
ysi
sar
eaboutt
womaj
orf
act
ors:
-

 Pr
ofi
tabi
l
ity

 Cust
omer

Profi
tabil
i
tyoft heestabli
shmentist
heulti
mateobj
ect
ive,wher
eastheprovi
sion
ofsatisf
actorystandardsoffoodandser
vicei
sthemeansbywhi cht
hatult
imate
objecti
veisreached.

Ther
ear
ethr
eebasi
cpol
i
cieswhi
chneedt
obeconsi
der
ed:
-

i
. Thef
inanci
alpol
i
cy

i
i
.Mar
ket
ingpol
i
cy

i
i
i.Cat
eri
ngpol
i
cy

THEFI
NANCI
ALPOLI
CY

Thisphaseinv
olvessetti
ngtarget
sofprof
itfr
om eachdepartmenti
nr espectt
o
menuandwi neli
st.I
talsodetermi
nest
helevelofpr
ofit
abil
i
ty,
orcostli
mi t
stobe
expect
edfrom t
hebusinessasawholeandthecontr
ibuti
ontotot
alpr
ofi
t .

St
epst
hatdet
ermi
net
hef
inanci
alpol
i
cyofanest
abl
i
shment

i
. Ov
eral
lpr
ofi
ttar
geti
.er
etur
noncapi
tal
empl
oyed.

i
i
.Det
ermi
ningt
henetpr
ofi
tper
cent
ageonsal
est
obeai
medat
.

i
i
i.Det
ermi
ningr
evenuet
ocov
ercost
s.

i
v.Det
ermi
ningt
hecostofsal
esf
oreachdepar
tment
.

v
.Pl
anpr
ofi
tmar
ginsf
oreachgr
oup.

MARKETI
NGPOLI
CY

St
anl
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Page8
Thiswi l
lidenti
fyt
hebroadmar ket(customer )t
heoperati
onintendst
oser v
eanda
part
icularsegment(s)ofmarketiti
nt endstoconcent
rateon.Itshoul
dalsoidenti
fy
theimmedi at
eandf ut
urecustomer s’requi
rementonacont inuousbasisinorder
tomai ntainandimprovei
tsbusinessper for
mance.

Thei nter
pret
ati
onoft hemar keti
ngpoli
cyforanati
onalcommerci
alcater
ing
organisat
ionint
oamar ket
ingplanfort
henexty
earmayi
ncludesomeoral
lofthe
fol
lowingobject
ives:
-

a)Nat
ionalidentit
y - t
oachieveabett
ernat
ionali
denti
tyf
oral
luni
ts
bycor porat
edesi gnandbymeet i
ngcust
omerexpectati
onsofwhata
‘
popularrestaurant
’conceptshoul
dbe.

b)Cust
omer - l
ookatt
hecust
omerpr
ofi
l
e:-sex,ageandf
ood
st
andar
ds.

c)Mar
ketshar
e - t
oachi
eve,mai
ntai
nori
ncr
easet
he% of‘
our
’
mar
ket.

d)Turnover - sal
esv
olumet
obei
ncr
easedbyxper
centon
previ
ousyear
.

e)Prof
it
abil
it
y - pr
ofi
ttobei
ncr
easedbyeachuni
tbyyper
cent
onprevi
ousyear
.

f
) Aver
agespendi
ngpower-thi
stobei ncr
easedbyzper
cent
-toachi
evea
newaver
agespendi
ngpowerofnotl
essthan£n.

g)Pr
oduct - t
hepr
oductt
obemai
ntai
nedataconsi
stent
ly
hi
ghstandar
d.

h)Customersat
isf
act
ion - t
henetr
esul
tmustbet
hesat
isf
act
ionof
ever
ycustomer.

THECATERI
NGPOLI
CY

Theabov etwopoli
ci
escannotoper
atewi
thoutt
hispol
i
cyasi
sthel
evelatwhi
ch
otherar
er eal
i
sed.

Thesepoli
ciesevol
vedfrom thefi
nanci
alandmarketi
ngpolici
esanddefi
nethe
mainobject
ivesofoperati
ngthefoodandbever
agef aci
l
iti
esanddescri
bethe
methodsbywhi chsuchobjecti
vesaret
obeachieved.

I
twi
l
lusual
l
yincl
udet
hef
oll
owi
ng:
-

a)Thet
ypeofcust
omer,f
orexampl
ehi
ghspendi
ngbusi
nessexecut
ive,
shor
t-
st
ayhospi
tal
pat
ient
setc.

b)Thet
ypeofmenu(
s),
forexampl
etabl
ed’
hôt
e,al
acar
te,
fastf
ood.

St
anl
eyt
hoi
thikagwi
Page9
 c)Thebev
eragepr
ovi
sionnecessar
yfort
heoper
ati
on.

d)Thefoodquali
tyst
andar
ds,f
orexampl
efr
esh,f
rozen,canned,et
c,andt
he
gradeofpr
oducetobeused.

e)Themet
hodofbuy
ing,f
orexampl
ebycont
ract
,quot
ati
on,cash-
and-
car
ry,
et
c.

f
) Ty
peandqual
i
tyofser
vice,
forexampl
ecaf
eter
ia,
count
er,
wai
ter
,et
c.

g)Degreeofcomf
ortanddecor
,forexampl
ety
peandst
yleofdecor
,ofchai
rs,
t
ables,et
c.

h)Hoursofoperat
ion,forexampl
etwenty-
fourhour
s,sevenday
saweek;
1200-
1500and1800-2200hour
s,Monday
-Satur
day;
etc.

THEOPERATI
ONALCONTROL(
PHASEI
I)

Thi
sst agei nv
olvest heday -t
o-dayacti
vi
ti
esoft hecat eri
ngoper at
ion.Havi
ng
defi
nedt hepoli
cies(i.
e.predetermi
nedguidel
ines)
,iti
st hennecessarytoout
li
ne
howt heyaretobei nter
pretedintotheday-
to-
daycontrolacti
vi
ti
esoft hecat
eri
ng
operati
on.Atthisphase,thingsshouldbeplannedsoast ocoverthewholecycl
e
whichincludet
hef ol
lowing:-

a)Pur
chasi
ng - t
her
ear
efi
vemai
npoi
ntst
obeconsi
der
ed

i
. Productt
esti
ng-isaseri
esoft
astepaneleval
uat
ionsar
ecar
ri
edout
onparti
cul
arproductt
obeusedtoascert
ainqual
it
y.

i
i
.Yi el
dtest
ing-i
sdonetot
estt
hey
iel
dobt
ainabl
efr
om al
lthemaj
or
commoditiesused.

i
i
i.Pur
chasespeci
fi
cat
ion- aspeci
fi
cati
oninaconci
sedescri
ptionin
wri
ti
ng ofthequal
ity
,size,wei
ght,etc.
,forapart
icul
arfood or
bev
eragei
tem.

i
v.Methodofbuyi
ng- noonebestmet hodis recommendedbutby
deci
siononwhetherbycont
ract
,quot
ation,
cashandcar
ry,
etc.

v
.Cl er
icalprocedur
es-i
tis necessar
yto det
ermi
ne who or
iginat
es
sanctionsandplacesor
dersandwhatdocument
ati
oni
srequir
edfor
control.

b)Recei
vi
ng - t
her
ear
ethr
eemai
npoi
ntst
obeconsi
der
ed:

i
. Quanti
tyinspect
ion-
apersonmustbenominatedtober esponsi
ble
forphysi
callycount
ingandweighi
nggoodsandcheckingt hatthe
quanti
tyandsizeofitemsi
nthedeli
ver
ymatcheswit
hthepur chase

St
anl
eyt
hoi
thikagwi
Page10
 or
der.I
fthereisashort
ageint hedeli
ver
ythepur
chaseof
fi
ceror
manageri
sinfor
medforthenecessar
yacti
on.

i
i
.Qual i
tyi
nspecti
on-t hi
si s par
ti
cular
lyimportantwith per
ishable
foodswhereinspect
ionmaybemadebyaseni orchef.Aheadcellar
manmayi nspectbever
ages.Whenev erpossi
ble,t
heitemsshoul d
becheckedagainstappr
opri
atepurchasespeci
fi
cati
on.

i
i
i.Cler
icalpr
ocedur es- thi
sisav er
yi mportantaspectas al l
necessarydocument at
ionmustf oll
ow asetprocedur e.Iti
ncludes
theacknowl edgementoft hereceiptsofacceptablegoodsandt he
deli
veryperson’ssignatur
eona‘ r
equestforcreditnote’forr
eturned
goodsandshor tdel
iver
ies.

c)St
ori
ngandi
ssui
ng- t
her
ear
efourmai
npoi
ntst
obeconsi
der
ed:

i
. St
ockr
ecor
ds-i
tisnecessar
ytodeci
dewhatr
ecor
dsar
etobekept
.

i
i
.Pr i
ci
ngofi ssues- themethodofpri
cingofthevari
oust y
pesof
i
ssuesmustbedeci deduponsothatt
herei
sconsi
stencywit
hint
he
operat
ion.We mustchoose one ormor e ofthe fol
lowi
ng for
comput i
ngthecostoff
oodconsumed:

a) Act
ual
pur
chasepr
ice

b)Sel
l
ingpr
ice(
inf
lat
edpr
ice)

c)Si
mpl
eav
eragepr
ice

d)Wei
ght
edav
eragepr
ice

e)St
andar
dpr
ice

i
i
i.St
ocktaki
ng- thepoi
ntstoconsiderher
earet
helevelof
st
ocktobeheld;rat
eofstocktur
nover
;deali
ngwit
hdi
scr
epanci
es;
i
dent
if
icat
ionofsl
ow-movi
ngitemset
c.

i
v.cl
ericalpr
ocedures-t
here i s a need t o deter
mine what
document at
ionisnecessar
ye.gr
equi
sit
ions,
recor
dcar
ds,bi
ncar
ds,
stocktaki
ngr epor
ts,
etc.

d)Preparat
ion - thisi
sacri
ti
calst
ageinthecontr
olcy
cle,i
npar
ti
cul
ar
forfood.Ther
ear
ethreemai
npoint
stobeconsi
dered:
-

i
. Volumeforecast
ing- t
hisi
samet hodofpr
edi
cti
ngthevol
ume
ofsalesf
orfutur
eperi
od.Tobepract
icalvol
umefor
ecast
ingmust:
-

a.Pr
edi
ctt
het
otal
numberofcov
ers

b.Pr
edi
ctt
hechoi
ceofmenui
tems

St
anl
eyt
hoi
thikagwi
Page11
 Vol
umef
orecast
ingi
sdi
vi
dedi
ntot
wo:
-

a)Ini
ti
alvol
umefor
ecast
ing - pr
epar
ed one week i
n
advanceandi
sbasedon:-

i
.Sal
eshi
stor
ies

i
i
.Adv
ancebooki
ng

i
i
i.Cur
rentt
rends

i
v.Cur
rentev
ent
s

b)Fi
nalfor
ecast
ing - pr
epar
ed a day bef
ore and i
s
basedon:-

i
.Pr
evi
ousdayf
oodpr
oduct
ionandsal
esf
igur
es

i
i
.Theweat
hercondi
ti
on

i
i
.Pr e-costi
ng - isamet hodofcontrol
li
ngf ood andbev erage
costsi nadvanceoftheprepar
ati
onandservicestages.Iti
sdoneby
preparingandusingstandar
dreci
pesforall
foodandbev er
ageitems
andal sobyusingporti
oncontr
olequi
pmente. gl
adles,scal
es,opt i
cs,
standardglassware,
etc.

i
i
i.Cl
eri
calprocedur
es- what documentat
ion i
srequi
red and
di
str
ibut
ionanddest
inat
ionoft
hisinf
ormat
ion.

e)Sel
li
ng - t hisi
mport
antst
ageofoper
ati
onalcont
rolneedst
otakei
nto
consi
der
ati
onthef
oll
owi
ngpoint
s:-

i
. Achecki
ngsystem - thi
sisnecessarytokeepcontr
olofthe
numberofcoverssol
d.Thismaybedonet hroughast
andar
dtypeof
wai
ter
’schecksystem ort
hroughat
il
lrol
letc.

i
i
. Thecontr
olofcash- thi
sisvital
lyi
mport
ant
.Iti
snecessar
y
t
oensurethatalli
temssoldhavebeenpaidf
orandthatt
hemoney
i
srecei
vedorcredi
thasbeenauthor
ised.

i
i
i.Cler
icalprocedures - t hesewoul dbenecessar
ytocont
rolit
ems
soldandt hemoneyr eceivedorcr edi
tenti
tl
ed,andwouldoften
i
nclude a r est
aurantchecki ng sy
stem,mealand sal
es anal
ysis,
cashier
’spay i
ng-i
nbook,etc.

MANAGEMENTCONTROLAFTERTHEEVENT(
PHASEI
II
)

Thi
sfi
nal
phaseoff
oodandbev
eragecont
rol
isi
nthr
eemai
nst
ages:
-

St
anl
eyt
hoi
thikagwi
Page12
 a)Foodandbev
eragecostr
epor
ti
ng.

Report
sonoperati
onshouldbegiveneit
herondailyorweekl
ybasis.Thisis
becauseoft
henat
ureandspeedofoper
ati
on(
i.
efastandi
nvol
vesper
ishabi
l
ity
).

b)Assessment

Toanal ysethefoodandbev er
ager epor
tsandt ocomparethem wit
hthebudget
fortheperiodandagainstpreviousactualperf
ormance.Thi
sisdonebysomeone
from t
hef oodandbev eragemanagementt eam i
nthecaseoflargeuni
tandunit
propri
etorsincaseofsmal l
establi
shments.

c)Cor
rect
ion

Managementshoul
dtakethenecessar
yst
epst
o cor
rectt
hepr
obl
emsonce
i
dent
ifi
edasqui
ckl
yaspossi
ble.

Thecompl
etef
oodandbev
eragecont
rolsy
stem.
FI
NANCI
ALPOLI
CY MARKETI
NGPOLI
CY
ng
anni

-Setbyseni
or
Thepl

CATERI
NGPOLI
CY
phase

management
PURCHASI
NG
-Day
-to-
daycont
rol
Phase

RECEI
VING
Bysuper
visorand
onal

STORI
NGANDI
SSUI
NG
ati

depar
tment
alheads
Theoper

PREPARI
NG
\
SELLI
NG
er

-
Day
-to-
daycont
rol
byt
he f
ood
t
af
ent
ol
heev
r

Foodandbandbev
eragecont
rol
depar
t.
Cont

MANAGEMENT
t

CONTROLAFTER
THEEVENT

THEREALI
TYOFCONTROL

Theamountofcontr
olisdependentonthesizeoft
heestabl
ishment.However
,it
i
simport
antforthel
eadertoreal
izetheext
enttowhichanycontr
olsyst
em canbe
tot
all
yef
fi
cient
.

I
nreal
i
tynocont
rol
syst
em wi
l
lbe100per
centef
fi
cientf
orsuchbasi
creasonsas:
-

St
anl
eyt
hoi
thikagwi
Page13
(Reasonswhycont
rolsy
stemsusedi
nfoodandbev
erageest
abl
i
shment
smaynot
betotal
lyef
fi
ci
ent.
)

i
. Themater
ial
producti
sver
yunlikel
ytobe100per
centconsi
stentast
o
qual
i
tyort
hef i
naly
iel
dobt
ainablefr
om i
t.

i
i
.Thest af
femploy
edareunl
ikel
ytoworkt
oalevelof100per
centef
fi
ciency
atal
lti
mes,i
nspit
eoftheoper
ati
onal
manualsexist
ing.

i
i
i.Theequipmentusedi
salsounl
i
kelyt
oworktot
helevelof100per
cent
eff
ici
encyandthi
scoul
dwellaf
fectt
hey
iel
dobtai
nable.

i
v.Thecustomers’choi
ceofdishescanwellbedi
ff
erentatti
mestosomeof
thebudget
edsalesmi x,
ther
eforeaf
fect
ingal
lproduct
ionfor
ecastsaswel
l
astheaveragespendi
ngpercustomerandthebudgetedgrossprofi
t
fi
gures.

v
.Effect
sofexternalf
act
orsf
orexampl
epr
icef
luct
uat
ionscoul
daf
fectt
he
pr
oducti
onforecast
s

REVI
SIONQUESTI
ON

1.Under
standi
ngthetar
getedmarketi
sast
ept
owar
dsest
abl
i
shi
ngan
ef
fect
ivecostcont
rol
system.Di
scus.

(
8mar
ks)

2. Outl
inefi
vest
epst
obet
akent
odet
ermi
net
hef
inanci
alpol
i
cyofacat
eri
ng
establi
shment
.

(
5mar
ks)

3.Expl nt
ai hr
eer
easonswhycontr
olsy
stemsusedi
nfoodandbev
erage
establ
ishment
smaynotbetotal
lyef
fi
cient
.

(
6mar
ks)

4.Expl
ai het
nt hreemat
ter
sconcer
nedwi
thcont
rol
aft
ert
heev
ent
.

(
6mar
ks)

5.Expl
ai het
nt hreemai
nobj
ect
ivesof‘
cont
rol
aft
ert
heev
ent
’.

(
6mar
ks)

6.“Pl
anni
ngphaseisaveryessent
ial
control
tool
inever
ycater
ing
est
abli
shment
”.Descr
ibeanytwopoli
ciescont
ainedi
nthi
sphase.

(
6mar
ks)

St
anl
eyt
hoi
thikagwi
Page14
 7.Outl
inefi
vest
epst
obet
akent
odet
ermi
net
hef
inanci
alpol
i
cyofacater
ing
est
abli
shment.
(
5marks)

Ref
erences:
-

i
. KotasRichar
dandDav isBernard(1986);Foodandbev eragecontrol
,
I
nternati
onaltextbookcompanyl td,3rdedi
( ti
on)greatBritain.(
pg5-
12).
i
i
.Dav isB.Etal
l (2004);FoodandBev er
agemanagement ,Butterwor
th
Heinemann,(3rdedit
ion)U.k.(pg97-101).
i
i
i.DavisBernar
dandSt oneSally(1985);FoodandBev eragemanagement ,
HeinemannPr ofessi
onal Publi
shingLtd,(1stedi
ti
on),Oxfor dLondon.(
pg
41-
45) .

St
anl
eyt
hoi
thikagwi
Page15
 THEELEMENTSOFCOST

Cost - t
hisisthe val
ue ofeconomi cresour
ces used as a r
esul
tof
pr
oducti
onofanycommodityorperfor
minganyservce.Forexampl
i e,i
fKsh.
500
wasspentt
oproduce10uni
tsoffancycakest
henthi
samountisref
err
edascost
.

In el
ementsofcost,costsar
e expl
ained i
nter
msoft
hei
rnat
ure.Costar
e
expressedi
nfi
nanci
alt
erms.

Themai
nel
ement
sofcost
sar
e:-

i
. Mat
eri
alcost

i
i
.Labourcost

i
i
i.Ov
erheadcost

MATERI
ALCOST

Thisisthemainelementofcostandcomprisesoffood,
bever
ages,ci
garet
tesand
tobaccoscost.Foodcostconsi
stsofthecostoffoodconsumedlessthecostof
staffmealsaswellasbever
agecost.

Note:-Thecostofanyfoodandbeveragepr
ovi
dedt ostaf
fint
hef
orm ofmeal
sis
deductedfr
om materi
alcostandaddedtol
abourcosts.

St
anl
eyt
hoi
thikagwi
Page16
Thef
oodcosti
sthencal
cul
atedbyt
hef
ormul
a:

OS+(
P-SM)–CS=FOODCOST/
MATERI
ALCOST

Wher
e: OS -
Openi
ngst
ock

P - Pur
chases

SM - St
affmeal
s

CS - Cl
osi
ngst
ock

Or Openi ngst
ock+Costofpur
chases-Cl
osi
ngst
ock-Costofst
affmeal
s=
Mat
eri
alcost

LABOURCOST

Thi
sincludesal
ltheremuner
ati
onoftheemployeesint
hef
orm ofcashandi
n
ki
nd.I
tisnormal
ly15%to30%ofthepr
oduct
ioncost.

Theyi
ncl
ude:
-

 Wages

 Sal
ari
es

 Nat
ional
secur
it
yfund

 St
affmeal
s

 St
affaccommodat
ion

 Nat
ional
insur
ancecont
ri
but
ion

 Holi
day,pensi
onf
undandsi
cknesspay
ment
(medi
cal
al
lowance)

 Bonusesandot
herbenef
it
se.
gcommi
ssi
ons

 Recr
uit
mentandt
rai
ningcost

 St
affuni
for
msandt
ranspor
t

NOTE:
- Labourcostconsi
stsof
:-

i
. Basi
cpaye.
gdai
l
y,weekl
yormont
hlywages

i
i
.Labourr
elat
edcost
se.
ghol
i
daypay
,ov
ert
imeet
c.

Labourcostmustbe also anal

ysed agai
nstthe v
ari
ous j
obs complet
ed by
l
abourer
s.I
tmustbeensuredthatthel
abourer
shavereal
lyworkedfort
hehours

St
anl
eyt
hoi
thikagwi
Page17
pai
dt othem.I
tmeansthelabour
ersshouldnotsiti
dleduri
ngthewor
kinghour
s
andtheyshoul
dcont
ri
buteeff
ecti
vel
ytoincr
easetheproduct
ion.

Labour
ersmustbepai
dafai
rremuner
ati
onf
orthei
rser
vicesandsomei
ncent
ives
mustbegiv
entothem t
omoti
vat
eforhar
dwork.

Labourcost
scanbecont
rol
l
edbypay
ingat
tent
iont
osomekeyar
eassuchas:
-

i
. Ty
peofoper
ati
on

i
i
.Vol
umeofbusi
ness

i
i
i.Peakper
iods

i
v.Funct
ionandseasonal
cat
eri
ng

v
.Equi
pmentandt
echnol
ogy

Typeofoperati
on -whethertradi
ti
onalorfastf
ood.Ifiti
sat r
adit
ionalwai
ter
serv
iceandischangedtoafastfoodthel
abourcostdecr
easesascustomersget
sel
fservedoveracount
er.

Volumeofbusiness-thi
sr efer
st othe propor
ti
on ofpersonnelemployed to
vol
umeofcust omer
s,staf
fcust omerrat
io.Iti
sgoodpol i
cyt odeter
minet he
minimum st
affnecessar
yev enifbusi
nessislow,andensurethattheyar
ef ull
y
uti
l
ised.

Peakper
iod -l
ookatt imeoft
hedayorthedaysoft
heweekwhenthemaxi
mum
cust
omersarr
ive.Schedul
eemploy
eesaccor
dingt
oweekl
yfor
ecast
s.

Functi
onandseasonalcat
eri
ng -whet hercust
omersdemandchangeswi
ththe
seasons.Ift
herear
et oomanyf unct
ionshow bestt
oschedul
estafft
opr
event
addit
ional
part
-t
imestafff
rom bei
ngused.

Equi
pmentandtechnol
ogy-i
tishel
pfult
oconsi
derusi
ngl
abourandt
imesav
ing
devi
cessuchas:
-

i
. Conv
eyor
sformovi
nggoodsv er
ti
calandhor
izont
al,
cut
ter
s,sl
i
cer
s,
di
cer
sandshr
edder
stor
eplaceknif
ework.

i
i
.Liquiddispenser
stospeedupbev
erageser
viceandsav
eti
meon
por
ti
oningandhandl
ing.

i
i
i.El
ect
ri
cov
ens.

i
v.Conv
eni
encef
oods.

St
anl
eyt
hoi
thikagwi
Page18
OVERHEADCOST

Thi
sar
eal
lcostot
hert
hanmat
eri
alcostandl
abourcost
.Theyi
ncl
ude:
-

 Rentandr
ates

 Gasandel
ect
ri
cit
y

 Repai
randr
enewal
s

 Pr
int
ingandst
ati
oner
y

 Post
ageandt
elephone

 Laundr
yandcl
eani
ng

 Adv
ert
isi
nganddi
spl
ay

 Bankchar
gesandi
nter
est

 I
nsur
ance

 Depr
eci
ati
on

 Baddebt
s

 Mot
orexpenses

 Loani
nter
est

 Legal
feesandAudi
tfees

 Mi
scel
l
aneousexpenseset
c.

NOTE:- Thet
otalofmat
eri
als,l
abourcostandov
erheadcost
sisdescr
ibedas
Tot
alcost.

i
.e Mat
eri
alcost+Labourcost+Ov
erheadcost=Tot
alcost

asmostcat er
ingoperat
ionsar
esubj
ecttochangesi
nthevolumeofbusi
ness
done,itisnor
malpracti
cetoexpr
esstheel
ementsofcostandnetpr
ofi
tasa
percent
ageofsal
es.

Achangei
nthev
olumeofsal
eshasanef
fectont
hecostst
ruct
ureandonnet
pr
ofi
t.

At
ypi
calexampl
eoft
heel
ement
sofcost

MATERI
AL 30%

St
anl
eyt
hoi
thikagwi
Page19
 Sal
es
Tot
alcost(
80%) LABOUR 30% (
100%)
OVERHEAD 20%
NETPROFI
T 20%

PROFI
TCONCEPTS

Ther
ear
ethr
eemai
npr
ofi
tconcept
susedi
ncat
eri
ngest
abl
i
shment
snamel
y:
-

a)Gr
osspr
ofi
t

b)Netmar
ginpr
ofi
t

c)Netpr
ofi
t

GROSSPROFI
T

Thisistheexcessofsal esov ert

hecostofmat er
ial
s.
Thet erm grossprofi
tisoftenref
err
edtoas‘kit
chenpr of
it’
(food)or‘barprofi
t’
(beverage).Room hir
ei snormall
ytr
eatedas100per centgrosspr of
it
.
Grosspr of
it=Sal es-Costofmat eri
als/mat eri
alcost/foodcost/cost
ofsales.
Note:-inkitchenoperati
ongrossprofi
tissometimescalledkit
chenper centageor
kit
chenpr of i
t.

NETMARGI
N

Thi
sisal edaf
socal
l ter
-wagepr
ofi
t.

Thi
sist
heexcessofsal
esov
ert
hecostofmat
eri
alsandl
abourcost
.

Netmar
gin=Sal
es–(
mat
eri
alcost+Labourcost
)

NETPROFI
T

Thi
sist
heexcessofsal
esov
ert
otal
cost
.

Netpr
ofi
t=sal
es-Tot
alcost

Wher
e;Tot
alcost=Mat
eri
alcost+Labourcost+Ov
erheadcost

EXAMPLE1.

St
anl
eyt
hoi
thikagwi
Page20
 Thef ol
lowi
nginf
ormat
ionwasext
ract
edf
rom t
hebooksofar
est
aur
anti
n
respectofJune20.
. £

Sal
es 26,
000.
00

Openi
ngst
ock–1June20.
. 2,
500.
00

Cl
osi
ngst
ock–30June20. 3,
200.
00

Pur
chases 12,
300.
00

Wagesandsal
ari
es 5,
600.
00

Nat
ional
insur
ance 300.
00

Gasandel
ect
ri
cit
y 800.
00

Repai
randr
enewal
s 1,
000.
00

Rentandr
ates 1,
800.
00

I
nsur
ance 400.
00

Post
ageandt
elephone 200.
00

Pr
int
ingandst
ati
oner
y 300.
00

Depr
eci
ati
on 2,
000.
00

Youar
erequi
red:
-

a)Tocal cul
atetheel
ementsofcostandexpr
esseachasapercent
ageof
sales,assumingt
hat£800.
00oft hef
oodconsumedhasbeenusedfor
staffmeals.

b)Tocal
cul
atet
hegr
osspr
ofi
t,netmar
ginandnetpr
ofi
t.

c)To cal
cul
atetheaveragespendi
ngpowerpercust
omerassumi
ngt
hat
5,
900customerswer
eservedi
nJune20.
.

Sol
uti
on £

a)(
i) Openi
ngst
ock 2,
500.
00

Addpur
chases 12,
300.
00

14,
800.
00

Lesscl
osi
ngst
ock 3,
200.
00

Costofmat
eri
alconsumed 11,
600.
00

St
anl
eyt
hoi
thikagwi
Page21
 Lessst
affmeal
s 800.
00

Costofmat
eri
als 10,
800.
00

Mat
eri
alcostper
cent
age =

=41.
5%

i
i
) Wagesandsal
ari
es 5,
600.
00

Nat
ional
insur
ance 300.
00

St
affmeal
s 800.
00

6,
700.
00

Labourcostper
cent
age =

=25.
8%

i
i
i) Gasandel
ect
ri
cit
y 800.
00

Repai
randr
enewal
s 1,
000.
00

Rentandr
ates 1,
800.
00

I
nsur
ance 400.
00

Post
ageandt
elephone 200.
00

Pr
int
ingandst
ati
oner
y 300.
00

Depr
eci
ati
on 2,
000.
00

6,
500.
00

Ov
erheadcostper
cent
age =

=25%

St
anl
eyt
hoi
thikagwi
Page22
 b)i
) Sal
es 26,
000.
00(
100%)

Lessmat
eri
alcost 10,
800.
00 (
41.
5%)

Gr
osspr
ofi
t 15,
200.
00 (
58.
5%)

i
i
)Sal
es 26,
000.
00 (
100%)

Less Mat
eri
als 10,
800.
00

Labour 6,
700.
00 17,
500.
00(
67.
3%)

Netmar
ginpr
ofi
t 8,
500.
00 (
32.
7%)

i
i
i)Sal
es 26,
000.
00 (
100%)

Less Mat
eri
als 10,
800.
00

Labour 6,
700.
00

Ov
erheadcost 6,
500.
00 24,
000.
00 (
92.
3%)

Netpr
ofi
t 2,
000.
00(
7.7%)

c) Av
eragespendi
ngpower =

= £4.
40(percust
omer
)

EXAMPLE2.

TheXYZcat er
ingcompanyoperat
esanumberofr est
aur
ant
s.Asummar yoft
he
resul
tsbudget
edforr
estaur
antAinrespectofSept
ember20.
.isgi
venbel
ow:

Rest
aur
antA

Budget
edTr
adi
ngResul
ts

Sept
ember20.
.

£ %

St
anl
eyt
hoi
thikagwi
Page23
 Sal
es 20,
000.
00 100.
0

LessCostofsal
es 7,
600.
00 38.
0

Gr
osspr
ofi
t 12,
400.
00 62.
0

Labourcost 6,
000.
00 30.
0

Ov
erheadcost 4,
600.
00 23.
0

10,
600.
00 53.
0

Netpr
ofi
t 1,
800.
00 9.
0

AttheendofSept
ember20.
.youar
egi
vent
hef
oll
owi
ngact
ual
resul
tsf
ort
he
abovetr
adi
ngperi
od.

Sal
es 20,
700.
00

Costofsal
es 7,
400.
00

Wagesandsal
ari
es 4,
850.
00

Nat
ional
insur
ance 250.
00

Depr
eci
ati
on 1,
900.
00

Gasandel
ect
ri
cit
y 900.
00

Rentandr
ates 1,
200.
00

Pr
int
ingandst
ati
oner
y 150.
00

Post
ageandt
elephone 100.
00

Cl
eani
ngmat
eri
als 300.
00

Mi
scel
l
aneousexpenses 150.
00

Addi
ti
onali
nfor
mat
ion

a)Thecostofstaf
fmealsisest
imatedat£25.
00perday;t
hishasal
ready
beentakeni
ntoaccounti
narri
vi
ngattheactual
costofsal
es.

b)Youar
easkedt
otakei
ntoaccountt
her
est
aur
ant
’sannual
bonus;
thi
s

St
anl
eyt
hoi
thikagwi
Page24
 wi
l
lamountt
o£2400.
00.

Requi
red:

i
. Prepar
eastat
ementoftr
adingresult
sfort
heabov
eper
iod,
showi
ngcl
ear
ly
anyvari
ancef
rom t
hebudgetedresul
ts.

i
i
.Commentont
her
esul
t.

Sol
uti
on

Rest
aur
antA

Tr
adi
ngpr
ofi
tandl
ossaccount

Sept
ember20.
.

Act
ual Budget
ed

£ % £ %

Sal
es 20,
700.
00 100.
0 20,
000.
00

Lesscostofsal
e 7,
400.
00 35.
7 7,
600.
00 38.
0

Gr
osspr
ofi
t13,
300.
00 64.
3 12,
400.
00 62.
0

Labourcost
:

Wagesandsal
ari
es 4,
850.
00

Nat
ional
insur
ance 250.
00

St
affmeal
s 750.
00

Annual
bonus 200.
00 _
___
___
_
___
_

6,
050.
00 29.
2 6,
000.
00 30.
0

Ov
erheadcost
:

Depr
eci
ati
on 1,
900.
00

Gasandel
ect
ri
cit
y 900.
00

St
anl
eyt
hoi
thikagwi
Page25
 Rentandr
ates 1,
200.
00

Pr
int
ingandst
ati
oner
y 150.
00

Post
ageandt
elephone 100.
00

Cl
eani
ngmat
eri
als 300.
00

Mi
scel
l
aneousexpense 150.
00 _
___
___
___
___ _
___

4,
700.
00 22.
7 4,
600.
00 23.
0

Netpr
ofi
t 2,
550.
00 12.
3 1,
800.
00 9.
0

Comment

From thetr
adingprof
itandlossaccountshownabove,i
tmaybeseent
hatact
ual
resul
tsforSeptember20..ar
ebettert
otheextentof£750.
00andt
hatt
hisi
sdue
toacombi nat
ionofcause;

 Lar
gert
urnov
er.

 Hi
ghergr
osspr
ofi
t.

 Somewhatl
owerl
abourandov
erheadcost
.

REVI
SIONQUESTI
ON

1.Acater
ingcompanyhasasyst
em ofbudget
ingi
noperati
onandi
ts
budget
edresul
tsf
orthef
ir
stquar
terof20.
.wereasbelow.

Sal
es £95,
000.
00

Costofsal
es 40%

Labourcost
s 25%

Ov
erheadcost
s 20%

Netpr
ofi
t 15%

Thef
oll
owi
ngwer
etheact
ual
resul
tsf
ort
heabov
eper
iod.

Sal
es 94,
200.
00

St
anl
eyt
hoi
thikagwi
Page26
 Costofsal
es 38,
800.
00

Wagesandsal
ari
es 18,
500.
00

Nat
ional
insur
ance 2,
500.
00

St
affmeal
s 3,
000.
00

Rentandr
ates 5,
000.
00

Repai
randr
epl
acement
s 2,
000.
00

Depr
eci
ati
on 4,
000.
00

Post
ageandt
elephone 500.
00

Pr
int
ingandst
ati
oner
y 1,
750.
00

Laundr
yandcl
eani
ng 1,
250.
00

Gasanel
ect
ri
cit
y 4,
500.
00

Prepar
east at
ementoftradi
ngr esul
tsf
ort
heabov
eper
iod,
showi
ngcl
ear
ly
anydeviat
ionfr
om budgetedresult
s.

(
20mar
ks)

2.i
) Def
inet
het
erm cost

(
2mar
ks)

i
i) Givngt
i woexampl esineachcase,explai
nt het hr
eeelementsofcost
.
(
9marks)
3.Gi
venthatlabouri
s20%andmat eri
alcostis55%, Calculat
ethenetmargi
n
i
npercent
age.
(
4marks)
4.Gi
venthefollowi
nginformati
on,cal
culatecostper centage:-
i
. CostKsh. 200,000; SalesKsh. 585,000
i
i.CostKsh. 175,620; SalesKsh. 478,750
(
5marks)
5.Gi
venthefollowi
nginformati
on,det
erminesal es;
i
. Costofsal es Ksh.46,500
Costoflabour Ksh.33,247
Costofoverheads Ksh.75,883
Profi
t Ksh.3,
129

i
i
.Costofsales Ksh.
51,
259
Costofl
abour Ksh.
77,
351
Costofover
heads Ksh.
42,
248
Loss Ksh.
41,
167
(6marks)
6.Thef
oll
owi
ngi
nfor
mat
ionwasext
ract
edf
rom t
hebooksofaccount
sof

St
anl
eyt
hoi
thikagwi
Page27
 Jessy ’
srestaur ant.
Sales Shs.52,
000
Costofsal es Shs.21,
000
Ov erheadcosts Shs.1,
600
Labourcost s Shs.13,
000
Required:
Calculatethef ollowingprof
it
sandexpresseachasapercent
age;
-
i. Kitchenpr of
it (3marks)
ii
.Netpr ofit (4marks)
7.Thef oll
owingbudgetwaspr epar
edfortheRhi
norest
aurant
:-

Sal
es Ksh.95,
000.
00

Costofsal
es 35%

Labourcost
s 25%

Ov
erheadcost
s 20%

Netpr
ofi
t 12%

Theact
ual
resul
tsf
ort
hatmont
hwer
easf
oll
ows:
-

Numberofcov
ers 1,
200

Av
eragespendi
ngpower Ksh.100

ockat1stJune2003
St 2,
500

ockat30ttJune2003
St 4,
000

Wagesandsal
ari
es 20,
000

Nat
ional
insur
ance 1,
500

St
affmeal
s 2,
500

Rentandr
ates 5,
000

Depr
eci
ati
on 3,
000

Post
ageandt
elephone 750

Pr
int
ingandst
ati
oner
y 2,
000

Laundr
yandcl
eani
ng 1,
000

Gasandel
ect
ri
cit
y 4,
000

Pur
chases 31,
500

St
anl
eyt
hoi
thikagwi
Page28
 Requi
red:

i
. Cal
cul
atet
heel
ementofcost
sandexpr
esseachasaper
cent
ageof
sal
es

(
6mar
ks)

i
i
.Cal
cul
atet
henetpr
ofi
tper
cent
age.

(
2mar
ks)

i
i
i.Comparetheact
ual
resul
tsagai
nstt
hebudget
edr
esul
tsshowi
ng
thev
ari
ances.

(
3mar
ks)

8.Thefol
lowi
nginf
ormati
onwasext r
act
edf
rom t
hebooksofMol
eHi
l
l
rest
aur
anti
nrespectofJune2004.

Khs.

Sal
es 58,
000.
00

Openi
ngst 1stJune2004
ock- 11,
200.
00

Cl
osi
ngst 30thJune2004
ock- 12,
100.
00

Pur
chases 23,
400.
00

Wagesandsal
ari
es 12,
000.
00

Nat
ional
insur
ance 1,
500.
00

Gasandel
ect
ri
cit
y 3,
000.
00

Repai
rsandr
enewal
s 2,
000.
00

Rentandr
ates 6,
600.
00

I
nsur
ance 2,
500.
00

Post
ageandt
elephone 1,
900.
00

Depr
eci
ati
on 700.
00

Pr
int
ingandst
ati
oner
y 4,
000.
00

St
udyt
hei
nfor
mat
ionandanswert
hef
oll
owi
ngquest
ions.

a)Cal
cul
atet
heel
ement
sofcostandexpr
esseachasaper
cent
ageof
sal
es.

St
anl
eyt
hoi
thikagwi
Page29
 AssumethatKsh2,
200.
00oft
hef
oodconsumedhasbeenusedfor
st
affmeals. (12
marks)

b)Cal
cul
atet
hegr
osspr
ofi
t,netmar
ginandnetpr
ofi
t.

(
6mar
ks)

c)Cal
culat
etheaver
agespendi
ngpowerpercust
omer
,assumi
ngt
hat
500customer
swereservedi
nJune2004.

(
2mar
ks)

9.Attheendofamont h,Upendo’
srest
auranttaki
ngswer eKsh.1,
237,
887.
00.
Aft
erstocktaki
ngint hekit
chen,t
heval
ueoft heopeningstockwasKsh.
87,
698.00.Thepurchasesforthemonthwer eKsh.389,740.
00andthe
val
ueoftheclosi
ngst ockwasKsh.36,630.00.

Requi
red:

a)Cal
cul
atet
hef
oodcost

b)Cal
cul
atet
hef
oodcostper
cent
agef
ort
hemont
h.

(
4mar
ks)

10.Cal
cul
atet
heki
tchenper
cent
ageoft
hef
oll
owi
ngf
oodi
tems:
-

a)Av
ocadov
inai
gret
tewi
thasel
l
ingpr
iceofKsh.40.
00andacostof

Ksh.15.
00

21/
( 2mar
ks)

b)Si
xmandazi
bei
ngsol
datKsh.30.
00,
andt
hecostpr
icef
oreach
was

Ksh.3.
50

(
3mar
ks)

c)Apl
ateofv
eget
abl
esoupbei
ngsol
dKsh.100.
00andacostpr
iceof

Ksh.49.
00.

11/
( 2mar
ks)

11.
Asteak-houseser
ving91cust
omershasatotal
dail
ysalesof£550.
80
whichisbrokendownasfoodsal
esof£382.50andbeveragesal
esof
£168.30.

St
anl
eyt
hoi
thikagwi
Page30
 Cal
cul
ate:
-

a)Theav
eragespendi
ngpowerpercust
omer
.

b)Theav
eragespendi
ngpowerpercust
omeronf
ood.

c)Theav
eragespendi
ngpowerpercust
omeronbev
erages.

(
3mar
ks)

12.
a) st
atet
hef
ormul
afor
:-

i
. Cal
cul
ati
onoff
oodcost

i
i
.Cal
cul
ati
onofgr
osspr
ofi
t.

(
1mar
ks)

b) Af ourstarRestaurantcl
oseditsday’
st r
adingwi t
hast ockvaluedat
£400.Att hecommencementoft heday ’
st r
ading,t
hest ockof£650
wasi ncreasedwithfoodstuff
sfrothestoreroom worth£450outof
whi ch£250wasusedt ofeedtheempl oyeesondut y.Thecashier’
s
reportrevealedasalesaccrualof£980.

Requi
red:
-

i
. Cal
cul
atet
hef
oodcostandexpr
essi
tasaper
cent
ageof
sal
es.

i
i
.Cal
cul
atet
hegr
osspr
ofi
tper
cent
age.

(
4mar
ks)

13.
Expl
aint
hemeani
ngoft
het
erm gr
osspr
ofi
t.

(
2mar
ks)

14.
Afastfoodr
estaur
antf
eat
uresthr
eeent
reei
temsoni
tsmenuwi
tht
he
fol
l
owingcostandsel
li
ngpri
ces:
-

I
tem Cost Sel
l
ingpr
ice

1 100.
00 330.
00

2 220.
00 440.
00

3 270.
00 675.
00

Requi
redt
ocal
cul
atet
hef
oodcostper
cent
agef
oreachi
tem

(
4mar
ks)

St
anl
eyt
hoi
thikagwi
Page31
 15.
Listt
hreeexampl
esoff
oodser
vicecost
sthatar
evar
iabl
e.
(
3mar
ks)

Ref
erences:-
i. KotasRi chardandDav isBer nard( 1986) ;Foodandbev eragecont r
ol,
Int
ernational textbookcompanyl td, (3rdediti
on)greatBritain.(pg13-23) .
ii
.Dav i
sB.Etal l(2004) ;FoodandBev eragemanagement ,Butterwor t
h
Heinemann, (3rdedi t
ion)U. k.( pg105- 105).
ii
i.Dav i
sBer nardandSt oneSal ly(1985) ;FoodandBev eragemanagement ,
HeinemannPr of essional Publ i
shingLt d,(1stedit
ion)
,Oxfor dLondon.( pg
45-48).
iv.Saleemi AhmadNi sar( 1990) ;Costaccount i
ngsimpl i
fi
ed, N.A.Saleemi
publi
sher s,Nai robi.(pg9- 10) .
v.Boar dmanR. D( 1986) ;Hot elandcat eri
ngcost ingandbudget s,Wi l
l
iam
HeinemannLt d, LondonMel bourne.( pg4- 6).
vi.KotasRi chardandConl anMi chael (1997) ;Hospitali
tyAccount ing,Patbond
publi
sher ,London.( pg277- 283) .
vii
.Odger sPet er;Pur chasi ngcost i
ngandcont r
ol,St
anleyThor nespubl isher s
LTD, London.( pg213- 230).
vii
i.
SethiMohi ni (
2008) ;Instit
utional foodmanagement ,NewAgeI nter
nat ional
publi
sher s.(pg523- 525, 539-548) .

St
anl
eyt
hoi
thikagwi
Page32
 COSTCONCEPTSORCOSTDYNAMI
CS

Thi
sist
hemanneri
nwhichcost
sr espondt
ochangesi
nthev
olumeofsal
es.That
i
s,howt
hecost
sbehav
ei nr
elat
iontochangesi
nthevol
umeofsal
es.

Costbehav
iour -meansthepatter
nofchangeincostasar
esul
tofchangei
n
l
evelofact
ivi
tyorproduct
ion

Usi
ngt
hiscr
it
eri
a,cost
smaybei
dent
if
iedasbei
ngoff
ourt
ypesnamel
y:
-

a)Fi
xedcost
s

b)Semi
-f
ixedcost
s

c)Var
iabl
ecost
s

d)Tot
alcost
s

FI
XEDCOSTS

Thesear
ecostswhichr
emai
nfixed(same)i
rr
espect
iveoft
hev
olumeofsal
es.
Thati
s,r
emainthesamewhat
everthevol
umeofsales.

Thesar
ecost
swhi
chanoper
ati
onhast
opayandwhi
chi
ncr
easewi
tht
hepassi
ng

St
anl
eyt
hoi
thikagwi
Page33
ofti
me.Thist
ypeofcostmayberefer
redt
oas‘per
iodcost
s’andgr
aphi
cal
l
y,f
ixed
cost
sarerepr
esent
edbystr
aightl
i
neofequal
amount s.

EXAMPLES

- Rent - Rat
es- Li
cences - Depr
eci
ati
on

- Sal
ari
esf
ormanagementt
eam

Fi
xedcost
sar
egr
aphi
cal
l
yrepr
esent
edasbel
ow:
-

SEMI–FI
XEDCOSTS

Def
ini
ti
on -Thesearecost
swhichmovei
nsympat
hywi
th,
butnoti
ndi
rect
propor
ti
ontothevol
umeofsal
es.

-Thesearecostswhichi
ncr
easewi
tht
hev
olumeofsal
esbutnoti
n
di
rectpr
oporti
ontothem.

Asthevol
umeofsal
esincr
easest
her
ewi
l
lal
sobeani
ncr
easei
nthi
sty
peof
cost
sbutnotatt
hesamerate.

Theyar
eal
socal
l
edsemi
-var
iabl
ecost
s.

Exampl
es

 Wages

 Gasandel
ect
ri
cit
y

St
anl
eyt
hoi
thikagwi
Page34
  Laundr
yandcl
eani
ng

 Tel
ephone

 Renewal
sandmai
ntenanceofequi
pment
s

 Fuel

 Br
akages

Gr
aphi
cal
l
y,semi
-f
ixedcost
smayber
epr
esent
easshownbel
ow:
-

St
anl
eyt
hoi
thikagwi
Page35
Semi
-f
ixedcost
scont
ainf
ixedandv
ari
abl
ecostel
ement
s.

VARI
ABLECOSTS

Thesearecostswhichvaryi
npropor
ti
ontothevol
umeofsales.Thati
s,i
ncr
eases
di
rectl
yinpr
oporti
ontothevolumeofsal
es.Assal
esi
ncreasethesecost
swill
i
ncreaseatthesamer at
e.

Exampl
es

 Costoff
ood

 Costofl
i
quor(
alcohol
i
cbev
erage)

 Ci
gar
ett
es

 Tobaccopr
oduct
s

Thesecost
sarei
nmostcasesexpr
essedasaper
cent
ageofsal
es.Gr
aphi
cal
l
y
var
iabl
ecostmayber
epr
esentedasbelow:
-

St
anl
eyt
hoi
thikagwi
Page36
N/B -Variabl
ecost1account
sfor40%oft
hesal
esandVar
iabl
ecost2
account
s60%ofsales

TOTALCOST

Thi
sist
hesum oft
hef
ixedcost
s,semi
-f
ixedcost
sandv
ari
abl
ecosti
nvol
ved.

BREAK-
EVENCHARTS

Def
ini
ti
on -I
sagraphwhichshowspr
ofi
torl
ossatdi
ff
erentl
evel
sofact
ivi
ty
wi
thi
nalimi
tedrange.

-arechar
tsthatshowtherel
ati
onshi
pbetweent
otal
sal
es,
tot
al
fi
xedcostsandv ar
iabl
ecost
sandprofi
t.

Br
eak-
evenpoi
nt–Thisi
sthel
evel
ofact
ivi
tyatwhi
cht
otal
sal
esr
evenuei
sequal
tothet
otal
cost

-Thelev
el ofoperat
ionatwhi
chabusi
nessnei
thermakesapr
ofi
t
norsust
ainsal oss.

USESOFBREAK-
EVENANALYSI
S

Thechar
tsmaybeusedt
oascer
tai
n:-

i
. Thel
evel
ofsal
esf
orabusi
nesst
obr
eak-
even

St
anl
eyt
hoi
thikagwi
Page37
 i
i
.Thepr of
itorl
ossmadebybusi
nessatdi
ff
erentl
evel
sof
sal
es

I
nbr
eak-
evenchar
ts,
thef
oll
owi
ngcur
vesar
edr
awn:
-

i
. Fi
xedcostcur
ve

i
i
.Tot
alcostcur
ve(
fi
xedcost+v
ari
abl
ecost
)

i
i
i.Sal
escur
ve

N/
B -br
eak-
evenchar
tsar
eal cost
soknownas‘ -vol
umepr
ofi
tchar
t’
.

METHODSOFCALCULATI
NGBREAK-
EVENPOI
NT

Ther
earethreemainmethodsofcal
cul
ati
ngbr
eak-ev
enpoi
nti
nbot
hnumberof
uni
tsandalsoinsal
esv
alue.Thesemet
hodsare:
-

i
. Br
eak-
evenchar
tmet
hod

i
i
.Tabul
arst
atementmet
hod

i
i
i.For
mul
amet
hod

BREAK-
EVENCHARTMETHOD

Toconst
ructordr
awabreak-
evenchar
torst
atementf
orar
est
aur
antt
he
fol
l
owinginf
ormati
oni
srequi
red:
-

i
. Thenumberofcust
omer
sperweek/
mont
h/y
ear

Thi
scanbeascert
ainedf
rom t
hecashi
er’
sanal
ysi
ssheetwhichshowst
het
otal
numberofcust
omersasext
ractedf
rom t
hecust
omer’
sbil
l.

i
i
.Theav
eragespendi
ngpoweroft
hecust
omer

Thi
scanbeascer
tai
nedbydi
vi
dingt
het
otal
sal
esbyt
henumberofcust
omer
s
ser
ved.

i
i
i.Fi
xedcost
s

Theannual
expensessuchasrent
,Rat
es,
insurance,depreci
ati
on,wages,
sal
ari
es,
et
c,canbediv
idedby52toascert
aint
heaveragefixedcostsperweek.

i
v.Var
iabl
ecost
s

Food,dri
nk,
tobaccoandanyot
herv
ari
abl
ecost
sar
eusual
l
ycal
cul
atedasa
percent
ageofsalesf
igur
es.

ASSUMPTI
ONSOFBREAK-
EVENCHARTS

Br
eak-
evenchar
tsassumet
hat
:-

St
anl
eyt
hoi
thikagwi
Page38
 a)Sel
li
ngpriceandv
ari
abl
ecostperuni
tremai
nst
hesameatv
ari
ousl
evel
s
ofoutput
.

b)Fi
xedcostr
emai
nsunchangedatal
ll
evel
sofact
ivi
tywi
thi
nthegi
venr
ange.

c)I
tispossi
blet
odi
sti
ngui
shbet
weenf
ixedcostandv
ari
abl
ecost
s.

d)Thebr
eak-
evenchartshowst
her
elat
ionshi
pbet
weent
hecost
sandsal
es
ofasi
ngl
eproductonly.

e)Thet
echni
queofpr
oduct
ionr
emai
nsunchanged.

USEFUNESSOFTHECOST-
VOLUMEPROFI
TCHARTS

Thecost-
vol
umepr
ofi
tchar
tasamanagementt
ool
hast
hef
oll
owi
ngbenef
it
sor
advant
ages:
-

a)I
shelpf
ult
ofi
ndt
hebr
eak-
evenpoi
ntandpr
ofi
torl
ossataspeci
fi
clev
elof
out
put.

b)I
tshowst
hebehav
iourt
rendsofcost
sandsal
es

c)I
testabl
i
shesther
elat
ionshi
pbet
weencost
s,sal
esandpr ofi
t.Thi
s
i
nfor
mationcanbefur
therusedt
omakeproperdeci
sions.

d)I
thel
pst
ofi
ndoutt
hesaf
etyl
evel
atapar
ti
cul
arl
evel
ofact
ivi
ty.

LI
MITATI
ONSOFBREAK-
EVENCHARTS(
Disadv
ant
ages)

a)Thesear
eonl
ytr
uewi
thi
nspeci
fi
clev
elsofact
ivi
ty.

b)Fi
xedcost
smaychangeatdi
ff
erentl
evel
sofact
ivi
ty.

c)Var
iabl
ecost
smaynotal
sogi
veal
i
neart
rend

d)Manager
ial
deci
si
onscanal
tert
hef
ixedandv
ari
abl
ecost
s

e)Ther
elev
antt
imef
act
orcanaf
fectt
hechar
t.

Br
eak-
evenchar
tisexpl
ainedbyt
hehel
poft
hef
oll
owi
ngdi
agr
am:
-
s
axi

Sal
es
-
y

N.
prof
it
Totalcost
B.
E.
St
anl
eyt
hoi
thikagwi
Page39
 Angl
eof
esand Var
iabl
ecost
Fi
xedcost
N.
l
oss
Sal

Mar
ginof
0

Lev
elofact
ivi
ty x-
axi
s

MARGI
NOFSAFETY

Def
ini
tion -
Thi
sist
her
angeofout
putbet
weent
heB.
E.Pandt
hel
evel
of
act
ivi
ty.

-Thisi
sthedif
ferencebet
weent
heact
ual
lev
elsofact
ivi
tyandt
he
break-
evenl
evelofacti
vi
ty.

I
fmargi
nofsaf
etyi
smor
ethenaf
ir
m cansur
viv
eindi
ff
icul
tci
rcumst
ancesand
v
icev
ersa.

ANGLEOFI
NCI
DENCE

Thisisshownatt hebreak-
evenpointbet
weensalescurveandtotalcostcurve.
Thisangleindi
catestherat
eofincreasei
nprof
itaft
erthebreak-
evenpoi nt
.Ifthi
s
angleiswiderthenprofi
twil
li
ncreaseatahi
gherrateaft
erthebreak-evenpoint
andv i
ceversa.

CONTRI
BUTI
ON/SALESGRAPH

Thisi
sasimpl efor
m ofbreak-
evenchar t
.Ital
soknownas‘ profit
-volumechar
t’
.
Thischar
tshowst heprofi
torl
ossatv ari
ouslevelsofsal
es.Salesar eshown
ongx-
al axisandbreak-ev
enpointofsalesismar kedonthi
saxi s.They -
axi
sis
usedtoshowt heprofi
tabovethex-
axisandf i
xedcostbelowt hex- axi
s.

Thefi
xedcostpoi
ntal
ongy -
axisisj
oinedbyastrai
ghtl
inetobreak-
evenpointof
sal
esandthenthi
sli
neisextendedtotheprof
itpoi
ntagai
nstthepresentsal
es.

I
tisexpl
ainedasunder
:-
-
y s
axi

St
anl
eyt
hoi
thikagwi
Page40
 B.
E.P
0 x-
axi
s
Sal
es

Fi
xed
cost

Thisgi
vesr
iset
opr
ofi
ttov
olumer
ati
o(p/
vrat
io)orcont
ri
but
ionsal
esr
ati
o(c/
s
rat
io)
.

p/
vrat
io -i
sther el
ati
onshipbet
weenagiveni
ncr
easei
nsal
esandt
he
consequentincr
easei
nnetpr
ofi
t.

Exampl
e1

Thef
oll
owi
ngi
nfor
mat
ionwasshowni
nthebooksofB.
Klt
d.

Lev
elofoutput 20,
000uni
ts

Sel
l
ingpr
iceperuni
t Sh.100.
00

Var
iabl
ecostperuni
t Sh.50.
00

Fi
xedcost
s Sh.600,
000.
00

Requi
red:
-

a)Pr
epar
eabr
eak-
evenchar
tandshowt
hemar
ginofsaf
ety

b)Pr
epar
econt
ri
but
ion/
sal
esgr
aph(
prof
it
-vol
umegr
aph)

c)Pr
epareatabul
arstat
ementandclear
lyshowtheprof
itorl
ossatdi
ff
erent
l
evel
s,pr
ofi
torlosspercent
ageandmarktheB.E.
P

d)Usi
ngt
hef
ormul
amet
hodcal
cul
atet
heB.
E.Pi
nuni
tsandi
nsal
es.

Sol
uti
on

a)I
nordertodr
awthebr
eak-ev
enchar
t,weassumet
hefoll
owinglev
elsof
out
putandshowther
elev
antsal
esandcost
sagai
nstt
hislevel
ofoutput
.

Level
of Fixed Variabl
e Tot
al Profi
t
outputcost cost cost Sal
es (
loss)
Unit
s Sh Sh Sh Sh Sh
600,00 (
350,000
5000 0 250,000 850,
000 500,
000 )

St
anl
eyt
hoi
thikagwi
Page41
 600,
00 1,
100,
00 1,
000,
00 (
100,
000
10000 0 500,000 0 0 )
600,
00 1,
350,
00 1,
500,
00
15000 0 750,000 0 0 150,
000
600,
00 1,
600,
00 2,
000,
00
20000 0 1,
000,
000 0 0 400,
000

Wecandr
awt
hesal
esandcostcur
vesont
hebasi
soft
heabov
efi
gur
es.

Mar
ginofsaf
ety

b)Cont
ri
but
ion/
sal
esgr
aph

c)Tabul
arst
atement

St
anl
eyt
hoi
thikagwi
Page42
 Prof
it
Lev elof Fi xed Variable Tot
al Profi
t (
loss)
output cost cost cost Sal
es (
loss) % B.
E.P
Units Sh Sh Sh Sh Sh
600,00 -
5000 0 250,000 850,
000 500,
000 350,000 (
70)
600,00 1,
100,
00 1,
000,
00 -
10000 0 500,000 0 0 100,000 (
10)
600,00 1,
350,
00 1,
500,
00
15000 0 750,000 0 0 150,000 10
600,00 1,
000,00 1,
600,
00 2,
000,
00
20000 0 0 0 0 400,000 20
d)Br eak-
evenformul
a

Theformulamethodisnor
mal l
yusedbecauset
helevelofaccur
acyofthe
i
nformati
onintheabovemethodsmayatt i
mesbei ndoubtduetothescal
eoft
he
graphandtheski
lloft
hepersondrawi
ngthechartandtabul
arstat
ement.

Br
eak-
evenpoi
nti
scal
cul
atedasunder
:-

Br
eak-ev
enpoi
nti
nuni
ts(
numberofuni
ts/cov
ersneededf
ort
hef
ir
mtogeta
pr
ofi
t)

B.
E.P(
UNI
TS) =

B.
E.P(
SALES) =

CONTRI
BUTI
ON = Sel
l
ingpr
ice/
Asp/
Ppu -Var
iabl
ecostper
uni
t(v
cpu)

Wher
e:- Sel
l
ingpr
iceperuni
t Sh.100.
00

Var
iabl
ecostperuni
t Sh.50.
00

Fi
xedcost
s Sh.600,
000.
00

Ther
efor
:-

B.
E.P(
UNI
TS) =

= 12,
000uni
ts

B.
E.P(
SALES) =

= Ksh.1,
200,
000.
00

EXAMPLE2.

St
anl
eyt
hoi
thikagwi
Page43
Thefl
amingor estaurantser
vesbetween600and1000customersperweek.The
aver
agespendi ngpowerpercustomerisKsh.250.Thef
oodcostisesti
matedat
38%ofsales.Thef ixedcostamounttoKsh.
990perweekwhichwi l
li
ncludet
he
aver
agel
abourcost sperweek.

Pr
epar
ether
est
aur
ant
sbr
eak-
evenchar
tfort
heweek.

Sol
uti
on

a)Thesalesf
igur
eiscalcul
atedbymul
ti
ply
ingt
heav
eragespendi
ngpower
bythenumberofcovers

b)Thev
ari
abl
ecostar
ecal
cul
atedbyf
indi
ng38%oft
hesal
esf
igur
e

c)Thef
ixedcostofKsh.
99,
000r
emai
nsconst
ant
.

Lev elof Fixed Vari

abl
e Tot
al Pr of
it
output cost cost cost Sal
es (
loss)
Units Sh Sh Sh Sh Sh
600 99,000 57,
000 156,
000 150,
000 -
6,000
700 99,000 66,
500 165,
500 175,
000 9,500
800 99,000 76,
000 175,
000 200,
000 25,000
900 99,000 85,
500 184,
500 225,
000 40,500
1000 99,000 95,
000 194,
000 250,
000 56,000

Numberofcust
omer
s

Concl
usi
on

i
. Therestaurantwoul
dhav
etoser
veatl
east650cust
omer
sin
ordert
obr eak-ev
en

St
anl
eyt
hoi
thikagwi
Page44
 i
i
.Iffi
xedcostremai
nconst
ant,ever
yincreaseof100cust
omer
s
i
ncr
easesthenetpr
ofi
toftherest
aurantbyKsh.1550

i
i
i.Theincr
easei
nsal
esr
esul
tsi
nnetpr
ofi
tincr
easemor
ethani
n
propor
ti
on.

EXAMPLE3.

Afir
m hasatotalcost
sofKsh.500,000.
00andat otalvar
iablecostsof
Ksh.
300,000.
00.Thepriceperuni
tisKsh.20.
00.
Atthiscostst hefi
rm pr
oduced
20,
000unitsforsal
e.Deter
minethebreak-ev
enpointinunitsandsales.

Sol
uti
on

B.
E.P(
UNI
TS) =

Fi
xedcost = Tot
alcost
s-Var
iabl
ecost
s

500,
000 - 300,
000

= Ksh.
200,
000

Var
iabl
ecostperuni
t =

= Ksh.
15

B.
E.P(
UNI
TS) =

= 40,
000uni
ts

B.
E.P(
SALES) =

= Ksh.800,
000.
00

EXAMPLE4.

Anel ect
ri
ckettl
emanufacturerhast
hefol
lowingcost
s.TotalcostKsh.
700,
000.
00,
var
iablecostsKsh.200,
000.00.Thepri
ceperkett
leKsh.
5,000.
00.Thenumberof
ket
tlesproduced250unit
s.

a)Det
ermi
net
heB.
E.Pbot
hinuni
tsandi
nsal
es.

b)Commentonwhethert
hemanuf
act
urershoul
dcont
inuepr
oduci
ng
theel
ect
ri
cket
tl
es.

Sol
uti
on

St
anl
eyt
hoi
thikagwi
Page45
 a)B.
E.P(
UNI
TS) =

Fi
xedcost = Tot
alcost
s-Var
iabl
ecost
s

= 700,
000

- 200,
000

= Ksh.
500,
000

Var
iabl
ecostperuni
t =

= Ksh.
800

Cont
ri
but
ion= Pr
iceperuni
t- v
ari
abl
ecostperuni
t

= 5,
000 - 800

= 4,
200.
00

B.
E.P(
UNI
TS) =

= 119uni
ts

B.
E.P(
SALES) =

= Ksh.595,
238.
00

b)Comment

AtacostofKsh.
700,
000.00themanuf acturerproduces250unit
s.
Thi
sis131unit
smoret hanbreak-
evenpoi nt(i
.e250–119=
131)whichi
s119unit
shencet hemanuf acturermakesprofi
tout
ofthe131uni
tsandcancontinuerunni
ngt hebusiness.

Cont
ribut
ion:
-istheamounteachunitofsal
es(
eg.Room/
cov
ers)cont
ri
but
est
o
thet
otalf
ixedcost
sofanoperati
on.

N/B:
-TheB. E.Pfor
mulaecanbeadapt
edtocal
cul
atethetur
novernecessaryfor
anyl
evelofdesir
edprof
it
s.i
.eThecont
ri
but
ionmayalsobeusedt ocalcul
atet
he
numberofcoversandsal
esneededtoachi
eveacer
tainpr
ofi
ttarget.

Numberofcov
er/
uni
tsneededt
oachi
eveaspeci
fi
cpr
ofi
t =

Sal
esneededt
oachi
eveaspeci
fi
cpr
ofi
t =

St
anl
eyt
hoi
thikagwi
Page46
EXAMPLE5.

Acityr
estauranthasseat
ingcapacit
ytoserveamaxi
mum of12,000cust
omer s
per28-
dayt r
adingperi
od.Theaveragespendi
ngpowerpercust
omerisKsh.
4.00.
Thefol
lowingarethecostsiti
ncur
s. Costs
Ksh.

Rentandr
ates 2,
500.
00

Depr
eci
ati
on 500.
00

I
nsur
ance 800.
00

Ot
herf
ixedcost
s 1,
000.
00

Foodandbev
erage 40%ofsal
es.

Showi
ngt
hef
ormul
aused:
-

i
. Cal
cul
atet
hebr
eak-
evenpoi
nti
nnumberofcov
ersandal
soi
nshi
l
li
ngs.

(
15
mar
ks)

i
i
.Fi ndoutt
henumberofcov
erst
her
est
aur
antmustsel
ltomakeapr
ofi
t
ofKsh.42,
000.
00.
(5marks)

i
i
i.Findoutt
hesal
esf
igur
ether
est
aur
antr
equi
rest
opr
oduceapr
ofi
tof
Ksh.42,
000.
00.
(5marks)

Sol
uti
on

. B.
i E.P(
UNI
TS) =

Sal
es = Numberofcov
ersxav
eragespendi
ngpower

= 12,
000x 4

= Ksh.
48,
000

Var
iabl
ecost 40%ofsal
es

Ther
efor
evar
iabl
ecost =

= 19,
200

Var
iabl
ecostperuni
t =

St
anl
eyt
hoi
thikagwi
Page47
 =

= Ksh.
1.6

B.
E.P(
UNI
TS) =

= 2,
000uni
ts

B.
E.P(
SALES) =

= Ksh.8,
000.
00

i
i
.Numberofcov
er/
uni
ts=

= 19,
500cov
ers

i
i
i.Sal
esneededf
orspeci
fi
cpr
ofi
t =

= x

= Ksh.78,
000.
00

Or =

= Ksh.78,
000.
00

EXAMPLE6

Theresul
tsoftheTull
amoreRestaurantf
ort earend31stmar
hey ch20.
..ar
eset
outi
nacont r
ibut
ionstat
ementbelow:-

Numberofcov
ers 10,
000

Sal
es 200,
000

Lessv
ari
abl
ecost
s £

Costofsal
es 80,
000

St
anl
eyt
hoi
thikagwi
Page48
 Var
iabl
elabourcost
s 24,
000

Var
iabl
eov
erheadcost
s 16,
000 120,
000

Cont
ri
but
ion 80,
000 40%(
c/sr
ati
o)

Lessf
ixedcost
s 60,
000

Netpr
ofi
t 20,
000

Usi
ngt
heabov
einf
ormat
iony
ouar
erequi
red:
-

i
. Break-
eveninnumberofcov
ersandi
nsal
esnecessar
ytogi
veanyl
evel
ofnetprof
it
.

i
i
.Thenumberofcover
sandsalestheestabl
i
shmentmustser
veand
achi
evet
opr
oduceaprof
itof£35,000

Sol
uti
on

. B.
i E.P(
UNI
TS) =

B.
E.P(
UNI
TS) =

= 7,
500cov
ers

Not
e:- Cont
ri
but
ionperuni
t =

= =£8percov
er

B.
E.P(
SALES) =

= £150,
000

ASP =Sal
es÷numberofcov
ers;
(200,
000÷10,
000=20)

Or

B.
E.P(
SALES) =

= x

= £150,
000

i
i
.Numberofcov
er/
uni
ts=

St
anl
eyt
hoi
thikagwi
Page49
 =

= 11,
875cov
ers

i
i
i.Sal
esneededf
orspeci
fi
cpr
ofi
t =

= x

= £237,
500

Note:- Ther
eareinst
antswheny oumaybetoldtopr
oofthatt
heB. E.
Pis
cor
rectusi
ngtheP/Vr
atioorC/Srat
io.Theanswerwil
lbeB.E.
Pinsales

Ther
efor
e:- B.
E.P =

Wher
ec/
sorp/
vrat
io =

Exampl
e

Usi
ngc/
sorp/
vrat
iof
orf
ormul
a,pr
ooft
hatt
heB.
E.Pi
nexampl
e1(
c)i
scor
rect
.

Sol
uti
on

Sel
l
ingpr
iceperuni
t Sh.100.
00

Var
iabl
ecostperuni
t Sh.50.
00

Fi
xedcost
s Sh.600,
000.
00

B.
E.P=

CONTRIBUTI
ON = Sel
l
ingpr
ice/
Asp/
Ppu -Var
iabl
ecostperuni
t
(v
cpu)

= 100–50 = Sh.50

Wher
ec/
sorp/
vrat
io =

= =0.
5

Ther
efor
e B.
E.P=

= Ksh.1,
200,
000.
00

CLASSI
FICATI
ONOFCOSTS

Cost
smaybecl
assi
fi
edasunder
:-

i
. Fi
xedandv
ari
abl
ecost
s

St
anl
eyt
hoi
thikagwi
Page50
 i
i
.Di
rectandi
ndi
rectcost
s

i
i
i.Costcl
assi
fi
cat
ionbyf
unct
ion

FI
XEDANDVARI
ABLECOST

Fi
xedcost -i
sthecostwhichremai
nst
hesameatvar
iouslev
elsofout
puti
.e
costdoesnotchangewi
tht
hechangei
noutput
.

Exampl
es -Rent -Rat
es -I
nsur
ance -Depr
eci
ati
on

-Sal
ari
esofmanagementt
eam et
c.

Var
iabl
ecost-i
sthecostwhichchangest
helev
elofproduct
ioni
.ewhen
pr
oduct
ioni
ncreases,
vari
abl
ecost
sincr
easesandvicever
sa.

Exampl
es -Costoff
ood -Costofl
i
quor -costofci
gar
ett
es

-
Wagesoff
act
orywor
ker
s

DI
RECTANDI
NDI
RECTCOSTS

Di
rectcost-i
sthatcostwhi
chcanbei denti
fi
edfort
heproduct
ionofsome
speci
fcgoods.Rawmat
i eri
alsandl
abourcost
saredir
ectcosts
becauset
hesecanbechar gedandarei
denti
fi
edtotheproduct
ionof
somespecif
icoutputofgoods.

I
ndi
rectcost
-isthatcostwhi
chcannotbeidenti
fiedtot
heproducti
onofsome
specif
icgoods.Thesecost
sareincurr
edfort
heactiv
iti
esasawhol
e
incaseofanydepartmentoror
ganisati
on.

Exampl
es -I
ndi
rectmat
eri
als -I
ndi
rectwages

-El
ect
ri
ci
ty -Wageschar
ges

-Rent
s -Rat
eset
c.

COSTCLASSI
FICATI
ONBYFUNCTI
ON

Cost
sar
ecl
assi
fi
edaccor
dingt
othef
unct
ionoract
ivi
tyandconsi
stof
:-

i
. Pr
oduct
ioncost
s

i
i
.Admi
nist
rat
ioncost
s

i
i
i.Sel
l
inganddi
str
ibut
ioncost
s

St
anl
eyt
hoi
thikagwi
Page51
Pr
oduct
ioncost- ar
ethosecost
sthataredir
ect
lyi
nvol
vedi
nconv
ert
ingr
aw
mat
eri
alsi
ntof
ini
shedproduct
.

Exampl
es -Rawmat
eri
als

-Labourcost
s

-Fact
oryr
entet
c.

Admi
nist
rat
ioncost
s- t
heseconsi
stsof
:-

Exampl
es -of
fi
cer
ent -Post
ageandt
elephone

-Sal
ari
esofof
fi
cest
aff
-Depr
eci
ati
onofof
fi
cemachi
neset
c.

Sel
l
inganddi
str
ibut
ioncost
s

Arethosecost
swhi
char
eincur
redt
opr
omot
ethesal
eofgoods
tothecust
omers

Exampl
es -Costofadv
ert
isement
-Sal
esmen’
scommi
ssi
on

-Del
i
ver
yofdel
i
ver
yvanet
c.

THEANALYSI
SOFTOTALCOST

Thet
otal
cost
swhi
char
eincur
redbyi
ndust
rymaybeanal
ysedasunder
:-

a)Di
rectmat
eri
als
Pr

Pr

Tot
i

oduct
me

al

b)Di
rectwages
costof
ioncost

c)Di
rectexpenses(
ifany
)

d)Ov
erheads:
-

i
.Pr
oduct
ion/f
act
ory

i
i
.Admi
nist
rat
ion

i
i
i.Sel
l
inganddi
str
ibut
ion

Di
rectmat
eri
al

Thisconsist
soft herawmat eri
alsusedinapr oductandsomecomponentswhi
ch
areincor
poratedintothefinishedproduct.Thecostofdir
ectmater
ial
consumed
i
naspeci fi
cperiodiscalculatedas:-

Costofdi
rectmat
eri
al= openi
ngst
ock+pur
chases-cl
osi
ngst
ock

I
fsometranspor
tchar
gesar
epaidonthemat
eri
alpurchasethent
hesechar
ges
ar
eaddedtotheval
ueofmater
ial
bought(
car
ri
ageinward).

St
anl
eyt
hoi
thikagwi
Page52
Theretur
nofmat er
ial
purchasedt
othesuppl
ier
sarededuct
edf
rom t
hecostof
materi
alspur
chased(pur
chaseret
urn/ret
urnoutwar
d)

Di
rectwages

Thesearetheremunerat
ionspaidtof
act
oryworker
sforconvert
ingrawmater
ial
s
i
ntofi
nishedgoods.Theyareal eddi
socal
l r
ectl
abourcosts.Thi
scostcanbe
di
rect
lychargedtothepr
oducti
onofsomespecifi
cproductsanditi
spartoft
he
pri
mecost .

Di
rectexpenses

Thi
sincl
udesanyexpendi
tur
eot
hert
handirectmat
eri
alanddi
rectwagesi
ncur
red
onthepr
oducti
onofsomespeci
fi
cproduct
.

Exampl
e -Hi
rechar
gesofequi
pmentf
ort
hepr
oduct
ionofspeci
fi
cpr
oduct
s

-Cost
sofdesi
gnset
c.

Pr
imecost
s

Pr
imecostofapr
oducti
sthet
otal
ofi
tsdi
rectcost
s.I
tisexpr
essesas:
-

Pr
imecost=Di
rectmat
eri
als+Di
rectl
abourcost+Di
rectexpenses(
if
any
).

Ov
erheads

Thesearethosecost
swhichcannotbeident
if
iedtotheproduct
ionofanyspeci
fi
c
product
s.Theyar soknownasi
eal ndir
ectcosts.Over
headsmaybecl assi
fi
edas
under:
-

i
. Pr
oduct
ion/f
act
oryov
erheads

i
i
.Admi
nist
rat
ionov
erheads

i
i
i.Sel
l
inganddi
str
ibut
ionov
erheads

Pr
oduct
ionov
erheads

Thesear
eproducti
onorfactoryexpensesothert
handir
ectcost
s.Theyar
eal
so
cal
ledworkov
erheads.Theyincl
udethefoll
owingexpenses:
-

a)I
ndi
rectmat
eri
als

Thisi
sthatmateri
al whi
chcannotbechar geddir
ectl
ytot
heproducti
onofa
speci
fi
cproduct.I
tisnormall
yrequir
edforoperati
ngandmaintai
ningthepl
ant
andequipmente.glubri
cat
ingoil
,sparepartset
c.

b)I
ndi
rectwages

St
anl
eyt
hoi
thikagwi
Page53
Thesear
ewageswhi charepai
dtot hoseworker
swhoar
erequi
redt
ocompl
ete
someprocessesi
nrespectofal
ltheproduct
s.

Exampl
e:-f
act
orysuper
visor
,mai
ntenancest
affet
c.

c)Rent
,rat
es,
insur
ance,
wat
er,
powerandel
ect
ri
cit
ychar
gesf
ort
hef
act
ory
.

d)Depreciat
ion offactor
y pl
antand machi
nery,depr
eci
ati
on off
act
ory
bui
ldings,mai
ntenanceandr
epai
roff
actor
yplant.

e)Sundry expenses l
i
ke cant
eens,ent
ert
ainmentand medi
calf
aci
l
iti
es
prov
idedtotheworkers.

Admi
nist
rat
ionov
erheads

These are allthe expenses i

ncurr
ed for pr
ovi
ding control
,directi
on and
managementoft he est
abli
shment.These al
so i
nclude expenses rel
ated t
o
secr
etar
ial
,accounti
ngandlegal
servi
ces.Theyi
ncl
udethefoll
owingexpenses:-

i
. Rent
,rat
es,
insur
ance,
wat
erandel
ect
ri
cit
yfort
heof
fi
ce.

i
i
.Salar
iesoftheof
fi
cestaffe.
gaccountant
s,secr
etar
ies,
off
icecl
erks
andmanagementst
affl
ikedi
rect
ors.

i
i
i.Depr
eci
ati
onofof
fi
cef
urni
tur
e,of
fi
ceequi
pmentandof
fi
cebui
l
ding.

i
v.Of
fi
cest
ati
oner
y.

v
.Legal
expensese.
gfeesofadv
ocat
es.

v
i.Fi
nanci
alexpensese.
gint
erestonl
oans.

Sel
l
ingov
erhead

Thesear
et hoseexpenseswhichareincurr
edt osecureor
dersandt oi
ncrease
sal
esoftheestabl
ishment.Theyal
soincludetheexpensesassoci
atedwit
ht he
sal
eofgoods.Thi
sconsist
softhefol
lowingexpenses:
-

i
. Adv
ert
isementexpenses.

i
i
.Sal
ari
esofsal
esmenandcommi
ssi
onofsal
esagent
s.

i
i
i.Sal
escorr
espondenceexpensesandcostofpr
epar
ingcat
alogues
andpr
icel
ist
s.

i
v.Rentofsal
esr
oomsandof
fi
ces,wat
erandel
ect
ri
cit
yexpensesof
sal
erooms.

Di
str
ibut
ionov
erhead

Thesear
ethoseexpenseswhi
char
eincur
redont
hemov
ementoff
ini
shedgoods

St
anl
eyt
hoi
thikagwi
Page54
fr
om fact
orytowar
ehouseandthenindel
i
ver
ingt
hesegoodst
othecust
omer
s.
Theyconsi
stoft
hefol
l
owingexpenses:
-

i
. Transportchar
gesi
nr espectofmovementoff i
nishedgoods
fr
om f act
orytowar
ehouseandf r
om warehousetocustomers
premises.

i
i
.Ifdeli
ver
yv ansaremai
ntai
nedthencostofmaintaini
ng t
hese
del
i
veryvanincl
udi
ngf
uel
, i
nsur
anceandrepai
rcharges.

i
i
i.Sal
ari
esofdel
i
ver
yvandr
iver
s,mechani
csanddel
i
ver
ycl
erks.

i
v.Rent
,rat
es,
insur
ance,
wat
erandel
ect
ri
cit
ychar
gesofwar
ehouse.

Summar
yofov
erheads

Ov
erheads -def
inedasthetotal
cost
sofi
ndi
rectmat
eri
als,
indi
rectl
abourand
i
ndir
ectexpenses.

I
ndi
rectcost-t
hesear
ethosecost
swhichcannotbei
dent
if
iedt
othepr
oduct
ion
ofsomespeci
fi
cgoods.

Cl
assi
fi
cat
ionofov
erheads

a)Pr
oduct
ionov
erhead

I
ncludes:
- -I
ndi
rectmat
eri
als -I
ndi
rectwages -Fact
oryr
entand
r
ates

-Depr
eci
ati
onoff
act
orypl
ant
.

b)Admi
nist
rat
ionov
erhead

Incl
udes:
- -Of
fi
cesal
ari
es -Of
fi
cer
ent -
Otherof
fi
ce
expenses

-Depr
eci
ati
onofof
fi
ceequi
pment
s

c)Sel
l
inganddi
str
ibut
ionov
erheads

I
ncl
udes:
- -Adv
ert
isi
ng-Sal
ari
esofsal
esmen -r
entofsal
es
war
ehouse

-Del
iver
yvanexpenses -Ot
hersundr
ysel
l
ingand
di
str
ibut
ionexpenses.

Ov
erheadsmaybeal
socl
assi
fi
esasunder
:-

i
. Fi
xedov
erheads

St
anl
eyt
hoi
thikagwi
Page55
Theseover
headsr
emainthesameatvari
ouslevel
sofout
put.Thesearei
ncur
red
onti
mebasise.gmont
hlyoryear
lyov
erheadscostsandt
heyincl
udefact
oryr
ent
andrat
es.

i
i
.Semi
-f
ixedov
erheads

Theseov er
headsremainthesameuptoaspeci
fi
clev
elofout
putandbey
ondt
hat
l
evelthesemayincreasebyaspeci
fi
camount.

i
i
i.Var
iabl
eov
erheads

Thesearethoseov
erheadswhichincreasewitht
heincr
easei
npr
oduct
ionand
vi
ceversa.Exampl
esindi
rectmateri
al,i
ndir
ectwagesetc.

OVERHEADALLOTMENTS

Thismeanschargingofoverheadstocostunit
sorcostcentr
etoascer
tai
ntotal
costofajoborproduct
.Ov erheadsarei
ncurr
edforaspecif
icdepar
tmentor
establ
i
shmentasawhol e.Thesear echar
gedtocostcentr
esandcostunit
sin
ordert
oascert
aintotal
costofaj oborproduct
.

STAGESOFOVERHEADALLOTMENTS

Ther
ear
ethr
eest
agesofov
erheadal
l
otmentnamel
y:
-

i
. Col
l
ect
ionofov
erheads

i
i
.Ov
erheadanal
ysi
s

i
i
i.Ov
erheadabsor
pti
on

COLLECTI
ONOFOVERHEADS

Overheadsi
ncurr
edi
naspecif
icperi
odarecol
lect
edundertheseparat
eheadi
ngs.
Thesearecol
lect
edf
rom cost
ingandfi
nanci
alaccount
ingr
ecords.

Examplei
ndi
rectwagesareobt ai
nedfr
om wagesanal
ysi
sbook, i
ndi
rectmat
eri
als
aregi
veni
nthest or
esrequi
sit
ions,f
actor
yrentandot
herexpensespai
dare
recor
dedi
nthefinanci
all
edgeretc.

OVERHEADANALYSI
S

Thi
sisananal
ysi
sthatchar
gesov
erheadst
ocostcent
resi
.epar
ti
cul
arpar
tof
ent
erpr
ise.

St
anl
eyt
hoi
thikagwi
Page56
Example:-producti
ondepar
tment‘
A’i
sacostcent
reandal
lov
erheadsi
ncur
redi
n
respectofthisdepart
mentshoul
dbeascer
tai
ned.

Ther et
ear woway
sofchar
gingov
erheadst
ocostcent
resnamel
y:
-

i
. Al
l
ocat
ionofov
erheads

i
i
.Appor
ti
onmentofov
erheads

Al
l
ocat
ionofov
erheads

Thismeanstochargethoseover
headst
oacostcent
rewhi
chr
esul
tssol
elyf
rom
theexi
stenceoft
hatcostcent
re.

Example:
-al
li
ndi
rectmat
eri
alsusedi
ndepar
tment‘
A’mustbechar
gedt
othi
s
depar
tmentonl
y.

Theov
erheadsar
eal
l
ocat
edwhent
hef
oll
owi
ngt
wocondi
ti
onsar
eful
fi
ll
ed:
-

i
. Thecostcent
remusthav
ecausedt
heov
erheadt
obei
ncur
red.

i
i
.Theexactamountoft
heov
erheadmustbeknown.

Appor
ti
onmentofov
erheads

Thismeanst ochar geacostcentr

eafai
rshar
eofanoverhead.Overheadswhi
ch
areincurr
edf ort
heor gani
sat
ionasawholemustbechar
gedt ovari
ouscosts
centresofthatestabl
ishment
.

Example:
-let
sassumet her
earefourdepart
mentsinanestabl
ishmentandrenti
s
payabl
eeachmont h,t
henthisr
entmustbeshared amongt hi
sfourdepart
ment
oftheest
abli
shment.(Thi
siswhatiscall
edapport
ionmentofoverhead)
.

Ther
ear
evari
ousbasesf
ortheappor
ti
onmentofov
erheadt
ocostcent
res.The
commonbasesar
easfol
lows:
-

Basesof Ov
erheadt
owhi
chbasi
sappl
i
es
appor
ti
onment

Ar
ea Rent,rat
es,heat
sandlight
ing,depr
eciat
ionof
bui
lding,maint
enanceofbuil
dings,
insur
ance
ofpremisesetc.

Bookv
alue Depr
eciat
ionofplant
,machiner
y,i
nsur
anceof
pl
ant
,repairandmaint
enanceetc.

Numberofempl
oyees Expensesofper
sonnelof
fice,
canteen,
welf
are
ofstaf
f,saf
etymeasur
es,superv
isi
onetc.

Costofmat
eri
als Mat
eri
alhandl
i
ngexpenses,
stor
ekeepi
ng,

St
anl
eyt
hoi
thikagwi
Page57
 used packagecost
set
c.

Techni
calest
imat
e Powerconsumpt
ion,
wat
erusage,
etc

Sal
esr
evenue Advert
isement
,sel
l
inganddi
str
ibut
ion
expenses

Di
rectwages St
afft
rai
ning,
prov
identcont
ri
but
ionset
c.

Machineorl
abour Gener
alov
erheadi
tems
hour

Numberofr
adi
ator
s Heat
ing

Thechoi
ceofanappropri
atebasisofappor
ti
onmenti
sreall
yamatterof
j
udgementandacompanydeci desanybasi
sofappor
ti
oningov
erheadsaccor
ding
toi
tsowncir
cumstances.

Thebasi
sofappor
ti
onmentshoul
dbe:
-

i
. Equi
tabl
e

i
i
.Pr
act
icabl
e

i
i
i.Economi
cal

i
v.Reasonabl
e

v
.Accur
ate

OVERHEADABSORPTI
ON

Thi
smeanschargingofoverheadst
ocostuni
t.Af
terdet
ermi
ningt
heov
erheads
ofacostcent
re,
theseoverheadsar
echar
gedtocostunit
s.

I
tmeansthatthetot
alover
headsofacostcent
rear
edi
str
ibut
edt
oal
lcost
suni
ts
pr
oducedbythatcostcent
re.

Exampl
e

I
ftot
alover
headsofdepartment‘
A’ar
eKsh.100,
000and50,
000unit
sare
pr
oducedindepar
tment‘A’dur
ingaspeci
fi
cperi
od,
thenov
erheadperuni
tof
pr
oductcanbecalcul
atedas:

Ov
erheadpercostuni
t =

St
anl
eyt
hoi
thikagwi
Page58
 = Ksh.2

Thetotalover
headsofacostcent
reareestabl
i
shedthroughal
l
ocationand
apport
ionmentofover
heads.Theabsorpt
ionofover
headsisaprocesswhereby
theoverheadsar
eaddedtothedir
ectcostofeachcostunit
.

Ther
ear encommonmet
esev hodsofov
erheadabsor
pti
onandt
hesear
e:-

Met
hod Formul
atocal
cul
ateover
head
absor
pti
onrat
e(O.
A.R)

1.Uni
tofout
put

2.Di
rectl
abourhour
s

3.Di
rectmachi
nehour
s

4.Percent
ageofmat
eri
al
cost

5.Per
centageofdi
rect
wages

6.Percent
ageofpr
ime
cost

7.St
andar
dhour
s

Therear
enospeci
fi
crul
eswhi
chcanbef
oll
owedi
nthesel
ect
ionofanabsor
pti
on
method.

Thechoi
ceofanabsor
pti
onmet
hodmaybebasedont
hef
oll
owi
ngf
act
ors:

 Uni
tsofoutput-i
fal,theuni
tsproducedareident
ical
andinv
olv
e
i
denti
calt
imeandpr oducti
onprocessthenthisabsor
pti
onmethod
woul
dgiveaccurat
er esul
ts.

 Directl
abourhour-t
hismet hodi
smostappropri
atei
nlabour
i
ntensivedepar
tment.Itmeanswherelabouri
smor ei
mportant
factori
nthoseorganisat
ion.Thi
smethodshouldbeused.

 Dir
ectmachi
nehour -thi
smethodismoreappropr
iat
einthosecost
centr
eswheremachi nesar
eusedtogreatext
endinordert
o
complet
etheproductionpr
ocess.

St
anl
eyt
hoi
thikagwi
Page59
  Dir
ectwagespercent
age-t
hisisafr
equent
lyusedmet
hodandis
moreappropr
iat
einthoseorgani
sat
ionswher
ewagespai
dare
rel
atedt
otime.

 Directmateri
alpercent
age-thismethodissuitableforthose
organisat
ionswher emater
ialcostr
epresentsal argeporti
onoft
otal
costsandwher ethemat er
ialcosti
ssigni
ficantfactor.

 Pr
imecostper
cent
age-thi
smet hodismoreappr
opr
iat
ewhereeach
j
obsmater
ial
sandlabourcostpropor
ti
onsvar
ytogr
eatext
end.

 Standar
dhour
s- t
hismethodisappli
edi
nthoseorgani
sat
ionswher
e
standar
dcost
ingt echni
queisappl
i
ed.Over
headsareabsorbed
accordi
ngt
ost andardhours.

Summar
yofmet
hodsofov
erheadabsor
pti
on

Ther
ear
esev
enmet
hodsnamel
y:
-

i
. Uni
tsofout
put

i
i
.Di
rectl
abourhour

i
i
i.Di
rectmachi
nehour

i
v.Di
rectwageper
cent
age

v
.Di
rectmat
eri
alper
cent
age

v
i.Pr
imecostper
cent
age

v
ii
.St
andar
dhour

Exampl
e1

Theov er
headsofamanufact
uri
ngcompanywereKsh.250,
000foraspeci
fi
c
peri
od.Totalout
putwas50,
000uni
ts.Thef
oll
owingi
nfor
mationwasalso
provi
ded:-

Mat
eri
alcostKsh500,
000

Numberofl
abourhour
sKsh25,
000

LabourcostKsh125,
000

Numberofmachi
nehour
s20,
000

St
anl
eyt
hoi
thikagwi
Page60
Cal
cul
atet
heov
erheadabsor
pti
onr
atesbyusi
ngdi
ff
erentabsor
pti
onmet
hods:
-

Met
hod For
mul
a OverheadAbsor
pti
on
Rate

1.Uni
tsof =Sh5peruni
t
out
put

2.Dir
ectlabour =sh.
10perl
abour
hours
hour

3.Dir
ect =sh.12.
50per
machine
hours machi
ne
hour

4.Per
centageof =50%of
mater
ialcost
mat
eri
al
cost

5.Percent
ageof =200%of
di
rectwages
l
abour
cost

6.Percent
ageof =40%of
pri
mecost
pr
imecost

Not
e:- pr
imecost =mat
eri
alcost+ Labourcost

Exampl
e2

Thef
oll
owi
ngi
nfor
mat
ioni
sav
ail
abl
efr
om amanuf
act
uri
ngcompany
:-

Tot
alov
erhead Sh.600,
000

Tot
aldi
rectwages Sh.480,
000

Tot
aldi
rectmat
eri
alcost Sh.500,
000

Di
rectl
abourhour
s 75,
000

Di
rectmachi
nehour
s 50,
000

Uni
tsofout
put 750,
000

St
anl
eyt
hoi
thikagwi
Page61
Cal
cul
atesi
xov
erheadabsor
pti
onr
ates:
-

Met
hod For
mul
a OverheadAbsor
pti
on
Rate

1.Uni
tsof =Sh0.
80peruni
t
out
put

2.Dir
ectlabour =sh.
8perl
abour
hours
hour

3.Dir
ect =sh12per
machine
hours machi
ne
hour

4.Per
centageof =120%of
mater
ialcost
mat
eri
al
cost

5.Percent
ageof =125%of
di
rectwages
l
abour
cost

6.Percent
ageof =61.
2%of
pri
mecost
pr
imecost

Not
e:- pr
imecost =mat
eri
alcost+ Labourcost

N/
B - t
heover
headabsorpti
onrat
esareusedtocal
culatethet
otal
costofanypar
ti
cularj
oborcostunit
.Over
headabsorpti
onmethod
i
sindicat
edinordert
ofindoutt
hetotal
costofacostunit.

KEYTERMS

1.Costcent
re -al
ocati
on,per
son,
orit
em ofequipment(orgr
oupofthese)
i
nrespectofwhi
chcostsmaybeascert
ainedandrel
atedtocostuni
ts

2.Costuni
t -asauni
tofquant
it
yofpr
oduce,
ser
viceort
imei
nrel
ati
ont
o

St
anl
eyt
hoi
thikagwi
Page62
 whi
chcostmaybeascer
tai
nedorexpr
essede.
gki
l
oofsugar
.

3.Costbehav
iour -meansthepatter
nofchangei
ncostasar
esul
tof
changeinl
evel
ofacti
vi
tyorproduct
ion

4.Margi
nofsafet
y -i st
her
angeofout
putbet
weent
heB.
E.Pandt
he
act
uall
evel
ofoutput
.

5.p/vrat
io -i
stherel
ati
onshi
pbet
weenagi
veni
ncr
easei
nsal
esandt
he
consequenti
ncreasei
nnetprof
it
.

6.Cont
ri
buti
on- defi
nedassal
esl esstot
alvari
ablecosts.Thec/srati
o
i
ssimplyt
hecontr
ibut
ionexpr
essedasaper centageofsales.Contr
ibuti
on
i
ssimplyt
hesurpl
usremaini
ngafterpayingt
hev ari
ablecostsandwhich
cannowcont
ri
butetothepaymentoff i
xedcostsandpr of
itther
eaft
er.

i
.esal
es–v
ari
abl
ecost=cont
ri
but
ion–f
ixedcost=Netpr
ofi
t.

REVI
SIONQUESTI
ONS

1.Wi
tht
heai
dofagr
aph,
expl
ainsemi
-f
ixedcost
s.

(
4mar
ks)

2.Descr
ibeanexampl
eineachdi
rectandi
ndi
rectl
abour
.

(
6mar
ks)

3.a) St
ateanyt
woi
mpor
tantusesofbr
eak-
evenanal
ysi
s.

(
2mar
ks)

b) Thebel
l
e-vuesnackski
oskservesbet
ween1600and2200
cust
omersperweek.Theaver
agecustomerspendi
ngi
sKsh.0.
5.

St
anl
eyt
hoi
thikagwi
Page63
 Thecost
soft
heki
osksar
e:-

Fi
xedcost
sKsh.450perweek

Var
iabl
ecost
sar
e50per
centofsal
es

Youar
erequi
redt
o:-

i
. Pr
epar
eat
abul
arst
atementusi
ngt
hei
nfor
mat
ionpr
ovi
ded.

i
i
.Showscl
ear
ly:
-

a.Howmuchpr of
itorlossperweekwil
lbemadebytheki
oskwhenit
ser
ves1600,
1700, 1800,1900,
2000,
2100and2200cust
omersper
week.

b.Thebr
eak-
evenpoi
ntoft
heki
oski
nsal
esv
alu (
12mar
ks)

c.Usingt
hep/vrat
ioforfor
mulae,
prov
ethatthebr
eak-
evenpoi
nt
shownint
hetabularst
atementi
saccur
ate.

(
6mar
ks)

4.Acit
yhasseati
ngcapacit
ytoser
veamax i
mum of12,000per28day
t
radi
ngperi
od.Theaver
agespendingpowerpercust
omerisKsh.4.The
f
oll
owingar
ethecostsiti
ncur
s:

COSTS KSH.

Rentandr
ates 2,
500.
00

Depr
eci
ati
on 500.
00

I
nsur
ance 800.
00

Ot
herf
ixedcost
s 1,
000.
00

Foodandbev
erage 40%ofsal
es

Showi
ngt
hef
ormul
aeused:
-

a.Cal
cul
atet
hebr
eak-
evenpoi
nti
nnumberofcov
ersandal
soi
n
shi
l
li
ngs

(
15mar
ks)

b.Fi
ndoutt
henumberofcov
erst
her
est
aur
antmustsel
ltomakea
pr
ofi
tof

Ksh.42,
000. (
5mar
ks)

5.Rai
nbowhot
elhasaf
ixedcostof£11.
00.Theest
abl
i
shmentcal
cul
atesi
ts

St
anl
eyt
hoi
thikagwi
Page64
 v
ari
abl
ecost
sat21%ofsal
es.

Cal
cul
atet
hebr
eak-
evennumberofguest
sperday
.

(
2mar
ks)

6.AGYKI Mr estaur antserv

esbetween600and100cust omersperweek.The
averagespendi ngpowerpercust omeri s£2.50.Thefoodcostamount si
s
estimatedat38%oft hesales.Thefixedcostsamount sto£990perweek
whichwi lli
ncludet heav er
agelabourcostperweek.Pr epareatabular
soluti
onshowi ngt henumberofcust omers,t
otalsales,t
otalcost,vari
abl
e
costs,fi
xedcost s,netprof
itorloss(
value)
,netprofi
torloss(percentage)
andmar kthebr eak-evenpoint.

(
15mar
ks)

7.Wi
tht
heai
dofgr
aphs,
expl
aint
het
hreet
ypesofcost
s.

(
9mar
ks)

8.Wi
tht
heai
dofagr
aph,
expl
ainsemi
-f
ixedcost
s.

(
4mar
ks)

9.a) i
)Def
inet
het
erm‘
break-
evenchar
t’

(
2mar
ks)

i
i
)St
atef
ourassumpt
ionsofabr
eak-
evenchar
t

(
4mar
ks)

i
i
i)Gi
vet
wobenef
it
sandt
wol
i
mit
ati
onsofabr
eak-
evenchar
t

(
4mar
ks)

b) ar estaur
anthasaseat ingcapaci
tyall
owi
ngitt
oservemaximum of
20,000cust omersperannum.Thespendingpoweris£5.00.The
restauranti
ncursfixedcostsatarateof£40,
000perannum.The
variablecostsoftherestaur
antamountsto35per
centofit
srevenue.

Requi
red:
-

i
. pr
epar
ether
est
aur
antbr
eak-
evenchar
t

i
i
.indi
cat
eit
smar
ginofsaf
ety

i
i
i.i
ndi
cat
etheangl
eofi
nci
dence

(
10mar
ks)

St
anl
eyt
hoi
thikagwi
Page65
 10.
a) Gi
vi
ngt
woexampl
esi
neachcase,
dist
ingui
shbet
weendi
rectcost
s
and

i
ndi
rectcost
s.

(
4mar
ks)

b) Giv
ingoneexampleineachcase,
li
stf
ourcat
egor
iesof
admini
str
ati
onoverheads.
(3marks)

11.
a) Dist
ingui
shcl
ear
lybet
weenf
ixed,
semi
-f
ixedandv
ari
abl
ecost
s.
(
6
mar
ks)

b) “Break-
evenchar
tsar
eessenti
alt
ool
sofcont
rol
.”Usi
ngill
ust
rat
ion
discusanyfourf
eat
uresoft
hesechar
ts.
(10marks)

12.
a) Def
inet
het
erm cost

21/
( 2mar
ks)

b) Li
stt
hreeexampl
esoff
oodser
vicecost
sthatar
evar
iabl
e

11/
( 2mar
ks)

13.
Totalsal
esoffoodandbeveragefort
hemonthofmaywasKsh. 8,
000.
00.
ThecostoffoodwasKsh.1,250.00whil
ethecostofbever
ageswas
Ksh.950.Fi
ndthegr
ossprofi
tandexpressiti
npercent
age.

(
4mar
ks)

14.Cl
assi
fyeachoft
hef
oll
owi
ngi
temsi
ntospeci
fi
ccost
s:-

i
. Repai
randmai
ntenance

i
i
.Manager
’ssal
ary

i
i
i.Rentandr
ates

i
v.Foodandbev
eragecost
s

v
.Sal
aryf
orwai
ter
s

v
i.Laundr
yandcl
eani
ng

v
ii
.Gasandel
ect
ri
cit
y

(
7mar
ks)

St
anl
eyt
hoi
thikagwi
Page66
 15.
Compl
etet
hef
oll
owi
ngt
abl
e:-

S/
no Sel
ling Var
iabl
e Contr
ibut
io Fi
xed Br
eak-
pri
ceper costsper npercover costs evenpoint
cover(£) cov
er(£) (£) i
nunits
(£)

a) 1.
75 1.
05 - - 35,
000

b) 22.
50 15.
00 - 11,
250 -

c) 11.
25 8.
25 - - 3,
000

d) 18.
00 9.
00 - 27,
000 -

e) - 17.
25 - 6,
750 750

f
) 9.
75 - - 6,
500 26,
000

g) 5.
10 - - 24,
000 12,
000

h) - 4.
50 - 52,
000 13,
000

(
16mar
ks)

16.
Compl
etet
hef
oll
owi
ngt
abl
e:-

S/n Averag Average Other Total Contr

i C/S
o e foodcost vari
abl
e vari
abl
e but
ion rat
io
spend ( £) costs(
£) costs(%)
(£) (
%)

a) 15.
00 6.
00 5.
25 - - -

b) 20.
00 7.
00 - 70% - -

c) - 8.
75 6.
25 - - 40%

d) 17.
50 7.
00 - - 7.
50 -

e) 12.
50 - 2.
50 - - 35%

(
15mar
ks)

17.
Barnardo’
ssnackbaroper
atesataC/
Srat
ioof60percent
.It
sfi
xed
expensesare

£50,
000.

St
anl
eyt
hoi
thikagwi
Page67
 a)Fi
ndtheval
ueofsalesrequi
redf
ort
hesnackbart
ocov
eri
ts
fi
xedandvar
iabl
ecostsonly
.

(
5mar
ks)

b)Fi
ndtheval
ueofsal
esnecessar
ytogi
vet
hesnackbaranet
pr
ofi
tof£20,
000.

(
4mar
ks)

18.
Theriver
siderest
auranthasbeenrunbyMr .Tr
adformanyyear
s.Hehas
neverbeensureast ohowmanycust omersheneedstoser
vetobreak-
evenortherateofincreaseofprof
itasnumber sser
vedi
ncr
ease.From t
he
fol
lowinginf
ormationyouarerequi
redto:-

a)Pr
epar
eabr
eak-
event
abul
arst
atementand

b)Dr
awabr
eak-
evenchar
tshowi
ngt
her
esul
ts.

Theri
versi
derestaurantser
vesbet
ween900and1,500cust
omersperweek.
Theaveragespendingpoweris£12.
00;
thefi
xedcostsar
e£8,000perweek
andtot
al v
ari
ablecostsamountto35%ofsal
es.

(
16mar
ks)

19.
Expl
ainwhati
smeantby
:-

a)Fi
xedcost

b)Semi
-f
ixedcost

c)Var
iabl
ecost

(
6mar
ks)

20.
a) Listt
hreeexampl
esoff
oodser
vicecost
sthatar
evar
iabl 11/
e.( 2
mar
ks)

b) Defi
net
het
erm cost
. (
2
mar
ks)

21.
a) Whati
sav
ari
abl
erat
e? (
1mar
k)

b) Gi
vent
hef
oll
owi
ngi
nfor
mat
ion,
cal
cul
atev
ari
abl
erat
e.

- Sal
espr
iceperuni
tKsh.
1500

- Var
iabl
ecostperuni
tisKsh.522.
60 (
2
mar
ks)

22.
a) i
) Li
stf
ourmet
hodsofov
erheadsabsor
pti
on.

St
anl
eyt
hoi
thikagwi
Page68
 (
2mar
ks)

i
i
) Out
li
nethecircumstancesunderwhi
cht
hemet
hodsst
atedi
n
(
a)(
i)ar
eselected.

(
4mar
ks)

b) Theov er
headsofabaker
yandconf
ect
ioner
ycompanywer
e
£25,
000f
ora

speci
fi
cper
iod.

Tot
alout
putwas5,
000uni
ts

Thef
oll
owi
ngi
nfor
mat
ionwasal
sopr
ovi
ded:

Mat
eri
alcost £50,
000

Numberofl
abourhour
s 2,
500

Labourcost £12,
500

Numberofmachi
nehour
s 2,
000

Calcul
atetheover
headabsorpt
ionrat
esbyusi
ngt
hef
ourdi
ff
erent
absorpt
ionmethodsstat
edin(a)(i
)

(
8mar
ks)

23.
DIPLOMA2006QN12B

Ref
erences:
-

i
. Kot asRichardandDav isBer nard(1986) ;Foodandbev eragecont r
ol,
I
nt ernat
ionaltextbookcompanyl td,(3rdediti
on)greatBritain.(pg24-33)
.
i
i
.Dav isB.Etall(2004) ;FoodandBev eragemanagement ,Butterwor t
h
Hei nemann, 3rdedi
( t
ion)U.k.( pg105- 109).
i
i
i.Dav isBernardandSt oneSal ly(1985) ;FoodandBev eragemanagement ,
Hei nemannPr of essionalPubl i
shingLt d,(1stedit
ion)
,Oxfor dLondon.( pg46
-49).
i
v.Saleemi AhmadNi sar(1990) ;Costaccount i
ngsi mpli
fi
ed, N.A.Saleemi
publ i
shers,Nairobi.(pg10-14, 275-282,88-115) .
v
.Boar dmanR. D( 1986) ;Hotelandcat eri
ngcost ingandbudget s,Wi l
l
iam
Hei nemannLt d, LondonMel bourne.( pg160- 165).
v
i.Kot asRichardandConl anMi chael (
1997) ;Hospitali
tyAccount ing,Patbond
publ i
sher,London.( pg296- 315) .

St
anl
eyt
hoi
thikagwi
Page69
 v
ii
.OdgersPeter;Pur
chasingcosti
ngandcont
rol
,St
anl
eyThor
nespubli
shers
LTD,London.(pg100-117).
v
ii
i.
SethiMohi
ni (
2008);I
nsti
tut
ionalf
oodmanagement
,NewAgeInt
ernati
onal
publi
sher
s.(pg525-565)

BUDGETI
NGFORFOODANDBEVERAGEOPERATI
ON
BUDGET

Def
ini
ti
on

i
.Isthefinancial
orquant
it
ati
vest
atementpr
epar
edandappr
ovedpr
iort
oa
def
inedperiodoft
ime.

i
i
.Apl anexpressedi
nmonetar
yorothert
ermswhi
chgov
ernst
heoper
ati
on
ofanenter
priseov
erapr
edeter
minedperi
od.

i
i
i.Isastat
ementexpressedi
nmonetaryquant
itat
ivet
erms(numberof
cust
omer s,
tot
alval
ueofpayr
oll
),r
efl
ecti
ngthepoli
cyofabusi
nessand

St
anl
eyt
hoi
thikagwi
Page70
 determini
ngbusinessoper
ati
onsinrespectofapar
ti
cul
art
radi
ngper
iod
(usuall
y1y earbutdi
vi
dedforcont
rolpurposes.

Themai nobject
iveofabudgeti
stosetsomet ar
getstobeachievedina
speci
ficper
iod.Budget
shelptopin-
pointtar
getsforvari
ousdepartmentsand
provi
desameansofcont rolf
ormanager s.I
fthetar
getsarenotachieved,
then
shoul
dbepossi bl
etodrawupsomer easonsforthecausesoffai
lure.

Budgetsmaybepr eparedfort
hebusinessasawhol e,fordepart
ments,
for
funct
ions(suchassalesandpr oduct
ion,
orforf
inancialandresour
cesit
ems
(suchascash,capi
talexpendi
ture,
manpower,purchasese.t.
c)

Pr
epar
ati
onofbudget
sisofgr
eati
mpor
tancef
ormaxi
misi
ngpr
ofi
ts.

ADVANTAGESOFBUDGETS

i
. Theseareawayofcompel l
edplanni
ng:-t
hroughbudget
s,afi
rm has
cleargui
del
i
nesandthefi
nancialandhumanr esour
cescanbeutil
i
sed
toachiev
esomespecif
ictarget
s.

i
i
.Budgetshel
ptoimprov
ecommuni
cat
ionandco-
ordi
nat
ionamongt
he
managementandempl
oyees.

i
i
i.Areusedtodet
ermi
neandev
aluat
etheper
for
manceoft
hebusi
ness
enter
pri
se.

i
v.Hel
pstoclar
if
ytheaut
hori
tyandr
esponsi
bil
i
tiesoft
hedepar
tment
al
manager
sandotherst
affmembers

v
.Itshowsthattheper
for
manceoreffi
ciencyofthefi
rmissati
sfactor
yor
not
.(det
ermineatt
heendoft
radingperiodaf
tertheact
ualperfor
mance
i
sascert
ainedandcompar
edwiththebudgets).

Abudgetisusedasat oolofplanni
ngasithelpstoplaninadvanceand
i
mplementtheseplans.Withoutabudgetanor gani
sati
oncannotuti
l
isei
ts
r
esourcesmoreeffecti
vel
y.Budgetisconsideredasat ool
ofplanni
ngduetot
he
f
oll
owingreasons:
-

i
. Budgethel
pst
ofor
mul
atet
hepol
i
cyofabusi
ness.

i
i
.Budgethel
pst
oco-
ordi
nat
etheact
ivi
ti
esofabusi
ness.

i
i
i.Theacti
vit
iesofanorgani
sati
onarecontr
oll
edpr
oper
lyi
nor
dert
o
achi
evethetarget
sofitsbudget
edplans.

Budget
ing–i
sthepr
ocessbywhi
chest
imat
esofexpendi
tur
eandr
ecei
ptsar
e

St
anl
eyt
hoi
thikagwi
Page71
madebasedonactualper
for
manceofest
abl
i
shmenti
nthepast
,andadj
ust
edf
or
f
orecast
ingf
utur
eoutcomes.

I
tisapr
ocedur
ewhi
chhel
pst
oachi
evet
het
arget
soft
heor
gani
sat
ion.

BUDGETARYCONTROL

Isamanagementt
echni
quewhi
chi
sadopt
edt
ocont
rol
thebusi
nessmor
e
eff
ect
ivel
y.

Def
ini
ti
on

i
.I sameansofcont
rolbywhichresponsibi
l
ityforvar
iousbudgeti
s
assi
gnedtot
hemanager sconcernedandacont i
nualcompari
sonis
madeoftheact
ualresul
tswithbudgetedresul
ts.

i
i
.I spl
aci
ngresponsibil
i
tyforminimum lev
elsofachievementon
managers,
whot hroughconstantcomparisonofactualr
esul
tswit
h
budget
edtargetscanmoni t
orprogressfr
om ti
met otimeandtake
corr
ect
iveacti
on.

Afundamental
ofbudgetar
ycontroli
sthatt
heresponsi
bil
i
tyf
ort
hev
ari
ous
budget
sisassi
gnedtotherespecti
vemanager
s.

Acontinualcomparisonofact
ualresult
swiththebudgetsismadeandwhen
var
iancesoccurtheyareexaminedandt hecausesdeter
mined.I
tisessent
ialthat
anycorrect
iveacti
onnecessaryi
st akenimmediat
elybecauseoft
heef f
ectitmay
haveont heprof
it
abili
tyoft
hebusiness.

OBJECTI
VESOFBUDGETARYCONTROL

i
. Toformul
atet
hepoli
cyoft
heestabl
ishment(t
ogivepract
ical
expr
essi
ontotheai
msandpoli
ciesofthebusi
ness).

i
i
.Topr ov
ideadet
ail
edplanofcat
eri
ngoper
ati
onsi
nrespectofa
par
ti
cul
artr
adi
ngperi
od.

i
i
i.Toco-or
dinatetheact
ivi
ti
esoft
hebusi
nessi
nor
dert
oachi
eve
speci
fi
ctargets.

i
v.Tosetst
andar
ds(tar
gets)agai
nstwhi
chi
tispossi
blet
omeasur
e
manager
ial
perf
ormance.

v
.Toensur
eaneconomi
cal
useoft
her
esour
cesoft
hebusi
ness.

N/B-Budgetar
ycontroli
snotamat t
erofpaperwork.I
tismostimport
ant
i
ngredi
entsaretheplanni
ngwhichgoesint
othepreparat
ionofbudget
sandi
ts
ef
fecti
venessi
nt hecontr
olofcat
eri
ngoperat
ion.

St
anl
eyt
hoi
thikagwi
Page72
Thedet erminati
onofthemarketing,cat
eri
ngandf i
nancial
poli
ciesleadstothe
evoluti
onoft heoveral
lpr
ofi
ttargetanddepartmentalpr
ofitmargi
nsf ort
he
revenue-produci
ngdepart
ment softhebusiness.I
tisatthi
spointthatbudgetar
y
controlstakesoverandprov
idesadet ai
ledplanofoperati
onsculminati
nginthe
mast erbudget.

BUDGETCOMMI
TTEE

Wherether
eisasystem ofbudgetar
ycont
roli
noperat
iont
her
eisi
nvar
iabl
y
const
it
utedabudgetcommi t
tee.Thi
sconsi
stsof
:-

 Seni
orexecut
iveoft
hebusi
ness(
managi
ngdi
rect
ororgener
al
manager)

 Several
seni
ormanager s(e.
gfoodandbever
agemanager,execut
ive
chef,
execut
ivehousekeeper,
banquet
ingmanager
,rest
aur
ant
managere.t
.c)

 Account
ant

Theseni
orexecut
iveusual
l
yactsasthechai
rmanandt
heaccount
antast
he
secr
etar
yofthebudgetcommit
tee.

FUNCTI
ONSOFBUDGETCOMMI
TTEE

Themai
nfunct
ioni
stodeci
de:
-

i
. Thebestsy
stem ofbudget
arycont
rol
sui
tabl
efort
hei
rpar
ti
cul
ar
st
ruct
ureoforgani
sat
ion

i
i
.Theaut
hor
it
yandr
esponsi
bil
i
tyofeachmanger

i
i
i.Budgetpr
oposal
sindr
aftf
orsubmi
ssi
ont
otheBoar
dofDi
rect
ors

i
v.Pr
epar
ea‘
budgetmanual
’
.

v
.Toco-
ordi
nat
efort
hepr
operi
mpl
ement
ati
onoft
hebudget
s.

FORMULATI
ONOFBUDGETS

Whenprepari
ngt
hebudgetpr
oposal
sthebudgetcommi
tt
eewi
l
ltakei
ntoaccount
t
hefol
lowing:
-

a)Pastper
formance-t
hisentai
l
sathoroughanal
ysi
sofpasti
ncome,
expendi
tur
e,t
rendsi
ni ncomeandexpendi
tur
e,et
c.

b)Curr
enttr
ends-thi
snecessi
tat
esarevi
ewofthecur
rentposi
ti
on
wit
hregardt
ot heit
emsment i
onedi
n(a)above.

c)Ot
heri
nfor
mat
ionsuchas:
-

St
anl
eyt
hoi
thikagwi
Page73
  St
ateofempl
oyment

 Condi
ti
onandpr
osper
it
yofl
ocal
ofl
ocal
indust
ry

 Thepol
i
tical
sit
uat
ion

 Futur
edevel
opmentandot
herl
i
kel
yef
fect
sont
urnov
er,
expenseset
c.

 Ser
vicesof
fer
ed

 Pr
icechar
gedbycompet
it
ors

BUDGETMANUAL

Def
ini
ti
on-t
hisisarulebookwhichlay
sdownthebudgeti
ngprocedur
es,
or
gani
sati
onalstr
ucture,
desi
gnati
onsofr
esponsi
bil
i
tiesandbudgett
imetabl
e.

I
tcont ai
nsdetail
sofallbudgetsthathavebeenprepar
ed,andthi
sensuresthat
theyaresati
sfactor
il
yfoll
owed.Itsetsoutthewayinwhichbudgetandaccounts
areclassi
fi
ed,detai
ledproceduresconcerni
ngrev
iewperiodsandacalendarof
datesforbudgetreport
s.

THEBUDGETPERI
OD

Budgetsar
epreparedforaspeci f
icper
iod.Theremaybeper iodbudgetsand
cont
inuousbudget
s.Periodbudgetscov er
saf i
xedperi
odoft i
mee.gsix,1year
or5yearsandmaybedi videdintoshor
terper i
odsknownascont r
olperi
ods.
Conti
nuousbudgetisapr ocesswherebybudget sforayearareconti
nual
ly
ext
endedbyanotherperi
odi .eonequarter,hal
fyear
.

THELI
MITI
NGFACTORS

Thesearefactor
swhichpr
eventf
urt
herexpansi
onoft
heest
abl
i
shmentoran
i
ncreaseintheprof
it
.

Thefir
ststepinthepr eparati
onoft hebudgetistoforecastthevolumeofsales,
asiti
sthisthataff
ectsmostot herpartsofthebudget.Thus, t
heforecastv
olume
ofsal
eswi l
ldeter
mi nethel evelofall
vari
ableandsemi -f
ixedcost;al
soitwil
l
aff
ectthecashpositionoft hebusinesswhi ch,
intur
n, maydet er
minetheamount
ofcapit
alexpendit
urepl annedfortheperiod.

Anyf
actort
hatwi
llobst
ructorl
i
mitanyf
urt
heri
ncr
easei
nsal
esmustbe
i
dent
if
iedandi
nvesti
gat
ed.

Limit
ingfactorsar
ealsorefer
redt oas‘keyf
act
or’
,gov
erni
ngfactor
’and‘
pri
nci
pal
budgetfactor’
.Thi
sisthefact
ort hatl
imitst
hevol
umeofsalesandmakesa
furt
herincr
easeinsalesimpossible.

St
anl
eyt
hoi
thikagwi
Page74
Thefol
l
owi
ngl
i
mit
ingf
act
orswi
l
lbef
oundoper
ati
ngi
nhospi
tal
i
tyest
abl
i
shment
s
are:
-

1)Accommodat
ionav
ail
abl
eorsi
zeandcapaci
tyoft
heest
abl
i
shment

Thi
soperatesinresi
denti
alest
ablishments,namely,hot
els,
motels,host
els,et
c.
Onceallt
heaccommodat ionav ai
l
ablehasbeenl eti
tisimpossi
bletoincr
easet he
vol
umeofsal esexceptbyrai
singpricesorextensi
oninthepremiseprovi
ding
moreroomsf orl
etti
ng.

2)Speci
alf
unct
ionscapaci
ty

Thev ol
umeofsal
esf r
om speci
alfunct
ionbusinesswil
lbelimi
tedbythe
avai
labil
i
tyoff
aci
l
iti
es.Thehotelwil
lonlybeabletoacceptbooki
ngsin
accordancewi
tht
heaccommodat i
onandf aci
l
iti
estheyareabl
etoprovi
de.

3)Seat
ingcapaci
ty

Restaurantsareonlyabletoaccommodat ethenumberofcustomer sf orwhi

ch
theyhav eseatsavai
labl
e,sothatoncether estaur
antisful
ltocapacityandASP
hasr eachedthemaxi mum fort
hetypeofser v
iceoff
ered,t
henanyincr easei
n
saleswoul donlybeachievedbyquickerturnround,anincr
easeinpricesor
extensiontotherestaur
anttomakemor eseat savai
labl
e.

4)I
nsuf
fi
cientcapi
tal

I
namul t
ipl
ecat
eri
ngbusi
nessanexpansionofsalesthrought
heacqui
sit
ionof
f
urt
herunit
smaybeimpossi
bleduetoinsuf
fi
cientcapit
al.

5)Shor
tageofef
fi
cientl
abour

Manyhospi tali
tyestabli
shment scouldincreaset
heirsalesbyimpr ovi
ngthe
eff
ici
encyoft heirlabour.Thusthespeedwi t
hwhichcashi stakenbyt hecashi
er
i
nasel f-ser
vicerestauranthasani mportantbear
ingont hevolumeofsal es;
si
mi l
arly
, t
hespeedwi t
hwhi chwaitersservecustomer scanaffectthevol
umeof
sal
esconsi derably.Theabili
ti
esoft hechefandot herkit
chenstaffareequall
y
i
mpor tantinthisrespect.

6)Shor
tageofef
fi
cientexecut
ives

This,obvi
ously,i
sevenmor eimpor
tantt
hanashor tageofeff
ici
entlabour
.
I
nef f
ici
entmanagementmakesanexpansi onofsalesdiff
icul
tthr
oughbad
organisat
ion,uni
maginati
vemenuplanni
ngandf ail
uretotakeadvantageofany
oppor t
uni
tiestoincr
easesalest
hatmaypresentthemselves.

St
anl
eyt
hoi
thikagwi
Page75
 7)Managementpol
i
cy

I
fmanagementhav elaiddownasetpol i
cythati
twil
lonl
ycat erforacert
aint
ype
ofcustomerandwi l
lnotacceptcert
aintypeofbusi
nessthen, t
hemanagement
poli
cyitsel
fcoul
dprov etobealimit
ingfactor
.Oncethemaximum sal esfr
om
businessbasedonthel i
neslai
ddownbyt hemanagementpol i
cyhavebeen
real
isedonlyachangei npol
icywil
laff
ectanincr
easeinsales.

8)Consumerdemand

Thi
sisali
miti
ngfact
ori
ntheoperat
ionofwhi
chismostdi
ff
icul
ttor
emov
e.
Consumerdemandmaybeli
mitedinsever
alway
s:

 Bypr
iceschar
ged

 Thr
oughcompet
it
ion

 Asresul
tofaf
ixedpot
ent
ial
demand(
e.gi
nindust
ri
al
cant
eens).

Whenani ncr
easeinsalesprovesdi
ffi
cul
titi
simpor
tantt
oident
if
ythel
i
mi t
ing
f
actor(
s).Thenatur
eoft heli
miti
ngfact
orwil
ltheni
ndi
cat
ethemostappropri
ate
methodofdeali
ngwi t
ht heprobl
em.

9)Pr
ici
ngpol
i
cy

Manyhot el
ier
sandcat erer
sat t
empttooffsett
hepri
cer i
sesinf ood,dri
nkand
othercommodi t
iesandservicesbysimplypassi
ngont heseincreasestothe
customer.Thi
si snotalwaysawi sepol
i
cy ,f
ori
tmustber emember edthatthe
consumermayal sobeonapl annedbudgetandwhenher eacheshismaxi mum
spendingli
mitoni t
emssuchashav i
ngameal outorthetypeofaccommodat ion
heisabletoafford,t
hedecidingfact
ormaybet hepri
ceschar gedbyt he
restaur
antorthehotel.

Oncet heest
abli
shmentexceedstheli
mitofit
scustomer s’spendingpower,t
he
customerswil
lgoelsewhere,
resul
ti
nginlossofbusi nesst
ot heestabl
ishment.I
ts
oftenawiserpol
icywhenconfront
edbypr i
cerisesforthehoteli
erorcater
erto
l
ookf orwaysandmeansofabsor bi
ngsomeoft hem bymaki nghisest
abli
shment
functi
onmoreeffici
ent
lyandensuri
ngnowast age.

Whenev
erpossi
blet
hecat
erershoul
dtr
yandkeephi
schar
gesr
easonabl
yst
abl
e.

N/B-t
hekeyfact
oraf
fect
sthepr
eparati
onofbudget
sandmustbeprepar
edi
n
suchawaythatmaxi
mum possi
bleuseismadeofthekeyf
act
ors.

TYPESOFBUDGETS

St
anl
eyt
hoi
thikagwi
Page76
Ther
eareseveralkindsofbudget
susedi
nhospital
i
tyestabl
ishmentwhenviewed
fr
om di
ffer
entanglesinanyfoodandbev
erageservi
ceestabli
shmentasdepict
ed
bel
ow:-

VI
EW POI
NT TYPEOFBUDGET

i
. Subj
ectmat
ter * Capi
tal
budget

* Oper
ati
ngbudget

i
i
.Lev
elofSal
es * Fi
xedbudget

* Fl
exi
blebudget

i
i
i.Scope/Compr
ehensi
veness * Mast
erbudget

* Depar
tment
albudget

CAPI
TALBUDGETS

Thesearebudgetsdeal
ingwit
htheasset
sandt hecapital
fundsofa
busi
ness(deal
withassetsandli
abi
li
ti
esofthebusi
ness).Exampleofcapi
tal
budget
sarebudgetsdeali
ngwithequi
pmentandplant
, cash,
anyproposedissue
ofshar
esordebentur
es.

OPERATI
NGBUDGETS

Thesearebudgetsconcer
nedwi ththeday-t
o-dayrunningofthebusiness
(concernedwithincomeandexpenditur
eoft heest
ablishment).Examplesof
operati
ngbudget saret
hosedeal
ingwi t
hsales,purchases,
labourcosts,of
fice
andadmi nist
rat
ionexpenses,
maintenance,etc.

FI
XEDBUDGETS

Thesear ebudget
st hatremainunchangedi rr
especti
veofthelevelofsales
achiev
ed( budgetsremainunchangedov eraperi
odoft i
me, andarenotrelat
edt o
thelevelofsales)
.Thistypesofbudget shavef i
xedamount sall
ocatedfor
expenditurebefor
ethecommencementoft hebudgetper i
odandmustbekept
withi
nt heli
mitsofthebudgetset .Examplesoffixedbudgetsarepress
advert
ising,pr
inti
ngofbrochures,stati
onery,
rentsandrates,admini
str
ation,et
c.

FLEXI
BLEBUDGETS

Af lexibl
ebudgetpr edet
erminescost si
nr el
ati
ont oseveralpossibl
e
volumesofsal es.Exampleinaseasonal establi
shmentt helabourbudgetwoul d
be‘fl
exible’forthelabourcostsduringt
he‘ on-season’wil
lvaryconsiderabl
yto
thatforthe‘ off
-season’aswill
vari
ousbudget edov erheadandr awmat eri
alcosts.

DEPARTMENTALBUDGETS

St
anl
eyt
hoi
thikagwi
Page77
 Theseareconcernedwit
hpart
icul
ardepartmentofabusi
ness.Exampl
esof
suchbudgetsar
e:banqueti
ngbudget
,maintenancebudget
,rooms’di
visi
on
budget
,foodandbeveragebudget
,et
c.

MASTERBUDGETS

Amast erbudgetmaybeabudget edpr of

itandlossaccount,i
ncorporat
ing
all
incomeandal lexpenditur
eofabusiness;i
tmayal sobeabudget edbalance
sheet,i
ncorporat
ingallasset
sandli
abili
ti
esofabusi ness.Masterbudget
contai
nsv ari
oussubsidiar
yorfunct
ionalbudget(afuncti
onalbudgetisonewhi ch
rel
atestoanyoft hefuncti
onsofanenterpri
se).

Ther
ear
evar
iousf
unct
ional
budget
snamel
y:
-

a)Sal
esbudget

b)Pr
oduct
ionbudget

c)Mat
eri
alusagebudget

d)Pur
chasesbudget

e)Labourcostbudget

f
) Ov
erheadcostbudget

g)Of
fi
ceandadmi
nist
rat
ionbudget

h)Mai
ntenancebudget

i
) Oper
ati
ngbudget

j
) Capi
tal
budget

k)Cashbudget

l
) Budget
edpr
ofi
tandl
ossaccount

SALESBUDGET

 Thesebudgetsarer
egardedasthemosti
mpor
tantbudgetbecauseal
l
otherbudget
sarebaseduponit
.

 I
tspur
posei
stopr
edet
ermi
net
hev
olumeofsal
es.

 I
tshowst
henumberofunit
sofdi
ff
erentpr
oduct
swhi
chanest
abl
i
shment
want
stosel
li
nthenextt
radi
ngper
iod.

 Thepr
epar
ati
onofsal
esbudgeti
sbasedont
hef
oll
owi
ngf
act
ors:
-

i
.Pastper
for
mance -Sal
esf
igur
esandst
ati
sti
csf
rom

St
anl
eyt
hoi
thikagwi
Page78
 pr
evi
ousy
ear

f
oral
ldepar
tmentoft
heoper
ati
on.

i
i
.Thecurrentev
ent
s -Checkanyev
entt
aki
ngpl
aci
ngast
his
canhav
e

anef
fect
.

i
i
i.Li
miti
ngfact
or -I
dent
if
yanywhi
char
eli
mit
ing
sal
esinacert
ain

ar
ea.

i
v.Thecurr
entt
rends -pr
esentst
ateofmenumi
x,l
i
kesand
di
sli
kesof

cust
omers,changesi
nli
vi
ngandeat
ing
habi
ts,
etc.

v
.Economi
candpol
i
tical
cli
mat
e

v
i.Changesi
npr
iceandt
ari
ff
s

 Pastsal
esmustnecessar
il
ybet
hest
art
ingpoi
ntwhenpr
oject
ingt
hesal
es
vol
umeinthef
uture.

 Anyanalysi
sofpastsal
esshoulddist
ingui
shbetweenfoodsal
es,bev
erage
sal
es,accommodationsal
es,banquet
ingsalesanddeter
minewhattr
ends
exi
stsineachcomponentpar
toft het
otalsalesr
evenue.

PRODUCTI
ONBUDGET

 Thi
sbudgetgi
vesthedet
ail
sofdi
ff
erentgoodsori
temst
obepr
oducedi
n
aspeci
fi
cperi
od.

 I
nthepr
epar
ati
onofpr
oduct
ionbudget
:-

a)i
ftheopeningstocki
sgr
eat
erthancl
osi
ngstockthenthi
s
di
ffer
encesisshownasadeducti
onf
rom t
hesalesquanti
ty.

b)I
fopeningstocki
ssmall
ert
hancl
osingstockt
hent
he
di
ff
erenceisaddedt
othesal
esquanti
ty.

c)Thefigur
eshowsthenumberofunit
sorpiecestobe
produceddur
ingt
heyearornextt
radi
ngperiod.

EXAMPLE1

B.Kconfect
ioner
yshopoff
erstwomai
nproduct
snamel
ysausager
oll
andr
ock
buns.Thebudgetedsal
esfort
hepr
oduct
sareasfol
l
ows:
-

St
anl
eyt
hoi
thikagwi
Page79
 Pr
oduct Quant
it
y Pr
ice

Sausager
oll
s 3,
000pi
eces Ksh.80

Rockbuns 7,
000pi
eces Ksh.70

St
ocksoft
hesepr
oduct
swer
easunder
:-

Pr
oduct Openi
ngst
ock Cl
osi
ngst
ock

Sausager
oll
s 2,
000pi
eces 1,
500pi
eces

Rockbuns 1,
800pi
eces 2,
500pi
eces

Requi
red:
-

i
. Pr
epar
esal
esbudget

i
i
.Pr
epar
epr
oduct
ionbudget

Sol
uti
on

i
. Sal
esbudget

Pr
oduct Quant
it
y Sal
espr
iceperuni
tSal
esv
alue

Sausager
oll
s 3,
000 Ksh.80 Ksh.
240,
000.
00

Rockbuns 7,
000 Ksh.70 Ksh.
490,
000.
00

Ksh.
730,
000.
00

N/
B-Sal
esv
alue=Quant
it
yxSal
espr
iceperuni
t.

i
i
.Pr
oduct
ionbudget

Pr
oduct

Sausager
oll
s Rockbuns

Sal
es(
uni
t) 3,
000 7,
000

I
ncr
easeordecr
easei
nst
ock (
500) 700

Uni
tst
obepr
oduced 2,
500 7,
700

MATERI
ALUSAGEBUDGET

Thi
sty
peofbudgeti
susedt
odet
ermi
net
het
otal
mat
eri
alt
obeusedf
ort
he

St
anl
eyt
hoi
thikagwi
Page80
pr
oduct
ionofspeci
fi
cpr
oduct
sori
tems.

MATERI
ALPURCHASEBUDGET

Thistypeofbudgetshowst hetotal
costofthemat eri
alusedinpr
oducti
onofa
specif
iccost.Thepr
inci
pleappliedi
sthatunitcostismulti
pli
edwit
hquantit
y
requi
redthenaddedtogethertoascert
ainthetotalcostofal
lthemater
ial
stobe
purchased.

EXAMPLE2.

EasyLTDmanufactur
erstwoproduct
snamelyXandY.Thecompanyusestwo
materi
alsAandBinthemanufact
ureoft
heseproduct
s.Thef
oll
owi
nginf
ormat
ion
i
sgivenfort
heyear2010.

i
. Budget
edsal
es

Pr
oduct Quant
it
y Pr
ice

X 10,
000pi
eces Ksh.40

Y 8,
000pi
eces Ksh.30

i
i
.Mat
eri
alsused

Mat
eri
al A B

Uni
tcost Ksh.5 Ksh.8

QUANTI
TIESUSED A B

X Ksh.5 Ksh.3

Y Ksh.4 Ksh.4

Therewer
enostocksatt
hebegi
nni
ngoft
hey
ear
.St
ocksatendoft
hey
earar
e
expect
edtobe:
-

X - 1,
000uni
ts

Y - 500uni
ts

Requi
red:
-

i
. Pr
epar
esal
esbudget

i
i
.Pr
epar
epr
oduct
ionbudget

St
anl
eyt
hoi
thikagwi
Page81
 i
i
i.Pr
epar
emat
eri
alusagei
nquant
it
iesbudget

i
v.Pr
epar
emat
eri
alpur
chasei
nquant
it
yandv
alue

Sol
uti
on

i
. Sal
esbudget

Pr
oduct Quant
it
y Sal
espr
iceperuni
tSal
esv
alue

X 10,
000 40/
= Ksh.
400,
000.
00

Y 8,
000 30/
= Ksh.
240,
000.
00

Ksh.
640,
000.
00

i
i
.Pr
oduct
ionbudget

Pr
oduct

X Y

Sal
es(
uni
t) 10,
000
8,
000

I
ncr
easei
nst
ock 1,
000 500

Uni
tst
obepr
oduced 11,
000
8,
500

N/B-Noopeni
ngstockbutthecl
osi
ngunit
swil
lbepr
oduceddur
ingt
hey
earso
t
heseuni
tsareaddedtotheunit
stobesol
d.

i
i
i.Mat
eri
alusageBudget

Pr
oduct Tot
al

Mat
eri
al X Y Uni
ts

A 55,
000 34,
000
89,
000

B 33,
000 34,
000
67,
000

Wor
kings

St
anl
eyt
hoi
thikagwi
Page82
 Mat
eri
alAf
orpr
oduct X=5x11,
000=55,
000uni
ts

Y=4x 8,
500=34,
000uni
ts

Mat
eri
alBf
orpr
oduct X=3x11,
000=33,
000uni
ts

Y=4x 8,
500=34,
000uni
ts

Tot
alusageofmat
eri
alA =89,
000uni
ts

B =67,
000uni
ts

i
v.Mat
eri
alpur
chaseBudget

Mat
eri
al Quant
it
ytobeusedPr
iceperuni
t Val
ue

A 89,
000 Ksh.
5 Ksh.
445,
000.
00

B 67,
000 Ksh.
8 Ksh.
536,
000.
00

Ksh.
981,
000.
00

EXAMPLE3.

Setoutbelowaret
hesalesdetai
lsfortheRoyal
Hotelf
ort
hemonthofSept
ember
2008.Thehotel
has30bedr oomswi t
har est
aur
antopent
othepubl
i
canda
rest
aurantandr
esi
dent
iall
icence.

Room:
700r
oom ni
ghtatanav
erager
ateof£17perr
oom per
ni
ght

Foodsal
es:
1,800cov
ersatanav
eragespendi
ngof£5.
40
each

Li
quorsal
es:
4,850.

Fort
hef
ort
hcomi
ngy
earpr
iceshav
ebeeni
ncr
easedasf
oll
ows:
-

Av
erager
oom r
atet
o£18perper
sonperni
ght

Av
eragespendi
ngi
nther
est
aur
antt
o£5.
60

Barpr
icesby5%

I
tisant
ici
pat
edthatsal
eswil
lincr
easeby5%f
orr
oomsandf
ood;
butl
i
quorsal
es
ar
enotexpect
edtoincr
ease.

Pr
epar
easal
esbudget
.

St
anl
eyt
hoi
thikagwi
Page83
Sol
uti
on

ROYALHOTEL
SALESBUDGETFORSEPTEMBER2008
SALESLAST NO.OF AVERAGE TOTALSALES
DEPARTMENT YEAR(£) COVERS/
ROOMS PRI CE(£) THI SYEAR( £)
ROOMS 11,900 735 18.
00 13,230.
00
FOOD 9,720 1890 5.
60 10,584.
00
LIQUOR 4,850 - - 5,
093.00
TOTAL 26,470 28,
907.00

Wor
kings

Sal
esl
asty
earRoom =700x17 =11,
900

Food=1,
800x5.
40= 9,
720

Li
quor= = 4,
850

Thi
syearsal
esf
oodandr
oom i
ncr
easeby5%

i
.e Food 5%of9,
720 =486

No.OfCov
ers=9720+486 =1890

5.
40

Room 5%of11900=595

No.OfCov
er=11900+595 =735

17

Barpr
icei
ncr
easeby5%(
i.
eASP)

Ther
efor
elasty
earbarpr
ice =

= = 2.
694

Thi
syearpr
icei
ncr
easeby5%

5%of2.
694 = 0.
135

Barpr
icet
hisy
earwi
l
lbe =2.
694+0.
135 = 2.
829

Ther
efor
ebarsal
eswi
l
lbe=2.
829x1800 = 5093

St
anl
eyt
hoi
thikagwi
Page84
NOTE:
- SALESBUDGETAREALSOUSEDTOPREPAREASALESREPORT.

EXAMPLE1

Thefol
lowi
ngfigureswer
eext
ract
edf
rom t
hesal
esbudgetofki
oko’
srest
aur
ant
i
nrespectofJanuary,
20.
.

Dept
.A Dept
.B Dept
.C Bar Sundr
ies

No.Of 8,
000 6,
000 4,
000 - -
cover
s
Ksh.10 Ksh.15 Ksh.12.
50 - -
A.
S.P
Ksh.80,
000 Ksh.90,
000 Ksh.50,
000 Ksh.12,
000 Ksh.5,
000
Sal
es

Att
heendofJanuar
y,20.
.,
itwasascer
tai
nedt
hatt
he:
-

a)Numberofcov
ersachi
eveddur
ingt
heper
iodwas:
-Dept
.A8,
400,
Dept
.B
5,
800and

Dept
.C4,
200.

b)Theav
eragespendi
ngpower(
ASP)was:
-Dept
.AKsh.10.
40,
Dept
.BKsh.
14.
80and

Dept
.CKsh.12.
60.

c)Theact
ual
barsal
eswer
eKsh.12,
500andsundr
ysal
esamount
edt
oKsh.
5,
400.

Requi
red:
-

Pr
epar
eamont
hlysal
esr
epor
tshowi
ngcl
ear
lyt
her
elev
antv
ari
ances.

(
10mar
ks)

Sol
uti
on

SALESBUDGETREPORT
FORJANUARY20..
NUMBEROFCOVERS A.
S.P SALESVOLUME
DEPARTMENT BUDGET ACTUAL V% BUDGET ACTUAL V% BUDGET ACTUAL V%
Dept
.A 8,
000 8,
400 5 10 10.
40 4 80,
000 87,
360 9
-
Dept
.B 6,
000 5,
800 3.3 15 14.
80 -
1.3 90,
000 85,
840 -
4
Dept
.C 4,
000 4,
200 5 12.
5 12.
60 0.8 50,
000 52,
920 5
Bar - - - 12,
000 12,
500 4

St
anl
eyt
hoi
thikagwi
Page85
Sundr
ies - - - 5,
000 5,
400 0

EXAMPLE2

Thef ol
lowi
ngfigureswer
eext
ract
edf
rom t
hesal
esbudgetofB.
K’sr
est
aur
anti
n
respectofJanuary20.
.

SALESBUDGET
FORJANUARY20.
.
NO.OF FOOD SALES BEV. SALES TOTAL
DEPARTMENT COVERS ASP TOTAL ASP TOTAL SALES
£ £ £ £ £
Rest
aurant
:Ala 10000.
0 14000.
0
car
te 2000 5.00 0 2.
00 4000.
00 0
Rest
aurant
:Tabl
e
d’
hôte 1000 4.
00 4000.
00 1.
00 1000.
00 5000.
00
10000.
0
Coff
eeshop 4000 2.
00 8000.
00 0.
50 2000.
00 0
Banqueti
ng 500 3.
00 1500.
00 1.
50 750.00 2250.
00
Cocktai
lbar 5000 - 1.
00 5000.
00 5000.
00
23500.
0 12750.
0 36250.
0
Tot
al 12500 0 0 0

Att
heendoft
heJanuar
y20.
.,
itwasascer
tai
nedt
hatt
he:
-

a)Thenumberofcoversachi
eveddur
ingt
heperi
odwas:-Restaur
ant:Al
a
car
te2,
100,Rest
aurant:
Tabled’
hôt
e950,Cof
feeshop4,120,Banquet
ing
500andCocktai
lbar5,
200.

b)Theav
eragespendingpower(
ASP):
-
c)
Food Beverage
Restaur
ant:
Alacart
e Ksh.5.
10 Ksh.2.00
Restaur
ant:
Tabl
ed’hôt
e Ksh.4.00 Ksh.1. 10
Coff
eeshop Ksh.2.
10 Ksh.0. 45
Banqueti
ng Ksh.3.
10 Ksh.1. 40
Cocktai
lbar Ksh.-̀ Ksh.1.05

Requi
red:
-

Pr
epar
eamont
hlysal
esr
epor
tshowi
ngcl
ear
lyt
her
elevantv
ar i
ance.
(15mar ks)

Sol
uti
on

SALESBUDGETREPORT

St
anl
eyt
hoi
thikagwi
Page86
 FORJANUARY20.
.
NUMBER
OF
COVERS A .S .P SALESVOLUME

DEPARTMENT BUDGET ACTUAL V% BUDGET ACTUAL V% BUDGET ACTUA

FOODSALES
Restaur
ant:Al
a
car
te 2000 2100 5.
00 5.
00 5.
10 2.
00 10000 107
Restaur
ant:
Tabl
edhot e 1000 950 -
5.00 4.
00 4.
00 - 4000 38
Coff
eeshop 4000 4120 3.00 2.
00 2.
10 5.00 8000 86
Banqueti
ng 500 500 - 3.
00 3.
10 3.30 1500 15
BEVERAGE
SALES
Restaur
ant:Al
a
car
te 2000 2100 5.
00 2.
00 2.
00 - 4000 42
Restaur
ant: 10.
0
Tabl
edhot e 1000 950 -
5.00 1.
00 1.
1 0 1000 10

Cof
feeshop 4000 4120 3.
00 0.
50 0.
45 -
10 2000 18

Banqueti
ng 500 500 - 1.
50 1.
4 6.
7 750 7
Cocktai
lbar 5000 5200 4.00 1.
00 1.
05 5 5000 54

*I
nt heabov
esalesbudgetdevi
ati
onsfr
om thebudgetedfi
guresar
eshownas
percent
agevar
iances.Foral
ter
nat
ivemethodsofpresent
ati
on.

LABOURCOSTBUDGETS

Theyarebudgetedforinrel
ati
ontothevol
umeofsal
esasvol
umeofsalesi
s
propor
ti
onatetothelabourbutnotasthesamer
ate(
i.
esemi-
fi
xedcost
).

Themai nfact
orswhi
chhav
etobet
akeni
ntoaccounti
nthepr
epar
ati
onofl
abour
costbudgetsare:
-

i
. Thenumberandgr
adesofst
affi
neachdepar
tment

i
i
.Thebudget
edr
ateofpayf
oreachgr
adeofst
aff

i
i
i.Casual
andpar
t-
ti
mel
abour

i
v.Costofnat
ional
Heal
thI
nsur
ance,
etc.

v
.Al l
otherl
abourcostssuchasst
affmeal
s,st
affaccommodat
ion,
hol
idayswi
thpay,bonuses,
commissi
on,et
c.

OVERHEADCOSTBUDGETS

St
anl
eyt
hoi
thikagwi
Page87
Maybeprepar
edasoneorsubdi
vi
dedbudget
.Itt
endst
oli
tt
lechangef
rom one
t
radi
ngperi
odtoanot
her
.

Themosti
mport
antit
emswhi chhav
etobet
akeni
ntoaccounti
nthepr
epar
ati
on
oft
heover
headcostbudgetar
e:-

i
. Rentandr
ates

i
i
.Repai
r,r
enewal
s,r
epl
acementanddepr
eci
ati
on

i
i
i.Gasandel
ect
ri
cit
y

i
v.Post
ageandt
elephone

v
.Pr
int
ingandst
ati
oner
y

v
i.I
nter
estpay
abl
eandbankchar
ges

v
ii
.Account
ancyandl
egal
fees

v
ii
i.
Adv
ert
isi
ng

OFFI
CEANDADMI
NISTRATI
ONBUDGET

Thi
sbudgetwi
l
ltendt
ochangel
it
tl
efr
om oney
eartoanother
.Themost
i
mport
antit
emscover
edbytheof
fi
ceandadmi
nist
rat
ionbudget
sare:
-

a)Of
fi
cesal
ari
es;

b)Depr
eci
ati
onofof
fi
ceequi
pment
s;

c)Tel
ephone;

d)Pr
int
ingandst
ati
oner
y

e)I
nsur
ance,
bankchar
gesandaudi
tfees.

Aswit
hotherbudgetstheoffi
ceandadmi ni
strat
ionbudgetwil
ldi
sti
ngui
sh
bet
weenfixedandvari
ablecosts.Thi
sispart
icul
arlyi
mportanti
nseasonal
est
abl
ishments.

MAI
NTENANCEBUDGET

Whilstmostsmal l
erhospit
ali
tyest
abli
shment
sincl
udemaintenancecost
sina
tot
al expensebudgetoroverheadcost
sbudget
,lar
geuni
tstendtohavea
separatemaintenancebudget.

Awel
lpr
epar
edmai
ntenancebudgetwi
l
ldot
wot
hings:
-

i
.Itwi
l
lpr
edet
ermi
net
hemai
ntenancecost
s

i
i
.Itwi
l
lshowt
hesequenceoft
hewor
ktobedoneov
ert
hebudget

St
anl
eyt
hoi
thikagwi
Page88
 per
iod.

Budget
edmai
ntenancecost
swi
l
lbear
ri
vedatbyr
efer
encet
o:-

i
. Thestat
eofthepr
emi
ses,
kit
chenpl
ant
,fur
nit
ureandot
her
equi
pment;

i
i
.Thestandar
dofcomfor
twhi
chiti
snecessar
ytopr
ovi
de,
hav
ing
r
egar
dtothety
peofcust
omercat
eredfor
;and

i
i
i.Thecur
rentav
ail
abi
l
ityoff
unds.

Thecost
swhi
chhav
etobet
akeni
ntoaccountar
e:-

i
. Maint
enancemat
eri
alsandsuppl
i
es-i
temssuchaspai
nts,
wal
l
paper
,et
c;

i
i
.Mai nt
enancelabourcosts-t
hisi
ncludesal
lwagesandsal
ari
es
pay
abletothemaintenancestaf
f;and

i
i
i.Othercost
ssuchasdepr
eciat
ionofmaint
enancedepar
tment
’s
equipment
,st
ati
oner
y,of
fi
cesuppli
es,
etc.

Thesequencingofmaintenanceisnecessar
ytoensur
ethati
tdoesnoti
nter
fer
e
withcur
rentoperat
ionandallbudget
edmai nt
enancewor
kiscomplet
edina
thought
-out
,logi
calmanner.

Fi
nall
y,whenplanni
ngamaint
enancebudgeti
tisnecessar
ytodi
sti
ngui
sh
bet
weent hei
temssepar
atel
y:
-

a)Rout
inemai
ntenancewor
k

b)Maint
enanceofworkt
obecar
ri
edoutbyout
sidepar
ti
esi
nrespectof
anymaint
enancecont
ract
.

Provi
sionmustbemadeforemer
gencyrepai
rworkwhich,
thoughquit
e
unpredict
abl
e,al
way
spresent
saclai
m onthest
affoft
hemai nt
enance
department.

OPERATI
NGBUDGET

Thiswi l
lbeanamal gamationofallt
hesalesdepartmental
budgetsshowingthe
budgetedoperati
ngpr ofi
tforeachdepart
mentandt henetprof
itforthewhole
operati
onaftersharedlabourandoverheadshavebeendeducted.(i.
e
departmentalsal
eslesscostofsaleslessdir
ectlabourandexpenses=operati
ng
profi
tlesssharedindi
rectexpenses=netprof
it
).

EXAMPLE

St
anl
eyt
hoi
thikagwi
Page89
From t
hesal
esbudgetwehaveprepared,
prepar
eanoper
ati
ngbudgetconsi
der
ing
thefol
l
owingfor
ecast
sandinf
ormation.

Rooms Food Li
quor

Gr
osspr
ofi
t - 60% 55%

Di
rectl
abour 15% 22% 15%

Di
rectexpenses 20% 5% 1%

I
ndi
rectexpenses

Labourcost 1000

Rat
esandi
nsur
ance 1060

Fuel 1442

Mai
ntenance 3%ofsal
es

Laundr
y 1160

Mar
ket
ing 3%ofsal
es

Admi
nist
rat
ionexpenses3%ofsal
es

Sundr
yexpenses 400

Depr
eci
ati
on 600

Sol
uti
on

St
anl
eyt
hoi
thikagwi
Page90
 ROYALHOTEL-OPERATI
NGBUDGET
BUDGETPERI
ODSEPTEMBER2008

DEPARTMENT ROOMS FOOD LI

QUOR TOTAL
% £ % £ % £ % £
10 10 10 2890
Sales 0 13230 0 10584 0 5093 100 7
Lesscostof
sal
es - - 40 4234 45 2292 22.
5 6526
10 2238
Grossprofi
t 0 13230 60 6350 55 2801 77.
5 1
Labourcost
(di
rect
) 15 1984 22 2328 15 764 17.
5 5076
Expenses
(di
rect
) 20 2646 5 529 1 51 11 3226
1407
Oper
ati
ngpr
ofi
t 65 8600 33 3493 39 1986 49 9
I
ndir
ectexpenses
Labourcost 3.
4 1000
RatesandI nsur
ance 3.7 1060
Fuel 5 1442
Maintenanc
e 3 867
Laundry 4 1160
Marketing 3 867
Administr
ation
expenses 3 867
Sundryexpenses 1.
3 400
Depreciat
ion 2 600 29 8263
BUDGETEDNETOPERATI NGPROFI
T 20 5816

CAPI
TALBUDGETS

 Deal
sorconcer
nedwi
tht
hecapi
tal
andasset
soft
heest
abl
i
shment
s

 Plansf
oranyexpansi
ononcapi
tal
proj
ectneedst
obewel
lcoor
dinat
edand
suchpl
ansdependson:-

 Fi
nanceav
ail
abl
e

 Assessmentandcl
assi
fi
cat
ioni
ntoanor
derofpr
ior
it
y

 Thef
oll
owi
ngf
act
orsar
enecessar
ytoconsi
derwhenf
ormul
ati
ngpl
ans:
-

i
. Thepur
poseoft
heexpendi
tur
e

i
i
.Theef
fectt
hecostoft
hepr
ojecthav
eonf
inance

St
anl
eyt
hoi
thikagwi
Page91
 i
i
i.Est
imat
edcostoft
hepr
oject

i
v.Whatchangest
her
ewi
l
lbei
ntheasset
sandl
i
abi
l
iti
esoft
he
busi
ness

v
.What
evert
hepr
ojecti
sanecessi
tyoropt
ional

Whent hebudgetforcapi
tal
expendi
tur
eisset
,eachpr
ojectmustwor
kwi
thi
nthe
budgetfr
amewor k.

CASHBUDGETS

 I
sprepar
edtoshowtheexpect
edcashr
ecei
ptandpay
ment
sinnextf
ew
monthsoroney
earper
iod.

 Iti
susuall
ythel
asttobeprepared,asitwi
llf
orecasttheincomi
ngand
outgoi
ngofcash,basedontheoperati
ngincomef rom sal
esandthe
expendi
tur
eofcashonmat eri
als,l
abourandoverhead.

 I
talsoshowst
hebudgetedexpendi
tur
eonassetsandotherincomesthe
busi
nessmayhav
ethroughraisi
ngcapi
tal
ori
nterestandrentrecei
ved

 Thecashbudgetisusuallybrokendownint
omonthlyper
iodst
o
accommodatedelaysincashi ncomeandexpendi
tur
ewhichoccur
s
thr
oughthegi
vingandr eceiv
ingcredi
t.

 Theprinci
pleinvolvedi
nthepreparat
ionofacashbudgeti
sthatof
establ
i
shingthecashbal anceatthebegi
nni
ngofthebudgetperi
od,addi
ng
onincomer eceivedint
heper i
odanddeducti
ngexpendi
tur
emadedur ing
thesameper iod.

Themai
nfunct
ionsofacashbudgetar
eto:
-

i
. Ensur
ethatcashi
sav
ail
abl
eforr
evenueexpendi
tur
e

i
i
.Indicatewhen,wher
eandhowmuchcashwi
l
lbeneededand
whethert
hisisper
manentort
empor
ary
.

i
i
i.Pr
eser
vel
i
qui
dit
ythr
oughoutt
hey
ear
.

i
v.Rev
eal
sur
pluscashf
ori
nvest
mentorexpansi
onoff
aci
l
iti
es.

v
.Guidemanagementonf
inanci
ngcapi
tal
expendi
tur
eint
ernal
l
yor
ext
ernal
l
y.

Thecashbudgeti
saf
fect
edbyt
he:
-

i
. Expansi
onorcont
ract
ionoft
hei
nvest
menti
nfi
xedasset
s

i
i
.Incr
easeordecr
easei
nst
ocksanddebt
ors

St
anl
eyt
hoi
thikagwi
Page92
 i
i
i.Rat
eofi
nfl
ati
onant
ici
pat
ed.

i
v.Pol
i
cydeci
sionl
i
kecr
edi
tcont
rol
,di
vi
dendsandt
axat
ion

Pr
epar
ati
onofcashbudget
s

i
. Usual
l
ypr
epar
edonmont
hlybasi
sorf
oreachaccount
ingper
iods

i
i
.Theact ual
closi
ngbalanceofpr
eviousmont
horyeari
susedast
he
openi
ngbalancefort
hebudgetforthecomi
ngy
earormonth.

i
i
i.Esti
matednetr
eceipt
sf r
om all
sourcesareaddedtotheopeni
ngbalance
andest
imatednetexpendit
ureisdeduct
edandt hebal
anceiscar
ri
ed
for
wardtothenextaccounti
ngperi
od.

i
v.Wagesandsal
ari
esar
enor
mal
l
ypai
dint
hemont
htowhi
cht
heyr
efer

v
.Supplier
sar
eusual
l
ypaidonabasi
sofonemonth’
scredi
ti.
egoods
suppl
i
edinmar
chwouldnor
mall
ybepaidf
oratendofApri
l.

v
i.Fi
xedexpensessuchasrates,
rent
,insur
ance,
areent
eredi
nthemont
hon
whi
chpaymentsfalldue.

v
ii
.Sundr
yexpensesar
eent
eredi
nthemont
hinwhi
cht
heyar
epai
d

v
ii
i.
Anycapi
tal
expendi
tur
epl
annedi
sent
eredi
nthemont
hwhenpay
ment
sfal
l
due.

Whenthesebudgetsareprepar
edthi
sway ,
iti
spossibl
etoascert
aintheamount
ofdebtor
s,cr
edit
ors,
accrual
sandprepaymentsatt
heendoft heperi
od.This
i
nformati
onisthentr
ansf
erredascurr
entasset
sandl i
abi
l
iti
estothebalance
sheet
.

Cashbudget
shav
etwocol
umnsnamel
y:
-

a)Recei
pt/cashi
ncomi
ng/i
ncomi
ngcash/r
evenue;

b)Pay
ment
s/cashout
goi
ng/expendi
tur
e

Recei
ptincl
udes:
-openi
ngbal
ance,cashsales,credi
tsal
es(
room,
foodand
bever
age)andotheri
ncomee.
gr entrecei
ved,i
nterestr
ecei
ved

Paymentsi ncludes:
-purchases,wages,sal
ari
es,nati
onalinsur
ance, P.
A.Y.E,r
ates,
i
nsurance,gasandel ect
ri
cit
y,fuel
,renewal
s,maintenance,adver
ti
sing,postage,
pri
nti
ng,stationery,
bankchar ges,
sundryexpenses,capit
alexpendi
ture,taxat
ion,
repay
ingloans, etc.

Note:-whenpr
epari
ngcashbudgets,depreci
ati
onandprel
iminar
yexpensesar
e
notrecor
dedbecausei
tdoesnotinvolveanycashexpendi
tur
e.

St
anl
eyt
hoi
thikagwi
Page93
EXAMPLE1

Thebudgetcommi t
teeoft
heroy
al r
estaur
anthav
epr
epar
edt
hef
oll
owi
ng
for
ecast
sforincl
usi
oninthemasterbudget.

Month sal
es(
£) pur
chases(
£) wages(
£)ov
erheads(
£)
depr
eci
ati
on(
£)

May 17,
000 9,
600 5,
600 2,
100
200

June 19,
000 8,
000 5,
800 2,
000
200

Jul
y 20,
000 10,
000 7,
200 2,
200
200

August 24,
000 11,
000 7,
400 2,
400
200

Sept
ember 30,
000 15,
600 7,
600 2,
800
200

Addi
ti
onali
nfor
mat
ion:

i
. 10%oft hesal
eswi
ll
beoncredi
t,debt
orswil
lbeexpect
edt
oset
tl
ethei
r
account
sinthemont
haf
tert
hetransacti
on.

i
i
.Allpurchasesar
eoncr
edi
t,cr
edi
tor
swi
l
lbepai
dtwomont
hsaf
tert
he
t
ransacti
on.

i
i
i.Wagesar
epai
dincash.

i
v.Annual
rat
esof£1,
200ar
epai
dinmar
chf
ort
hey
earst
art
ingApr
il1st20.
.

v
.Fuel chargesforthequart ng30thJuneamount
erendi ingt
o£300wi
l
lbe
pai
di nJuly;
thisquar
ter’
swil
lbepai
dinOct ober
.

v
i.Al
lot
herov
erheadsar
epai
dwheni
ncur
redi
ncash

v
ii anceofcashatbankon1stJul
.Thebal yis£2,
000.

Pr
epar
eacashbudgetf
ort
hreemont
hsst
art
ingj
ulyt
oSept
ember
.(2ndquar
ter
)

Wor
kings

Sal
es:
-10%oncr
edi
t

Jul
y = 10% x 20,
000 = 2,
000(
pai
dinaug.
)

Sal
es =20,
000–2000 = 18,
000(
jul
)

St
anl
eyt
hoi
thikagwi
Page94
 August = 10% x 24,
000= 2,
400(
pai
dinsept
.)

Sal
es =24,
000–2,
400=21,
600

Sept
ember=10% x 30,
000= 3,
000(
pai
dinoct
.)

Sal
es =30,
000-3,
000=27,
000(
pai
dinsept
.)

Ther
efor
ecr
edi
tsal
esf
orJul
ywi
l
lbe10%ofJunei
.e10% x 1,
9000
=1,900

Pur
chases:
-

Jul
y - pai
dforMay

August - pai
dforJune

Sept
ember - pai
dforJul
y

AugustandSept
embercr
edi
tor
s(11,
000+15,
600=
26,
600)

Fuelchar
ges:
- Lastper
iodpai
dinJul
y(300÷3=100)

Thi
sper
iodpai
dinOct
ober(
accr
ued300)

Rat
es:
- Annualof1200pai
dinmar
ch

Foreachmont
his100(
i.
e1200÷12=100)

Byendofseptonl
y600usedand600pr
epai
d

Ov
erheads:
-subt
ract200eachmont
hforf
uelchar
gesandr
ates

NOTE:
- Depr
eci
ati
onnoti
ncl
udedi
ncashbudget
.

Roy
alrest
aurant
Cashbudget
Forthequart
erendi
ng30thSeptember20..
Septembe
Jul
y August r Notes
Cashi ncoming (
£) (£) (£)
Opening
balance 2,000 2, 800 8,
800
Cashsal es 18,000 21,600 27,
000
Debtor
s
Creditsales 1,900 2, 000 2,
400 £3,000
Otherincome - - -
Total 21,900 26,400 38,
200
Cashout going

St
anl
eyt
hoi
thikagwi
Page95
 Credit
ors
Purchases 9,
600 8,000 10,
000 £26,600
Wages 7,
200 7,400 7,
600
Annualrates - - - Pr epaid£600
Fuelcharges 300 - - Accr ued£300
Otheroverheads 2,000 2,200 2,
600
Total 19,
100 17,
600 20,
200
BalanceC/ F 2,
800 8,800 18,
000

EXAMPLE2

Thefol
l
owi nginf
ormati
onwasext
ract
edf
rom t
hebooksB.
Kcompanywhi
ch
st
art
edtradingoneyearago.

MONTH SALES (
SH) PURCHASES(
SH)

Apr
il 150,
000 100,
000

May 160,
000 110,
000

June 160,
000 90,
000

Jul
y 170,
000 90,
000

August 200,
000 80,
000

Sept
ember 200,
000 130,
000

Oct
ober 180,
000 140,
000

Nov
ember 180,
000 60,
000

December 200,
000 60,
000

Thef
oll
owi
ngaddi
ti
onal
inf
ormat
ioni
sav
ail
abl
e:-

a)Cashi
nhandatt
heendofmay20.
.wi
l
lbeShs.180,
000.

b)60%oft
hesal
esproceedsarerecei
vedinthecur
rentmont
h,30%inthe
fol
l
owi
ngmonthandthebalanceisrecei
vedtwomonthsaft
ersal
e.

c)Suppl
i
ersar
epai
donemont
haf
terdel
i
ver
yofgoods.

d)Corporat
iontaxfor20.
.amount
ingt
osh.20,
000wi
l
l d0n30th
bepai
September,20.
.

e)Contr
actor
’sret
ent
ionmoni
esamount
ingt
oShs.50,
000wi
l
lbepai
don
t
h
30 june,
20..

f
) Theshar
ehol
der
satt
hei
rlastExt
raor
dinar
yGener
alMeet
ingi
ncr
easedt
hei
r

St
anl
eyt
hoi
thikagwi
Page96
 shar
ecapi
talbyShs.70,
000andt
hef
ir
stcal
lofSh.40,
000wi
l
lber
ecei
ved
i
nOctober
,20..

g)InOctober,
thecompanyi
sduet
orecei
veSh.20,
000ascompensat
ionf
ora
civ
ilsui
t.

h)Themont hl
yadminist
rat
ionexpensesamounti
ngtoSh.33,
000incl
ude
factor
ydepreci
ati
onchargeofSh.4,000andpr
eli
minar
yexpensesofSh.
3,000.

i
) Of
fi
ceequi
pmentwor
thSh.13,
000wi
l
lbepai
dfori
nNov
ember
,20.
.

Requi
red:
-

Pr
epar
eacashbudgetf
ort
heper
iod1stJunet
o31stDecember20.
.

Sol
uti
on

Wor
kings

1.Suppl
i
ersarepai
donemont
haf
tert
hedel
i
ver
yofgoods.(
pur
chaseswi
l
lbe
pai
dinJuneandsoon)
.

2.Recei
ptsf
rom sal
es:
-

a) JUNE Sh. b) JUNE Sh.

60%ofJunesal
es 96,
000 60%ofJul
ysal
es
102,
000

30%ofMaysal
es 48,
000 30%ofJunesal
es
48,
000

10%ofApr
ilsal
es 15,
000 10%ofMaysal
es
16,
000

159,
000
166,
000

c) AUGUST Sh. d) SEPTEMBER Sh.

60%ofAugustsal
es 120,
000 60%ofSept
.
sal
es 120,
000

30%ofJul
ysal
es 51,
000 30%ofAugustsal
es
60,
000

10%ofJunesal
es 16,
000 10%ofJul
ysal
es
17,
000

St
anl
eyt
hoi
thikagwi
Page97
 187,
000
197,
000

e) OCTOBER Sh. f
) NOVEMBER Sh.

60%ofOct
obersal
es 108,
000 60%ofNov
.
sal
es 108,
000

30%ofSept
.sal
es 60,
000 30%ofOct
.sal
es
54,
000

10%ofAug.sal
es 20,
000 10%ofSeptsal
es
20,
000

188,
000
182,
000

g) DECEMBER Sh.

60%ofDec.Sal
es 120,
000

30%ofNov
.sal
es 54,
000

10%ofOv
t.l
sal
es 18,
000

192,
000

3.Themont hl
yadmi nist
rat
ionexpensesareShs.33,000whichincl
udes
factor
ydepr eciat
ionchargeofsh.4,000andpr el
iminar
yexpensesofsh.
3,000.Theset wocharges( i
.eSh.
7,000=4,000+3000)donoti nv
olvecash
payment ssocashpai dev er
ymont hisSh.26,000

(
i.
eSh.33,
000-Sh.7,
000)
.

CASHBUDGET
Septembe Octobe Novembe Decembe
June Jul
y August r r r r
RECEI
PT (
Ksh) (
Ksh) ( Ksh) (Ksh) (Ksh) (
Ksh) (
Ksh)
180,
00 153,00 203,00 345,00
Openi
ngbal
ance 0 0 0 274,000 0 437,
000 440,
000
159,
00 166,00 187,00 188,00
Receiptf
rom sal
es 0 0 0 197,000 0 182,
000 192,
000
Sharecapit
al - - - - 40,000 - -
Compensation - - - - 20,000 - -

St
anl
eyt
hoi
thikagwi
Page98
 r
ecei
ved
339,
00 319,
00 390,
00 593,
00
Total 0 0 0 471,
000 0 619,
000 632,
000
Cashout
goi
ng
110,
00 130,
00
Purchases 0 90,
000 90,
000 80,
000 0 140,
000 60,
000
Admi ni
str
ati
on
expense 26,
000 26,
000 26,
000 26,
000 26,
000 26,
000 26,
000
Corporati
ontax - - - 20,
000 - - -
Retenti
onmoney 50,
000 - - - - - -
Offi
ceequipments - - - - - 13,
000 -
186,
00 116,
00 116,
00 156,
00
Tot
al 0 0 0 126,
000 0 179,000 86,
000
153,
00 203,
00 274,
00 437,
00
Bal
anceC/
F 0 0 0 345,
000 0 440,000 546,000

BUDGETEDTRADI
NGACCOUNT

Thepurposeofthebudgeti
stopr edet
erminethevol
umeofsales,t
hecostof
sal
es,andthegrossprof
iti
nrespectofaparti
culart
radi
ngperi
od.I
nan
establ
i
shmentconsist
ingofsever
al r
evenue-
produci
ngdepart
ments,separ
ate
tr
adingresul
tsshoul
dbeshownf oreachdepartment.

EXAMPLE

Theci t
yrestaurantoperat
esar est
aurantconsi
stingofthr
eesecti
ons:-Rest
aur
ant
,
Self
-servi
ceand
Banquet i
ng.Ther est
aurantbudget
sforthenumberofper sonsservedandthe
averagespendingofcust omersineachout l
et.
Thef ol
lowinginformati
onisforthemont hending30thApr
il20.
.

Rest
aur
ant Banquet
ing Sel
f-
ser
vice

Food Bev
erag Food Bev
erag Food
e e

No.Of 5,
000 5,
000 2,
000 2,
000 8,
000
cover
s
5.
00 2.
00 4.
00 1.
50 1.
50
A.
S.P(
£)
8,
750 4,
000 2,
400 1,
050 5,
400
Costof
sal
es

St
anl
eyt
hoi
thikagwi
Page99
 Requi
red

Pr
epar
eabudget
edt
radi
ngaccountoft
her
est
aur
anti
nrespectof30thApr
il20.
.

Sol
uti
on

BUDGETEDTRADI NGACCOUNT
FORMONTHENDI NGAPRIL30THAPRI L20..
SELF-
RESTAURANT BANQUETING SERVICE TOTAL
Food Bev. Food Bev. Food Bev.
No.Ofcov
ers 5000 5000 2000 2000 8000 15000 7000
A.
S.P £5.00 £2.00 £4.
00 £1.50 £1.
50 - -
£25,
000.0 £10,
000.0 £8,000.
0 £3,
000.0 £12,000.
0 £45,000.0 £13,
000.0
Sales 0 0 0 0 0 0 0
LessCostof
sal
es 8750 4000 2400 1050 5400 16550 5050
£16,
250.
0 £5,
600.
0 £1,
950.
0 £28,450.
0
Gr
ossprofi
t 0 £6,
000.00 0 0 £6,
600.00 0 £7,
950.00
0 0 0 0 0 0 0
G.
Ppercent
age 65/ 0 60/ 0 70/ 0 65/ 0 55/ 0 63.2/ 0 61.2/ 0

Attheendofoft
hetradingper i
od,thebudgetedtr
adi
ngresul
tswoul
dbe
comparedwit
htheactualresult
s,andar epor
twouldbedrawnupinasi
mil
ar
manneri.
eabovefor
matofdr awingbudgetedtr
adi
ngaccount.

BUDGETEDPROFI
TANDLOSSACCOUNT

Thepur poseoft
hebudgetedprofi
tandlossaccounti
stopr
e-det
ermi
ne,i
n
respectofapart
icul
artr
adingperi
od,al
li
ncomeandexpendit
ureofabusi
nessas
wellasthenetprofi
ttobeearned.

Thebudgetedpr
ofi
tandl ossaccountmustbedrawnupsoastoshowwhati s
i
mportantandpert
inent,
e.gdepart
mentalgr
ossprof
it
s,l
abourcostper
cent
ages,
theov
erheadcostpercentages,
andthenetprof
it
.

Thebudgetedprofi
tandl ossaccountwoul dbecompiledfrom thesepar
ate
operat
ingbudgetsal
readydr awnupi nrespectofsal
es,labourcost
s,and
over
heads.Attheendoft het r
adi
ngper i
odcov er
edbyt hebudgetedprof
itand
l
ossaccount,areportwouldbepr eparedshowinganyv ari
ancesbetween
budgetedandactualresult
s.

EXAMPLE

Thef ol
lowi
ngaret
hebudget
edr
esul
tsofahot
eli
nrespectoft
hequar
terendi
ng
30thJune20..

St
anl
eyt
hoi
thikagwi
Page100
 £

Sal
es: Rest
aur
ant 30,
000

Sel
f-
ser
vice 20,
000

Bar 15,
000

Costofsal
es: Rest
aur
ant 12,
000

Sel
f-
ser
vice 10,
000

Bar 6,
000

Labourcost
:Wagesandsal
ari
es14,
000

Nat
ional
insur
ance 2,
000

St
affmeal
s 2,
500

St
affwel
far
e 500

Ov
erheads: Rentandr
ates 2,
500

Depr
eci
ati
on 2,
000

Repai
rs 500

Fuel
andpower 3,
000

Post
ageandt
elephone 300

Pr
int
ingandst
ati
oner
y 200

Adv
ert
isi
ng 1,
500

Sol
uti
on

BudgetedProf
itandLossAccount
f
ortheQuar t
erending30t
hJune20..
Self
-
Restaurant Ser vi
ce Bar Tot
al
£ % £ % £ % £ %
10 20,00 10 15, 00 10 65,
00 10
Sales 30,
000 0 0 0 0 0 0 0
LessCostof 10,
00 28,
00
sal
es 12,
000 40 0 50 6,000 40 0 43
10,
00 37,
00
GrossProf
it 18,
000 60 0 50 9,000 60 0 57
LessLabourcost
:-

St
anl
eyt
hoi
thikagwi
Page101
 14,
00
Wagesandsal ar
ies 0
Nat i
onal I
nsur
ance 2,
000
Staffmeal s 2,
500
Staff 19,
00
wel f
ar e 500 0 29
Lessov
erheadcosts:
-
Rentand
rates 2,
500
Depr eciat
io
n 2,
000
Repai r
s 500
Fuel andPower 3,
000
Post ageand
tel
ephone 300
Printingand
stati
oner y 200
10,
00
Adv
ert
isi
ng 1,
500 0 16
29,
00
0 45
NetPr
ofi
t 8,
000 12

SUMMARY

 Abudgeti
sapl
an,
expr
essedi
nmonet
aryorot
hert
erms.

 Budgetar
ycontroli
sameansofcont r
olbywhi chresponsibi
li
tyf
orvar
ious
budgetsisassi
gnedtomanagersconcerned.Actualresul
tsarecompared
wit
ht hebudget
edf i
gur
esandifther
eisav ari
anceani nquir
yandcorr
ecti
ve
acti
onshouldfoll
ow.

 Themai nobj
ecti
vesofbudgeti
ngar
e:-i
mprovedplanning;bett
erco-
ordinati
onofallact
ivi
ti
es;
clear
erst
andardsofbusinessperfor
mance;
i
mpr ov
edcontrolofi
ncomeandexpendit
ure;cl
earerli
nesofcostandprof
it
responsibi
li
ty.

 Abudgetcommi t
teeconsi
sti
ngofseni
ormanager
sandanaccount
ant
usual
l
yoverseesbudgeti
ngandbudget
arycont
rol
.

 Capi
tal
budget
sdeal
wit
hasset
sandt
hecapi
tal
fundsoft
hebusi
ness.

 Oper
ati
ngbudget
sar
econcer
nedwi
thr
evenue/
expensemat
ter
sandt
he

St
anl
eyt
hoi
thikagwi
Page102
 day
-to-
dayr
unni
ngoft
hebusi
ness.

 Theli
miti
ngfact
orisanykeyfeatur
ewhichbyit
sverynaturel
imit
sthe
vol
umeofsalesandtherebysetsacei
l
ingonbudgetedsalese.gi
fahotel
hasonly10si
nglebedroomstfor20guestsperni
ght-
theli
miti
ngfact
oris
10bedrooms.

 Whenformulat
inganoper
ati
ngbudgetthemostimport
antbudgetist
he
sal
esbudgetasallt
hecostbudget
sarereckonedi
nrel
ati
ontosales.

 Thecashbudgeti
spreparedfrom thev ar
iouscapi
tal
andoperat
ingbudget
.
I
tnotonl
yhelpstocontr
ol andforecastcashneedsbutpr
ovi
desv al
uabl
e
i
nfor
mationontheli
qui
ditypositi
onoft hebusi
nessinadv
ance.

St
anl
eyt
hoi
thikagwi
Page103
REVI
SIONQUESTI
ONS

1.Expl
ainwhaty
ouunder
standby
:-

i
.Budget

i
i
.Budget
arycont
rol

2.Expl
ainwhaty
ouunder
standby‘
l
imi
ti
ngf
act
or;

3.a) Di
sti
ngui
shbet
weenmast
eranddepar
tment
albudget
s.

(
4mar
ks)

b) Ciddy’
sbaker
yshopoffer
sthr
eemainproduct
snamel
yqueencakes,
meatpiesandsamosas.Thebudget
edsalesf
ort
hepr
oductar
eas
fol
lows:-

Queencakes 15,
000pi
eces

Meatpi
es 10,
000pi
eces

Thesel
l
ingpr
iceperqueencakei
sKsh.35.
00,
permeatpi
eisKsh.
45.
00andpersamosaisKsh.30.
00.

Theopeni
ngandcl
osi
ngst
ockoft
hepr
oduct
sisasshownbel
ow:

Pr
oduct Openi
ngst
ock Cl
osi
ngst
ock

Queencakes 2,
500 1,
800

Meatpi
es 3,
000 3,
800

Samosas 1,
800 1,
900

Requi
red:

i
. Pr
epar
esal
esbudgetf
orci
ddy
’sbaker
y

(
4mar
ks)

i
i
. Pr
epar
epr
oduct
ionbudgetf
orci
ddy
’sbaker
y

(
6mar
ks)

4.From t
hei
nfor
mat i
ongivenbel
owpr
epar
eacashbudgetf
ort
hesi
xmont
hs
st
commenci
ng1 Apr il
,20..

St
anl
eyt
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thikagwi
Page104
 Food Bev. Food Bev
. Labour Ov er
head
Mont
h sal
es Sales pur chases Pur chases cost cost
£ £ £ £ £ £
Febr
uary 30,
000 9,000 12,000 4,400 12,000 10,
400
March 31,
000 9,600 12,200 4,800 12,400 10,
400
Apri
l 34,
000 10,800 13,600 5,400 13,000 10,
800
May 35,
600 12,600 14,000 6,400 13,800 11,
200
June 46,
000 13,800 14,600 6,800 15,000 11,
600
Jul
y 50,
000 16,200 16,600 8,200 14,800 11,
400
August 45,
000 14,200 14,600 7,200 13,400 10,
600
Sept
embe
r 40,
800 13,
000 14,
200 6,
400 12,
200 10,
200

Not
es:
-

a)Assumet
hat80%oftot
alfoodsal
esar
ef orcash,
witht
heremaini
ng
20%onacredi
tbasi
sofonemonth.Al
lbeveragesal
esareoncash
basi
s.

b)Theannuali
nter
estont
hecompany
’si
nvest
ment
,£1,
600,
wil
lbe
recei
vedi
njul
y.

c)Theti
me-lagi
nthepaymentofal
lsuppl
ier
sistwomonths;i
nthe
paymentofover
headst
otime-l
agisonemonth:i
nthecaseofthe
l
abourcostsi
snil
.

d)Newkit
chenplantcosti
ng£45,
000wi
l
lbepur
chasedi
nmayandpai
d
f
orthefol
l
owingmont h.
st
e)Thebankbal
anceoft
hecompanyon1 Apr
il20.
.was£8,
000.

(
16mar
ks)

5.Thefol
lowi
ngfi
gureswereextr
actedfr
om t
hesal
esbudgetofki
oko’
s
rest
aur
anti
nrespectofJanuar
y,2011.

DeptA DeptB DeptC Bar Sundr

ies

No.Of 8000 6000 4000 - -

cover
s
Ksh.
10 Ksh.
15 Ksh.
12.
50 - -
A.
S.P
Ksh. Ksh. Ksh. Ksh. Ksh.5,
000
Sal
es 80,
000 90,
000 50,
000 12,
000

Att
heendofJanuar
y2011,
itwasascer
tai
nedt
hatt
he:
-

 Numberofcov
ersachi
eveddur
ingt
heper
iodwas:
DeptA8,
400,

St
anl
eyt
hoi
thikagwi
Page105
 DeptB5,
800,
DeptC4,
200

 Theaveragespendi
ngpower(
ASP)was:
DeptAKsh.
10.
40,
DeptB
Ksh.
14.80andDeptCKsh.12.
60

 Actualbarsal
eswer
eKsh.
12,
500andsundr
ysal
esamount
edt
o
Ksh.5,
400.

Requi
red:

Pr
epar
eamont
hlysal
esr
epor
tshowi
ngcl
ear
lyt
her
elev
ant
v
ari
ances.

(
10mar
ks)

6.Ki
ooper
atesar
est
aur
antwi
tht
hef
oll
owi
ngout
let
s:

Al
acar
ter
est
aur
ant
,Tabl
ed’
hôt
erest
aur
antandBanquet
ing.

Hebudget
sfort
henumberofper
sonsservedandt
heav
eragespendi
ng
power(
ASP)ofcust
omer
sineachoutl
et.

Thef
oll
owi
ngi
nfor
mat
ioni
sfort
hey ng30thJune2009.
earendi

Al
aCar
te Tabl
ed’
hôt
e Banquet
ing

Food Bev
erag Food Bev
erag Food Bev
erag
e e e

No.Of 500 500 200 200 800 500

cover
s

A.S.
P 500.
00 200.
00 400.
00 150.
00 150.
00 100.
00
(Kshs)

Costof 87,
500.
0 4,
000.
00 24,
000.
0 10,
500.
0 54,
000.
0 20,
000.
0
food 0 0 0 0 0

Requi
red:

Prepar
eabudget
edTr
adi
ngAccountoft
her
est
aur
anti
nrespectof30th
June2009.

(
9mar
ks)

7.a) Out
lnet
i hreeadv
ant
agesofbudget
sinf
oodandbev
eragecont
rol
.

(
3mar
ks)

St
anl
eyt
hoi
thikagwi
Page106
 b) St et
at hr
eef
unct
ionsofacashbudgeti
nfoodandbev
erage
oper
ati
ons.

(
3mar
ks)

8.a) Def
inet
het
erm‘
budget
arycont
rol
’
.

(
2mar
ks)

b) St
atet
hreemai
nobj
ect
ivesofbudget
arycont
rol
.

(
3mar
ks)

9.Thefol
lowingarethebudgetedandact
ual
resul
tsofar
est
aur
antf
ort
he
t
h
quar
teryearendi
ng30 Oct ober,
2004.

Budget
ed Act
ual

Sal
es Food 250,
000 275,
000

Bev
erages 95,
000 105,
000

345,
000 380,
000

Costofsal
esFoodcost 54,
000 58,
000

Bev
eragescost 20,
000 23,
000

74,
000 81,
000

LabourcostSal
ari
es 15,
000 18,
750

St
affmeal
s 10,
000 11,
500

I
nsur
ance 12,
000 12,
000

37,
000 42,
250

Ov
erheads Rentandr
ates 18,
000 18,
000

Depr
eci
ati
on 1,
500 1,
500

Ot
her
s 1,
750 1,
750

21,
250 21,
250

St
anl
eyt
hoi
thikagwi
Page107
 Requi
red:

a)Preparetherest
aur
ant
’sr
epor
tfort
hequar
tery ng30th
earendi
October2004.
(10mar ks)

b)Commentont
hev
ari
ances.

(
2mar
ks)

10.Easybakerspr
oducest
wotypesofpr
oduct
s.Budget
edsal
esoft
he
pr
oducts,
sconesandbunsf
or2005are:

Pr
oduct Quant
it
y Pr
iceperuni
t(Ksh.
)

Scones 3,
000 80

Buns 7,
000 70

St
ocksoft
hesepr
oduct
swer
easf
oll
ows;

Pr
oduct Openi
ngst
ock Cl
osi
ngst
ock

Scones 2,
000 1,
500

Buns 1,
800 2,
500

Requi
red;

a)Pr
eparesal
esbudget (
5
marks)

b)Pr
epar
epr
oduct
ionbudget (
5mar
ks)

11.
Ident
iyanyf
f ourexampl
esi
neachoft
hef
oll
owi
ngt
ypesofbudget
s:

i
. Oper
ati
ngbudget
s

i
i
.Capi
tal
budget
s

(
4mar
ks)

12.
Expl
aint
hest
agesofpr
epar
ingabudget
.

(
10mar
ks)

13.
Dist
ingui
shbet
weenmast
erbudgetandf
unct
ional
budget
.

(
4mar
ks)

14.
St ef
at ouradv
ant
agesofbudget
arycont
rol
.

St
anl
eyt
hoi
thikagwi
Page108
 (
4mar
ks)

15.
St ef
at ourf
act
orst
otakei
ntoaccounti
nthepr
epar
ati
onoft
hel
abourcost
budget
.

(
4mar
ks)

16.
Expl nanyf
ai ourli
mit
ingfact
orsi
nthepr
epar
ati
onofbudget
sinf
oodand
beverageest
abli
shments.

(
8mar
ks)

17.
Stateanysixessenti
alinformati
onrequiredfort
heprepar
ati
onofsales
budget.
(6marks)
18.
Thef ol
lowingaretheforecast
sandi nformati
onforBKhotel
forthequart
er
ending
31stDecember2010.
Mont h Sales Purchases Wages
Overheads August 260,
000 115,
000
60,000 55,000
September 250, 000 110,
000 60,
000
50,000
October 220,
000 95,
000 50,
000
60,
000
November 220, 000 120,
000 50,
000
50,000
December 260, 000 120,
000 60,
000
55,000

Additi
onalinformation
i
. Sal esare90%i ncash,t
heremai nderispaidaft
ertwomonths.
i
i.Pur chasesar e90%oncr edit,
account sbeingpai
dwithi
ntwomont hs.
i
ii
.Wagesar epai dwhenincurred.
i
v.Ov erheadsincludeKsh.5,000permont hdepreci
ati
onandarepai
d
50%i ncashand50%af teradel ayofonemont h.
v.Thehot eli
sr epayi
ngaloanatt herateofKsh.15,000permonth.
st
vi
.t heopeningbankbal anceat1 Oct ober2010will
beKsh.130,
000.
Required:
-
Prepareacashbudgetf orbudgetper i
odending31stDecember2010.
(
16marks)
19.
Highl
ightanyf ourfuncti
onsofabudgetcommi tt
ee.
(
4marks)
20.

St
anl
eyt
hoi
thikagwi
Page109
Ref
erences:
-

i
. Kot asRichardandDav isBer nard( 1986) ;Foodandbev eragecont r
ol,
Internati
onal textbookcompanyl td, (3rdediti
on)greatBritain.(pg34-46) .
i
i
.Dav isB.Etal l(2004) ;FoodandBev eragemanagement ,Butterwor t
h
Hei nemann, (3rdedi t
ion)U. k.( pg101- 103).
i
i
i.Dav isBernardandSt oneSal ly(1985) ;FoodandBev eragemanagement ,
st
Hei nemannPr of essional Publ i
shingLt d,(1 edi t
ion)
,Oxfor dLondon.( pg61
-465) .
i
v.Saleemi AhmadNi sar( 1990) ;Costaccount i
ngsimpl i
fi
ed, N.A.Saleemi
publ i
shers,Nai robi.(pg284- 310).
v
.Boar dmanR. D( 1986) ;Hot elandcat eri
ngcost ingandbudget s,Wi l
l
iam
Hei nemannLt d, LondonMel bourne.( pg123- 139).
v
i.Kot asRichardandConl anMi chael (1997) ;Hospitali
tyAccount ing,Patbond
publ i
sher,London.( pg409- 422) .
v
ii
.Odger sPet er;Pur chasi ngcost i
ngandcont rol,St
anleyThor nespubl isher s
LTD, London.( pg188- 212).
v
ii
i.
Set hiMohini (
2008) ;Instit
utional foodmanagement ,NewAgeI nter
nat ional
publ i
shers.(pg567- 580)

THECATERI
NGCONTROLCYCLE

St
anl
eyt
hoi
thikagwi
Page110
Thecont
rol
cycl
ehassev
eral
stagesnamel
y:
-

i
. Requisi
ti
on
i
i
.Pur chasi
ng
i
i
i.Receivi
ng
i
v.Stori
ngandissui
ng
v
.Pr epari
ng
v
i.Sell
ing

REQUI SITION
Definit
ion
- Thisisaf ormal ,off
icialwri
ttenrequestordemandf oruseof
mat eri
als.
Twocopi esaremade; onef orpur chasi
ngandt heot herf
orthedepartment.Each
requisi
tionform shouldincl ude:-
i. Descr ipt i
onofmat eri
als
ii
.Quant ity
ii
i.Dat erequi red
iv.Estimat edunitcost
v.Oper atingaccountt obechar ged(i.
edepartmentrequi
ring
goods)
vi.Aut horisedsi gnature
vii
.Requi sitionnumber
vii
i.
Placewher egoodst or edorcell
ar
ix.Recei vedby( personreceivi
ngt hegoods)
Menupl anni
nganduseofr eci pesf aci
li
ti
eswr i
ti
ngofr equi
sit
ions.

PURCHASI NG
Def
ini
ti
on
- it
saf unctionconcer nedwi t
ht hesear ch,sel
ect i
on, purchase, receipt
,
storageandf inal useofacommodi tyi naccordancewi tht he
cateringpol icyoft heest ablishment .
 Thet erm pur chasi ngcompr i
sesofanumberofact i
viti
esal ldir
ect ed
towar dst heacqui sitionorpr ocur ementoff oodandr el
at edmat eri
alsfor
theoper at i
onofacat eri
ngor ganisation.
 Thi ssuggest sthatt heper sonempl oy edtopur chasi
ngf oodsand
beveragesf oranest abl i
shmentwi llber esponsi bl
ef ornotonl ypur chasi
ng,
butal sof orther ecei ving, st
or ageandi ssuingofal lcommodi ti
esaswel las
beingi nvolvedinwi tht hepur posef orwhi chi temsar epur chasedandt he
fi
nal useoft hem.
 Pur chasi ngi sthemaj orf actorforsur v i
val oftheestabl i
shment .
 Soundpur chasingpr acticest herefore, r
epr esenttheactofbuy ingmat er
ials
ofther ightqual it
y ,ri
ghtquant it
y,atther ightt i
me, atr i
ghtpr i
ce, fr
om t he
ri
ghtsour cewi thitsdel i
v eryatt her i
ghtpl ace.

NOTE:- pur
chasi
nggoodfoodmater
ial
sisthebasi
sforpr
epar
ingand
ser
vingmeal
sthatar
eaccept
ablet
othecustomers.

St
anl
eyt
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thikagwi
Page111
PRI
NCI
PLESOFEFFECTI
VEPURCHASI
NG

Thebasicpri
nci
plesofpur
chasi
ngmaybedef
inedashav
ingf
ourmai
n
char
acteri
sti
cs:
-

i
. Est
abl
i
shi
ngwhoi
sresponsi
blef
orpur
chasi
ng

i
i
.Establ
ishi
ngst
andar
dsandqual
i
tyofmat
eri
alsorequi
pmentt
obe
pur
chased.

i
i
i.Est
abl
i
shi
ngt
hequant
it
iesr
equi
red.

i
v.Est
abl
i
shi
ngmostf
avour
abl
epr
ices.

I
ncater
ing,f
oodconstit
utesthemajorvar
iabl
ecostandt
heref
orepur
chasing
deci
si
onsmustbecar ef
ullymadeinconsult
ati
onwit
huserdepar
tments,
sales
andser
vicetoensur
eeffici
ency.

Ninebasi
cpr
inci
plesofpur
chasi
nghav
ebeenenumer
atedasagui
det
omaki
ng
deci
sion:
-

i
. Cont
inui
tyofsuppl
y

Thisisofcr
it
icali
mport
ancef
ormi
nimi
singorel
i
minat
ingdi
srupt
ioni
nfood
product
ionacti
vi
ti
es.

i
i
.Secur
it
yofst
ocks

 Buy
inghast
obecar
eful
l
ybal
ancedwi
thpr
esentusager
equi
rement
s.

 Secur
it
yrefer
snotonlyt
oguar
dingofstocksf
rom pi
lf
erageorthef
tbut
al
sopreventi
ngspoi
l
ageordet
erior
ati
onofquali
tyi
nstorage.

 Oneisoft
entemptedtoorderquanti
ti
esthatmaybr i
ngcashdiscount
s
i
mmedi at
ely
,buti
nthelongrunmayf indthatal
argepercent
ageofthe
commoditi
eshavetobediscardedbecausetheyareunf
ittobeservedto
cust
omers.

i
i
i.Mai
ntenanceofqual
i
ty

Theobjecti
veofpurchasi
ngistoprocurethosegoodswhicharemostsui tedto
product
ionrequir
ementsforenduse,rat
herthanthosewhichrankhighestin
absolut
equalit
y,i
ntermsofstandardquali
tymarks,gr
ades,orbrands.

i
v.Pr
ocur
ementatl
owcost

Thepr i
ncipl
eofpurchasingfoodmat eri
alsshoul
dtobet opur chaseatthel
owest
cost.Thisdoesnotmeanget ti
ngcheap, non-st
andar
dmat er
ials,butr
efl
ect
sthe
bri
ngingdownofpr ocurementpricesthroughnegoti
ati
onorcut t
ingdownon
packagingcostswhil
est i
llmaint
aini
ngqual i
tyst
andards.Thisisusuall
ydone

St
anl
eyt
hoi
thikagwi
Page112
thr
oughbul
kpurchasi
ngdir
ect
lyf
rom t
hemanufact
urers,andusi
ngsi
nglesuppl
i
er
whoareconsci
ousofthequal
i
tyandquant
it
iest
hatarerequir
edonalongter
m
basi
s.

v
.Mi
nimum i
nvest
menti
nst
ocks

Thisisparti
cul
arl
ynotewor thysincef oodisnotonlyvari
abl
ei nit
sper i
shabil
it
y,
butrequir
esav ari
etyofingredientsforit
spr oduct
ionint
omeal s,snacks,desser
ts,
beveragesandsoon.Cost sofspacewhi chcanbeal t
ernat
ivel
yut i
l
isedfor
profi
tabl
eactiv
iti
es,al
ongwi t
hst orageandhandl i
ngcostsamountt osizeable
blockageofcapit
al.Thereforethequant i
tiestobestockedneedt oconsidered
verycaref
ull
ywhilepurchasing.

v
i.Av
oidanceofdupl
i
cat
ionandwast
e

I
nt eracti
onbet weenpur chasi
ngpr oduct
ionanduserdepar t
mentsisimportantt
o
achi evereducti
onoff oodwast eanddupl i
cat
ionofpr ocurementti
meandef f
ort
whi chcanr esultf
rom suddenmenuchangesorpr oductionpoli
cyshif
ts.Needs
mustbev i
ewedf orshort,medium andlongterm productionsothatpeople
responsibleforpurchasingcanpl anprocurementinadv ancetomeett hoseneeds.

v
ii
.Mai
ntenanceofcompet
it
iveposi
ti
on

Thoseinchargeofpur chasingneedt ohav eat horoughknowledgeofthemar ket

envi
ronmentandt hepur chasingpol i
ciesofthoseof fer
ingsimil
argoodsand
servi
cestotheircustomer s.Thisrequiresexperi
enceandahi ghdegr
eeof
executi
vejudgement ,thr
oughwhi chimpendingt astechangestoproduct
ionand
servi
cedepartmentsi nadv ancecanmai nt
ainthecompet it
iveposi
ti
onbydr awing
att
enti
ontocost s,qualit
yandpr icesthatthemar ketwi
llt
ake.

v
ii
i.
Imagewi
thsuppl
i
er

Whatasuppl ierthi
nksofyouandy ouror ganisationcanbeanassetorl i
abil
it
yin
theprocurementoff oodsandmat er
ials.Itistherefor
ei mportanttosetupav alue
basedimaget hr
oughhighethi
calstandar dsthatar ethenrefl
ectedinasupplier’
s
responsetot hepurchasi
ngmanager ,staffandt hentheor ganisat
ionasawhol e.
Asuppl i
erfeelsasenseofloyal
tytotheor ganisati
onifheseesj usti
ce,honestyof
deali
ngandnotasenseofexpl oi
tati
ont hroughcor ruptionandbr i
bery
.

Agoodi magewi l
lenablevaluabl
einformat
iontober eceivedfrom supplier
son
newpr oduct
s,cheapersubstit
utes,newmarketideasormat er
ialsthatcouldl
ower
costsorimproveproductsforthecustomer.Besidesthis,
theor ganisat
ionwil
l
experi
encelessdif
fi
cultyi
npr ocuri
ngfoodsduringperiodsofshor tsupplyor
gett
ingapr i
ceadvantagedur i
ngseasonsofglutfrom suppli
ers.

i
x.Har
moni
ousenv
ironment

Dev
elopmentofr
elat
ionshi
pst
hatl
eadt
ohar
monyandcooper
ati
onbot
hwi
thi
n

St
anl
eyt
hoi
thikagwi
Page113
theorganisat
ionandout sideitr
esul
tsinasenseofmut ualtr
ustandrespect
amongal lassociates.Irr
especti
veofwhichprincipl
esareusedi nthepurchasi
ng
funct
ionofacat eringest abl
ishment
,thebasicprinci
pletowardswhichev er
yone
i
swor kingistheef fecti
vecommi tmentoforganisati
onalfundsandifthewhole
team workstowar dsi tt
ogether,t
heorgani
sationisboundt osucceed.

PURCHASI
NGFUNCTI
ON

Purchasi
ngfuncti
onsandacti
vi
ti
esneedtobepl
annedaccordi
ngt othepol
ici
es
l
aiddownf oreachest
abl
ishment.Thef
oll
owi
ngfunct
ionsappl
icablegener
all
yar
e
enumerated:
-

 Keepi
ngrecor
dsofspeci
fi
cat
ionf
oreachtypeofdi
shonthemenu
devel
opedwit
hthehel
pofthosewhopreparet
hemeals.

 Stor
ingfoodsi
namannert
hatwi
l
lenhanceormai
ntai
nthei
rkeepi
ng
qual
iti
es

 Usi
ngper
ishabl
efoodswi
thi
ntwoday
sofpur
chase.

 Rot
ati
ng-useofpackagedf
oodssot
hatol
derst
ocksar
eusedf
ir
st.

 For
mul
ati
ngspeci
fi
cat
ionsf
orf
oodi
tems.

 Li
aisi
ngwi
thsuppl
i
ersanduserdepar
tment
s.

 Pl
aci
ngor
der
s

 Recei
vi
ngoff
oodandsuppl
i
es

 I
nspect
ionofgoods

 Taki
ngorr
eject
ingdel
i
ver
yofgoods

 St
ori
ngori
ssui
ngdi
rect
lyt
ouserdepar
tment
sagai
nstr
equi
sit
ions.

 Mai
ntai
ningi
nvent
ori
es.

 Mai
ntai
ningsaf
etyandsecur
it
yofst
ores,
bykeepi
nganeagl
eey
e.

 Di
sposi
ngof
fobsol
eteequi
pment
sandwast
emat
eri
als.

 Cont
rol
ofst
ocks

 St
affmanagement
.

St
anl
eyt
hoi
thikagwi
Page114
Thecater
ingpoli
cyoft heestabl
i
shmentshoul
dgiv
eguidancet
ot hequali
tyof
i
temstobepur chasedandt hesyst
emsofvolumefor
ecasti
ngshouldshowthe
quant
it
iestobepur chased.

Thesummar
yofpur
chasi
ngf
unct
ioncanbesummar
isedbyt
hechar
tbel
ow:
-

Pol
i
cies - det
ermi
newhi
chmar
ketsegmenti
sai
medat

- deter
minespr
icest
obepai
dforpur
chasesandpr
icei
tems
aretobesol
d

- det
ermi
nest
hequal
i
tyt
obepur
chased

Menu - det
ermi
nest
hechoi
ceofi
temsav
ail
abl
e

t
ocust
omer
s.

Vol
umef
orecast
ing-
det
ermi
nest
hequant
it
ytobe

pur
chased.

Requi
sit
ion - i
ndi
cat
est
hepar
ti
cul
arr
equi
rement
sof

eachout
let
.

Pur
chasi
ng - sel
ectssuppl
i
ers,contr
act
s,quant
it
iest
o bepur
chased,
speci
fi
cat
ionfori
ndi
viduali
tems

Recei
vi
ng - i
nspect
sforquant
it
yandqual
i
ty

St
ori
ngandi
ssuing-cor
rectst
orageforeachi
tems,
maintenanceofstockr
ecor
ds,
secur
it
y ofi
tems,corr
ectst
ockl
evel
s,corr
ectissui
ng

Pr
oduct
ion - pr
epar
ati
onofi
temspur
chased

Sel
l
ingandservi
ce -pr
ovi
sionofsat
isf
act
orypr
oduct
satt
hecor
rectsel
l
ingpr
ice
orcost

Cont
rol - t
hemeasur
ementofper
for
manceofal
lout
let
sinv
olv
ed

- f
eedbackofi
nfor
mat
iont
omanagement
.

Char
tont
hei
mpor
tanceofpur
chasi
ngf
unct
ion

THEPURCHASI
NGOFFI
CER(
MANAGER)

Thepurchasi
ngoff
icerisresponsi
bleforal
lpurchasesdependingonthetypeof
est
abli
shment.I
nal argehotelt
herehastobeatl eastonepurchasi
ngoff
icer
.In
medium si
zehotel
s,restaur
antsorlar
gecanteens,thecater
ingmanageroroneof

St
anl
eyt
hoi
thikagwi
Page115
theassistantmanagersisresponsibl
ef orpurchase.Insmal
lerhotel
s,rest
aur
ant
s
andcant eens,t
hechefpurchasesal l
per i
shablesgoodsandmanager sor
assist
antmanager spurchaseallnon-peri
shablegoods.Inhospit
als,itist
he
groupsuppl i
esoff
icerassi
stedbycat eri
ngof fi
cers.

Thepurchasingof
fi
cerspendsal otofmoneyinpur
chasi
ngf
oodandother
materi
alsneededi
ncat er
ingestabl
ishmentandt
husbear
saheav
yresponsi
bil
i
ty
fort
hewel l
-bei
ngoftheestabl
ishment.

Ever
yfoodbuy
ert
her
efor
eneedst
opossescer
tai
nqual
i
tiest
owor
kef
fect
ivel
y,
suchas:
-

i
. Loy
altytot
heestabl
i
shmentthroughdev
oti
ontodut
y,exer
cisi
ngasenseof
j
usti
ce,bei
ngopenminded,
hardworki
ngandpati
ent
.

i
i
.Loyal
tyt
ocustomersinter
msofbeingabl
etorecogni
segoodqual
i
tyf
ood
t
hati
sfr
eefr
om adult
erati
onandcont
aminat
ion

i
i
i.Highmoralandet
hical
val
ues,
sot
hathei
snoti
nfl
uencedbyorobl
i
gat
edt
o
suppl
i
ersinanyway.

i
v.Obj
ect
ivi
tyi
nhi
sjudgementofqual
i
tyof
fer
edi
nter
msofpr
iceandser
vice.

v
.Skilli
nidenti
fyi
ngmarket
s,negot
iat
ingdeal
swithsuppl
i
ersand
est
abli
shinggoodrel
ati
onswithpeopl
earound.

v
i.Accepti
ngf
oodbrandsthatar
emar
kedbyst
andar
disi
ngagenci
es
approv
ingt
hei
rquali
ty.

Forbuy
ingwell
,theper
sonresponsi
blef
orpl
aci
ngtheor
dersf
orf
oodonbehal
fof
hi
sorgani
sat
ionandcustomersmusthaveknowl
edgeon:
-

a)Mar
ket
sandpr
ocedur
es

b)Foodav
ail
abi
l
ity

c)Foodhandl
ingpr
act
ices(
dif
fer
entf
oodsar
epacked&handl
edi
n
di
ffer
ent
ly)

d)Si
zeandt
ypeofpacks

e)Pur
chasequant
it
y

f
) Suppl
i
esandt
ermsofsuppl
y

g)Qual
i
tybestsui
tedf
orend-
use

h)Costcont
rol
techni
ques

i
) Pr
icef
luct
uat
ions

St
anl
eyt
hoi
thikagwi
Page116
 j
) Communi
cat
iont
echni
ques

DUTI
ESOFTHEPURCHASI
NGOFFI
CER

i
. Responsi
blef
ort
hepur
chaseofal
lmat
eri
als

i
i
.Responsi
blefort
heef
fici
entoper
ati
onandcont
roloft
hepur
chasi
ngof
fi
ce,
t
hegoodsrecei
vi
ngdepart
ment,t
hestor
esandthecel
lar
.

i
i
i.Ensur
ingcont
inui
tyofsuppl
yofal
li
temst
ouserdepar
tment
s.

i
v.Fi
ndi
ngcheaperandmor
eef
fi
cientsour
cesofsuppl
y.

v
.Co-ordi
nat
ingwit
hproduct
iondepar
tmentt
ost
andar
disecommodi
ti
esand
t
her
eforer
educestockl
evels.

v
i.Li
aisi
ngwi
thpr
oduct
ion,
cont
rol
,account
sandmar
ket
ingdepar
tment
s.

v
ii
.Repor
ti
ngt
oseni
ormanagement
sonact
ivi
ti
esoft
hedepar
tment

v
ii
i.
Keepingup-
to-
dat
ewi
thal
lthemar
ket
sbei
ngdeal
twi
thandev
aluat
ingnew
product
s.

i
x.Resear
chi
nr el
ati
ontother
equi
rement
soft
heest
abl
i
shment
s(pr
oduct
s,
market
,pr
icetendset
c.)

PURCHASI
NGRESEARCH

Thisi
sani nv estigationcar r
iedbypur chasingdepar
tmentt oestabl
ishmat eri
al
pri
ces,andmar keti nformationsoast oaidinbudgeti
ng.Itcanalsobepr acti
cali
n
costanalysiswher epr oducti
ondepar tmentensuresthatwhatisbei ngpurchased
i
ssatisfactorywi thr egardtofinalquali
tyandy i
eldobtai
ned.Thisexactlychecks
outcostofpor tionofani tem taki
ngint oaccountstor
agel oss,
preparat
ionloss,
cooki
ngl ossandser vingloss.

THEPURCHASI
NGPROCEDURE

Purchasi
ngi nanyorganisati
onisdonebypur chasi
ngdepart
mentwhichisheaded
bypurchasingoff
icer.Purchasescontr
olshouldbeexerci
sedtoensur
ethatgoods
ar
epur chasedatrightti
me, ofri
ghtquali
tyandinri
ghtquanti
tyaspur
chaseof
i
nferi
orqualit
ygoodscanr educetheprofi
tofanyorgani
sati
on.

Thepurchasi
ngoffi
cershoul
densurethatnooverpurchasi
ngorunderpurchasi
ng
asthi
smayl eadtoshort
ageofmateri
alsduri
ngproducti
onasthi
swi l
lnotmeet
thesal
esrequir
ement.

Thesefact
sindi
cat
ethatr
ightpur
chasi
ngpr
ocedur
eandcont
rol
isofgr
eat
i
mportance.

St
anl
eyt
hoi
thikagwi
Page117
Thepurchasi
ngpolicyofanyor
gani
sat
ionshoul
dbehel
pful
toachi
evet
he
fol
l
owingobject
ives:-

a)Tobuygoodsatt
hel
owestpr
ices

b)Tobuygoodsatt
her
ightt
ime

c)Touset
hemet
hodofpur
chasi
ngwhi
chi
smostappr
opr
iat
e

d)Tobuyt
hemostappr
opr
iat
equant
it
ies.

Ther
ear
evar
iousst
epsorst
agesi
npur
chasi
ngpr
ocedur
e.Thesear
e:-

i
. Ar
equi
sit
ionf
ormi
spl
acedf
rom anaut
hor
isedmemberoft
hest
aff
.

i
i
.Selecti
onofsour
ceofsuppl
yfr
om whi
chgoodsar
etobepur
chased
andthepr
icest
obepaid.

i
i
i.Ent
eri
ngint
oacont
ractwi
tht
hesuppl
i
erorf
ir
m sel
ect
edbyphone
orwri
ti
ng.

i
v.Obt
aini
ngasat
isf
actor
ydel
iv
eryper
formancef
rom t
hesuppl
i
erwi
th
r
egardtot
ime,
dateandpl
aceofdel
iver
y.

v
.Theacceptanceofgoodsorderedandtheadj
ustmentofany
di
scr
epanci
esinquali
tyorquanti
tyofgoodsdel
i
vered.

v
i.Thetr
ansf
erofcommodi
ti
est
otheor
der
ingdepar
tmentorst
oresor
cel
l
ar.

Summar
yofpur
chasi
ngpr
ocedur
e

i
. Requi
si
ti
on

i
i
.Sel
ect
ionofsour
ceofsuppl
i
er

i
i
i.Ent
eri
ngi
ntocont
ractwi
thsuppl
i
er

i
v.Obt
aini
ngsat
isf
act
orydel
i
ver
yper
for
mance

v
.Accept
anceofgoodsor
der
ed

v
i.Tr
ansf
erofcommodi
ti
est
odepar
tmentorst
ore.

ORDERI
NGPROCEDURES

I
tisi
mportantforallcat
eri
ngestabl
ishmentstoest abl
ishri
gidorder
ing
pr
ocedur
eswi t
ht hei
rsuppli
ers;
theseproceduresmustber egardedasessent
ial
i
nanypurchasi
ngf uncti
on.Therearefourmainfuncti
onsinvolv
edinorderi
ng

St
anl
eyt
hoi
thikagwi
Page118
pr
ocedur
esnamel
y:
-

i
. Enqui
ri
es

i
i
.Quot
ati
ons

i
i
i.Pur
chaseor
der
s

i
v.Acknowl
edgement

Suppl
ier
sshoul
dbemadeawar eoforderi
ngprocedur
esandshoul
dbeinfor
med
i
nwr i
ti
ngofanyi
nst
ruct
ions.Theseshoul
dincl
udethefol
l
owingpoi
nts:
-

i
. Del
i
ver
yti
meandanyspeci
aldel
i
ver
yrequi
rement
s

i
i
.Upt
odat
einf
ormat
ionr
egar
dingpr
ices

i
i
i.Var
iat
ionsi
nsuppl
i
esorpr
icesmusthav
epr
evi
ousconsent

i
v.Noal
ter
ati
onbet
weenquot
edandi
nvoi
cedpr
ices

v
.Goodssuppl
i
edwi
l
lbeasor
der
ed

v
i.Namesofper
sonswhoar
eaut
hor
isedt
orecei
vedel
i
ver
ies

Enqui
ri
es

Enquiri
esregar
dingsour
cesofsuppl yshouldbemadei nwri
tingt osever
al
potenti
alsuppl
i
ersoftheproducts.Theenquirymustbeaccompani edbya
purchasespeci
fi
cati
onoftheproduct (
s)requir
edandthepotentialsuppl
ierasked
toprovidethef
oll
owingdet
ailsregardi
ngt heserv
icehecanof f
er:-

i
. Del
i
veryservi
ceshei
sabl
eandof
feronbot
hregul
arandon
emergencybasi
s.

i
i
.Or
der
ingpr
ocedur
efort
elephoneandwr
it
tenor
der
s.

i
i
i.Advancenot
iceofor
der
srequi
redf
ordel
i
ver
y,bot
hmi
nimum and
maximum ti
mes.

i
v.Mini
mum or
deri
ngquanti
ti
esofpr
oduct
sandmi
nimum v
alueof
eachor
derf
ordeli
ver
y.

v
.Accounti
ngprocedur
es,
toi
ncl
udeper
iodsofcr
edi
tgi
venandany
di
scount
sgi
ven.

v
i.Ref
er encesbyot
hercust
omer
soft
hesuppl
i
err
ecei
vi
ngasi
mil
ar
ser
vice.

v
ii
.Backupservi
ce,
aft
ersalesservi
ceandpromot
ionalmateri
als
avai
l
abl
e(theseser
vicesareconsi
deredi
nthepurchaseofalcohol
i
c

St
anl
eyt
hoi
thikagwi
Page119
 l
i
quor
).

Quot
ati
ons

Theyaresentbydiff
erentsuppl
iert
opurchasi
ngf i
rmsinr
esponsetol
ett
erof
i
nquir
y.Aquotationisanoffert
osuppl
ygoodsaccor di
ngtotheter
msand
condi
ti
onsstated.Thesetermsandcondit
ionsincl
ude:
-

 Forwhatper
iodt
hepr
icesst
atedar
eval
i
d

 Rat
esofdi
scountof
fer
ed

 Modeofdel
i
ver
y

 Ter
msofpay
ment

Pri
maryconsi
derati
onmustbegiventothei
rabi
li
tyt
osuppl
yproductsaccordi
ng
topur
chasespecif
icat
iongi
venearl
i
er.Thi
senabl
esthepur
chaserselectt
hemost
competi
ti
vepri
ce.

Or
der
ing(
thepur
chaseor
der
)

Afterrecei
vingthequot at
ions,thepurchasi
ngdepart
mentwillsel
ectthesuppli
er
fr
om whom t hegoodsar etobebought .Suppl
ier
sshouldbegiventheiror
der
sand
otherinstr
uctionsuchasdel i
v eryt
imeordate,assoonaspracti
call
ypossibl
e
pri
ortodel i
very.Ordersshouldbemadei nwri
ti
ngorifmadebyt el
ephonewritt
en
confir
mat i
ondespat chedtot hem assoonaspossibl
e.

Theessent
ial
det
ail
sinpur
chaseor
derar
easf
oll
ows:
-

i
. Or
dernumber

i
i
.Dat
eofor
der

i
i
i.Dat
eofdel
i
ver
y

i
v.Nameandaddr
essofsuppl
i
er

v
.Quant
it
y,si
zeanddescr
ipt
ionofgoodsor
der
ed

v
i.Pr
icequot
edbysuppl
i
er

v
ii
.Tot
alpr
iceofor
der

v
ii
i.
Signat
ureofpur
chasi
ngof
fi
cer

Thenumberofcopi esofpur chaseorderdependsupont henatureofthe

organisat
ionsi.esmallestabli
shmentr equire3copi
es,l
argeestablshment5-
i 6
copies.Onecopyi ssenttot hesuppli
er, onecopyi
sret
ainedbyt hepurchasi
ng
departmentandot hercopiesar esenttoaccountsdepart
ment,receivi
ng
department,foodandbev eragecont r
olleretc.

St
anl
eyt
hoi
thikagwi
Page120
THESELECTI
ONOFASUPPLI
ER

Asuppli
ercanbeeasil
ysel
ect
edfrom amongthoset
hatthebuy
erhaspr
evi
ousl
y
pur
chasedfrom i
nthatt
hequal
it
yofgoodsrecei
ved,
pri
ceandserv
iceof
fer
ed
wouldbeknown.

Whenseeki
nganewsuppli
ercauti
onmustbeexer
cisedanddet
ail
edenqui
ri
es
madetocoveratl
eastt
hef
oll
owingpoi
nts:
-

i
. Fulldet
ail
softhefi
rm -t hi
sincl
udesther
angeofit
emsor
productsaresel
l
ing,
addr
essofthei
rheadoff
iceandnameof
refer
ences.

i
i
.Copi
esofr
ecentpr
icesl
i
stsf
orcompar
isonwi
thot
hersuppl
i
ers

i
i
i.Det
ail
soft
radi
ngt
erms(
whet
hercash,
credi
t,di
scountt
obeof
fer
ed
et
c.)

i
v.Detail
sofothercustomers(i
.ecust
omersofthei
rpr
oduct
sasthi
s
will
enablethebuy ert
ocheckothercust
omerswhohaveused
products,
whethertheyweresati
sfi
edornotandgai
nsome
confi
denceforevaluat
ionperf
ormance)

v
.Sampl
esofpr
oduct
s.

Ideal
ly,avisi
tshouldbemadet oanypotenti
alsuppl
iertoseethesi
zeofthe
company ,thefull
rangeofproduct
s,andthesizeofprocessi
ngandstorage
facil
i
ties,
thesizeofthei
rtr
ansportfl
eet(gr
oup)andt omeetmember sof
managementt eam.

Agoodsuppl
i
ershoul
dal
way
smeett
hef
oll
owi
ngaspect
s:-

i
. Shoul
dal
waysanti
cipat
etheneedsoft
heorgani
sat
ionhencebeabl
eto
notemar
ketcondi
ti
onsandinf
ormthebuy
er.

i
i
.Shouldregular
lygi
vepr oduct
sandmarketi
nfor
mat
ione.
gifthei
temsar
e
outofseasonther
eforeasacater
ery
oucansubsti
tut
eforsomet
hingel
se
orl
ookforanothersuppli
er.

i
i
i.Shoul
dbeabl
etobr
eakquant
it
iesdownasonehadr
equi
red.

i
v.Shoul
dal
way
smai
ntai
nadequat
est
ock.

v
.Shoul
dbeabl
etoev
aluat
ecr
edi
tter
msanddi
scount
sav
ail
abl
e.

v
i.Accessdel
i
ver
ycondi
ti
onsandbeabl
etoof
ferwi
der
angeofgoodsand
ser
vice.

St
anl
eyt
hoi
thikagwi
Page121
SUPPLI
ERRATI
NG(
METHODSOFEVALUATI
NGSUPPLI
ERPERFORMANCE)

Havi
ngsel
ectedsuppl
ier
sandplacedthem onan‘
appr
ovedsuppli
erl
i
st’
,andaf
ter
hav
ingpur
chasedfrom t
hem,i
tisnecessar
ytoper
iodi
cal
lyev
aluat
ethei
r
per
for
manceusingarati
ngsyst
em.

Ther
ear
ethr
eemai
nper
for
mancescr
it
eri
ausedi
nrat
ingsy
stem namel
y:
-

i
. Pr
iceper
for
mance

i
i
.Qual
i
typer
for
mance

i
i
i.Del
i
ver
yper
for
mance

PRI
CEPERFORMANCE

Priceismeasur edbycompar ingthepricesofeachsuppl i

erforanorder,overa
knownt radi
ngperiod(e.goneweek, 28day setc)againstthoseofothersuppliers
oft hesamegr oupofcommodi ti
es.Thel owertheprice,thehighert
her ati
ng
fi
gur ei.ethecheapestit
em notnecessar ythebestbuy ;oft
encheapi tem i
sofl ow
qual i
ty.Onesuppli
ermayspeci ali
seinlowerqual i
tygoodsatl owerpr i
cewhile
otherhi ghquali
tywithhighprices.Thistwosuppl i
ersar especial
ist
sandbot h
suppl ysamebuy erwithsimilargoodsbutdi f
fer
entqual i
ti
es.Thesuppl i
erthe
buy erchoosesdependsont hequal i
tyrequired-
thecorrespondingpricewillt
hen
bepai d.Pr i
ce,
howev er,
isnotal waysrelatedtoquality.

Thelowerthepr
icecoupl
edwi
thav
eragequal
i
tyofgoods,
thehi
gheri
sthepr
ice
per
formancerat
ing.

QUALI
TYPERFORMANCE

Thisist
heabil
i
tyoft
hesuppl
iert
osuppl
ythebuyerconsi
stent
lywi
thgoodsoft
he
desir
edqual
it
yaslai
ddowninthepur
chasespeci
fi
cati
on.

Consi
stencyi
nmeetingt
hepur
chasi
ngspeci
fi
cat
ionwoul
dgi
veahi
ghqual
i
ty
per
for
mancer at
ing.

DELI
VERYPERFORMANCE

Thisistheabil
ityofthesuppl
iertomeetagreedtimeanddat eswit
hthebuyer
.
Promptdeliv
er i
esmeant hatthegoodswi l
lbedeli
veredwhenrequi
redandwhen
staff
sareavailablet
ocheckthem effici
ent
lyforquanti
tyandqual
it
y.Lat
e
deli
veri
eswilloftenaddtothepressureofworkatreceivi
ngdepar
tmentandmay
createcompli
cat i
onsintheproducti
ondepartment.

Thenearert
heschedul
eddeli
ver
ydateandt
imeandt
heabi
l
ityt
omeett
his,
the
hi
gherthedel
iv
eryperf
ormancerat
ing.

St
anl
eyt
hoi
thikagwi
Page122
AI
DSTOPURCHASI
NG/
PURCHASI
NGI
NFORMATI
ON

Thepr ecedingpageshaveat
temptedt
oreducethecomplexi
tyoft
het
otal
purchasingactiv
ityt
oasimpli
fi
edoutl
i
ne.Therear
e,however
,twomai
nprobl
ems
thatcontinual
lyconf
rontt
hebuyer
.Theyare:
-

a)Keepingupt
odat
ewi
thwhati
sav
ail
abl
einal
lthemar
ket
sinwhi
chhei
s
deal
ing.

b)Keepingupt odatewi
tht
hecur
rentpr
icef
orall
commodi t
ies.Thi
sisv
ery
i
mpor tant,
asitenabl
est
hebuyert
onegot
iat
ewi t
hsuppli
ersmore
ef
fici
entlyandtocompar
ethepri
cest
hatheisbeingchar
ged.

I
nordert
oreducethesedi
ffi
cul
ti
es,t
hebuyerneedst
obeawar
eofwhatgener
al
i
nfor
mati
onservi
cesareavai
labl
ethatwi
l
lhelphim.

Theseai
dsmaybegr
oupedi
ntosi
xnamel
y:
-

a)Thesupplytr
adepress - Tr
adejournal
sarepubl
ishedweeklyand
covermostofthecommodi
ti
estobepurchased.Theygi
vev al
uabl
ecurrent
general
inf
ormati
onandi
ndi
cati
onsoffutur
et r
ends.

b)Thecommodi tytradeorgani
zat
ions - t
heseorgani
zat
ionswil
l
readi
lyprov
ideinformati
ontocater
ersaboutapart
icul
arcommodity
,such
asthetypeavail
able,howtheyshoul
dbest or
edandnamesoflocaland
nati
onalsuppl
iers.

c)Thecat
eri
ngtradepr
ess - thesepaper
sandjournal
scontai
nit
ems
ofcommodit
ynewsandinf
ormat
ionofpresentandf
uturepri
ces.

d)Thenat
ionalpress - Leadi
ngnewspaperpubl
i
shcommodi
tymar
ket
newswithdetail
soft
her
angeofpri
cesbeingpai
dincer
tai
nmar
ket
s.

e)Gov er
nmentpublicati
ons - t
heseareavai
labl
efr
om agri
cultural
departmentsgivi
ngav ari
etyofi
nfor
mationsuchasanational
foodsur v ey
response,avai
l
abili
tyofspeci
fi
ccommodi t
iesandcurr
entfoodlegislat
ion.

f
) Publi
shedpr icei ndexes - thesear eproducedbygov ernment
depart
ment s, byconsumerassoci ationsandbyt r
adej our
nals.These
i
ndexesst artfrom apar ti
culardatei nti
mel isti
nglargegroupsof
commodi ti
esandmoni t
orthechangesi npricesfrom thatini
tialperi
od,
al
sorecordingchangesonay earl
yandmont hlybasis.Thisisofgr eat
si
gnif
icancet ot hecat er
erasi tpr
ov idesinformati
onofgener alandspecif
ic
pri
cetrendsandacompar i
sonagai nstthepr i
cesthathehaspai dfor
commodi ti
esr ecentl
y.

St
anl
eyt
hoi
thikagwi
Page123
PURCHASI
NGOFFOOD

Whenpur chasingf oodi

tisnecessarytoconsiderwhatthet
ruecostoftheitem
wil
lbeinrelationtowhattheprint
edpr i
celi
stfrom t
hesuppli
erstat
esittobe.The
tr
uecostcal culat
ionhastotakeintoaccounttheinvoi
cepri
celessanydiscounts
cl
aimable;storagecostoftheitem andtheproducti
oncost.

Thebuy
ingmet
hodchosenof
tendependson:
-

a)Thel
ocat
ionoft
heest
abl
i
shment

b)Thet
ypeandt
hesi
zeoft
hebusi
ness

c)I
tspur
chasi
ngpower

d)Thet
ypeoff
oodbei
ngpur
chased

I
tisimport
antfort
hebuyertohaveaccuratef
igur
esavai
labl
eoftheconsumpti
on
orusageofmajori
temssot hathemaydecidewhichmethodofpurchasi
ngt
ouse
andalsoasessent
ial
dat
af orthenegot
iati
onofthepur
chasi
ngprice.

PURCHASI
NGMETHODS

Thepoli
cyadoptedbyt
hepurchasi
ngoffi
cerwi
ll
dependonthesi
ze,t
ype,
and
st
yleofest
abli
shmentandt
hequantit
iesandcommodit
iesi
nvol
ved.

Themaj
ormet
hodsoff
oodpur
chasi
ngar
easf
oll
ows:
-

i
. Pur
chasi
ngbycont
ract

i
i
. Pur
chasi
ngbydai
l
ymar
ketl
i
st

i
i
i. Pur
chasi
ngbydai
l
yweekl
yorf
ort
night
lyquot
ati
onl
i
st

i
v. Pur
chasi
ngbycashandcar
ry

v
. Pur
chasi
ngbypai
dreser
ve

v
i. Tot
alsuppl
y

v
ii
. Costpl
us

v
ii
i. Cent
ral
i
sedpur
chasi
ng

PURCHASI
NGBYCONTRACT

Ther
ear
ebasi
cal
l
ytwot
ypesofbuy
ingbycont
ract
:-

a)Speci
fi
cper
iodcont
ract

b)Quant
it
ycont
ract

St
anl
eyt
hoi
thikagwi
Page124
Speci
fi
cper
iodcont
ract

Aimsatdetermini
ngthesourceofsupplyandthepriceofgoodsforast
ated
peri
odoften3-6months(i
.eshortter
m contr
act).I
treducestheti
meandlabourof
negoti
ati
ngandor der
ingt
oami nimum andassistwithbudgeti
ngandpr
ici
ng.This
ty
peofcont r
actiscommonf ori
temswi t
haf ai
rystablepri
ce.

Quant
it
ycont
ract

Aimsatensuri
ngconti
nui
tyofsupplyofagiv
enquanti
tyofanessenti
ali
tem at
vanagreedpr
iceoverapar
ti
culartr
adingper
iod.E.
gpurchaseoff
rozenf
rui
ts,
veget
ablest
obeusedwhenof fseason.

NOTE:-acont
racti
sal egaldocumentandthatt
hecondi t
ionsoft hecontr
act
shoul
dbepreparedbyt hefi
rmssoli
cit
or(l
awyerwhopr epareslegaldocument
andcanspeakforthem incourt
)tosafeguar
dagainstpossibleareasofdisput
e.

Cl
ausescont
ainedi
ncont
ract

i
. Per
iodofcont
ract

i
i
. Est
imat
edquant
it
iesasaccur
ateaspossi
ble

i
i
i. Wher
edel
i
ver
iesar
etobemade(
i.
ethepl
aceofdel
i
ver
y)

i
v. Wher
einv
oicesar
etosent

v
. Met
hodsofpay
ment

v
i. Sampl
eofcommodi
ti
es

v
ii
. Ser
viceofnot
icet
obr
eakacont
ract

v
ii
i. Prevent
ionofcorrupt
ion(
i.
eest
abli
shmentreserv
esther
ightt
o
cancelcont
ractshoul
danyunet
hicalpr
act
icesisknowne.gbr
iber
y)

i
x. Ther
emov
alofanyr
eject
edf
oodt
obeunder
takenbyt
hesuppl
i
er

x. Powert opurchaseindef
ault(
i.
eshoul
dsuppl
i
ernotbeabl
eto
supplycommodi ty
,theest
abli
shmentr
eser
vesri
ghtt
obuyfrom
anothersuppli
er)

xi
. I
ndemnit
yagai
nstdamage(
i.
esuppl
i
ert
ober
esponsi
blef
ordamage
ofpr
oper
ty)

xi
i
. Contai
ner
schargeabl
emustbecr
edi
tabl
etot
heest
abl
i
shmenti
n
ful
lwhenret
urned.

xi
i
i. Thepur
chasespeci
fi
cat
ionf
ort
hei
tem concer
ned.

St
anl
eyt
hoi
thikagwi
Page125
Adv
ant
agesofcont
ractpur
chasi
ng

i
. Cont
inui
tyofsuppl
yataf
ixedpr
ice

i
i
. Ti
mesav
ingbyel
i
minat
ingpr
iceandsuppl
ynegot
iat
ion

i
i
i. Av
oidi
ngt
heneedt
ohol
dhi
ghst
ockst
ogai
nbul
kbuy
ingdi
scount
s

i
v. Av
oidi
ngov
eror
der
ingofi
tem

v
. Regul
aror
der
inganddel
i
ver
ypr
ocedur
esar
esetup

Di
sadv
ant
ageofcont
ractpur
chasi
ng

i
. Inf
lexi
bil
i
tyinthechoi
ceofsuppl
i
erandi
nsomecasest
he
commodi ti
esavai
labl
e.

i
i
. Adv
ant
ageofspeci
alof
fer
sorpr
icecut
smaybeel
i
minat
ed

i
i
i. Suppl
i
ersmayt
aket
hecust
omerf
orgr
ant
ed

i
v. I
nthecaseofspeci
fi
cquanti
tycontr
acts,
forcer
tai
nit
emsitmay
l
eadtohighst
ockholdi
ng,
shouldtherebeachangeincust
omer
demand

v
. Thedif
fi
cult
iesi
nvol
vedinchangi
ngsuppli
ershoul
dasuppl
i
erpr
ove
i
nconsi
stentint
heserv
iceorgoodspr
ovided.

PURCHASI
NGBYDAI
LYMARKETLI
ST

Thi
smet hodisusedwhenpur
chasi
ngperi
shabl
efoodsonadai
l
ybasi
sandwhen
i
tispossibl
etohavetwoormoreappr
ovedsuppl
ier
s

Howdai
l
ymar
ketl
i
sti
spr
epar
ed.

a)Aseniormemberofki
tchenst
afft
akesaqui
ckst
ockoft
hef
oodsl
eft
af
tereachser
vice

b)Hei
nfor
mst
hechefoft
her
equi
rement
s

c)Thecheff
il
lsi
nmar
ketl
i
st(
quant
it
ies)ofal
li
temsr
equi
redf
ort
henext
day

d)Thel
i
sti
spassedt
opur
chasi
ngdepar
tment

e)Appr
ovedsuppli
ersar
econt
act
edonphone,
askedf
ort
hequot
ati
onof
thei
temsneeded

f
) Thepr
icesgi
veni
sindi
cat
edont
hel
i
stagai
nstt
hequal
i
ty

g)Or
der
sar
epl
acedoncol
umnsofpr
efer
redsuppl
i
erorshar
edbyal
lof

St
anl
eyt
hoi
thikagwi
Page126
 t
hem.

Adv
ant
ages

i
. Thepurchaseri
sabl
etosel
ectt
hemostcompet
it
ivepr
icesf
rom di
ff
erent
suppl
i
ers

i
i
. I
tmakest
hesuppl
i
er’
spr
icequot
ati
onsmor
ecompet
it
ive

i
i
i. I
tensur
est
heav
ail
abi
l
ityofsuppl
i
es

i
v. Suppl
i
ersonl
yquot
eagai
nsty
ourpur
chasespeci
fi
cat
ions

v
. I
tassi
stst
hepur
chaseri
nsel
ect
ingt
hemosteconomi
cor
der
ingquant
it
y

Di
sadv
ant
ages

i
. I
tmaybet
imeconsumi
ng

i
i
. Iti
simpract
icabl
eforsmallestabl
ishmentduetov
olumeofsuppli
es
requi
red,
makingituneconomicalorsuppl
iert
oquoteorof
fersucha
servi
ce.

i
i
i. Suppli
erswhooff
erabett
erser
vicet
hanot
her
smaynotbeascompet i
ti
ve
i
nprice,thust
heest
abl
i
shmentmaynotbenef
itf
rom suchser
vice.

PURCHASI
NGONWEEKLYORFORTNI
GHTLYQUOTATI
ONLI
ST

Thismet
hodi susedtopurchasegroceryi
temswhereadeliv
eryofonceaweek
(orev
enonceaf ort
night)i
sadequate.Themethodissimi
l
artothatdescr
ibed
whenpurchasi
ngperishabl
esfoodsbydailymarketl
ist
.

Theheadst oremanchecksthelevelofi
temsi nt hest
oreataweeklyorfor
tnight
peri
odt odeter
mi nethenumberofi
temsr equired.Hethenfi
l
lsthewantedi
tems
foreachit
em want edbasedonthenormal orderquanti
tyandthevol
umeoft he
businessexpected.

Thepurchaseoffi
cesendsoutblankquotati
onsheetorl
istforsuppli
erstofill
pri
cesthenret
urnthem byaspecifi
cdate.Onrecei
vi
ngthislist,
theyareenteredin
tomasterquotati
onli
standadecisioni
smadeaboutwher et heordersforeach
i
tem ar
et obeplaced.Thiswoul
dbebasedonr equir
ementf ornextweekor
for
tni
ght,t
hepr i
cesquotedandthebudgetavai
labl
eandst oragespaceavailable.

PURCHASI
NGBY‘
CASHANDCARRY’

St
anl
eyt
hoi
thikagwi
Page127
Thismet hodi susuall
yusedbymedi um andsmal lest
abl i
shmentwhoseor ders
areof tennotl argeenoughtobeabl etogetregulardeliveri
esfr
om al lsel
ler
sand
foodmanuf acturer
s.Thepurchaserv i
sit
salocalwhol esalewarehouset ocarry
outhispur chasi ngrequi
rements.Thecashandcar ryestabli
shment shave
restr
ictedent ryt ot
rader
sonlyandcar ryawholer angeoff oodstuffs,hardware
product s,l
iquorandt obaccoandi tispossi
bleforacat erert
opur chaseallhis
requirement sf rom t
hem.Thecat ereri
sabletoseeal ltheproductsav ail
ableand
compar epricesbet weenthem;het henpaysbycashorchequeandt r
anspor t
sthe
goodst ohisownest abl
ishment.

Adv
ant
agesofcashandcar
ry

i
. Pr
icesar
ecompet
it
ive

i
i
. Ther
ear
enomi
nimum or
derl
evel
s

i
i
i. Theiraccessi
bil
i
tymeansthatcat
erer
scanmakef
requentv
isi
ts
accordi
ngt ot
heirownrequi
rement
s.

i
v. St
ockl
evel
scanbekeptt
oami
nimum

v
. Thecater
ercanseear
angeofpr
oduct
sav
ail
abl
etohi
m and
exper
imentwit
hthem.

Di
sadv
ant
agesofcashandcar
ry

i
. I
nmostcasest
her
ear
enodel
i
ver
yser
vices.

i
i
. Cr
edi
tisnotav
ail
abl
etopur
chaser
s.

i
i
i. Onoccasi
onsav
ail
abi
l
ityofpr
oduct
smayber
est
ri
cted.

PURCHASI
NGBYPAI
DRESERVE

Thismethodi susedt oensur

ethecontinuit
yofsupplyofanitem fort
hemenu
whichisofapar ti
culari
mportancetoar est
aurant
.Cater
ersarebuy i
nginadvance
i
nl ar
gequantiti
esofacommodi tytocovertheneedsforseveral
mont hsheldand
therequi
sit
ioningrequir
ementstosupplieswhoholdthestock.Thismet hodisf
or
foodslkef
i rozenpr awns,f
rozenfil
l
etofbeefetc.

TOTALSUPPLY

Thismet
hodisonlyoff
eredbyafewmajorsuppl
i
erswhoar
eabl
etoof
feraf
ull
suppl
yser
viceofal
lcommoditi
estocat
erer
s.

Adv
ant
ages

i
. Youonl
ygett
onegot
iat
ewi
thonesuppl
i
er

St
anl
eyt
hoi
thikagwi
Page128
 i
i
. Ther
ear
efarf
ewerdel
i
ver
ies

i
i
i. Ar
educedv
olumeofpaperwor
k

Di
sadv
ant
ages

i
. Pr
icesmaynotbecompet
it
iveaswhenhav
ingsev
eral
suppl
i
ers

i
i
. Rangeofcer
tai
ncommodi
ti
esmaybel
i
mit
ed

COSTPLUS

Thi
sisamethodusedfrequent
lyi
nt hewelf
aresector
softheindust
ry.The
est
abl
ishmentagr
eedtopayanappr ovedsuppl
ierpai
dforthecommodi t
iespl
us
1
anagr
eedpercent
age,
of en10-
t 12/ 2%.

Theper
cent
agewoul
dincl
ude:
-

a)Thecostofhandl
i
ng

b)Del
i
ver
ychar
ges

c)Pr
ofi
tel
ementf
ort
hesuppl
i
er

CENTRALI
SEDPURCHASI
NG

Thismet hodisusedmai nlybychainoper at

ionorgr oupsandoccasi onal
l
yby
small groupsofi ndependedoper at
orswhohav esimil
arneeds.Undersuch
centr
al i
sedpur chasingsystem t
hegr ouparer elayedtoacentraloff
icewhich
woulddet er
minet hetot
alrequir
ement sofall unit
swi t
hint
hegr oupandpur chase
thattotal.Deli
veryismadeei t
herdirectl
ytot heuni t
sortoacent r
allocat
ionfor
dist
ri
but ionbyt hegroupthemselves.

Adv
ant
ages

i
. Pr
icer
educt
ionsduet
obul
kbuy
ing

i
i
. Wi
derchoi
ceofmar
ket
sduet
ovol
umeoft
rade

i
i
i. Gr
eat
err
angeofst
ocki
temsav
ail
abl
e

i
v. Speci
fi
cat
ionsofpur
chasesmaybemor
epr
eci
se

v
. Suppl
yandqual
i
tyar
eeasi
ert
ocont
rol
duet
ovol
umeoft
rade

v
i. Cont
rol
overdi
shonest
ybyuni
tmanager
s

Di
sadv
ant
ages

i
. Unit
sdonothavefr
eedom t
opurchasest
ocki
temswhi
chmaybe
pecul
iart
othei
rpar
ti
cul
arneed

St
anl
eyt
hoi
thikagwi
Page129
 i
i
. Standar
disat
ionofmenusandpr
oduct
sli
mit
sthef
reedom ofuni
tst
o
change.

i
i
i. Theadv
ant
ageofl
ocal
i
sedpr
icer
educt
ionscannotbenef
itt
heuni
t.

i
v. Cent
ral
i
seddel
i
ver
ymaycausedi
str
ibut
ionpr
obl
ems.

PURCHASI
NGFROM VANSALES

Thismet hodofpur chasi

ngisusedi nmor eruralareas,bysmal l
erestabl
ishment s
i
ngener al.Localsuppli
ersandinf ewcases,nationalcompani es,usevansor
l
orri
escar ryi
ngar angeoftheirproductsandv i
sitsestabli
shment sonar egular
basisforthecaterertomakehi spurchasesdi r
ectfrom thevanandpayona
mont hl
yaccount .Themostcommont ypesoft r
aderswhosuppl ythi
sser vi
ceare
fr
uitandv egetablemerchants,bakeri
es,dai
riesandf rozenfoodtraders.

Adv
ant
ages

i
. Thecat
ereri
sabl
etoseet
hegoodsav
ail
abl
eandal
ter
nat
ives.

i
i
.Speci
alof
fer
scanbet
akeni
mmedi
ateadv
ant
ageof
.

i
i
i.Fl
uct
uat
ionsi
nlev
elsofbusi
nesscanbeeasi
l
ycopedwi
th.

i
v.St
ockhol
dingcanbeeasi
l
ycont
rol
l
ed.

Di
sadv
ant
ages

i
. Pr
oduct
smayonoccasi
onsnotbeav
ail
abl
e.

i
i
.Pr
icesmaynotasbecompet
it
iveaswhol
esal
ersormar
ketpr
ices.

i
i
i.I
tmayl
i
mitt
hechoi
ceofsuppl
i
er.

STANDARDPURCHASESPECI
FICATI
ONSFORFOOD

Defini
ti
on - i
saconcise(giv
ingonl
ytheinf
ormati
onthati
snecessar
yand
i
mpor tant
,usi
ngf
ewwor ds)descri
pti
onofthequal
it
y,si
zeandweight(
orcount
)
requir
edforapar
ti
culari
tem.

Eachspecif
icati
onisdetermi
nedbymember softhemanagementt eam by
ref
erencetothecateri
ngpoli
cy,t
hemenur equi
rementanditspri
cerange.Copies
ofthespeci
ficat
ionshouldbekeptbythemanagement ,thegoodsreceiv
edcl erk
andthefoodcont r
olcl
erkandsenttoallsuppli
ersonthe‘appr
ovedsupplier
sl i
st’
.

REASONSFORPREPARI
NGSTANDARDPURCHASESPECI
FICATI
ON

St
anl
eyt
hoi
thikagwi
Page130
 i
. Toest
abl
i
shabuy
ingst
andar
dforapar
ti
cul
arcommodi
tyf
oran
est
abl
i
shment
.

i
i
. Toi
nfor
mthesuppl
i
er,
inwr
it
ing,
preci
sel
ywhatt
hepur
chaserr
equi
res.

i
i
i. Toestabl
ishacommondenominat
orbetweenthepur
chasi
ngof
fi
cer
andtheapprov
edsuppl
i
ersf
orsett
li
ngthepri
cesofacommodit
y.

i
v. Toi
nfor
mther
ecei
vi
ngcl
erksandst
oremanwhatt
oaccept
.

v
. Toobt
ainast
andar
dpr
oductf
ort
hepr
oduct
ionandsel
l
ingdepar
tment
.

v
i. Toobtai
nastandar
dpr
oduct
,sothatthemeasur
ementofper
for
mance
ofdepar
tment
scanbemoreaccurat
e.

Pur
chasespeci
fi
cat
ionsar
eusef
uli
nsev
eral
way
s:-

a)Theyensur
ethatper
sonresponsi
bleforpur
chasingandtheuseof
commoditi
esandproduct
sdeterminepreci
serequi
rements.

b)Theyel
imi
natet
hepossi
bil
i
tyofanymi
sunder
standi
ngbet
weenpur
chaser
andsuppl
i
er.

c)Theymaybedistr
ibut
edtodiff
erentsuppl
i
ers,
thusenabl
i
ngt
hem t
omake
compet
it
ivepr
icequotat
ions.

d)Theyspeeduptheor
der
ingpr
ocedur
eassuppl
i
ersar
eawar
eofspeci
fi
c
requi
rement
s.

e)Theyenabl
edel
i
ver
iest
obecheckedmor
eeasi
l
ywhent
heyar
erecei
ved.

Whenwri
ti
ngspeci
fi
cati
onsi
tisconv
eni
entt
owr
it
ethem i
nast
andar
dfor
m
gi
vi
ngthefol
l
owingi
nformat
ion:
-

i
. Defi
nit
ionoftheit
em - car
emustbeexercisedher
ethatthe
commoncat eri
ngter
m usedbyt
hebuyermeansexactl
ythesamethingt
o
thesuppl
ier

i
i
. Requi
redgr
adeorbr
andname

i
i
i. Wei
ght
,si
zeorcount

i
v. Degr
eeofpr
epar
ati
onespeci
all
yformeat

v
. Uni
tagai
nstwhi
chpr
icesar
equot
ed

v
i. Del
i
ver
ydat
e

v
ii
. Specialnot
esfort
hecommodi tye.
gformetitcoul
dcont
aindetail
soft
he
preparat
ionofapart
icul
arcutofmeatordet
ail
sofspeci
alpackagi
ng
requi
rements.

St
anl
eyt
hoi
thikagwi
Page131
NOTE:-overspeci
fi
cati
oncanleadbuyi
nggoodsofaver
yhi
ghst
andar
dthani
s
necessar
ythusunintent
ional
l
yincr
easethef
oodcost
.

Fi
gur
e1.speci
fi
cat
ionf
orf
resht
omat
oes
P&QCATERERSLI
MITED

STANDARDPURCHASESPECI
FICATI
ON NO.26

COMMODI TY:Freshtomat oes

SI
ZE: 50gmseach
QUALITY: fi
rm, wellformed,goodr
ed
colour
ORIGIN: Englishpreferr
ed
WEIGHT: 6kilosperbox
COUNT: 90-100perbox
QUOTE: perbox
DELIVERY: dayf oll
owingorder
DATE: 31st mar
ch20. ..

P&QCATERERSLI
MITED

STANDARDPURCHASESPECI
FICATI
ON NO.48

COMMODI TY:Fr
eshappl es
SI
ZE:
QUALITY: AsperEECst andar
ds
ORIGIN: forf reshappl
es
WEIGHT: class1
COUNT:
QUOTE: perbox
DELIVERY: dayf ol
lowi
ngorder
st
DATE: 31 mar ch20.
..

Fi
gur
e2.Speci
fi
cat
ionf
orf
reshappl
es

P&QCATERERSLI
MITED

STANDARDPURCHASESPECI
FICATI
ON NO.68

COMMODI TY:Fr
ozenchi
cken
SIZE: 1kg- 1.
5kgs
QUALITY: -Allchickentobeplump,free
fr
om br uisi
ngandscars
-Chickent obedrawn,
cl
eaned, tri
mmedandt russed
-Giblet
st obeseparat
ely
St
anl
eyt
hoi
thikagwi
Page132 pack ed.
ORIGI
N: Bri
tish
WEIGHT: 12kgsappr oxi
matel
yper
case
 Fi
gur
e3.Speci
fi
cat
ionf
orf
rozenchi
ckens

PURCHASI
NGOFBEVERAGES

Thepurchasingofalcoholi
candnon-alcohol
i
cbeverages,l
i
kethatoffoodstuff
s,
hastheaim ofpurchasingthever
ybestquali
tyofi
temsatt hel
owestpricefora
speci
fi
cpurpose.Pur chasi
ngisundert
akenbythepurchasi
ngmanagerwi ththe
foodandbev er
agemanager ,
headcel
larmanandheadwi newaiter(
experts)

Adequat eattent
ionisessentialt
othisasbev er
agescontributemor eprofi
tthan
foodsandal sotheyr equi
reconsider
ablyfewerstafft
opr ocesst hem i
ntofinished
productf ort
hecust omer.I
tisimportanttoremembert hat,purchasi
ngexpensi ve
product swit
hpr et
tylabel
sdonotnecessar il
yguaranteesuper i
orqualit
y.When
operatingawi neli
stofanyst andar
d,iti
simpor t
anttoensur ebeforehandt hatthe
suppliersareabletoguaranteethecatererconti
nui
tyofsuppl yforatleastsix
mont hsorel sethewineli
stwoul dneedtobepr i
ntedtoof requentl
y.

Themaj
orsour
cesofsuppl
yofbev
eragesar
e:-

i
. Wi
neshi
pper
s

i
i
.Whol
esal
ers

i
i
i.Bev
eragemanuf
act
urer
s

i
v.Cashandcar
ry

v
.Suspendeddebt
s

v
i.Cel
l
arst
ockandSuspendeddebt
saccount

v
ii
.Auct
ion

WI
NESHI
PPERS

Thesearefi
rmst hatpurchasewi
neinthecountr
yofori
ginandshipitt
owhatever
countr
yiti
st obesoldin.Usual
ly
,shi
ppersar
econcernedwithwinesfr
om one
regi
ononlytheref
oretherangesofpr
oductsforsal
eareli
mited.Shi
pper
sdeal

St
anl
eyt
hoi
thikagwi
Page133
wi
thl
argeest
abl
i
shmentorl
argecompanyot
hert
hancust
omer
s.

Shi
pper sspeci
ali
seinthesal
eofwineusual
lyf
rom onecount
ryorregi
on;t
hey
purchasethewineinit
scountr
yofori
ginandarr
angeit
s‘shi
pping’
tothecount
ry
ofsale.

Thepr
oductsofwineshipper
sar
eusual
l
yboughtfr
om awineandspiri
t
whol
esal
er.Thef
requencyofdel
i
ver
yandpostsal
esser
vicesi
sli
mited.

Adv
ant
agesofshi
pper
s

i
. Theabi
l
ityt
oof
fergoodqual
i
typr
oduct
s.

i
i
.Theabi
li
tytoof
ferspeci
ali
stadvi
ce,bei
ngaknownexper
tont
he
r
egi
onorcount
ryofthewinetheysuppl
y.

Di
sadv
ant
ages

i
. Theyof
feral
i
mit
edr
angeofpr
oduct
s.

i
i
.Theyonl ydealwi
thlar
geor
gani
sat
ionsduetoeconomicalor
deri
ng
quanti
ti
esbeinghi
ghandmostest
abli
shmentswouldnothave
suff
ici
ent

St
oragespacenorcapi
tal
avai
l
abl
etohol
dlar
gest
ocks.

i
i
i.Lessf
requentdel
i
ver
yser
viceandaf
tersal
eser
vices.

WHOLESALERS

Theyar ei
ndependentorsubsidiarycompaniesofal argebrewery.Theysellt
heir
ownl abel
ledproduct
sasaf astr ef
erencetootherpropriet
aryproducts.
Wholesalersoff
eraverywider angeofal l
beveragesaswel lasgoodandr egular
del
iveryservi
cesandagoodpostsal esservi
ce.Theyal soofferf
ringeserv
icesli
ke
fr
eepr i
nti
ngofwi nel
ist
sandpr omotionalmateri
alforbothbarsandr est
aurant
sal
es.

BEVERAGEMANUFACTURERS/
BREWERI
ES

Thi
smethodisusedwhenpur
chasi
ngl
argescal
ebev
eragesf
rom bev
erage
manuf
actur
ers.

Thepur
chasingmanageri
sablet
odir
ectl
ydealwit
hmanufact
urer
s.Thi
sismost
commonlyusedforpur
chasi
ngofspi
ri
ts,
miner
alsandbeer
s.

Adv
ant
ages

i
. Regul
arl
ocal
del
i
ver
ies.

St
anl
eyt
hoi
thikagwi
Page134
 i
i
.Wi
der
angeofpr
oduct
sav
ail
abl
e.

i
i
i.Goodaftersal
esservi
ceandpr
omoti
onal
mat er
ial
ssuchasbar
cl
oths,
beermat s,
glasswar
eet
car
egeneral
l
yav ai
labl
e.

i
v.Mini
mum order
abl
equant
it
iesar
eless,
thussui
ti
ngt
hesmal
l
er
busi
ness.

Di
sadv
ant
ages

i
. Lesscompet
it
ivepr
ices.

i
i
.Lackofspeci
ali
stknowl
edgeacr
osst
her
angeoft
hei
rpr
oduct
s.

CASHANDCARRY

Theseest abl
ishment
sof f
erali
mit
edrangeofwines,spi
rit
sandbeersatkeen
pri
cesbutnospeci al
istadv i
ceont
heproductoranypostsalesser
vices.These
est
ablishment sar
eusef uli
nemergenci
esorwhenspeci alof
fer
sarebeingmade
orforcateri
ngunitswithal i
mit
eddemandforbeverages.

SUSPENDEDDEBT

Thismet hodisoperatedbysomewi neandspir

itscompanies.Thesupplierwoul
d
i
nv oi
cethecat er
erforhisi
nit
ial(openi
ng)cel
larstockpurchases,butwould
requestpayment sonl
yonsubsequentpur chases,thefi
rstpurchaseinv
oicebei
ng
‘
suspended’ unti
ltheaccountisclosedwit
hthesuppl i
er.

Adv
ant
age

- Cat
erer
sgetf
reel
oant
obusi
ness.

Di
sadv
ant
age

- Thecater
erswouldberequi
redtomakespeci
fi
cbev
erage
pur
chasesfrom t
hatonesuppli
eronl
y.

CELLARSTOCKANDSUSPENDEDDEBTACCOUNT

Thi
si ssimilartosuspendeddebt.Thesupplierwil
lstockthecater
er’
scellartoan
agreedlevel f
oraspecifi
cperi
odoft i
me,freeofcharge,theopeningstocklevel
s
bei
ngr ecordedbyt hesuppl
ierandthecaterer.Astock-t
akeismadebybot h
parti
esattheendoft heagr
eedper i
odandal lit
emsusedar ethenchargedf or
.
Thesupplierthenmakesadel iver
ytorepl
eni shthestocktothelevel
sfir
stagreed
upon.

Adv
ant
age

- Cat
ererhast
opayf
orwhathehassol
dtocust
omer
s.

St
anl
eyt
hoi
thikagwi
Page135
Di
sadv
ant
age

- Thecat
ereri
sti
edt
oonesuppl
i
er.

AUCTI
ONS

Thi
smet
hodi
susual
l
yforpur
chasi
ngwi
nesonl
y.

Itcanbeusefulwayofbuy i
ng‘endofbin’winesinsmallquanti
ti
esf r
om apr i
vat
e
homeorf r
om anotherhotelorcater
ingestabl
ishment
.Asl ongast hepurchasi
ng
managerknowshi swinesthoroughl
ythiscanbeausef ulsourceforwinesfora
special
occasion.

PURCHASESPECI
FICATI
ONSFORBEVERAGES

Thepurposeofapurchasingspeci
fi
cati
onistosetdowni
nwriti
ngthest
andar
dof
aproductforaspeci
ficusebyanestabl
ishment
.Iti
susedtoi
nformthesuppl
i
er
exact
lywhatisrequi
redandisvit
ali
nfor
mat i
onwhennegot
iat
ingpri
ces.

Specifi
cati
onsf orbeveragesar emuchsi mpl erandeasytounder st
andas
beveragesaresol dandpur chasedbyt hebr andnamel abeloftheproduct,each
havingaconsi stentquali
tyandquant i
tystandar dsofcontentforeachsell
ingunit
e.
gbar rel
s,kegs, bot
tles,
spiri
tsetc.Specif
icationsforwinesalsoincl
udet he
detail
sofv i
ntageandshi pper.Qualit
y,consistencyandquant i
tyareguaranteed,
butthepricespai dmaynotbeconst ant.Closeat t
enti
onisgivenbypurchasert o
off
er sbysupplierofspecialdiscount.

LEGALREQUI
REMENTSRELEVANTTOPURCHASI
NG

Whenanagr eementismadebet weenapur chaserandasel

lert
hatgoodswillbe
suppli
edatacer t
ainpr
ice,bothhavecert
ainobl i
gati
onst
oeachother.Theselegal
obli
gati
onswillbeexaminedf r
om thecontentsofvali
dcont
ract
sandexclusionof
l
iabi
li
tytothelawagencybet weenthepurchaserandsell
er.

Val
i
dcont
ract

Acontractisal
egallybi
ndi
ngagr eementmadebetweent woormor epersonsby
whi
chcer tai
nri
ghtsareacquir
edbyonepar t
yonthepar toftheotherpar
ty.The
par
ti
est oacontractofpur
chasingwouldbethepurchaserandt hesel
ler
;‘l
egal
l
y
bi
nding’meansthattheagreementisenfor
ceabl
einacour toflaw.

Howeveracont r
actdoesexi stbetweenpurchaserandsel
lerevenifi
tisnot
for
mali
sedi nwrit
ing,thati
st osayacont r
actmaybev er
bal.Av al
i
dcontractwi
l
l
exi
stsontheprincipleofofferandacceptancethati
sanoffermadebyonepar t
y
andacceptanceoft hatoff
erbyt heotherpart
y.

I
tisi
mpor
tant
,ther
efor
e,t
hatt
heof
fermustbecl
ear
,compl
eteandf
inal
toav
oid

St
anl
eyt
hoi
thikagwi
Page136
anymisunder
standi
ng.Theacceptanceofanoff
ermustcorrespondexact
lywi
th
thet
ermssetoutintheoff
er,agai
nt oavoi
danymisunder
standing.

Intheeventofei
therpar
tyf
ail
i
ngtocomplywi
ththedetail
scontai
nedi
nthe
contr
actthenthepart
ywouldbei
n‘br
eachofcontr
act
’,
t hati
stheyhav
ebroken
theagreement.

Exampleofthi
sint
hecaseofpur
chasingcontractwoul
d,ont hepar
tofthesell
er,
bet hef
ail
uret
osuppl
ythecommodit
iesorequi pmentt
ot hespeci
fi
cat
ionordered
attheri
ghtti
meandpri
ce.Si
mil
arl
y,i
nt hecaseofthepurchaser,
wouldbethe
fai
luret
o

Acceptthegoodsiftheyar
riv
easorderedar
edeli
veredatt
hecor
rectt
imeorther
e
i
sfail
uretopay.Ineit
hercasetheoff
endedpar
tywouldbeabl
etosuetheot
her
part
ythroughtheciv
ilcour
tsforbr
eachofcont
ract
.

Excl
usi
onofl
i
abi
l
ity

Anexcl usi
onorexempt ioncl auseisat ermi nacontractintendedtoexcl udeor
restri
ctthel
iabil
it
yofoneoft hepar t
iestot hecontr
act,usuallytheseller
.The
‘
Unf ai
rContractTer msAct ’ 1977placesr estri
cti
onsonexcl usionclausest hatare
designedtoexcuseanybr eachofcont ract.Wher eapurchaserdeal swi t
hasel ler
ont hesell
er’
swr i
ttenst andar dter
msofbusi nessexclusi
oncl auses,theyar evali
d
onlyiftheyaredeemedr easonabl e.Theref or
eanexclusioncl ausewillbe
regardedbyt hecour t
sasr easonableifit‘shal
lhavebeenaf airandreasonabl e
onet obeincludedhav ingr egardtotheci rcumstanceswhi chwer e,orought
reasonablytohavebeen, knownt oorint hecontemplati
onoft heparti
eswhent he
contractwasmade’ .

TheSal
eofGoodsAct1893,byi
mpl
i
cat
ion,
inser
tsi
ntosal
eofgoodscont
ract
s
thef
oll
owi
ngbroadt
erms:-

i
. Thesel
l
erhast
her
ightt
osel
lort
ransf
ert
it
le.

i
i
.Thegoodsar
eofmer
chant
abl
equal
i
ty.

i
i
i.Thegoodsar
eequal
tosampl
eorasdi
spl
ayed.

i
v.Thegoodscompl
ywi
tht
hei
rdescr
ipt
ion.

TheSuppl
yofGoods(
impli
edter
ms)Act1973madei mportantchangesint
he
rul
espr
ohibi
ti
ngandr
est
ri
cti
ngfrom cont
ract
ingoutoft
heseimpliedter
ms.

Thelegisl
ati
ont heref
oreaffect
sthesellerbyprohi
bit
inghimfrom presenti
ngor
i
ncludingunreasonabletermsintosalesagreements.Iti
sther
eforeprotect
ingt
he
purchaserfr
om suchunr easonableacti
onswhichmaybecont ai
nedint hesmal
l
pri
ntofsalesagr eements.

St
anl
eyt
hoi
thikagwi
Page137
Legalpoi
ntsofpur
chasi
ngdocument
s

Wehav eal
readytalkedofinf
ormati
oncontainedinpurchasedocument
s.The
i
mpor t
antl
egalpointsthatshoul
dbecontainedinthesedocumentsrel
atetot
he
chargi
ngorpaymentofVal ueAddedTax.Supplier
smusti ncl
udeoninv
oicest
he
fol
lowi
ngdetail
s:-

i
. VATRegi
str
ati
onNumber
.

i
i
.TheVATpay
abl
e.

i
i
i.Theamounti
ncl
usi
veofVAT.

i
v.Thedat
eoft
het
ransact
ion.

Otherdocumentat
ionthatmustbekepti sarecordofallpurchasesmade, agai
n
forVATpurposes.Theserecordsmustshowt hev al
ueofgoodsandser vices
suppli
edbyotherfi
rms,thetaxthatthesefi
rmshav echarged,thenameoft he
suppli
erandthedateofthetransact
ion.Theserecordsareknownas‘ I
nput
Records’
,anexampleofwhichi sshownbelow:-

Dat
e Suppl
i
er Tot
al(
excl
udi
ng VAT Tot
al
VAT)

15Jan Keny
abr
ewer
ies 1100.
60 160.
59 1270.
19
20.
.
Keny
ameat 3460.
00 510.
90 3970.
90
15Jan commissi
on
20.
. 4300.
40 600.
51 4900.
91
Nakumat
tsuper
mar
ket
16Jan
20.
.

Ani
l
lust
rat
ionofRecor
dsf
orVATi
nputTax

LawofAgencyi
npur
chasi
ng

Thelawofagencyasi taff
ect
spur chasi
ngcomesi nt
obei ngwhenanotherpar
tyi
s
engagedinthecontractofsale.Anagenti sapersonwhoact sonbehal
fofthe
sel
ler
.Whenpur chasinggoodst hr
oughanagenti tisimpor t
anttoascer
tai
nthe
natur
eofhiscontractwi t
hhissupplier
.Ifhebuysandr e-sel
lsiti
spossi
bletot
ake
re-
courseagai
nsthim, ifnotr
e-courseistakenagainsttheagent’
ssuppli
er.

St
anl
eyt
hoi
thikagwi
Page138
REVI
SIONQUESTI
ONS

1.Highli
ghtanyei
ghtcl
auseswhi chshouldbeincl
udedinfoodpurchasing
contract
.
(8mar ks)
2.Explaint
hreepoi
ntstoconsi
derwhenr ati
ngsuppli
ersperf
ormance.
(6mar ks)
3.Explainf
ourmethodsofpurchasingwinesforahotel
.

(
8mar
ks)

4.Li
stsi
xdet
ail
sfoundi
nabev
erager
equi
sit
ionnot
e.

(
3mar
ks)

5.a) Def
inet
het
erm st
andar
dpur
chasespeci
fi
cat
ion.

(
2mar
ks)

b) Suggesti nformationsuitablefortheestabli
shmentofast andard
purchasespeci fi
cat i
onforacat eri
ngcutofbeef .
(
5mar k)
c) Of ferfiv
er easonst hatexplaintheneedf orastandar
dpur chase
specif
icationincat eri
ngout l
et.
(
10mar ks)
d) Descr ibeei ghtdutiesofpurchaseof f
icerincat
eringestabli
shment.
(
8mar k
6.Descr
ibetheaidst opurchasing.
(
12mar ks)
7.Di
scustheadv ant agesanddi sadvantagesof‘cashandcar r
y’.

(
10mar
ks)

8.Out
li
net
hepr
ocedur
eforpur
chasi
ngdr
yfoods.

(
5mar
ks)

St
anl
eyt
hoi
thikagwi
Page139
 9.a) Descr
ibecent
ral
i
sedpur
chasi
ng.

(
3mar
ks)

b) St
atef
ouradv
ant
agesofcent
ral
i
sedpur
chasi
ng.
(
4mar
ks)
10.
Stat
efouradv
ant
agesofcont
ractpur
chasi
ng.
(
4marks)
11.
Listanysi
xessent
ial
det
ail
swhi
chmustbei
ncl
udedonpur
chaseor
der
form.

(
3mar
ks)

12.
Stat
etwodi
sadv
ant
agesofeachoft
hef
oll
owi
ngpur
chasi
ngmet
hods.

i
. Speci
ali
sedpur
chasi
ng

i
i
.Tot
alsuppl
i
ers

(
4mar
ks)

Ref
erences:
-

i
. KotasRi chardandDav i
sBer nard( 1986);Foodandbev eragecont r
ol,
Int
ernat i
onal textbookcompanyl td, 3rdedi
( ti
on)greatBritain.(pg47-70).
i
i
.Dav i
sB.Etal l(2004) ;FoodandBev er
agemanagement ,Butterwor t
h
Heinemann, (3rdedi ti
on)U. k.(pg105- 1..
).
i
i
i.Dav i
sBer nardandSt oneSal ly(1985) ;FoodandBev eragemanagement ,
HeinemannPr of essionalPubl i
shingLt d,(1stedit
ion)
,Oxfor dLondon.( pg
105-125) .
i
v.Saleemi AhmadNi sar(1990) ;Costaccount i
ngsimpl i
fi
ed, N.A.Saleemi
publi
sher s,Nai robi.(pg34- 44).
v
.Odger sPet er;Pur chasingcost i
ngandcont r
ol,St
anleyThor nespubl i
sher s
LTD, London.( pg1- 21).
v
i.SethiMohi ni (
2008) ;Insti
tuti
onal foodmanagement ,NewAgeI nter
national
publi
sher s.(pg309- 330) .
v
ii
.Ceser aniV.Etal l(2003);Thet heor yofcat eri
ng,Bookpower ,London.(pg
345-354)

St
anl
eyt
hoi
thikagwi
Page140
RECEI
VING

Thi
sisthesecondmaj orcomponentinthecont r
olcy
cle.Onceorder
sar epl
aced
wit
hsuppli
ersbythepurchasi
ngdepartment ,t
heysendcopiesofpurchaseorder
al
ongwiththepurchasespeci
fi
cati
ont orecei
vingdepart
mentsoast o
i
ndependentl
ytorecei
vegoodsfrom supplier
s.

Themainaim ofr
ecei
vingistoensur
ethattheest
abl
ishmentobt
ainfoodsand
bever
agesofcorr
ectquali
tyandquanti
tyor
deredatt
heagreedpr
ices.

Theper sonrecei
vinggoodsshoul
dhav eadet ai
ledknowledgeofr ecei
vi
ng
proceduresanddocument susedinreceiv
ingaswel l
asknowl edgeofallty
pesof
foodsandbev erages.Theper
sonreceivi
nggoodsshoul dbewel lpaidand
promot edsothathemaynotbet empt edtoreceiv
egoodsofi nfer
iorqual
it
yor
shortinquanti
ty.

I
nor
dertocar
ryoutal
l t
hetasksofar ecei
ptofadel
i
very,t
herecei
verr
equi
res
t
hef
oll
owingequi
pmentt obeav ai
l
ableonthe“r
ecei
vingar
ea”or“l
oadi
ngbay”
:-
 Scales
 Troll
eys
 Thermomet erandthermopi
n

St
anl
eyt
hoi
thikagwi
Page141
  Sink
 Calculat
or
 Scissorsandboxcutters
Thej
obofr
ecei
vi
ngshouldbeeffi
cient
lyexecut
ed.

Ther
ecei
vi
ngdepar
t char
ment( act
eri
sti
csofr
ecei
vi
ngbay
):-

i
. Normal
lyl
ocat
edatt herearent
ranceofthehotel(t
okeept
he
st
eadystr
eam ofsuppli
erawayfrom guestent
ranceandvi
ew)

i
i
.Shoul dbelar
geenoughsot
hatgoodsmaybequicklyoff
loaded,
checkedanddist
ri
but
edtot
hestores,
kit
chen,
cel
larandother
userdepar
tment.

i
i
i.Shouldbewelll
itsot
hatt
hequant
it
yandqual
i
tyofgoodscanbe
easi
lychecked.

i
v.Shoul
dbewel
lvent
il
ated.

v
.Shoul
dbef
it
tedwi
thl
argescal
es.

v
i.Thefl
oorandwal
l
sshoul
dbef
ini
shedwi
thmat
eri
alst
hatar
e
easyt
oclean

OBJECTI
VESOFRECEI
VINGFOODS

Recei
vi
ngi
sdonet
oensur
ethat
:-

i
. Thequanti
tyofgoodsdel
iv
eredmatchesthequant
it
ywhichhasbeen
order
ed.Thi
smeansallgoodswil
lbeweighedandcount
ed.

i
i
.Thequalit
yofgoodsdel
iv
eredi
sinaccor
dancewi
tht
hespeci
fi
cat
ion
st
atedonpur
chasefor
m.

i
i
i.Thepri
cesstat
edont hedel
i
ver
ynot
ear
einaccor
dancewi
tht
hepr
iceson
thepur
chaseorderf
orm.

i
v.Anaccur
aterecor
dismadei
nthe‘
goodsr
ecei
vedbook’
recor
dingdet
ail
s
oft
hedeli
ver
y .

DELI
VERYPROCEDURE

i
. Thesuppli
erget
sanor
deri
nwr
it
ingst
ati
ngt
hedat
eonwhi
chsuppl
i
esar
e
requi
red.

i
i
.Hepassesi tontohisstor
esdepart
mentorpur
chasi
ngoffi
cer
s(dependi
ng
ontheper
ishabi
l
ityofthefood)
.Theor
deri
sthennotedt
obekeptreadyfor
del
i
v er
yonthespecif
ieddate.

i
i
i.I
tist
ranspor
tedt
othebuy
er’
sst
oresf
orr
ecei
vi
ng.

St
anl
eyt
hoi
thikagwi
Page142
 i
v.Thegoodsar edel
iv
eredalongwithtwocopiesofdeli
v ernotesonesi
gned
bythebuyerandretur
nedtothesuppli
erinconfi
rmationofhav i
ngrecei
ved
thegoods;andthesecondisret
ainedbythebuyerforcounterchecki
ngthe
bil
lori
nvoi
cewheni ti
sreceiv
edf r
om thesuppl
ierf
orpay ment.

v
.Theinv
oiceorbi
l
list
henpassedont
otheaccount
sdepar
tmentf
ormaki
ng
t
hepayment
.

RECEI
VINGPROCEDURE

i
. Thedel
i
ver
ynot
eischeckedwi
thcopyoft
heor
derpl
aced.

i
i
.Counts,
weight
sorvolumearecheckedt
otal
l
ywi
tht
heamount
sofv
ari
ous
i
temsonthedel
iv
erynote.

i
i
i.Thequali
tyofal
li
ngr
edi
ent
sar
echeckedwi
tht
hespeci
fi
cat
ionsgi
vent
o
thesuppl
i
er

i
v.Whenthedel
i
ver
ynot
eissi
gnedt
hemat
eri
alst
hatar
edel
i
ver
edhav
ebeen
accept
ed.

v
.Ther
ecei
vedi
temsorgoodsar
est
oredt
orespect
ivest
ores.

Caremustbet
akenatt
hisst
agenott
oaccepti
nfer
iorqual
i
tygoodsast
hiscan
resul
tto:
-

 Qui
ckdet
eri
orat
ion

 Lowery
iel
ds

 I
ncr
easedl
abourhandl
i
ng

 Lowergr
osspr
ofi
t

 Di
ssat
isf
act
iont
ocust
omer
s

Ontherecei
ptofdel
iv
erythefollowingchecksshoul dbecarri
edoutbyt
he
r
eceiv
er.
 Thedeli
verynotemat chest hepur chaseor der
 Theproductsmat chanyf oodspeci f
icati
ons
 Checkstheweightofi t
emsagai nstdel iv
erynote
 Countsi
temspur chasedbyuni tagai nstdeli
ver
ynote
 Checkspri
cesagai nstpurchaseor der
 Checksexpir
ydat esofitems
 Checkstemperaturesofmeat sandf reshfoods
 Checksforanybreakagesordamagedi t
ems
 Opensanyboxesorcont ainer
st ochecki nsi
de

Asuppl
i
ermustbeawar
ethat
:-

St
anl
eyt
hoi
thikagwi
Page143
 i
. Adel
i
ver
ynot
emustaccompanyal
ldel
i
ver
ies.

i
i
.Ev
ery
thi
ngdel
i
ver
edwi
l
lbecheckedf
orqual
i
tyandquant
it
y.

i
i
i.Therecei
vi
ngdepart
mentwill
notunderanycircumst
ancesal
l
ow
themsel
vestobehurr
iedwheninspect
inggoods.

i
v.Acr
edi
tnot
ewi
l
lber
equi
redf
oral
lshor
tagesorr
eject
edgoods.

Reasonsf
orcr
edi
tnot
e.

 Shor
tdel
i
ver
ies

 Rej
ect
edgoods

 Qual
i
tyandquant
it
yofgoodsnoti
naccor
dancewi
thpur
chaseor
der
.

 Ret
urnabl
econt
ainer
s.

METHODSOFRECEI
VING

Ther
ear
etwomet
hodsnamel
y:
-

i
.Inv
oicer
ecei
vi
ng

i
i
.Bl
i
ndcheckr
ecei
vi
ng

I
NVOI
CERECEI
VING

Thismethodinv
olvest
hecheckingofi nvoi
ceofreceivedgoodsori
temsagainst
thedeli
ver
ynoteandthepurchaseor der
.Thereceivi
ngcler
kalsochecksquali
ty
andquanti
tyofgoodsagai
nstpur chaseorderandpurchasespeci
fi
cati
on.The
recei
vi
ngcler
knotesanydif
ferences( di
scr
epancies)thenr
aiseacredi
tnote.

BLI
NDCHECKRECEI
VING

Themainpurposeoft
hismethodistocompeldi
ff
erentr
ecei
vi
ngcl
erkst
owei
gh
andcountal
lgoodscomingt
ot heest
abli
shment
.

Pr
ocedur
eofbl
i
ndr
ecei
vi
ng

 Acopyofpurchaseorderi
ssentt
othecl
erkswi
thoutshowi
ngt
he
quant
it
iesofthegoods.

 Al
li
nvoi
cesanddel
i
ver
ynot
ear
esentdi
rect
lyt
oaccount
s.

 He(
recei
vingcl
erk)t
henweighsorcount
sallgoodsr
ecei
vedandr
ecor
ds
t
heweightornumberonthepurchaseor
der
.

 Af
terr
ecei
vi
ngt
hegoods,
hesendst
hef
il
ledpur
chaseor
dert
oaccount
s

St
anl
eyt
hoi
thikagwi
Page144
 depart
mentwhonoteswhet
herar
edi
ff
erencebet
weent
hepur
chaseor
der
,
i
nvoiceanddel
i
ver
ynote.

Adv
ant
age

 I
tel
i
minat
escar
elessness.

Di
sadv
ant
ages

i
.Inv
olv
esal
otofpaperwor
k.

i
i
.Iti
sti
meconsumi
ng.

i
i
i.Thi
smet
hodcal
l
sfori
ncr
easedl
abour
.

i
v.Requi
resal
otofat
tent
ion.

NOTE:
-Thi
srecei
vi
ngmet
hodhasl
edt
obet
terr
ecei
vi
ngper
for
mance.

DELI
VERYMETHODS

Ther
earemanyway sinwhi
chfoodmaybedel
iver
edt
oaf
oodser
vice
est
abli
shmentdependi
ngonthenat
ureoft
hef
ood.

Fr
eshv
eget
abl
esandf
rui
ts

Theymaybedel i
veredinjutebags, basket s,cardboardcar tons,woodenchestsor
assuchdependi ngont hetexture, natureandper i
shabi l
it
yoft heitem.For
i
nstance,inthecaseofst r
awber ri
esorgr apes,cardboar dcar t
onsoflimitedsi
zes
aregenerall
yusedsot hatthef ruitisnotdamaged; orangesmaybepi l
edi n
basketswhileapplesneedt obewr appedi ndivi
dualandgener all
ypackedi n
cart
onsorwoodenchest .Veget ables, carrot
s, l
emonsandr ootvegetablescanbe
bagged,spinachandot herl
eaf yv egetableshast obepackedasbundl esandkept
l
ooselyinbasketsandt omat oesi ncar tonsasf orfrui
t s.Bulkyvegetablesli
ke
caul
ifl
ower ,
cabbageareev enpi ledassuchi ntranspor tvansanddel i
vered.

Mi
l
kandmi
l
kpr
oduct
s

Theyar egener al
lyt
ransportedincratesifdeli
ver
edaspast eur
isedindivi
dual
containers.Theyarenowav ai
lableinfoodgradepolypacksofdi f
fer
entsizes,
or
i
ncar dboar dpacksofupt oonel it
recapacity
.Product
slikecheesemaybe
boughti nblockswrappedi nwat erproofpacki
ng’s,
soalsobutter.All
mi l
kand
mil
kpr oduct saredeli
veredinrefri
geratedvansespeci
all
yifbulksuppliedandnot
i
ndividuallypacked.

Meat
s

Meatsmaybedel
i
veredaswholecar
cassesorasdiff
erentcutsasordered,
dependi
ngont
hequanti
ti
esi
nvolv
ed.Meatifboughtmincedisgener
allydel
iver
ed

St
anl
eyt
hoi
thikagwi
Page145
i
npol ybags,orincontai
nerswrappedoverwit
htransparentfi
l
mf oreasyvi
sibi
l
ity
.
Variousproport
ionedcutsmaybei npoly
packsordisposabletr
aysinwhich
standardporti
onsarepacked,eachcoveredwi
that r
ansparentfi
lmforeasy
countingandv i
sibi
l
itywhendeli
vered.

Fi
sh

Fi
shshoul dideall
ybedel i
ver
ediniceboxesorfreezertranspor
tvanst obepl aced
str
aightinf r
eezerstoragesespecial
l
ywhenor deredandsuppl i
edinbul k.Thi
s
howev erdoesnotal way shappenespecial
l
yindev el
opingcountri
eswher efr
eezer
tr
anspor t
at i
onisnoteasi l
yaff
ordedbythesmall suppl
ier.However,
fishmayal so
besuppl i
edi nfrozen,
dehy dr
atedorsmokedformsori ncansf orusewhen
needed.Fr eshfishmaybepackedcl eanedwholeorf il
l
et edandisavail
abl ei
nal l
supermar ketsorspeciali
sedmeatout l
ets.

Poul
tr
y

Poultr
yisgeneral
lysuppli
edasdressedanddrawnbi
rds,onweightbasi
sand
packedincart
onsorl ar
ge-si
zedpolypacksdel
i
ver
edi
nr efr
iger
atedvansto
establ
ishments.

Pr
ocessedf
ood

Pr
ocessedfoodmateri
alswhichar
egeneral
l
ypackedi
nfactor
iesaredel
iv
eredin
st
andardpacksof24’
sor48’sormult
ipl
esdependi
ngonthesizeoftheor
der.

Cer
eal
s,f
lour
s,pul
sesandl
egumes

Cereal
s,fl
ours,
pulsesandlegumesaregeneral
l
yboughtbyestabl
ishment
sin
gunnyorpoly
packsdependingonthequanti
ti
esrequi
red.Thej
utepackscont
ain
50to100kg.Whi l
epolypacksvar
yfr
om 1to10kg.

Sugarandsal
t

Sugarandsal
tar
edel
i
ver
edi
npol
ypacksdoubl
epackedi
ncar
tons.

Fat
sandoi
l
s

Fat
sandoil
sinhermeti
call
yseal
edcontai
ner
svaryi
ngfrom 1kgt o15kg.Oi
ls
maybesuppli
edevenindrumsof50to100kgfrom whichoilcanbesi
phonedoff
toi
ssuef
oruse.Thismethodhowever
,isonl
yusedinveryl
argeestabl
i
shment.

Del
i
verytemper atures
i. Mostr ef
rigerateditemsshouldbereceivedat41°Forbelow
ii
. Dr ygoodsar er eceiv
edatroom t
emper atur
e,packagedi
ntactandingood
conditi
on
ii
i.Fr ozenproduct sshouldofcour
seber eceivedf
rozen
iv.Signatur
eoft hereceivi
ngcl
erkwhoconf ormsaccuracyoftheorder
v.Companyst amp

St
anl
eyt
hoi
thikagwi
Page146
Note:I
tisalsogoodf
ort
her
ecei
vert
orandoml
ycheckt
het
emper
atur
eoft
he
del
i
v er
y
vehicles.

RETURNABLECONTAI
NERS

Manyi t
emsarer ecei
vedinreturnabl
econt
ainer
swhichachar
geismadebyt he
suppli
ere.
gcrates,bott
lesetc.Thiscal
l
sfora‘r
etur
nabl
econt
ainer
srecei
vedand
dispat
chedbook’ whi
chcontrolsthei
rmovement.

Eachit
em isrecor
dedi ndupli
cate,
wheretopcopygoestoaccountsdepartment
andsecondcopyr etai
nedinbookf orr
efer
ence.Whencontai
nersareret
urnedto
thesuppl
ier
,acreditnotei
sobt ai
nedwhichshouldbesenttotheaccount
s
depart
mentforreconcil
iat
ion.

DI
SPATCHTOSTORESORUSERDEPARTMENT

Al
lgoodsreceivedassat
isfact
orywi
thr
egardtoquanti
ty,
qual
it
yandpri
cemust
beremovedfrom ther
eceiv
ingdepar
tmentassoonaspossibl
etocr
eateroom f
or
ot
herdel
iver
ies.Thismakesnewdeli
ver
iesavai
labl
efori
ssuebyst
oresandcell
ar.

Theinter
naldeli
veryistakenbyamemberoft
herecei
vi
ngst
afft
oensurethatno
pi
lfer
ingtakesplaceinthedepar
t .Acopyoft
ment hegoodsbei
ngdel
iver
ed
accompanieseachl oad.

Allper
ishabl
efoodit
emsar
edispatchedt
okit
chenfordi
recti
ssueoruse,
other
foodit
emst ostor
esandal
lbev
eragestothecel
l
ar.

CLERI
CALPROCEDURESANDFORMSUSED

i
. Pur
chaseor
der

Pur
chaseor
der
sar
esentt
osuppl
i
ersst
ati
ngt
hequant
it
yandqual
i
tyofgoodst
o
be

or
der
ed.Theyar
emadeoutwi
thf
ivecopi
es,
eachbei
ngcol
ourcodedasbel
ow:
-

 Topcopy -Whi
tef
ort
hesuppl
i
er

 Secondcopy-Yel
l
owf
ort
heaccount
sdepar
tment

 Thi
rdcopy -Gr
eenf
orr
ecei
vi
ngdepar
tment

 Four
thcopy -pi
nkr
etai
nedbypur
chasi
ngof
fi
cerandf
il
ledundersuppl
i
er

 Fi
ft
hcopy -whi t
eret
ainedi
npurchasi
ngoffi
ceandkepti
ndebtor
der
unt
ilgoodsar
erecei
vedthenf
il
edunderordernumber
.

Or
der
smadebyt
elephoneshoul
dhav
ewr
it
tenor
derheaded‘
tel
ephone

St
anl
eyt
hoi
thikagwi
Page147
conf
ir
mat
ionor
der
’andsentof
ftot
hesuppl
i
erassoonaspossi
ble.

i
i
.Del
i
ver
ynot
e

Thisi
sanotethataccompaniesal
lfoodandbever
agedel
iver
ies.Alldeli
veri
es
mustfi
rstbecheckedforquamnti
tybycompari
ngthedel
i
verynotewi thacopyof
thepur
chaseorder.I
fquanti
ti
esmatchup,t
heit
emsarecheckedf orqualit
y.

Deli
verynoteisnor
mal l
ywrit
tenindupl
icateandi
fbothcopi
esarecor
rect
,thetop
copyisretai
nedintherecei
vi
ngdepartmentandsecondcopyissi
gnedbysenior
memberoft hereceiv
ingdepart
mentandr etur
nedtot
hedeli
veryman.

I
fthequant
it
yorqual
i
t yi
snotri
ght
,ar
equestf
orcr
edi
tnot
esmustbeobt
ained
andthi
sshoul
dhavethedel
iv
erymansi
gnatur
e.

i
i
i.Goods
recei
ved
book

Thi
sisasimpl
e for
m
ofbookandi
t shows:
-

 Suppl
i
er’
sname

 Pur
chaseor
dernumber

 Del
i
ver
ynot
enumber

 Dat
egoodr
ecei
ved

 Descr
ipt
ion,
quant
it
yandmat
eri
alcodenumber

 Si
gnat
ureofr
ecei
vi
ngcl
erk

 Remar
kscol
umn

St
anl
eyt
hoi
thikagwi
Page148
 i
v.I
nvoi
ce

Thei
nvoi
cei
ssentbyt
hesuppl
i
ert
oget
herwi
tht
hedel
i
ver
yofgoods.I
trecor
ds:
-

 Nameoft
hesuppl
i
erandt
hebuy
er;

 Suppl
si
er’
sVATr
egi
str
ati
onnumber
;

 Suppl
i
er’
sref
erencenumberf
ort
heor
der
;

 Dat
eoft
hei
nvoi
ce;

 Buy
er’
spur
chaseor
derr
efer
encenumber
;

 Descr
ipt
ionoft
hegoods;

 Quant
ibt
y,pr
iceandt
otal
val
ue.

I
ll
ust
rat
ionofani
nvoi
ce

RECEI
VINGOFFOODS

i
. Quant
it
yinspect
ion

Recei
vingclerkshoul
dcountandweighthegoodschecki
ngagai
nstt
hedel
iv
ery
noteandpur chasi
ngorder
.Cannedgoodsshoul
dbecountedandanotemadeon
thecansize.

St
anl
eyt
hoi
thikagwi
Page149
 i
i
.Qual
i
tyi
nspect
ion

Thi
srequirestherecei
vi
ngcler
ktobeexper
iencedofall
foodtypesandtheir
qual
i
ties.Apurchasespeci
fi
cati
oni
sveryhandyinascert
aini
ngthequal
i
t yoffood
i
tem deli
vered.

i
i
i.Ti
met
abl
i
ngdel
i
ver
ies

Aregularti
metablef
ormajordel
i
v er
iesshoul
dbeestabl
i
shed.Thi
sreduces
conj
estionduri
ngdeli
ver
iesandtherecei
vi
ngcler
khasmoretimetocheck
del
iver
iesproperl
y.

Peri
shablef
oodsar
eusual
l
ydel
i
ver
edi
nthemor
ningandgr
ocer
iesi
nthe
af
ternoon.

Adv
ant
ages

i
. Reducedconj
est
iondur
ingdel
i
ver
ies.

i
i
.Recei
vi
ngcl
erkwoul
dhav
easuccessi
onofdel
i
ver
ies.

i
i
i.Recei
vi
ngcl
erkwoul
dhav
emor
eti
met
ocheckdel
i
ver
iespr
oper
ly.

THEMEATTAG

I
nmostcateri
ngestabl
i
shment,
iti
snecessar
ytotagexpensi
vef
oodsl
i
kemeat
,
andspeci
alpr
ocessedmeate.
gham,smokedsalmon.

Taggi
ngexpensi
vef
oodsser
vesmanypur
poses:
-

i
. mI
tai
dst
hecont
rol
ofexpensi
vef
oods.

i
i
.Itensur
est
hatt
her
ecei
vi
ngcl
erkwei
ghsev
eryi
tem.

i
i
i.Theweightofeachpart
icul
ari
tem i
scheckedagai
nstt
he
speci
fi
cati
onweight
,rangeoft
heitem.

i
v.I
tassi
stsi
nobt
aini
ngamor
eaccur
atedai
l
yfoodcost%.

v
.Itprov
idesaref
erencenumbert
oai
dissui
ngi
ntheki
tchenandwhen
y
iel
dtesti
ng.

v
i.I
tprovidesef
fi
cientst
ockr
otat
ioni
.
eshowsdat
eit
em wasr
ecei
ved
andissued

v
ii
.Itprov
idesassi
stancewhentaki
ngstockweekl
yormont
hly
invent
ori
esasthepurchaseweighti
srecor
ded.

PROCEDUREOFTAGGI
NGEXPENSI
VEI
TEMS

i
. Onr
ecei
vi
ngt
hei
temsar
echeckedagai
nstpur
chasespeci
fi
cat
ionast
obe

St
anl
eyt
hoi
thikagwi
Page150
 accept
edornot
.

i
i
.Tagmadeforeachit
em wi
ththewei
ghtr
ecor
dedont
het
agaf
tert
heact
ual
wei
ghi
ngofeachi
tem i
ndi
vi
dual
ly
.

i
i
i.Tagismadeindupli
cat
ewithcont
rol
off
icecopi
essentdir
ect
lyt
ocontr
ol
wit
htheinv
oiceordel
iv
erynot
eandthekit
chencopyatt
achedbyst
ri
ngor
wir
etofooditem.

i
v.Whenthei
tem i
sissuedt
othekit
chenforuse,
thetagattachedtoit
em i
s
r
emovedandsenttocontr
olof
fi
cewiththedateofissuefi
ll
edin.

v
.Thecont r
olof
fi
ceoper
atesareconci
l
iat
ionofmeatt
agfor
m, r
ecordi
ngthe
t
agreceiv
edfr
om t
herecei
vingdepar
tmentandfr
om t
heki
tchen.Thust
he
t
otal
valueoft
agsofeachspeci
fi
cexpensiv
eit
em woul
dbeknown.

Summar
yoft
aggi
ngpr
ocedur
e

 Checkagai
nstspe.

 Wei
ghi
ng.

 Tagi
ndupl
i
cat
e.

 I
ssui
ng.

 Meatt
agr
eco`
nci
l
iat
ion.

MEATTAG NO.22001
I
tem: Beef
Cut: Ribs
Total
wei ght:20kgs
Total
v al
ue: 4000/ =
Costperuni t
:200/ =
Suppl
ier: Farmerschoice
Datereceived:5/4/20.
.
Dateissued: 30/ 4/20.
.

Foodcont
rol
copy

MEATTAG NO.22001
I
tem: Beef
Cut: Ribs
Totalweight:20kgs
Totalval
ue: 4000/ =
Costperunit:200/ =
Suppl
ier: Farmerschoice
St
anl
eyt
hoi
t Date
hikagwireceive
Page151d:5/4/20.
.
Dateissued: 30/ 4/20.
.

Foodst
orecopy
 Exampl
eofmeatt
ag

RECEI
VINGBEVERAGES

Thevalueofbev
er agespur
chasesandt oensureprofi
tsfr
om t
hesal
eof
bever
agesarehigh,it
simport
antthatdueattent
ionisgiv
entother
ecei
vi
ngof
bever
ages.

Themai
nreasonsar
etoensur
ethat
:-

i
. Thequant
it
yofbev
eragesdel
i
ver
edmat
chest
hatwhi
chhasbeenor
der
ed.

 Thi
sshoul
dbedonebycompar
inggoodsr
ecei
vedagai
nstpur
chaseor
der
anddel
i
ver
ynot
e.

 It
emsarei
nstandar
duni
tofcr
ates,
caseet
cwi
thst
andar
dcont
entof
speci
fi
csi
zes.

 Cr
atesandcasesshoul
dbeopenedt
ocheckf
orsucht
hingsasempt
y,
mi
ssingorbr
okenbottl
es.

i
i
. Thequal
i
tyi
nspecti
onissimpl
eandr
equi
resat
hor
oughand
met
hodol
ogi
calapproach.

 Thisi
nvolv
escheckingt
hebrandnameandlabel
oneachit
em,theal
cohol
proof
,thevi
ntageandshi
pper,agai
nstt
hedel
i
verynot
eandpur
chaseorder
.

i
i
i.Thepricesst
atedondeli
ver
ynotear
einaccor
dancewi
tht
henegot
iat
ed
pr
icesshowninpurchaseor
derf
orm.

i
v.Whent hequali
tyandquanti
tyofthebeveragedel
iv
eredisnoti
n
accordancewiththepur
chaseorderorani t
em i
somitt
edfrom t
heor
der
,a
requestforcr
editnot
eisrai
sedbyrecei
v i
ngcler
k.

v
.Anaccur
ater
ecor
diskeptofal
lchar
geabl
eempt
iesdel
i
ver
edandr
etur
ned.

v
i.Anaccurat
erecor
dismadei
nthegoodsr
ecei
vedbookr
ecor
dingdet
ail
sof
thedel
i
veri
es.

St
anl
eyt
hoi
thikagwi
Page152
 v
ii
.Deliv
eriesofbeveragesareti
metabledwiththesuppl
i
er,
pref
erabl
ytoan
after
noon,whenr eceiv
ingandcell
arstaffar
enormall
ynotbusyandthe
recei
vingareaisfreefrom ot
herdel
iver
ies.

“
Recei
vi
ngofbev
eragesi
seasi
ert
hanr
ecei
vi
ngoff
oodst
uff
s”

Thi
sissoduet
othef
oll
owi
ngr
easons:
-

i
. Packagi
ng

 Beveragesar
epackedei
theri
ncr
atesorcar
tons.Thi
smakesi
teasi
ert
o
countwhenrecei
vi
ng.

i
i
.Wei
ght

 Weight
sofbever
agesar
epre-det
erminedbymanufactur
erstheref
ore
checki
ngf
orthevol
umeofsizeofthebott
ledoesn’
ttakelong.

i
i
i.I
nspect
ionf
orqual
i
ty

 Qual
it
yisdeter
minedbythebrandandusuall
ycheckedbyt
heKenya
bur
eauofstandar
dsbeforepackagi
ng.Astherecei
vi
ngcl
erkhast
odoi
s
l
ookfortheKBSmark

i
v.Equipmentr
equi
redduri
ngr
ecei
vingisver
ymi
nimalunli
kei
nrecei
vi
ng
foodst
uff
swhereweight
sandscaleswoul
dberequi
red.

v
.Di
spat
cht
othecel
l
aragai
niseasybecauseoft
henat
ureofpackagi
ng.

v
i.Deli
veryti
metabl
e - i
fbyanychancethesuppl
ierdoesnotdeli
verat
therequi
redti
meandper hapshastowaittil
lal
lot
her
sar eatt
endedto,
ther
ewi l
lnotbeanydangerofspoi
lagesincemostbeverageshavegood
keepingqual
it
y.Thi
sisunli
keperi
shables.

REVI
SIONQUESTI
ONS

St
anl
eyt
hoi
thikagwi
Page153
 1.Explai
nt hemethodsofr
ecei
vi
ngf
oodandbev
eragei
temsi
nacat
eri
ng
establ
ishment.

(
4mar
ks)

2.Expl
aint
hreer
easonswhyacr
edi
tnot
eisi
ssuedt
oabuy
er.

(
3mar
ks)

3.Di
ff
erent
iat
ebet
weenqual
i
tyi
nspect
ionandquant
it
yinspect
ion.

(
4mar
ks)

4.Outl
inet
heprocedur
eofr
ecei
vi
ngf
oodandbev
eragei
temsi
ncat
eri
ng
est
abli
shment.

(
5mar
ks)

5.Expl
ainwhati
smeantby‘
bli
ndr
ecei
vi
ng’
.

(
4mar
ks)

6.Hi
ghl
i
ghtt
her
easonsf
ort
aggi
ngexpensi
vef
oodi
tems.

(
5mar
ks)

7.Descr
ibet
hepr
ocedur
eoft
aggi
ngexpensi
vef
oodi
tems.

(
6mar
ks)

8.Expl
aint
hreedet
ail
sar
ecei
vi
ngcl
erkv
eri
fi
eswhenr
ecei
vi
ngper
ishabl
es.

(
6mar
ks)

9.Expl
aint
hef
oll
owi
ngdocument
suseddur
ingdel
i
verofgoods:
-

i
. Adv
icenot
e (
2mar
ks)

i
i
.Adel
i
ver
ynot
e (
3mar
ks)

i
i
i.Apackagesheet (
3mar
ks)

10.
Out
li
net
hepr
ocedur
eforr
ecei
vi
ngandchecki
ngwi
nei
ntot
hecel
l
ar.

(
6mar
ks)

11.
Ident
if
ysi
xdet
ail
sthatar
erecor
dedonameatt
ag.

(
3mar
ks)

12.
Highli
ghtt
wocir
cumst
ancesunderwhi
charecei
vi
ngcl
erkmayadv
icet
he
purchasi
ngof
fi
cert
osendarequestf
orcr
editt
oasuppl
ier
.

St
anl
eyt
hoi
thikagwi
Page154
 (
2mar
ks)

13.
“Recei
vingofbever
agesiseasi
ert
hanther
ecei
vi
ngoff
oodst
uff
.”Expl
ain
anyfiv
epointsinsuppor
tofthi
sst
atement
.

(
10mar
ks)

14.

Ref
erences:
-

i
. KotasRi chardandDav i
sBer nard( 1986);Foodandbev eragecont r
ol,
Int
ernat i
onal textbookcompanyl td, 3rdedi
( ti
on)greatBritain.(pg71-80).
i
i
.Dav i
sB.Etal l(2004) ;FoodandBev er
agemanagement ,Butterwor t
h
Heinemann, (3rdedi ti
on)U. k.(pg105- 1..
).
i
i
i.Dav i
sBer nardandSt oneSal ly(1985) ;FoodandBev eragemanagement ,
HeinemannPr of essionalPubl i
shingLt d,(1stedit
ion)
,Oxfor dLondon.( pg
126-129) .
i
v.Saleemi AhmadNi sar(1990) ;Costaccount i
ngsimpl i
fi
ed, N.A.Saleemi
publi
sher s,Nai robi.(pg34- 44).
v
.Odger sPet er;Pur chasingcost i
ngandcont r
ol,St
anleyThor nespubl i
sher s
LTD, London.( pg19- 21).
v
i.SethiMohi ni (
2008) ;Insti
tuti
onal foodmanagement ,NewAgeI nter
national
publi
sher s.(pg330- 335) .
v
ii
.Ceser aniV.Etal l(2003);Thet heor yofcat eri
ng,Bookpower ,London.(pg
345-354)

St
anl
eyt
hoi
thikagwi
Page155
STORI
NGANDI
SSUI
NG

Themainobject
ivesofafoodandbev eragecell
arar
etomai
ntai
nanadequat
e
suppl
yoff
oodandbev er
agefortheimmedi at
eneedsoft
hebusi
nesswit
hthe
mini
mum lossthr
oughspoilage,
pil
feri
ngetc.

Storesandcell
arsshouldbelocatednearther ecei
vi
ngdepar
tmentandwher e
necessaryt
ogoodsl i
ft
ssoast oreducepilferage.St
orer
oomsandcellarsshoul
d
belargeenoughforchecki
nggoods, unpackingandassembli
ngoforderspri
orto
col
lecti
onordeli
veryandforstor
ingpurposes.

Thest
oresar
eashoul
dbe:
-

i
. Const
ruct
edwi
thmat
eri
alswhi
char
eeasyt
ocl
ean

i
i
.Wel
ll
ight
ed

i
i
i.Adequat
elyv
ent
il
atedi
fnotr
efr
iger
ated

i
v.Wi
ndowsshoul
dbeadequat
elybar
red

v
.Ref
ri
ger
ator
sandcol
droomshav
est
rongl
ocks.

v
i.Doorsshoul
dbestr
ongandfi
ttedwit
hheavydutyl
ockswitha
separ
atekeysy
stem t
ogener
al mast
erkeyf
ortheestabl
i
shment
.

v
ii
.Onlyst
oreroom st
affshouldbeall
owedintothest
oresandseni
or
staf
fse.
gpurchasi
ngof f
icer,
foodandbeveragemanager,
food
andbever
agecontrol
leretc.

v
ii
i.
Keysshoul
dbekep,
tbyheadstor
ekeeperorheadcel
l
armanonl
y,
wit
hadupli
cat
esetkepti
npurchasi
ngoffi
ce.

St
anl
eyt
hoi
thikagwi
Page156
STORESLAYOUT

 Thel
ayoutofthet
otal
stor
agear
eashoul
dbedesi
gnedi
nrel
ati
ont
othe
ty
peofestabl
i
shment.

 Ageneral
stor
agear
eashoul
dhav
emobi
l
eshel
vi
ngr
ackst
oal
l
oweasy
cl
eani
ng.

 Thel
ayoutshoul
dbei
nsuchawayt
hatt
hewal
ki
ngdi
stancebyst
oremen
i
smini
mi sed.

 Spaceavai
labl
eshoul
dbewel
lut
il
isedandt
hef
oll
owi
ngaspect
sshoul
dbe
takeni
ntoconsi
der
ati
on:
-

. Speci
i alf
aci
l
iti
es

a)Ref
ri
ger
ati
onofmeat
,dai
rypr
oduce,
andf
rozenf
oods

b)Speci
alr
acksofwi
nebot
tl
es

c)Speci
all
ydesi
gnedbinsorcont
ainer
sfordr
ygoods,
fresh
fr
uit
sandvegetabl
es

d)Shel
vi
ngoft
innedgoods

e)Dr
ipt
ray
sforcooki
ngoi
l
s

i
i
.Binsar
eplacedtoprov
ideenoughr
oom f
orpassageofst
aff
,
mat
eri
als,
trol
l
eysandequi
pments.

 Theroom shoul
dbekeptcl
eanandti
dyandther
eshoul
dbe
enoughl
ightsfr
om t
hewindows(nat
ural
li
ght
s)

i
i
i.Usebi
nsandr
acksf
ormosti
tems.

 Heav
ygoodst
obeont
hef
loor

 Goodsshoul
dbewel
lst
ackedi
nrowsoft
enf
oreasycount
ing

i
v.Thereshoul
dbefreeflowofmat er
ial
saft
erdeli
ver
yandunpacki
ng
thr
oughthestor
eafterrequi
sit
ioni
ntotheki
tchenorbare.
g

I
ncomi
ngmat
eri
als

Unl
oadi
ng

I
nspect
ion

Bi
nsst
ores

Ki
tchen

St
anl
eyt
hoi
thikagwi
Page157
 Rest
aur
ant

 Thestor
esdepart
mentisresponsiblet
orecei
vethematerial
s(f
oodand
bever
ages)andhol
dthesemat er
ialsunt
ilt
heyar
er equi
redbyuser
depar
tment.

 Thest
ockrecordprov
idestheinf
orgmat
ionr
egar
dingt
her
ecei
pts,
issues
andst
ockbalancesofmateri
als.

MAI
NFEATURESOFEFFCETI
VEANDGOODSTOREKEEPI
NG

i
.Immedi
atel
ocat
ionofmat
eri
als

i
i
.Speedyr
ecei
ptandi
ssueofmat
eri
als

i
i
i.Ful
li
dent
if
icat
ionofal
lmat
eri
alsatal
lti
mes

i
v.Keepi
ngcorr
ectanduptodat
erecor
dsofr
ecei
pts,
issuesandst
ock
bal
ancesofmater
ial
s.

v
.Pr
otect
ionofmat
eri
alsagai
nstf
ir
eandt
hef
t

v
i.Pr
otect
ionofmat
eri
alsagai
nstdet
eri
orat
ionsandpi
l
fer
age

v
ii
.Economi
cal
useofst
oragespace.

SANI
TATI
ON,
SAFETYANDSTORESSECURI
TY

Hy
gieneandsani
tat
ion

 Hy
gieneandsani
tat
ioni
nandar
oundst
oresi
sofpar
amounti
mpor
tance

 Stor
esshoul
dbekeptneatandcl
eansoast
opr
eventf
oodbeenat
tacked
bymouldsandbact
eri
a

 Dryf
oodstor
esshoul
dbef
ly-
proof
edandwal
l
str
eat
edwi
thsui
tabl
e
i
nsect
ici
des.

 Al
lstor
esshouldbeguar
dedagainstr
odent
sandpests,
tosafeguar
dbot
h
st
affandcust
omersagai
nsti
nfestedandcont
ami
natedfoods.

 Thef
oll
owi
ngpoi
ntsmustbekepti
nmi
nd:
-

i
. Washfloor
s,wal
lsandshel
vesonceaweekorf
ort
nightand
di
si
nfecti
onofspaces.

i
i
.Inspecti
ncomingf
oodf
orsi
gnsofdamage,
spoi
l
ageori
nfest
ati
on
bef
orest
oring.

i
i
i.Ar
rangef
oodsy
stemat
ical
l
y,sot
hatol
dst
ocksar
eusedf
ir
st.

St
anl
eyt
hoi
thikagwi
Page158
 i
v.All
openedpackagesshoul
dbeputi
ncov
eredai
r-
ti
ghtcont
ainer
s
befor
ere-
stor
ing.

v
.Foodsofsi
mil
art
ypeshoul
dbest
oredt
oget
her
.

v
i.Staffshoul
dbegivencleancoat
s,andmadet
oobser
vet
her
ulesof
personalhygi
enewhil
ehandli
ngfoodit
ems.

STORESSECURI
TY

 Stor
esstocksit
emsofdail
yusewhichar
esovulner
abl
etopil
fer
ageand
thef
t,t
heref
oreext
remel
yimport
anttopr
ovi
desafet
yandsecuri
ty
measures.

 Inaddit
ion,
stor
eshav ealotofmoneybl
ockedi
nst
ocks,
whi
chmakes
securi
tyavit
alaspectofstor
emanagement.

 Thesaf
etyhazar
dst
owhi
chst
orescanbeexposedar
e:-

i
.Inf
est
ati
onorcont
ami
nat
ionoff
oodhel
dinst
orage.

i
i
.Thef
torpi
l
fevr
age

i
i
i.Fr
aud

i
v.Micr
obi
alspoi
lageduetoimpr
opert
emper
atur
esandhumi
dit
y
cont
rol
sespecial
l
yincol
dstor
age

v
.Fi
re.

WAYSOFI
MPROVI
NGANDMAI
NTAI
NINGSECURI
TY

i
. Goodshoul
donlybedeli
ver
edatst
atedt
imewhenst
orest
affar
eondut
y
andabl
etorecei
vethem.

i
i
.Damageoropenedpackageshoul
dber
ecor
dedondel
i
ver
ynot
esbef
ore
si
gni
ngofr
ecei
pts.

i
i
i.Del
i
ver
edgoodsshoul
dbecheckedagai
nstbot
hadv
icenot
eandor
der

i
v.Hav
emi
nimum i
nlet
sorout
let
stot
hest
ores.

v
.Thest orekeeper’
sof
fi
cemustbeposi
ti
onedsucht
hatsupervi
sioni
s
possi
bleatallti
mesandt
hedoorisi
nfull
viewdur
ingworki
nghours.

 Atnot
imeshoul
dthest
orebel
eftunmanned

v
i.Val
uablestockshoul
dbeunderl
ockandkeyandgoodsmustnotbel
eft
out
sidethestor
e.

v
ii
.Faul
tyandmi
ssi
ngi
temsshoul
dbenot
if
iedt
othebuy
erort
hesuppl
i
erat

St
anl
eyt
hoi
thikagwi
Page159
 once.

v
ii
i.
Onl
yaut
hor
isedper
sont
obeal
l
owedi
nthest
ore

i
x.I
ssuecount
ersmustcl
osebyr
oll
-downshut
ter
sorhal
fdoor
s.

x.Properst
orerecor
dsshoul
dbekeptandper
iodi
cphy
sical
stockt
aki
ng
shouldbeorgani
sed

xi
.Aguar
don24hourdut
yisi
mpor
tant

 Awel
lguardedexi
sti
nhi
bit
spi
l
fer
ageisaper
sonal
checki
ngsy
stem
i
sest
abl
ishedwhenstaf
fgoof
fduty
.

TYPESOFSTORES

Theor
gani
sat
ionofst
oresv
ari
esi
ndi
ff
erentest
abl
i
shment
s.

Ther
ear
ethr
eemai
nty
pesofst
oresnamel
y:
-

i
. Cent
ral
i
sedst
ores

i
i
.Decent
ral
i
sedst
ores

i
i
i.I
mpr
estst
ores

CENTRALI
SEDSTORES

I
nthist
ypeofstor
e,mat
eri
alsar
ekepti
nonecent
ral
war
ehouseandt
hesear
e
i
ssuedfr
om onecent
ral
poi
nt.

Adv
ant
ages

i
. Smal
l
erst
ocksar
eneeded

i
i
.Lessst
affr
equi
red

i
i
i.Paperwor
kisr
educed

i
v.Cont
rol
ofst
ockl
evel
iseasyandsi
mpl
e

v
.Bet
tersecur
it
ymeasur
escanbei
ntr
oduced

v
i.Lessr
iskofdupl
i
cat
ionofi
temsofst
ock

Di
sadv
ant
ages

i
. Hi
ghert
ranspor
tat
ioncostandi
ncr
easedhandl
i
ng

i
i
.Possi
bil
i
tyofbr
eakdownoft
ranspor
tvehi
cles

i
i
i.I
nconv
eni
encet
oper
sonnel

St
anl
eyt
hoi
thikagwi
Page160
 i
v.I
ncr
easedf
ir
eri
sk

v
.Delaysinsuppl
yi
ngmat
eri
alst
obr
anchesanddepar
tment
sat
di
stancepl
aces

DECENTRALI
SEDSTORES

Thisi
stypeofst
orewherebymateri
alsarehel
dandissuedbysubst
oresi
neach
depart
mentorbr
anch.Theadvantagesanddisadv
antagesar
esameas
centr
ali
sed.

I
MPRESTSTORES

Inthiskindofst or
e,thematerial
sar ereceivedbycent ralbutsomei t
emsoft hese
mat eri
alsareissuedtosubst oresont hebasi sofi mprestsy stem.Aspeci fi
c
quantit
yofeachi t
em ofmat eri
alsisissuedt othest orekeeper sofaspeci fi
c
departmentatt hestartofanyper i
od.Att heendoft hisper i
odt hest orekeeperwill
i
nfor m aboutthenumberofi temsofanymat eri
al usedf orpr oduct i
on.The
specifi
cnumberofi t
em ofthemat er i
alwillbereplacedatt heat artofnextper i
od
egifconsumpt i
onofmat eri
al Xis2000uni tsperweekt henimpr estof2000uni ts
i
sor ganised.Ifatendofanyspeci fi
cweekt hest orekeeperr emai nswi th150uni t
s
thenhewi llget1850mor euni t
soft hismat er
ialatt hest ar
toff ollowingweek.I n
thi
scaset heimprestquanti
tyof2000uni tswillber estored.

NOTE:
-ther
ear
ethr
eet
ypesofst
oresi
nfoodandbev
erageoper
ati
onas:
-

 Per
ishabl
est
ores

 Dr
yst
ores

 Bev
eragest
ores

Thet
hreef
all
sundert
het
hreet
ypesofst
oresment
ionedabov
e.

DUTI
ESOFSTOREKEEPER

Thest
orekeeperholdsav er
yresponsi
bleposi
ti
oninanyest
abl
i
shments.The
ext
endofhisresponsibi
l
itywil
ldependwithnat
ureandsi
zeoft
heest
ablishment
.

Thest
orekeeperi
sresponsi
blef
ort
hef
oll
owi
ngdut
ies:
-

i
. Tor
ecei
veandst
oreal
lmat
eri
alsunt
ilcor
rect
lyr
equi
red

i
i
.Tokeepal
lmat
eri
alsi
nst
orei
ngoodcondi
ti
on

i
i
i.Toi
ssuemat
eri
alsagai
nstaut
hor
isedr
equi
sit
ion

i
v.Tokeepal
lunaut
hor
isedper
sonsoutoft
hest
orear
ea.

v
.Toal
l
owphy
sical
stockt
aki
ngt
otakepl
acewhenor
der
edy

St
anl
eyt
hoi
thikagwi
Page161
 management
.

v
i.Tocheckbincar
dsorst
ockl
edger
ssyst
emati
cal
lyt
oensur et
hatr
e-
or
deri
ngtakespl
acewhenmini
mum st
ockl
evel
sarereached.

v
ii
.Toprepareanissueanal
ysi
sfr
om therequi
sit
ions,t
hisi
sthen
for
wardedtothefoodandbeveragecont
rol
lerforst
ati
sti
calr
epor
ts
andanaly
sis.

MATERI
ALCODI
NG

Code -asystem ofsymbolsdesi

gnedt obeappli
edtoaclassi
fi
edsetofi
temst
o
gi
veabriefaccur
aterefer
encefaci
l
itat
ingent
ry,col
lat
ionandanal
ysi
s.

Mater
ial
sarecodedf orimmedi atei
denti
fi
cat
ion.I
ftherear
ediff
erentsi
zesor
modelsofanymaterialsthenthecodenumber sar
egi v
entothesediff
erentsi
zes
ormodelswil
lassi
stt oident
if
yt hem.Thecodesnumber si
denti
fyit
emsof
di
ff
erentorpar
ti
cularsizes.

PURPOSESOFCODI
NG

i
. Toav
oidambi
gui
tyi
ndescr
ipt
ion.

Ambi
gui
ty - Thest
ateofhav
ingmor
ethanonepossi
blemeani
ng.

i
i
. Tomi
nimi
sel
engt
hindescr
ipt
ion

PRI
NCI
PLESOFCODI
NG

a)Excl
usi
ve

 Thi
smeanseachi
tem shoul
dhav
eonl
yonecodeandt
hiscodeshoul
dnot
beusedf
oranyot
heri
tem.

b)Cer
tai
nty

 Codenumbersusedf
ordi
ff
erentt
ypesofmat
eri
alsshoul
dbecer
tai
nand
ther
eshoul
d

benopossi
bil
i
tyofconf
usi
on.

c)El
ast
ici
ty

 Thecodenumbershoul
dbearrangedi
nsuchawayt
hati
tmustbepossi
ble
toi
ncl
udenewitemsifneedar
ises.

d)Br
evi
ty

 Codesshoul
dbeasbr
iefaspossi
ble.

e)Memor
isat
ion

St
anl
eyt
hoi
thikagwi
Page162
  Codesshoul
dbeeasyandpossi
blet
orememberandunder
standt
hecode
number.

f
) Uni
for
mit
y

 Codesshoul
dbeofequal
lengt
handoft
hesamest
ruct
ure.

STORAGECONDI
TIONS

Ther
earebasi
ccondi
ti
onst
hatshoul
dbef
oll
owedt
oensur
ethatgoodsar
e
st
oredpr
operl
y.

Thesecondi
ti
onsar
e:-

i
. Thehei
ghtoft
hest
orecei
l
ingmustbeatl
east3.
5to4met
res.
i
i
. Racksmustbeofst ainl
esssteelf
orfr
eshfoodit
emsandnon-porous
metall
ikegal
v ani
sedsteelandir
onfordr
yitems,t
oavoi
dthem rusti
ng
andtr
ansferr
ingtherusttothegoods.
i
i
i. Racksmusthavelegsandhav
eaclearanceofabout6’
’t
o8’’f
rom t
he
groundt
oprotectt
hegoodsfr
om f
loormoistur
eandwhiteant
s.
i
v. Thespacebetweentheshel
vesmustv ar
yfrom 50cm to90cm
dependi
nguponthesizeofpackagesandjars.Forsmall
erpacksand
bott
lesaspaceof30cm t
o40cm isadequate.
v
. Racksmustbepl
acedatthecent
reofthestor
eroom pr
efer
abl
y.I
fthi
s
i
sunavoi
dableaspaceof8cm mustbekeptawayfr
om wall
s.
v
i. Thehei
ghtoft
heracksmustbeabout2.
3met
resbey
ondwhi
chi
twi
l
l
bedi
ffi
cul
ttor
each.
v
ii
. Fl
oormustbeofconcr
eteorheav
yti
l
es.
v
ii
i. Thest
oremustbef
reef
rom i
nsect
sandv
ermi
n.
i
x. Allv
egetabl
esandfr
uit
smustbethoroughl
ywashedandplacedin
stor
agebinsoral
umini
um t
ray
s,whichmustbeseal
edwithcell
ophane
paper.
x. Thef
oll
owi
ngpacki
ngnor
msi
nst
oragemustbef
oll
owed:
-
Meatcar
cassesmustbewr appedi
ncl
othbef
ore
pl
aci
ngthem i
ndeepfreezers.
Jutesacksorpolythenejar
sar eusedforcereals,
cerealpr
oducts,pulsesandtheirpr
oducts,
nut sand
roastedproduct
s.
Car
dboar
dtr
aysorcar
tonsf
oreggs
Cansandj
arsf
orp[
reser
vedf
ood

St
anl
eyt
hoi
thikagwi
Page163
 Spi
cesandcondiment
sshoul
dbei
nthei
rpacksor
pol
ythenej
ars.
Foodcol
our
ingandessencesst
oredi
nthei
rbot
tl
esor
ti
ns.

xi
. Ther
emustbeadequatespacebet
weenracksforl
oadingand
unl
oadi
ngr
acksandcleani
ngandpestcontr
olschedul
es.
xi
i
. Heavi
erpackagesmustbekeptonl
owershel
vesandl
i
ght
eroneson
hi
ghershel
ves.Neverkeepi
temsonthef
loor
.
xi
i
i. Stor
emusthav
etemper
atur
egaugest
omoni
tort
het
emper
atur
esof
i
tems.
xi
v. St
oresmustbeawayf
rom st
eam andhotwat
erpi
pes.
xv
. Ther
emustonl
ybeoneent
ranceandexi
t.
xv
i. Fluor
escentl
i
ght
sintroughsmustbepl
acedi
ncei
l
ingsatangl
est
othe
rackstogett
hebestl
i
ghting.
 Ensur
ethatthecei
li
ngl
ight
sarenott
ooclosetot
hetopmostshel
fbecause
heatf
rom t
helight
scanrui
nthequal
i
tyoffoodst
oredt
her
e.
xv
ii
.Ventil
atorsandexhaustf
ansprovi
deai
r-
cir
culati
ontot
hestor
e;
however,
theymustbehighenoughtobeclosertot
hecei
l
ing.
STORAGEOFMATERI
ALS
Di
ff
erentty
pesofcommodit
iesrequi
resepar
atestor
agecondi
ti
onsi
nor
dert
o
maint
ainorimpr
ovet
hei
rcondit
ionsandquali
ty.
Thesecommodi
ti
esar
egr
oupedi
ntocat
egor
iesasf
oll
ows:
-
i
. Meat
sandpoul
tr
y
i
i
.Fi
shandshel
lfi
sh
i
i
i.Fr
uit
sandv
eget
abl
es
i
v.Dai
rypr
oduct
s
v
.Fr
ozenf
oods
v
i.Ti
nnedf
oods
v
ii
.Dr
yfoods
MEATANDPOULTRY
Allsi
des,quart
ersorwholecar
cassesshoul
dbehunginacol droom ata
temperatureof 0- 1°cwit
haspacebetweenthem t
oallowfreeci
rculat
ionofai
r
withdri
pt r
aysunderneat
hinor
dertocoll
ectanybl
ood.Thisperi
odvari
esbetween

St
anl
eyt
hoi
thikagwi
Page164
2-
10daysaccor
dingt
othetypeofmeat
,per
mit
ti
ngachemi
cal
changet
otake
pl
acet
oproducemoretendermeat
.
Poult
ryandgameifundr
awnshouldbehungatt emper
atureof0-1°cwi
th
exceptonofv
i eni
son,
hareandrabbi
tshouldbehung3-4°
c.drawnoreviscer
ated
poult
ryshoul
dbestor
edonslatt
edshelvesat0-
1°candgamepl acedonmet al
li
c
tr
aysatthesametemperat
ures.
FI
SHANDSHELLFI
SH
Wetf ishshoul
dbest or
edinaseparate,
special
typeofrefr
igerat
orwithperf
orat
ed
non-rusttr
aysall
owingthefi
shtodrai
nandper mitt
ingeasycleani
ngofthe
ref
ri
ger at
or.Thefi
shshouldbeplacedoncrushediceonawetcl oth,
coveredwith
anotherwetclothandcrushedi
cebeingstoredatat emper
atureof1°c.
Shel
lfi
shshoul
dbeplacedi
nboxescov
eredwi
thwetsackandcr
ushedi
ces,
ata
temper
atur
enotl han3°
owert c.
NOTE:
-bothwetf
ishandshel
lfi
shshoul
dbest
oredf
ort
hemi
nimum per
iodof
t
imepossi
ble.
FRUI
TSANDVEGETABLES
Allt
ypesoffruit
sandv egetabl
esneedscar
eful
st or
age,r
oom wheretherei
sno
sunli
ght.Theroom shouldbedry,
coolandwellventi
l
atedwi
thbinsforroot
vegetabl
esandr acksforot
hers.
Frui
tandvegetabl
esdeter
ior
atequickl
yandspaceshoul
dther
eforebeav
ail
abl
eto
enabl
eeasystockrotat
ionandtoident
ifyantr
ott
enit
emsforthei
rqui
ckremov
al
astheywi
llaff
ectother
s.
Bananasandpi
neappl
esshoul
dbest
oredi
nacool
room.
Sof
tfr
uit
sandmel
onsshoul
dber
efr
iger
atedat1-
2°c.

DAI
RYPRODUCTS
Mostdai
ryproduct
swit
ht heexcept
ionofcheeseshoul
dbest
oredi
na
r
efr
iger
atororcol
droom atatemperat eof0-
ur 4°c.
Mil
kshouldbestoredinthecont
aineri
nwhi
chi
tisdel
i
ver
edandkeptcov
ered
becausei
twilabsorbstr
ongsmells.
Cheeseshoul
dbest oredinacoolplacewhi
chisdryandwel
lventi
l
atedbecause
ofi
tsstr
ongsmel l
,shouldbekeptawayfrom ot
herit
emsandiftobestor
edfora
per
iodofti
met heyshouldberotat
edoccassi
onary.
Butt
erandeggsal
soabsor
bsst
rongsmel
l
sespeci
all
ythoseoff
ishandoni
ons
andcheese.

FROZENFOODS

St
anl
eyt
hoi
thikagwi
Page165
Ther
eisvari
etyoffr
ozenfoodseithercookedoruncookedandt heyshouldbe
st
oredatatemperatur
eofatleast-10°c.Thelowerthet
emper at
ureofthefreezer
meansfoodcanbekeptforalongert i
mei e-
. 17°cfor1yearand-27°cfor2y ear
s.
All
foodsshouldbekeptf
rozenunt
ilneededbutt
imemustbeal
l
owedf
or
defr
osti
ngbeforei
ssui
ng.
Foodshouldbekeptonpl
asti
ccoatedt
ray
sinupr
ightdeepf
reezer
sandi
npl
ast
ic
basketi
nthechestty
peofdeepfr
eezer
.

TI
NNEDFOODS
Tinnedf oodsshoul
dbestoredi
nadr y,wellventi
lat
edst
oretopreventt
hem from
rusti
ng.Theyshouldbeunpackedfrom theircasesandi
nspectedf
orbulges(i
.e
blowtins)causedbygasesfrom ei
therbacteri
aortheti
nplat
ingbeingatt
acked
bythef oodandifthi
shappensshouldbet hrownaway.

DRYGOODS
Theyincl
ude:
-sugar
,fl
our,
pulses,cereal
s,preser
vesfoodssuchasj
am,
pickl
es,
cannedandbottl
edfoods,
cakes,driedfr
uits,t
ea,cof
fee,br
eadet
c.
Thestor
esshoul
dbecool
,dr
yandwel
lvent
il
atedwi
thal
lcommodi
ti
esbei
ngkept
i
nbinswithl
i
ds.
Somedr
ygoodsr
equi
reai
r-
ti
ghtl
i
dse.
gtea,
cof
fees,
riceandnut
swi
thoutshel
l
s.
Otheritemsli
kebr
ead,f
lourorsugarshoul
dhavel
oosef
it
ti
ngli
d.Goodswith
strongaromasshoul
dbestoredawayf r
om ot
heri
temst
hatar
elikel
ytoabsor
b
theirf
lavour
s.

CLEANI
NGMATERI
ALS
Theyarestor
edinasepar at
est or
ebecauseoft heirst
rongsmellsandpossibi
li
ty
ofconf
usionormi stakesaccidental
lybei
ngmadei nthei
ruse.Thestoresshoul
d
bedry,
wellventi
latedwithslatt
ed( r
acksforhangingmat er
ial
s)racksusedfor
st
oragepurposes.

LI
QUORSTORESANDWI
NEORBEERCELLAR
 Al
ldr
inksshouldbestoredinar
oom whichhasconstanttemper
atur
es
whi
chismaintainedbyautomat
ical
l
ycontr
oll
edair
-condit
ioni
ngsyst
ems.
 Winesshoul
dberackedi
nor
dert
opr
eser
vet
hei
rqual
i
tyandt
ofaci
l
itat
e
easyst
ocktaki
ng.

St
anl
eyt
hoi
thikagwi
Page166
  Spi
ri
tsandl
i
queur
sshoul
dbest
oredupr
ighti
ndeepshel
ves.
 Bot
tl
edbeer
sar
est
oredi
nthei
rcr
atesi
nsepar
atest
ore.
 Ext
raspacef
orst
orageofempt
ybot
tl
esandcr
atesbecauseoft
hei
rval
ue.
 Draughtandkegbeershouldbestoredinseparat
eareaofthei
rli
quorst
ore
whichisaccessi
blefr
om dispensi
ngareasbecauseoftheneedtochange
barr
elsofkegduringser
viceandisusuall
yseparat
efrom ot
herli
quorst
ore.

FOODQUALI
TYI
NSTORAGE
Wherel
argequantit
iesoffoodmateri
alsar
est
ored,i
tisimper
ati
vethatst
epsbe
t
akentoensurethatthequali
tyoff
oodsdoesnotdet
erior
ateonstor
agri.
e
r
espect
ivest
ores.
FACTORSTHATAFFECTFOODQUALI
TYI
NSTORES.
Thesear
e:-
i
. Excessi
vehandl
i
ng
i
i
.Fl
uct
uat
ingt
emper
atur
esandhumi
dit
y
i
i
i.Sunl
i
ght
i
v.I
nfest
ati
on
v
.Car
elessst
aff

Excessi
vehandl
i
ng
Thiscandamagepackages,
maki
ngitpossi
blef
orfoodslikebi
scui
ts,noodl
esor
othercer
eal
product
stobecomesoggyormouldyorbrokenmakingthem unfi
tfor
use.
Damagetof
oodsli
kefrui
tsandvegetabl
escancauseenzy
mat
icandoxi
dat
ive
di
scol
our
ati
onaf
fecti
ngthei
rquali
ty.
Temper
atur
eandhumi
dit
y
Uncontr
oll
edtemperat
uresandhumidit
ycanleadtoevaporat
ionorabsor
pti
onof
moistur
e,l
eadingtodr
yingorsoggi
nessthel
atterpr
ovi
dingsuit
abl
econditi
onsf
or
microbi
algr
owt h.
Sunl
i
ght
I
nst or
esatcer
tai
ntimeoft heday,sunl
i
ghtfal
li
ngeit
heruponmilkandmi l
k
product
soruponotherfoodcontaini
ngvit
aminB2,canaff
ectt
heircont
ents.Li
ght
andheatcanal
soaffectthequali
tyofstor
edoil
sandfatsandfoodscontai
ning
them.

St
anl
eyt
hoi
thikagwi
Page167
I
nfest
ati
on
Attackofcereal
sandpulsesbyweev
il
s,pr
esenceofwhi
teant
sinthestor
e,or
rodentsandotherpest
scandamagethefl
avour,
andqual
it
yoffoods,
making
them unfi
tforconsumpti
on.
Car
elessst
aff
Carel
esshandl
ingoff
oodi
temsbyst
affcanl
eadt
ocont
ami
nat
ionofpoor
ly
st
oredfoods.
Wit
hallthesefact
orsi
nmind,ef
for
tsshoul
dbeaimedati
ncreasi
ngshel
fli
feof
f
ooditemst hr
oughcar
einrecei
vi
ngandstorage,
whi
l
eatthesametime
maint
aini
ngqualit
y.

STOCK-
TAKI
NG
Defi
nit
ion - t
hisi
sphy
sical
l
ychecki
ngandmaki
ngal
i
stofal
li
temsi
nthe
st
ore.
- meanst ocheckphysi
cal
l
ythest
ockit
emsinor
dertoensure
thatquant
it
iesshownonstockr
ecor
dsandact
ualquant
it
ies
arethesame.
OBJECTI
VESOFSTOCK-
TAKI
NG
i
. Todet
ermi
net
hev
alueofgoodshel
dinst
ock
i
i
.Tocompar etheval
ueofgoodshel
dinst
oreatapar
ti
cul
art
imewi
tht
he
bookv
alueofstock
i
i
i.Toi
dent
if
yorl
i
stsl
owmov
ingi
temsorpr
oduct
sorgoods
i
v.Tocomparetheusageoffoodswi
tht
hef
oodsal
essoast
ocal
cul
atet
he
foodcost%andgrosspr
ofit
,
v
.Todet
ermi
net
her
ateofst
ockt
urnov
erf
ordi
ff
erentgr
oupsoff
oods.
v
i.Todet
erpi
l
fer
ageandchecksecur
it
yandcont
rol
syst
em.
 Stocktakingi
sdoneever
ytradi
ngperiodbystaffnotdi
rect
lynotconcer
ned
bystorekeepi
ngtoget
herwithst
orekeeperorcell
armanunderthe
superv
isionofmemberoffoodandbev er
agemanagementorcont rolst
aff
.
 Stockt
aki
ngl
i
stsar
epr
int
edi
nast
andar
dfor
matr
elat
edt
olay
outoft
he
room.
 Aft
ercomplet
ing,
alldi
screpanci
esareinv
esti
gatedandstockr
ecor
ds
adj
ustedt
oshowt heactualquanti
ti
esofeachit
em athand.
 Asummar yrepor
tist
henmadet
othemanagementandact
iont
akenwher
e
necessar
y.
Det
ail
sinst
ockt
aki
ngl
i
st:
-

St
anl
eyt
hoi
thikagwi
Page168
 i
. Bi
nnumber
i
i
.It
ems
i
i
i.Uni
tinwhichst
ocked(
eg.Kgs,
tins,
li
tr
es)especi
all
y
pur
chasi
ngunit
i
v.Quant
it
y(i
.enumberofuni
tsi
nst
ock)
v
.Uni
tpr
ice
v
i.Tot
alv
alue(
i.
eval
ueofst
ockeduni
ts)
v
ii
.Lastchecki
ng(i
.ev
alueofst
ockwhenl
ast
lychecked)
v
ii
i.
Discr
epanci
es
i
x.Remar
ksconcer
ningt
hef
lowofi
tems.
 Professi
onal
stockt
aker
scanbeusedatt
heendoft
hey
earf
orst
ock
taki
ng.
 Al
lrecor
dsar
eremov
edf
rom t
hest
oresot
hatwor
kisdoneef
fi
cient
ly.
 They ear
lyst
ocktakewill
prov
ideinf
ormat
iont
oaccount
ant
sfort
he
preparat
ionoft
hefinal
accounts.
METHODSOFSTOCK-
TAKI
NG
Theyar
eal
soknownassy
stemsofst
ockt
aki
ng.Ther
ear
ethr
eemet
hodsnamel
y:
-
i
. Per
pet
ual
inv
ent
ory
i
i
.Per
iodi
cst
ockt
aki
ng
i
i
i.Cont
inuousst
ockt
aki
ng
PERPETUALI
NVENTORY
 Thi
smeanstheuseofarecordcardforeachi
tem ofst
ockst
hatshowst
he
bal
ancei
nhandaft
ereachtransact
ion.
 Thi
sinv
olv
esr
ecor
dingal
lrecei
pts,
issuesandr
unni
ngbal
ancesoneach
car
d.
 Thi
smet hodi
smostl
yusedtoget
herwi
thcont
inuousst
ocktaki
ngsystem
wherebyther
ecor
dedbal
ancesarecompar
edwi t
hphysi
cal
balances.
 Thi
smethodensuresacont i
nual
,detail
edandrel
iabl
echeckofthestock
i
tems.I
thel
pstoinvesti
gatethediscrepanci
esi
ntimeandtakeappropri
ate
measur
esagai
nstcorruptandcarelessstaff
.
PERI
ODI
CALSTOCK-
TAKI
NG
 Undert
hismet
hod,
all
stocksar
ecount
edatonet
imeatr
egul
ari
nter
val
s

St
anl
eyt
hoi
thikagwi
Page169
 suchassi
xmont
hsoroney
ear
.
 Inannualstock-
taki
ng,
thephysi
calquant
it
iesofst
ocksonhandar
e
ascert
ainedattheendofeachyear
.
 St
ock-
taki
ngmayt
akeaf
ewhour
sorsev
eral
day
s.
 Thi
smethodavoi
dst hecont
inuousst
ock-
taki
ngbutmakesi
tmor
edi
ff
icul
t
toi
nvest
igat
edi
screpanci
es.

CONTI
NOUSSTOCK-
TAKI
NG
 Thi
smet
hodi
sal
mostsi
mil
art
oper
pet
ual
inv
ent
orysy
stem.
 Undert
hismet
hod,
recor
dedbal
ancesar
ecompar
edwi
thphy
sical
bal
ances.
 I
tmeansquanti
ti
esareconti
nuousl
ycheckedagai
nstt
heappr
opr
iat
e
per
pet
uali
nvent
oriesbal
ancesfi
gur
es.
Pr
inci
plesofcont
inuousst
ock-
taki
ng
i
. Af
ewi
temsshoul
dbechecked.
i
i
.Checkingshoul
dbemadebyst
affunconcer
nedwi
thkeepi
ngof
st
ores.
i
i
i.Ther
eshoul
dbeanel
ementofsur
pri
se.
i
v.Al
ldi
scr
epanci
esshoul
dbei
nvest
igat
edi
mmedi
atel
y`.
Adv
ant
agesofcont
inuousst
ockt
aki
ng
i
. St
ocktaker
sareablet
oworkr oundtheproduct
ionpr ocess,
ther
eby
av
oidi
ngshutdownsandconsequentlossesi
npr oducti
onand
pr
ofi
ts;
i
i
.Di
scr
epanci
esar
equi
ckl
ydi
scov
eredandi
nvest
igat
ed;
i
i
i.Fi
nanci
all
ossesresul
ti
ngfr
om obsol
escenceandst
ock
det
eri
orat
ionar
ereduced;
i
v.Regul
armonit
ori
ngofst
ocksi
mprovest
hequali
tyofcont
rol
and
l
imit
slossesr
esul
ti
ngfr
om mi
sappr
opri
ati
on;
v
.Stockinf
ormationproducedf
ormanagementpurposescommandsa
hi
gherl
evelofconf
idencebyreasonofr
egul
arveri
fi
cati
on
v
i.Thecompetenceofper
sonnelempl
oyedi
nthest
oresandt
hest
ock
recor
dingpr
ocessi
sevaluat
edonanongoi
ngbasi
s.
N/B: toav
oidcol
l
usi
onbet
weenstor
esmanagementpersonnel
,independent
audi
tor
sshoul
dbeinv
olv
edi
nthephysi
calv
eri
fi
cat
ionofstocks.

St
anl
eyt
hoi
thikagwi
Page170
St
ockr
econci l
iation
 Theobj ectoft hest ock- takei st oseei fthest ockr ecor dsr epresent
accurat elythel evelofst ockhel d.
 Thecompar i
sonbet weent hest ock- takeandt hest ockr ecor disknownas
stockr econci l
iation.Thi si sani mpor tantpr ocessbecause: -
i
. anaccur atest ockf i
gurecant henbeusedt ov aluet hestock
i
i.i twi l
lhighl ightanydi scr epanci eswhi chcant henbe
i
nv estigat ed
 Discrepanci esandquer iesi nst ockr econci l
iati
onneedt ober eferredtothe
company ’
smanager sandanyot herpeopl ewhomayneedt oknow, egthe
fi
rm'saudi torswhoar eor gani singt hest ock- t
ake.I fthedi screpancyi sa
smal lshor tfallint hephy si cal stockcompar edwi tht hestockr ecord,i
twill
beaut hor i
sedf orwr ite-of f.Lar gerdi scr epanci eswi llneedt obe
i
nv esti
gat ed, ast heycoul dhav ebeen
causedby :
-
a)aner r
oront hest ockr ecor d, suchas
 af ailuretor ecor dar ecei ptorani ssueofgoods
 anadmi nistrativ eer r
or ,eg100i t
emsr ecei vedrecor dedas10
i
tems
 di fferentitemsi ssuedt ot hoser ecor ded, egasi ze8i ssued
i
nst eadofasi ze10
 aner rorincal cul atingt hebal anceofst ock
b)t heftofst ock
c)damagedst ockbei ngdi sposedofwi thoutanyr ecor dhav ingbeenmade
 Onceanaccur atef i
gur ef orcl osingst ockhasbeenagr eedi tcant henbe
usedi nt hef inanci al statement s–t ocal culatepr ofit,andf orthebal ance
sheet.

STOCKTURNOVER
 Thi
smeansthenumberoft
imest
heav
eragest
ocki
sused(
i.
ether
ateof
useofani
tem)
.
 Thi
smaybeexpr
essedast
henumberoft
imeseachy
ear
,ort
henumberof
dayi
ttakes.
 Ther
ateofst
ockt
urnov
eri
scal
cul
atedbyt
hef
ormul
a:-
RST = or
Wher
eRST=r
ateofst
ockt
urnov
er
Costoff
oodconsumed = O.
S+P -CSorcanbegi
vendi
rect
ly
Av
eragest
ock = (O.
S+C.
S)
Exampl
e1.
£2900offoodpurchaseswereconsumedina28-
dayt
radi
ngper
iod.Theopeni
ng
st
ockonday1wasv aluedat£750.Thecl
osi
ngst
ockonday28wasv al
uedat
£650.Cal
culat
etherateofstockt
urnover
.

St
anl
eyt
hoi
thikagwi
Page171
Sol
uti
on
RST =
RST =
=
= 4.
14t
imes
Thismeansthatt
hetotalv
alueofthest
ockt
urnedover4.
14ti
mesi
nthe28-
day
tr
adingper
iodandthatj
ustlesst
hanoneweek’
sstockwashel
donaver
ageatone
ti
me.
Exampl
e2.
I
na28- dayt
radi
ngperi
odt
hetotal
costoff
oodconsumedwas£3000.The
openi
ngstockinday1was£800andthecl
osi
ngstockwas£700.Cal
cul
atet
he
rat
eofstocktur
nover
.

Sol
uti
on
RST =
RST =
=
= 4.
0ti
mes
Thi
smeansi na28daytr
adi
ngperi
od,
thet
otal
val
ueofst
ocktur
nedov
er4t
imes
andthatanaver
ageof1weekst
ockwashel
dduri
ngt
heperi
od.
Exampl
e3.
Arestaurantconsumed£38,000wor
thofstockduri
ngay eartoachieveitsal
es.
Therestaurantheldanav
eragest
ockof£1000throughouttheyear.Calcul
atethe
rat
eofst ockturnover
.
Sol
uti
on
RST =
RST =
= 38t
imesperannum.
NOTE:-t hi
smaybeexpressedindaysbydi
vi
dingthenumberoft
imesper
annum i
ntothenumberofdaysopenduri
ngt
hey ear
i
.e
Fortheabovecal
cul
atet
hestocktur
nov
eri
nday
sift
heest
abl
i
shmentwasopen
for360daysand200daysi
nay ear.

St
anl
eyt
hoi
thikagwi
Page172
Sol
uti
on
a)
= = 9.
4day
s
b)
= = 5.
2day
s
Exampl
e4.
Cal
cul
atet
hestockt
urnov
eri
nti
mesperannum andi
nday
sfort
hef
oll
owi
ng
est
abl
i
shment:
-
a)Aseasonal
Hot
elopen190day
say
ear
Costofsal
es £76,
540
Aver
agestockhel
d£3,220
Sol
uti
on
RST =
RST = = 23.
77t
imespery
ear
I
nday
s
= = 7.
9day
s
b)Ani
ndust
ri
alcant
eenopen300day
say
ear
Costofsal
es £106,
200
Aver
agestockhel
d £1,
610
Sol
uti
on
RST =

RST = = 65.
96t
imespery
ear

I
nday
s

= = 4.
55day
s
c)Aschoolmeal
scant
eenopen200day
say
ear
.
Costofsal
es £30,
000
Aver
agestockhel
d £4,
950
Sol
uti
on
RST =

St
anl
eyt
hoi
thikagwi
Page173
 RST = = 6.
06t
imespery
ear

I
nday
s

= = 33day
s
Whendecidingt
hestockt
urnovernecessar
yforanest
abli
shmentt
ooper
ate
ef
fi
ciency
,thecater
ermustconsi
derthefol
lowi
ngfact
ors:
-

i
. Locat
ionandf
requencyofdel
i
ver
ies

i
i
.Rangeofpr
oduct
snecessar
yi.
emenuandl
i
quorsol
d

i
i
i.Det
eri
orat
ionofmat
eri
alst
obeused.

i
v.St
oragef
aci
l
iti
esav
ail
abl
e.

v
.Costr
est
ri
cti
onsofst
ockandcapi
tal
avai
l
abl
e

NOTE:- Ty
pical
stockt
urnoverf
igur
esforamont
hareatleast20t
imesf
or
per
ishabl
eit
emsand4t i
mesfornonperi
shabl
e(i
edel
iver
iesonceaweek)

PROBLEMSOFALOW STOCKTURNOVER

i
. Capi
tal
ist
iedupandcannotbeusedel
sewher
einest
abl
i
shment

i
i
.Ther
eisani
ncr
easedr
iskofspoi
l
age

i
i
i.Wit
hanunnecessar
yhi
ghst
ockl
evel
s,t
hepay
rol
lmaybegr
eat
ert
hani
s
r
eall
ynecessar
y

i
v.Thei
nsur
anceont
hest
ocki
shi
ghert
hannecessar
y

STOCKCONTROL

Stockcont rolmeansmaki ngsurethatthebusinesshastheri

ghtquanti
tyof
goods,int herightplaceandatt herightt
ime.Stockcontr
oli
sofgreatimpor t
ance
i
nanyor ganisati
on.St ockincl
udesgoodsofv ari
ouskindseg.Rawmat eri
als,
stati
oneryet c.Stockofgoodsr epresentsmoneyandi tmustbecontr
oll
ed
effect
ively
.

OBJECTI
VESOFSTOCKCONTROL

i
. Toensur
etheav
ail
abi
l
ityofgoodswhenr
equi
red.

i
i
.Toaccountf
ort
hegoodswhi
chhav
ebeenpur
chased.

St
anl
eyt
hoi
thikagwi
Page174
 i
i
i.Tor
educest
oragecostasmuchaspossi
ble.

i
v.Tomi
nimi
set
her
isksofdet
eri
orat
ion,
wast
ageandt
hef
t.

v
.Tomai
ntai
naccur
ater
ecor
ds(
upt
odat
e).

v
i.Toav
oidov
er-
stocki
ngandunder
-st
ocki
ng.

STOCKLEVELS

Thel
evel
atwhi
chi
tem ofst
ocki
shel
disdi
ff
icul
ttodet
ermi
newi
tht
wodanger
s:-

a)Ei
therr
unni
ngoutofst
ock

b)Ov
erst
ocki
ngoft
hei
tem (
tyi
ngupnecessar
ycapi
tal
)

Thatis,i
fst
ocklev
elsistoolowthenthi
sstocklevel
cannotmeettheproduct
ion
demand.Thedecreaseinproducti
onr
esult
sinlossofcustomer
sandpr ofi
tal
so
reduceswhi
leontheotherhandwhenstocklevelsar
etoohigh,
storagecost
i
ncreasesandther
eisgreaterri
skof

det
eri
orat
ionoft
hesest
ockshencer
educepr
ofi
tsoft
heest
abl
i
shment
.

DETERMI
NANTSOFSTOCKLEVELS(
fact
orst
hatdet
ermi
nest
ockl
evel
)

i
. Themaxi
mum andmi
nimum f
orecastusagef
igur
esf
ort
radi
ng
per
iod

i
i
.Ther
e-or
der
ingt
imef
ort
hei
tem

i
i
i.Theeconomi
cor
der
ingquant
it
y

i
v.Themar
kett
rends(
changesi
ndel
i
ver
y,pr
ices,
avai
l
abi
l
ity
)

v
.Thest
oragespaceav
ail
abl
e

v
i.Thebudgetav
ail
abl
eforpur
chasi
ng

v
ii
.Theshel
fli
feoft
hei
tem.

FACTORSWHI
CHAFFECTTHESTOCKLEVELS

i
. Av
ail
abi
l
ity

 I
faparti
culari
tem ofmat
eri
alsi
seasi
l
yavai
l
abl
ethr
oughoutt
hey
ear
,
t
hestocklevelshoul
dbelowandvi
cever
sa.

i
i
.Leadt
ime

 Thi
sist
heper
iodbet
weent
hedat
eofor
deranddat
eofdel
i
ver
y.I
flead

St
anl
eyt
hoi
thikagwi
Page175
 t
imeismor
ethent
hest
ockmustbemai
ntai
nedathi
ghl
evel
sandv
ice
v
ersa.

i
i
i.St
ockhol
dingcost

 Thi
sisthecostofkeepi
ngmateri
alsi
nst
ore.Ifstockhol
dingcosti
s
hi
ghthenstockl
evelsmustbelowandvi
cev ersa.

i
v.Consumpt
ion

 I
fanymater
ial
isconsumedi
ngreat
erquant
it
ytheni
tmustbe
mai
ntai
nedathighl
evel
sandvi
ceversa.

v
.Dur
abi
l
ity

 Thestockl
evelofdurabl
egoodscanbemaintai
nedathigherl
evel
sbut
i
ncaseofperishabl
egoodsli
kefi
shandfr
uits,i
tshoul
dbekeptatlow
l
evel
s.

v
i.Tr
adedi
scount

 Sometimes,t
hesuppl
ier
sofferhi
gherdiscountsforl
argequant
iti
es.I
f
thebenef
itoft
radedi
scountisgr
eaterthanstockholdi
ngcostthen
stockl
evelsmustbemaint
ainedathigherl
evels.

SETTI
NGSTOCKLEVELS

Stockl
evelsaresetupbyanest
abl
ishmentasapol
icymatt
er.Foreff
ecti
ve
operat
ionintheest
abli
shmentt
hei
rstockl
evel
shastobeadheredto.Thesear
e
asunder:-

i
. Mi
nimum st
ockl
evel

 Thisisthelevelbelowwhichstockshoul
dnotbeallowedtofall.I
f
stockfall
sbelowt hisl
evelt
hentherei
spossibi
li
tyofproduct
ion
stoppageduet olackofmat er
ial
s.Thi
slevel
isal
socalledbufferor
safetystock.

Buf
ferorsafet
ystock -ist
hemini
mum levelofst
ockit
em whi
chmustbe
hel
dtopreventest
abl
ishmentr
unni
ngoutofsuppli
esoft
hatspeci
fi
cit
em.

i
i
.Maxi
mum st
ockl
evel
s

 Thisist
helevelbeyondwhichstocksshoul
dnotbeallowedtori
se.I
tis
desir
abl
ethatthelevelshouldbeaslowaspossibl
ebutitmustbe
adequat
eaccordingtot herequi
rement
softheestabl
i
shment.

 Fact
orst
hatar
etakeni
ntoaccounti
ndet
ermi
ningt
hemaxi
mum st
ock

St
anl
eyt
hoi
thikagwi
Page176
 l
evel
are:
-

i
.Usager
ate;

i
i
.Ri
skofdet
eri
orat
ionandobsol
escence;

i
i
i.Mar
ketsuppl
yfact
ors;

i
v.St
oragespaceav
ail
abl
e;

v
.Costoff
inanci
ngst
ockhol
ding.

i
i
i.Re-
orderl
evel

 Thisisthepointatwhichpur
chaseordermustbesenttot
hesuppl
ier
forthesupplyofmoremat er
ial
s.Thi
sleveli
shi
gherthanmini
mum
stocklevel
butlowerthanthemaximum stockl
evel
s.

i
v.Re-
orderquant
it
y

 Thisi
sthequanti
tyf
orwhi
chpurchaseor
deri
spl
aced.Thi
squant
it
y
dependsupontheabov
efact
ors.

v
. Av
eragest
ockl
evel

 Thi
sist
heav
erageofmaxi
mum andmi
nimum st
ockl
evel
s

AVERAGESTOCKLEVEL =

FORMULAEOFSTOCKLEVELS

Mat
hemat
ical
for
mul
aehav
ebeendev
elopedt
oest
abl
i
shst
ockl
evel
s.Thesear
e:-

1.Re-
orderl
evel = Max:
C xMax:
RP

2.Mi
nimum st
ockl
evel = RL-(NC xNRP)

3.Maxi
mum st
ockl
evel = Mi
n:SL +RQ +(Mi
n:C xMi
n:
RP)

4.Re-
orderquant
it
y = Max:SL-Mi
n:SL -(
Min:
C xMi
n:RP)

Wher
e:-

Max:C = Maximum consumpt ion

Min:C = Minimum consumpt i
on
NC = Normalconsumpt ion
Max:RP = Maximum re-orderperi
od
Min:RP = Minimum re-or
derperiod
NRP = Normalre-
orderper i
od
RQ = Re-or
derquantity
Min:SL = Minimum stocklevel

St
anl
eyt
hoi
thikagwi
Page177
 Max:SL = Maxi
mum stocklevel
EXAMPLE1.
Thefol
lowinginformati
oni sprovidedf
ormateri
alPQ251.
Maximum consumpt i
on = 6,
000unit
sperweek
Minimum consumpt i
on = 4,
000unit
sperweek
Re-orderperiodorl
eadt ime = 4-6weeks
Re-orderquantit
y = 30,
000units
Requi
redtocalculate:
-
a)Re- orderl
evel
b)Mi nimum stocklev el
c)Maxi mum st ocklevel
d)Av eragestocklevel

Answer
a)Re-
orderl
evel = Max
:C xMax:
RP

= 6,
000x6
= 36,
000uni
ts

b)Mi
nimum st
ockl
evel = RL-(NC xNRP)

= 36,
000-(5000x5)
= 36,
000-25,000
= 11,
000uni
ts

c)Maxi
mum st
ockl
evel = Mi
n:SL +RQ +(Mi
n:Cx
Mi
n:RP)

= 11,
000 +30,000 +(4,000x4)
= 11,
000 + 30,
000 + 16,
000
= 57,
000uni
ts

d)Av
eragest
ockl
evel =

= 34,
000uni
ts
Wor
kings

NC =
= 5,
000uni
ts

NRP =
= 5weeks
EXAMPLE2.

Fr
om t
hef
oll
owi
ngi
nfor
mat
ion,
findoutt
her
e-or
derquant
it
y:-

Mi
nimum consumpt i
on = 2,
000uni
tsperweek
Mi
nimum re-or
derperi
od = 4weeks
Mi
nimum stocklev
el = 3,
000uni
ts

St
anl
eyt
hoi
thikagwi
Page178
 Maxi
mum st
ockl
evel = 12,
000uni
ts
Answer

Re-
orderquant
it
y = Max:SL-Mi
n:SL -(
Min:
C xMi
n:RP)

= 12,
000 -3,
000 -(
2,000 x 4)

= 12,
000 -3,
000 -8,
000

= 1,
000uni
ts

EXAMPLE3.

Deter
minemaximum andorder
inglev
elofdetergentAf
rom t
hef
oll
owi
ng
i
nformati maxi
on.( mum st
ocklevel&re-
orderlevel
)

Averagedail
yrequir
ements (
NC) = 600lit
res
Dail
yweeklyrequir
ement(Max)(Max:C)
= 800l
it
res
Dail
yweeklyrequir
ement(Min)(Mi
n:C)= 400l
it
res
Ti
met ogetf
reshsuppl
ies(Leadti
me) = 2 -6day s
Orderi
ngquantit
y = 1,
000li
tres
(
7mar
ks)
Answer
a)Re-
orderl
evel = Max
:C xMax:
RP

= 800x6
= 4,
800l
i
tres

Mi
nimum st
ockl
evel = RL-(NC xNRP)

= 4,
800-(600x4)
= 4,
800-2,400
= 2,
400l
i
tres

b)Maxi
mum st
ockl
evel = Mi
n:SL +RQ +(Mi
n:Cx
Mi
n:RP)

= 2,
400 +1,000 +(400x2)
= 2,
400 +1,000 +800
= 4,
200l
it
res

EXAMPLE4.

Thef
oll
owi
ngi
nfor
mat
ionwasobt
ainedf
rom t
hebooksofkamau’
sfoodcour
t:
-

Consumptionperweek: Mini
mum = 600uni
ts
Normal = 800uni
ts
Maximum = 1,
200unit
s
Re-
orderperi
od: Mini
mum = 2weeks

St
anl
eyt
hoi
thikagwi
Page179
 Nor
mal = 3weeks
Maxi
mum = 5weeks
Re-orderquanti
ty: = 5,
000uni
ts
Requi
redt
ocal
culate:
-
a)Re-orderl
evel
b)Minimum stocklevel
c)Maximum st ocklevel
Answer

a)Re-
orderl
evel = Max
:C xMax:
RP

= 1,
200x5
= 6,
000uni
ts

b)Mi
nimum st
ockl
evel = RL-(NC xNRP)

= 6,
000-(800x3)
= 6,
000-2,400
= 3,
600uni
ts

c)Maxi
mum st
ockl
evel = Mi
n:SL +RQ +(Mi
n:Cx
Mi
n:RP)

= 3,
600 +5,000 +(600x2)
= 3,
600 +5,000 +1,
200
= 9,
800uni
ts

ECONOMI
CORDERQUANTI
TY

Thi
sisthequant
it
yatwhicht
hecostofhav
ingst
ocksi
smi
nimum.Thecostof
hav
ingstocki
sbrokendowni
nto:
-

a)Hol
dingcost
swhi
chcompr
ises:
-

i
.Costofcapi
tal
tiedup

i
i
.War
ehousi
ng

i
i
i.Det
eri
orat
ion

i
v.Obsol
escence

v
.insur
ance

b)Or
der
ingcost
swhi
chcompr
ises:
-

i
.Cl
eri
cal
cost
s

i
i
.Tel
ephonechar
ges

Assumpt
ionsofeconomi
cor
derquant
it
y

St
anl
eyt
hoi
thikagwi
Page180
 i
. Theorderingcostisconstant.
i
i
.Ther ateofdemandi sknown,andspreadev enlyt
hroughouttheyear.
i
i
i.Theleadtimei sfi
xed.
i
v.Thepurchasepr i
ceoft heit
em isconstanti
.e.nodiscountisavai
labl
e
v
.Ther eplenishmentismadei nst
antaneously
, t
hewhol ebatchisdeli
ver
edat
once.
v
i.Onlyonepr oducti
sinvolved.

TheE.O.
Qcalcul
ati
oni
sausef
ulst
art
ingpoi
nti
nest
abl
i
shi
nganappr
opr
iat
ere-
or
derquant
it
y.

TheE.
O.Qf
ormul
aisgi
venas:
-

Economi
cOr
derQuant
it
y(E.
O.Q)=

Wher
e:-

c - Del
i
ver
ycostperbat
ch/or
der
ingcostperor
der/costof
pl
aci
ng

andr
ecei
vi
nganor
der

d - Annual
demandf
orpr
oduct/Demandperannum

p - Costpr
iceperi
tem /uni
tcost

i - Stockholdi
ngcostperannum /car
ryi
ngcostper
annum.(
expressed

asaf
ract
ionofst
ockv
alue)

EXAMPLE1.

Acompanyhasanannual demandformat
eri
al‘P’
of25,000t
onsperannum.The
costpr
icepertonisSh.2,
000andst
ockhol
dingcosti
s25%perannum ofthe
stockv
alue.Deli
ver
ycostperbat
chi
sSh.400.

Cal
cul
atet
heeconomi
cor
derquant
it
y.

Sol
uti
on

Economi
cOr
derQuant
it
y(E.
O.Q)=

= 200uni
ts

St
anl
eyt
hoi
thikagwi
Page181
EXAMPLE2.

Fi
ndt heE.
O.Qwherethefor
ecasteddemandi s1000uni
tspermonth,t
heorder
ing
costi
sSh.350perorder,
theunitcostSh.8eachanditi
sesti
matedthatcar
ryi
ng
costare15%perannum.

Sol
uti
on

Her
e c - sh.350
d - sh.1000x12 = 12,
000uni
tsperannum
i - 15%
p - sh.8
t
hus;
-

E.
O.Q =

= 2645.
75uni
ts

= 2646uni
ts

EXAMPLE3.

Hotelgl
obalpur
chasegarbagebagsatKsh.15.
00perdozen.Theannualusagei
s
800dozens.Thecostofplaci
nganorderi
sKsh.100.00.Thecostofcar
ryi
ngone
dozenforoneyeari
sKsh.4.00.Cal
cul
atetheE.O.
Q.

Sol
uti
on

Her
e c - sh.100
d - 800
i - sh.4
p - sh.15
t
hus;
- E.
O.Q =

= 52uni
ts

EXAMPLE4.

Ther ateofuseofflourf
rom st
oresis20bagspery
ear.Thecostofpl
aci
ngand
recei
v i
nganor deri
sKsh40.ThecostofeachbagisKsh.100.Thecostof
carry
ingani nv
entoryperyeari
s0.16anditwi
ll
dependonthestock.

St
anl
eyt
hoi
thikagwi
Page182
Sol
uti
on

Her
e c - sh.40
d - 20bags
i - 0.16
p - sh.100
t
hus;
- E.
O.Q =

= 10uni
ts

NOTE:- from aboveinfor

mati
onwecansti
l
lfi
ndeconomi
cor
derquant
it
yby
useoftabul
arordiagram orgr
aphmethods.

Fort
hispur
pose,
wehav
etocal
cul
ate:
-

i
. Numberofdel
i
ver
ies

i
i
. St
ockhol
dingcost

i
i
i. Tot
alcost

Numberofdel
i
ver
ies

Thi
smeanshowmanyt
imes,
stocksar
epur
chaseddur
ingt
hewhol
eyear
.Thi
sis
gi
vebyt
hefor
mul
a:-

Numberofdel
i
ver
ies =

Exampl
e:- annualdemand 25000t
ons
Batchsize 200uni
ts

Ther
efor
e,Numberofdel
i
ver
ies =

= = 125del
i
ver
ies

NOTE:- numberofdel
iveri
esi
stakenasawhol
enumber.Ther
efor
eany
numberofdel
iver
yisi
npointformi
sroundedt
onextwhol
enumber.

Numberofdel
i
ver
iescanbeusedt
ocal
cul
atet
hedel
i
ver
ycost
.

Thatis, Del
i
ver
ycost = Numberofdel
i
ver
ies x Del
i
ver
ycostper
batch

St
ockhol
dingcost

St
anl
eyt
hoi
thikagwi
Page183
I
tist
akenasaspeci
fi
cper
cent
ageoft
hev
alueofav
eragest
ockwher
e;-

Val
ueofav
eragest
ock = av
eragest
ock x costpr
iceperuni
t(p)
and

Av
eragest
ock =

Example:-
If200uni
tsar
epur
chasedatonet
ime,
onav er
age100uni
ts(i
.e
averagestock = = =100)wi llr
emai
ninstockandval
ueofst
ockwil
lbe
20,000

(
i.
e Val
ueofav
eragest
ock = Av
eragest
ock x costpr
iceperuni
t(p)

= 100 x 2000

= 200,
000/
=

Thest
ockhol
dingcostwi
l
lbe25%ofv
alueofav
eragest
ock

e.
g x200,
000 = 50,
000/
=

Tot
alcost

Thi
sist
hesum ofst
ockhol
dingcostandor
der
ingcost
.

Tabul
ati
onmet
hod

Wer
equi
re:
-

i
. Annual
demand/usage(
d)

i
i
. Del
i
ver
ycostperbat
ch/or
der
ingcostperor
der(
c)

i
i
i. Costpr
iceperi
tem (
p)

i
v. St
ockhol
dingcost(
car
ryi
ngcost
)

Exampl
e.

Acompanyhasanannual demandformat
eri
al‘P’
of25,000t
onsperannum.The
costpr
icepertonisSh.2,
000andst
ockhol
dingcosti
s25%perannum ofthe
stockv
alue.Deli
ver
ycostperbat
chi
sSh.400.

Cal
culat
etheeconomi
cor
derquant
it
yofmat
eri
al‘
p’pur
chasedusi
ngt
abul
ar
method.
.

Sol
uti
on E.
O.Q(Bat
chsi
ze)=

St
anl
eyt
hoi
thikagwi
Page184
 =

= 200uni
ts

del
i
ver
Batch No.Of Av er
age Valueof Stock y t
otal
size del
iv
eri
e St
ock Average holdi
ng
(Q) s Q/2 st
ock cost Cost cost
SH. SH. SH. SH.
100,00 125,
00
100 250 50 100,
000 25,
000 0 0
104,
30
150 167 75 150,
000 37,
500 66,800 0
100,
00
200 125 100 200,
000 50,
000 50,000 0
102,
50
250 100 125 250,
000 62,
500 40,000 0
108,
60
300 84 150 300,
000 75,
000 33,600 0

Wor
kings.

Numberofdel
i
ver
ies = = =125del
i
ver
ies

Av
eragest
ock = = =100uni
ts

Valueofav
eragest
ock = Av
eragest
ock x costpr
iceperuni
t(p)= 100 x
2000

= 200,
000/
=

St
ockhol
dingcost= 25%ofv
alueofav
eragest
ock =25% of200,
000

= 50,
000/
=

Del
i
ver
ycost = Numberofdel
i
ver
ies x Del
i
ver
ycostperbat
ch

= 125 x 400 = 50,

000/
=

Tot
alcost = St
ockhol
dingcost+Del
i
ver
ycost

Tot
alcostof200uni
tsbat
chsi
zei
sSh.100,
000whi
chi
smi
nimum.

GRAPHI
CMETHOD

Usi
ngt
hesameexampl
easi
ntabul
armet
hodpl
otcostagai
nstuni
ts

St
anl
eyt
hoi
thikagwi
Page185
Todr
awupt
hiswer
equi
ret
hef
oll
owi
ngcur
ves:
-

i
. Tot
alcost

i
i
. Del
i
ver
ycost

i
i
i. St
ockhol
dingcost
s

I
nthegraphbel
owwecansee,
totalcosti
slowestagai
nst200uni
tsbat
chsi
zeso
t
hisquant
it
yist
heeconomi
cquanti
ty.

Exampl
e

HotelGl
obalpurchasegar
bagebagsatKsh15.
00perdozen.Theannualusagei
s
800dozens.Thecostofplaci
nganorderi
sKsh100.
00.Thecostofcarr
yingone
dozenforoneyearisKsh.
4.00

c = 100/
=

p = 15/
=

d = 800

i = 4/
=

St
anl
eyt
hoi
thikagwi
Page186
Batch No.Of Av er
age Val ueof Stock del
i
ver
y t
otal
size del
i
ver
ie St
ock Average holding
(Q) s Q/2 st
ock cost cost cost
SH. SH. SH. SH.
13 62 6.5 98 390 6,200 6, 590
26 31 13 195 780 3,100 3, 880
39 21 19.5 293 1,170 2,100 3, 270
52 16 26 390 1,560 1,600 3, 160
65 13 32.5 488 1,950 1,300 3, 250
78 11 39 585 2,340 1,100 3, 440
91 9 45.5 683 2,730 900 3,630

Numberofdel
i
ver
ies = = =15del
i
ver
ies

Val
ueofav
eragest
ock = Av
eragest
ock x costpr
iceperuni
t(p)15

St
ockhol
dingcost= car
ryi
ngcost(
4)xv
alueofav
eragest
ock

Del
i
ver
ycost = Numberofdel
i
ver
ies x Del
i
ver
ycostperbat
ch

I
SSUI
NG

 Thepr
ocessofi
ssui
ngi
sacr
it
ical
cont
rol
poi
nt.

 Theissuemustbedoneaccur
atel
yasi
trepr
esent
sthef
utur
efood
cost
s.

 Befor
eani ssuei
smadether
ear
esomepr
ocedur
esandpr
act
icest
hat
thest
orekeepermustf
oll
ow:
-

i
. Eachti
meinthestoremusthav
eabi
ncar
dment
ioni
ngar
ri
val
s,i
ssues
andbal
ancestock.

i
i
. Eachit
em musthav
eparst
ockst
oensur
epr
opersuppl
ytot
he
oper
ati
on

Parst
ock -ar
ethemi
nimum quant
it
yinst
ockbef
orer
e-or
der
ingt
akes
pl
ace.

i
i
i. St
orekeepermustknowt
hel
eadt
imef
ort
hesuppl
yofeachi
tem.

Leadt
ime -t
imetakenbysuppl
i
ert
osuppl
ypr
oduct
sfr
om t
het
imet
hey
ar
eordered

i
v. Thestor
ekeeperisr
esponsibl
efortheinvent
orycost
sandmustensur
e
tokeeptheopti
mum requi
redforoperati
onsandnotover
-st
ocki
tem.

St
anl
eyt
hoi
thikagwi
Page187
 v
. Thestor
ekeepermustr
efuseear
lydel
iver
iesf
rom suppl
i
erst
oav
oid
gl
utsofhisst
orewit
hexcessinv
entor
y.

v
i. Mustkeepami
nimum r
angeofi
tems.

v
ii
. Hav
esepar
atest
oref
orbev
erages

v
ii
i. Bever
agestor
ekeepermustbequal
i
fiedi
.et
hor
oughknowl
edgeofal
l
bev
erages.

 It
emsareissuedtodepart
mentatsett
imesi
nthedayagainstarequisi
ti
on
si
gnedbyanaut hor
isedper
sone.
gheadbarman,headchef,rest
aurant
manageretc.

 Largerequi
sit
ionsarehandedint
hedaybef
oret
oal
l
owt
hest
orekeeper
ti
met ocoll
ectthem t
ogether
.

 Suppl
ementaryi
ssuescanbeobtai
neddur
ingnormal
hour
sbutshoul
dbe
di
scouragedast
heypreventst
oremanorcel
larmanfr
om doi
ngwork
off
ici
all
y.

 Bev
eragesar
eissuedsamewayasf
oodi
temswi
thf
oll
owi
ngmodi
fi
cat
ions:
-

i
. Mai
ntai
nbarparst
ock

i
i
. I
ssuebott
lesstr
ictl
yagai
nstconsumpti
onwhi
chmeanst
hatthe
bev
eragestor
ekeeperhastoaccountf
orempt
ybot
tl
esagai
nst
whi
chheissuesf i
l
ledones.

i
i
i. Bev
eragei
ssuesar
emadeonceaday

i
v. Al
lbot
tl
esar
est
ampedt
oident
if
ythem asbel
ongi
ngt
othepr
oper
ty.

v
. Keysofthebever
agestor
eaft
erhour
sar
ekeptwit
hthef
ront
-of
fi
ce
cashi
erandaccessedonl
ybythedut
ymanager
.

METHODSOFVALUI
NGMATERI
ALI
SSUE(
pri
cingofst
orei
ssues)

 Thedif
fi
cul t
yinstockv al
uat
ionisi
nfindi
ngoutt hecostpriceofstock–
thi
sisnoteasywhenquant i
ti
esofapar t
icularstockit
em ar econti
nual
ly
bei
ngboughti n–of tenatdi
ffer
entpr
ices–andt hensold.Some
companieshav estockinanumberofdi f
ferentf orms,egamanuf actur
er
maywell havestocksofrawmat er
ial
s,wor k-i
n-progr
essandf ini
shed
goods.

St
anl
eyt
hoi
thikagwi
Page188
  Whenmateri
alsar
eissuedbythestor
ekeeper,t
heyar
eval
uedi
nor
dert
o
det
ermi
nethemateri
alcostofdi
ff
erentproduct
s.

 Pri
cingofallstor
esissuesi soneofthemostimport
antaspectsinv
olvedin
pri
cingofdishesorfixingli
quorsell
i
ng.Thepri
cesofissueswil
ldependon
thetypeoffoods.Perishablefoodsaret
ransf
err
eddir
ectlytot
hekitchen
wil
lbepricedatthecostpr i
ce.

 Non-
peri
shabl
emayhav
ebeenhel
dint
hest
oresf
orsomet
imedur
ing
whi
chthe

pr
iceshaschangedorthei
rmaybest
ockhel
dinsamebi
natt
woormor
e
di
ffer
entpur
chasepri
ces.

 Ther
ear
esev
eral
met
hodsofv
alui
ngmat
eri
ali
ssuesnamel
y:
-

i
. Fi
rsti
n,f
ir
stout(
FIFO)

i
i
. Lasti
n,f
ir
stout(
LIFO)

i
i
i. Si
mpl
eav
erage

i
v. Wei
ght
edav
erage

v
. St
andar
dpr
ice

Thefol
lowingt
ransact
ionsar
erecor
dedi
nthest
oresl
edgercar
dsundereach
method:-

EXAMPLE

May2, Received500unit
satSh.20each
May8, Received300unit
satSh.22each
May10, Issued400unit
s
May15, Issued200unit
s
May20, Received600unit
satSh.25each
May25, Issued300unit
s
May27, Received200unit
satSh.26each
May30, Issued100unit
s

St
andar
dpr
icef
oreachuni
tfort
hemont
hisSh.24

Fi
rsti
n,Fi
rstout(
FIFO)

 I
nt hismethod,thefi
rst(
oldest
)stocksacqui
redareassumedt
obeused
fi
rst.Thi
smeanst hatthestockonhandatanyt i
meisassumedtoconsi
st
ofthemostr ecentl
yacquir
editems.

 Thi
smet
hodi
susedf
ori
temsofst
ockwhi
char
esubj
ectt
opr
ice

St
anl
eyt
hoi
thikagwi
Page189
 f
luct
uat
ion.

 Issuesaremadefr
om i
temswhichcameintothest
oresf
ir
standpri
cedat
theirval
uewhenr
ecei
vedi.
emateri
alsar
eissuedatt
hecostpri
ceofthat
consignmentwhi
chwasrecei
vedfi
rst
.

 Whenthi
sconsignmenti
sfi
nishedt hencostpr
iceofnextconsi
gnmenti
s
char
gedtoval
uet hemat
eri
alsissues.

Adv
ant
ages
i
.I tisreali
sti
c,iei tassumesthatgoodsarei
ssuedinorderofrecei
pt
i
i.Itiseasyt ocal culat
e
i
ii
.St ockv al
uationcompr i
sestheact
ualcost
satwhichitemshav ebeen
bought
i
v.Thecl osingst ockv al
uati
oniscl
osetothemostrecentcosts
v.Accept ablefort axpurposes

Di
sadv
antages
i. Cost satwhichgoodsar eissuedarenotnecessaril
ythelatestpr
ices,
so
costofsal esmaynotr epr
esentcurrentpri
ces
ii
.I ntimesofr i
singpr
ices,profi
tsarehighert
hanwi thothermethods
(resulti
nginmoretaxtopay )
ii
i.Themet hodiscumbersomeast heli
stofdiff
erentcostsmustbe
mai ntai
ned

 Thetr
ansactionsgiv
eni
nexampl
e1ar
erecor
dedunderFI
FOmet
hodi
na
st
oresledgercard

Dat
e Recei
pt Issues Bal
ances
Pric
QTY e Value QTY Price Val
ue QTY Val
ue
SH. SH. SH. SH. SH.
10,00
May2. 500 20 0 500 10,
000
May8. 300 22 6, 600 800 16,
600
May
10. 400 20 8,
000 400 8,
600
May 100x
15. 200 20 2,
000 300 6,
600
100x
22 2,
200 200 4,
400
May 15,00
20. 600 25 0 800 19,
400
May 200x
25. 300 22 4,
400 600 15,
000
100x
25 2,
500 500 12,
500

St
anl
eyt
hoi
thikagwi
Page190
 May
27. 200 26 5,
200 700 17,
700
May
30. 100 25 2,
500 600 15,
200

Lasti
n,Fi
rstout(
LIFO)

Thismethodisagainusedf orstockswhi charesubj

ecttopr
icefl
uctuati
on.
Alt
houghitem ar
eissuedinanor malstockrotat
ionsyst
em.(i.
ethestockwhich
hasbeeninthestorelongestwi l
lbeissuedfir
standthepri
cingoftheissuewil
l
al
waysbeatt hecurrentmar ketpri
ce)

Dat
e Recei
pt Issues Bal
ances
Pric
QTY e Value QTY Pri
ce Val
ue QTY Val
ue
SH. SH. SH. SH. SH.
10,00
May2. 500 20 0 500 10,
000
May8. 300 22 6, 600 800 16,
600
May 300x
10. 400 22 6,
600 500 10,
000
100x
20 2,
000 400 8,
000
May
15. 200 20 4,
000 200 4,
000
May 15,00
20. 600 25 0 800 19,
000
May
25. 300 25 7,
500 500 11,
500
May
27. 200 26 5, 200 700 16,
700
May
30. 100 26 2,
600 600 14,
100

Si
mpl
eav
erage

Theaveragepr
iceiscal
culat
edforthest
ockaftereachpurchase,
ift
hepricehas
changed(i.
ewhenthefi
rstconsi
gnmentisexhaustedthenthepri
ceofthat
consi
gnmentiseli
minat
edandsi mpleav
erageofreami ngpri
cesi
scalcul
atedand
soon)

Thesi
mpl
eav
erageatmay10and15 = =21

May25 = =23.
50

St
anl
eyt
hoi
thikagwi
Page191
 May30 = =25.
50

Dat
e Recei
pt I
ssues Bal
ances
Pric
QTY e Value QTY Pr
ice Val
ue QTY Val
ue
SH. SH. SH. SH. SH.
10,00
May2. 500 20 0 500 10,
000
May8. 300 22 6, 600 800 16,
600
May
10. 400 21 8,
400 400 8,
200
May
15. 200 21 4,
200 200 4,
000
May 15,00
20. 600 25 0 800 19,
000
May
25. 300 23.5 7,
050 500 11,
950
May
27. 200 26 5, 200 700 17,
150
May
30. 100 25.5 2,
550 600 14,
600

Wei
ght
edav
erage

 Wei
ght
edav
eragemeanswei
ght
edav
eragepr
ice

 Thetot
alval
ueofgoodsi
nstockisdi
vi
dedbyt
henumberofuni
tsofst
ock.
Thi
sresul
tstot
heweight
edaveragepr
ice.

 Thi
smet hodi
ssi
mpl
eandl
ogi
cal
buti
tisnotcl
oset
ocur
rentv
alueof
goods.

 Undert
hismet
hodal
sopr
ofi
tsorl
ossmayar
iseont
hemat
eri
alsi
ssued.

Adv
antages
i. ov eranumberofaccount i
ngperiodsreport
edprofi
tsaresmoot hed,i
eboth
highandl owpr ofitsareavoided
ii
.f l
uct uati
onsi npur chasecost sareevenedoutsothatissuesperunitdonot
var ygreatly
ii
i.logi cal
,ieitassumest hatidenti
caluni
ts,whenpurchasedatdif
f er
ent
ti
mes, havet hesamev alue
iv.closingst ockv aluati
onisclosetocur r
entmarketvalues(int
imesofr i
sing
prices,itwillbebel owcur r
entmar ketval
ues)
v.t hecal culati
onscanbecomput erisedmoreeasil
ythant heot
hermet hods
vi.accept ablefort axpurposes

Di
sadvant
ages
i. anewweight
edav
eragehast
obecal
cul
atedaf
tereachr
ecei
pt,
and

St
anl
eyt
hoi
thikagwi
Page192
 cal
cul
ati
onsmaybet oseveraldeci
malplaces
i
i
.becausetheyareav er
aged,issuesandstockval
uat
ionareusual
lyatcost
s
whi
chneverexisted
i
i
i.i
ssuesmaynotbeatcur rentcostsand,i
ntimesofri
singpr
ices,
will
be
bel
owcurrentcosts

 Thef
ormul
aforwei
ght
edav
eragepr
icei
s:

Wei
ght
edav
erage =

May10 = =20.
75/
=

May15 = =20.
75/
=

May25 = =23.
94/
=

May30 = =24.
53/
=

 Thet
ransact
ioni
srecor
dedasf
oll
ows:
-

Dat
e Recei
pt Issues Bal
ances
Pric
QTY e Value QTY Pri
ce Val
ue QTY Val
ue
SH. SH. SH. SH. SH.
10,00
May2. 500 20 0 500 10,
000
May8. 300 22 6, 600 800 16,
600
May
10. 400 20.75 8,
300 400 8,
300
May
15. 200 20.75 4,
150 200 4,
150
May 15,00
20. 600 25 0 800 19,
150
May
25. 300 23.94 7,
181 500 11,
969
May
27. 200 26 5, 200 700 17,
169
May
30. 100 24.53 2,
453 600 14,
716

St
andar
dpr
ice

 Thi
smeanspr
e-det
ermi
nedpr
ice.

 Thi
spr
icei
sascer
tai
nedt
aki
ngi
ntoconsi
der
ati
ononnumberoff
act
ors:
-

St
anl
eyt
hoi
thikagwi
Page193
 i
. Mat
eri
alsconsumpt
ioni
.et
her
ate

i
i
. Expect
edchangesi
nthepr
iceofmat
eri
als

 Al
lmat
eri
alsi
ssuesar
eval
uedatast
andar
dpr
ice

 Thi
smethodi
ssi
mpl
e,st
abl
eandpr
ovi
desacheckont
heef
fi
ciencyoft
he
est
abl
i
shment

 Thest
andar
dpr
icef
ort
heabov
eexampl
eisv
aluedat24/
=

Dat
e Recei
pt I
ssues Bal
ances
Pric
QTY e Value QTY Pr
ice Val
ue QTY Val
ue
SH. SH. SH. SH. SH.
10,00
May2. 500 20 0 500 10,
000
May8. 300 22 6, 600 800 16,
600
May
10. 400 24 9,
600 400 7,
000
May
15. 200 24 4,
800 200 2,
200
May 15,00
20. 600 25 0 800 17,
200
May
25. 300 24 7,
200 500 10,
000
May
27. 200 26 5, 200 700 15,
200
May
30. 100 24 2,
400 600 12,
800

Al
lthemat
eri
alsi
ssuedhav
ebeenv
aluedatSH.24peruni
twhi
chi
sthest
andar
d
pr
ice.

STORESRECORD

 Thi
srefer
stodocument
swhi
chgi
vei
nfor
mat
ionr
egar
dingt
hemov
ement
ofst
ock.

 Theyar
eal
soknownasst
ockr
ecor
ds

 Recor
dsdif
ferwithsi
zeofest
abl
i
shmenti
.el
argeandsmal
l
est
abl
ishments.

 Thedocument
sincl
udes:
-

STORESLEDGER

St
anl
eyt
hoi
thikagwi
Page194
  I
tissi
mil
art
ofi
nanci
all
edger
.

 I
tshowst
hequant
it
iesandmonet
aryv
aluesoft
hest
ocki
tems.

 Hast
hreemai
ncol
umnsnamel
y:
-

i
. Recei
ptcol
umn(
goodsr
ecei
vedi
.equant
it
y,pr
iceandv
alue)

i
i
. Issuescol
umn (goodsi
ssuedbyst
orekeeperi
.equant
it
y,pr
ice
andv al
ue)

i
i
i. Stockbalancei
nhand(
stockr
emai
ningi
nst
oresi
.equant
it
yand
valuesofgoods)

BI
NCARDS

 Thesearecar
dsprepar
ef oreachcommodit
yshowingthedescr
ipt
ionof
eachit
em,date,
quanti
tyofgoodsrecei
ved,
quant
it
yissuedandbalance
remai
ning.

 I
tal
soshowsthemini
mum st
ocklevel
softhecommodi
tyi
nor
dert
o
f
aci
li
tat
etheor
der
ingoff
urt
hersuppli
es.

 Thecardsar
eusual
l
yfi
xedt
oashel
f,r
ackorbi
nagai
nsteachi
tem orsmal
l
boxfi
l
e.

STOCKCARD

 Ar
ecar
dskepti
nal
oosel
eafhol
derorat
rayf
il
einst
oresorcel
l
ar.

 Acardiskeptforeachitem andcontainsal
li
nfor
mationonabincar
dand
detai
l
softhere-order
ingquanti
tyforthecommodityplusi
ndi
cati
onsto
drawatt
enti
ont ol
owl evel
s.

 Stockcardsandbincardsshouldbeupdateddai
l
yandf
orper
iodi
cchecks
ton=bemadet hatthebalanceonthecar
dagreeswi
tht
heact
ualquant
ity
oftheit
em heldi
nst or
esorcell
ar.

PERPETUALI
NVENTORYRECORDS

 Thi
smeanstheuseofarecordcardforeachi
tem ofst
ockt
hatshowst
he
bal
ancei
nhandaft
ereachtransact
ion.

 I
nthi
s,al
lquanti
ti
esofcommodi
ti
esr
ecei
vedandi
ssuedar
erecor
dedon
t
heappropr
iat
edate.

 Whenproperl
ymaint
ained,
iti
spossi
blet
ocheckandr
ecor
dforanyi
tems
anddet
erminewhati
sathand.

St
anl
eyt
hoi
thikagwi
Page195
  I
nvent
orycar
dorrecordprov
idest
hebookv
alueofi
temsf
orcompar
ison
wi
thphysi
calst
ocktake.

TRANSFERNOTES

 Anint
ernal
form ofrequisi
ti
onusedwhenadepar tmentrequisi
ti
ons
somethi
ngfrom anotherdepar
tmentot herthant
hestoresandcel l
are.
g
di
spensebarmaymakeat r
ansfernotetothekit
chenorkitchento
di
spensebarforit
emsl i
kebrandy,winesetc.

 Anydepar
tmentwhi
chsel
l
sori
ssuesanyi
tem shoul
dbecr
edi
tedf
ort
he
i
tems.

 Transf
ernotesandrequisit
ionfor
m actasi
nter
nal
invoi
cesandaresentt
o
thecontr
oll
erattheendoft hedaytobeent
eredonthedai
lyi
ssuessheet
whichwouldsummar isethetotal
amountsofit
emsused.

BREAKAGESANDDAMAGEDGOODSBOOK

 Usedt
orecor
danybr
okeni
temsorgoods,
dent
edcans,
foodsl
eakedaway
et
c.

 Thebookr
ecor
ds:
-

i
. Thedat
e

i
i
. Descr
ipt
ionofi
tem

i
i
i. Wher
epur
chasedf
rom

i
v. Thev
alue

v
. Si
gnat
ureofpur
chasi
ngof
fi
cerwhov
eri
fi
est
hedamagedgoods

v
i. Theact
iont
aken

 Thepurposeoft
hebooki
stor
est
ri
ctunex
plai
neddi
ff
erencei
nact
ual
stock
andthe

bookstockandt
omakest orekeeper
sawar
ethatmanagementi
s
concer
nedatanylossofgoods.

 I
temsr
ecor
dedi
nthi
sbookar
eof
fi
cial
l
ywr
it
tenof
f.

NOTE:-Inlar
geest
abl
i
shment
sther
eshoul
dbesepar
atebookf
orf
oodand
bev
erages.

CELLARSTOCKRECORDS

CELLARI
NWARDBOOK

St
anl
eyt
hoi
thikagwi
Page196
I
tprov
idesaccurat
eref
erencet
oallbev
eragescomi
ngi
ntot
hecel
l
ar,
andpost
s
dat
aforthecel
larman’
sbuncard.

BI
NCARD

 Thesear
eprovi
dedforeachindi
vi
dual
typeofbev
eragehel
dinst
ockand
recor
dsal
ldel
i
veri
esandissuesmade.

 Thecar
dsar
efi
xedont
heshel
vesorr
acksagai
nsteachbev
erage.

CELLARCONTROLBOOK

Thispr
ovidesarecor
dofal
ldai
l
ydeli
veri
est
othecel
l
arandt
hedai
l
yissuesof
eachbeveragef
rom t
hecel
l
artovar
iousbar
s.

BEVERAGESPERPETUALI
NVENTORYLEDGER

 Thi
sisamast
erl
edgerpr
epar
edandhel
dint
hecont
rol
oraccount
sof
fi
ce.

Itconsi
stsofcar
dspreparedforeachindivi
dualbev
er agehel
dinthest
ockor
cell
arroom andusedtorecor
dfulldetail
softhemov ementinandoutoft
hecel
l
ar,
thebalanceofst
ockinhandandi t
sv alue.

 Thi
sinfor
mat i
onisobtainedfr
om thesuppl
ier
s’del
i
verynotesorinv
oices
andthedail
ybeveragerequisi
ti
onnotesfr
om thedi
ffer
entbars.

EMPTI
ESRETURNBOOK

 Manyofthecontainersofbever
agessuchascr ates,kegs,beebott
les,
sodabott
les,waterbott
lese.
t.
car echargedbythesupplieragai
nsta
del
iver
y,t
herefor
e,str
ictcont
rolshouldbemaintainedont hesei
tems.

 Arecor
diskeptwhentheyar
eret
urnedt
othesuppl
i
ersandt
hecor
rect
cr
edi
tnotei
sobtai
ned.

ULLAGESANDBRAEKAGEBOOK

Ull
age-term usedtocoverallsubst
andardbever
agessuchasbottl
esofweeping
wines,bot
tl
esofwineswi thf
aul t
ycorks,
unfi
tbarr
elsofbeere.
t.
cwhichshoul
dbe
ret
urnedtosuppli
ersforrepl
acement.

 Anyull
agesandbreakagesshoul
dberecor
dedonastandar
dformtoget
her
wit
hanexplanat
ion,andcount
ersi
gnedbyamemberofthefoodand
bever
agemanagementdepar t
ment.

 Breakagesofbot
tl
edbev
eragesusual
l
yoccurbymi
shandl
i
ngbycel
l
arand
barstaff
.

St
anl
eyt
hoi
thikagwi
Page197
LI
QUORRETURNS

 Thestoremanwil
li
ssueali
quorstockaccordi
ngt
othecustomer
’s
requi
rement
s,r
ecor
dingt
hedetai
lsontheissueonabarconsumpti
on
sheet
.

 Whent hebarisclosedthestockwil
lber et
urnedtothestore,
detai
lsofal
l
ret
urnswill
ber ecordedonthebarconsumpt ionsheetandtheamountof
l
iquorconsumedi scalcul
atedbysubtracti
ngt her
etur
nsfrom thei
ssues
andpricedatcostpr i
ceandsell
ingpr
ice.

 Thereasonf
ort
wopri
cesisthatthecel
l
arst
ockisvaluedatcostpri
ceand
thatt
hecust
omermustbechargedfort
heli
quorconsumedatselli
ngpri
ce.

Ret
urnspr
ocedur
es

 I
tisi
mport
anttoestabl
ishar
etur
nspr
ocedur
eforunusedmat
eri
als,
for
t
hreemai
npurposes:-

i
. Topr
eventt
hedet
eri
orat
ionofmat
eri
als.

i
i
. Toel
i
minat
ether
iskofunusedmat
eri
alsconsumed.

i
i
i. Tocal
cul
atet
het
ruecostofmat
eri
alsconsumed.

 Allretur
nsshoul
dbecreditedtot
hedepar
tmentconcer
nedandst
ores
recordsadj
ustedaccor
dingly
.

 Departmental
ret
urnsform shoul
dbecomplet
edbythestor
esmanin
dupli
cate,
onecopyforthestoresrecor
dandt
heotherf
orthedepar
tment
ret
urni
nggoods.

REVI
SIONQUESTI
ONS

1.St
atef
ourobj
ect
ivesofst
ockcont
rol
inl
argecat
eri
ngest
abl
i
shment
.

St
anl
eyt
hoi
thikagwi
Page198
 (
4mar
ks)

2.Highl
i
ghtfourpoi
ntst
oconsi
derwhendet
ermi
ningeconomi
cor
der
quant
ity
.

(
4mar
ks)

3.a) Di
sti
ngui
shbet
weenFI
FOandLI
FOmet
hodsofv
alui
ngst
ock.

(
4mar
ks)

b) Arecordoft
ransact
ionsi
nregar
dtor
icef
orAngel
Rest
aur
antwer
e
asfol
lows:
-

Januar
y10bought100kgsatKsh.
30each

Januar
y14bought100kgsatKsh.
34each

Januar
y19sol
d80kgs

Januar
y22bought200kgsatKsh.
40each

Januar
y28sol
d240kgs

Requi
red:

i
. Prepar
ethestor
esledgercardusi
ngLI
FOmet
hodand
deter
minecostofsal
esforthemonth.
(12marks)

i
i
. Gi
venthatt
hemonthlysal
eswereKsh.18,
000,
det
ermi
nethe
gr
ossprofi
tper
cent
ageforthemonth. (4
marks)

4.Expl
ainfouradv
ant
agesofaut
omat
edor
dert
aki
ngi
nahi
ghcl
ass
rest
aurant
.

(
8mar
ks)

5.St
atef
ourdi
sadv
ant
agesofcent
ral
stor
es.

(
4mar
ks)

6.Thefol
lowi
ngi
nfor
mat
ionwasobt
ainedf
rom t
hebooksofFai
thNancy
cat
erer
s

Consumpt
ionperweek - Mi
nimum 400buns

St
anl
eyt
hoi
thikagwi
Page199
 - Maxi
mum 1300buns

- Nor
mal
700buns

Leadt
ime - Nor
mal
4weeks

- Mi
nimum 3weeks

- Maxi
mum 6weeks

Re-
orderquant
it
y - 4000buns

Requi
red:
-

i
. Re-
orderl
evel (
2
marks)

i
i
. Mi
nimum st
ockl
evel (
4
mar
ks)

i
i
i. Maximum st
ockl
evel (
4
marks)

7.I
na28dayt radingperi
odthecostoffoodconsumedwasKsh.
9,800,
the
openingstockonday1wasKsh. 4,
500andtheclosi
ngst
ockonday28was
Ksh.2,
800.0calculat
ethestockt
urnover.
(5mar ks)

8.Expl
ainanyt
womet
hodsofv
alui
ngmat
eri
als.

(
9mar
ks)

9.Suggestf
ourqual
i
tiesofagoodf
oodst
ore.

(
4mar
ks)

10.
Dif
fer
ent
iat
ebet
weenper
iodi
candcont
inuousst
ockt
aki
ng.

(
4mar
ks)

11.
Expl
aint
hef
oll
owi
ngst
ore:
-

i
. Cent
ral
i
sedst
ores

i
i
. Decent
ral
i
sedst
ore

i
i
i. I
mpr
est

(
6mar
ks)

St
anl
eyt
hoi
thikagwi
Page200
 12.
Duringapar
ti
cul
armont
h,t
hepur
chasesandi
ssuesofacer
tai
nit
em of
foodstuf
fwer
easfol
l
ows:-

Week Pur
chases I
ssues

1 30i
tems@ Sh.
30 25i
tems

2 40i
tems@ Sh.
32 35i
tems

3 20i
tems@ Sh.
32 25i
tems

4 50i
tems@ Sh.
34 40i
tems

Cal
cul
atet
hemont
hlyv
alueoft
heconsumpt
ionusi
ngFI
FOmet
hods.
(13
mar
ks)

13.
Expl
ainhowt
ransf
erbet
weenbar
sisdone.

(
5mar
ks)

14.Ther at
eofuseoffl
ourfrom stor
esis20bagspery ear.Thecostofplaci
ng
andrecei
vi
nganorderisKsh.40.thecostofeachbagi sKsh100/=.The
costofcar
ryi
ngi
nventoryperyearis0.
16andi tdependsonthestock.

Det
ermi
ne:

i
. TheEconomi
cor
derquant
it
y (
7
marks)

i
i
. I
fleadti
mei
s3mont
hs,
cal
cul
atet
heor
derpoi
nt. (
3
marks)

15.
a) Whenwoul
ditbenecessar
ytot
ransf
erf
oodi
temsandbev
erages
wit
hina

cat
eri
ngoper
ati
on?

(
4mar
ks)

b) Descr
ibehowt
ransf
ersy
stem i
n(a)abov
e. (
6
mar
ks)

16.
Enumer
ateei
ghtr
esponsi
bil
i
tiesofast
orekeeper
.

(
8mar
ks)

17.
a) Ti gerr
est
aur
antpurchasedf oodwort
hKsh.7,
500.Thi
sfoodwas
consumedin28daytr
adingperiod.Theopeningst
ockonday1wasv al
ued
atKsh.
1,500whi
let
heclosingstockonday28wasv al
uedatKsh.
950.

St
anl
eyt
hoi
thikagwi
Page201
 Cal
cul
atet
her
ateofst
ockt
urnov
erf
ort
her
est
aur
ant
.(3mar
ks)

b) Statesixf
actor
swhi
chdet
ermi
net
hest
ockl
evel
sofacat
eri
ng
establ
ishment.

(
6mar
ks)

18.
Expl
ainful
lywhatyouunder
standbyt
hef
oll
owi
ngt
ermsusedi
n
connect
ionwit
hstockcontr
ol;
-

i
. Re-
orderl
evel

i
i
. Saf
etyst
ock

(
4mar
ks)

19.
Giv
efourreasonst
hatexpl
aint
hedi
ff
erencebet
weenbookbalanceand
physi
cal
balancewhichmayari
sei
nastock-t
aki
ngexer
cises.

(
4mar
ks)

20.
Expl
ainanyf
ivef
eat
uresofawel
lpl
annedst
ore.

(
10mar
ks)

21.
a) St
atet
hreepr
obl
emsofhav
ingal
owst
ockt
urn-
over
.

(
3mar
ks)

b) Def
inet
hef
oll
owi
ngt
erms;
-

 st
ockt
aki
ng

 st
ockhol
dingcost (
4mar
ks)

c) Expl
ainf
ivemeasuresthatcanbei
mpl ement
edt
omai
ntai
nthe
qual
it
yoffoodproduct
sdur i
ngst
orage.

(
10mar
ks)

22.
Prepar
eastockl
edgersheetusi
ngwei
ght
edAv
erageCostmet
hodt
o
recor
dthefol
l
owingtr
ansacti
on.
(12marks)

Apr
il2nd - Bal
ancebr
oughtf
orwar
dis1000uni
tsatShs.
25.
00per
uni
t

Apr
il5th - I
ssued400uni
ts

Apr
il7th - Recei
ved1000uni
tsatShs.27.
00peruni
t

St
anl
eyt
hoi
thikagwi
Page202
 Apr
il11th - I
ssued500uni
ts

Apr
il14th - I
ssued800uni
ts

Apr
il19th - Recei
ved1700uni
tsatShs.
30.
00peruni
t

Apr
il23rd - Recei
ved1000uni
tsatShs.
32.
00peruni
t

Apr
il25th - I
ssued600uni
ts

Apr
il27th - I
ssued700uni
ts

Apr
il29th - 900uni
ts

23.
Ident
if
yfourst
ockhol
dingcostcommont
oal
lbusi
nesses.

(
2mar
ks)

24.
Arest
aurantspentKsh.12,
000.
00onvegetablesi
nthemonthofApr
il
.The
st
openi
ngstockont he1 ofApri
lwasKsh.3,200.
00andthecl
osi
ngstockon
t
h
30 Apri
lwas20%oft hecostofveget
ables.

Requi
red:

Cal
culat
ether
ateofst
ockt
urnov
er. (
5
marks)

Ref
erences:
-
i
. KotasRi chardandDav i
sBer nard( 1986) ;
Foodandbev eragecont r
ol,
rd
Int
ernat i
onal textbookcompanyl td, (
3 edi ti
on)greatBritain.(pg81-100).
i
i
.Dav i
sB.Etal l(2004) ;FoodandBev er
agemanagement ,Butterwor t
h
Heinemann, (3rdedi ti
on)U. k.(pg105- 1..
* *
*).
i
i
i.Dav i
sBer nardandSt oneSal ly(1985) ;FoodandBev eragemanagement ,
st
HeinemannPr of essionalPubl i
shingLt d, (
1 edi t
ion)
,Oxfor dLondon.( pg
129-144) .
i
v.Saleemi AhmadNi sar(1990) ;Costaccount i
ngsimpl i
fi
ed, N.A.Saleemi
publi
sher s,Nai robi.(pg45- 70).
v
.Odger sPet er;Pur chasingcost i
ngandcont r
ol,St
anleyThor nespubl i
sher s
LTD, London.( pg22- 47,84-98).
v
i.SethiMohi ni (
2008) ;Insti
tuti
onal foodmanagement ,NewAgeI nter
national
publi
sher s.(pg335- 350) .
v
ii
.Ceser aniV.Etal l(2003);Thet heor yofcat eri
ng,Bookpower ,London.(pg
365-380)

St
anl
eyt
hoi
thikagwi
Page203
 v
ii
i.
BoardmanR.D(1986)
;Hot
el andcat
eri
ngcost
ingandbudget
s,Hei
nemann,
r
d
(3 edi
ti
on)London.(
pg46-56)
i
x.

PREPARATI
ON

 Pr
epar
ati
oni
sal
socal
l
ed‘
foodandbev
eragepr
oduct
ioncont
rol
’
.

 Therearefourmaj
orst
agesi
ncont
rol
l
ingandpr
epar
ati
onoff
oodand
beverage.

 Thesestagesareaimedatr
educingoverpr
oduct
ion(
wast e)
,lossof
i
nsuff
ici
entpurchasi
ngandprocessi
ngandlossf
rom excessi
v epor
ti
on
si
zes.

 Theoperati
onofthefourst
agesi
nafoodandbeveragecont
rol
system
havethefol
lowi
ngfuncti
on(st
agesar
epract
icedi
nfoodandbeverage
contr
olai
d):
-

i
. Ai
dmanagementi
ncont
rol
l
ingcost
sef
fi
cient
ly

St
anl
eyt
hoi
thikagwi
Page204
 i
i
.Hel
ptomaxi
misepr
ofi
tabi
l
ityoft
hebusi
ness

i
i
i.Assi
sti
nset
ti
ngt
hest
andar
dsf
ort
heest
abl
i
shment

i
v.Ensur
ingorachi
evi
ngcust
omersat
isf
act
ion

 Thef
ourst
agesar
e:-

i
. Vol
umef
orecast
ing

i
i
.St
andar
dyi
elds

i
i
i.St
andar
dreci
pes

i
v.St
andar
dpor
ti
onsi
zes

VOLUMEFORECASTI
NGS

 Thi
sisamethodofpredi
cting(
for
ecasti
ng)thevolumeofsal
esforan
est
abli
shmentf
oraspeci
fiedti
meperiod(f
uture)egaday,aweekora
month.

 Thesalesofest
ablishmentar
ebrokendownint
othesalesofeachsel
l
ing
out
letandthenbrokendownintothesal
espermai
nitems.

 Volumeforecast
ingisnotaperfectmethodofpr edi
cti
onhoweverwith
study
,appli
cati
onandt hecoll
ecti
onofanalysisofal
lsalesi
nfor
mation,a
hi
ghlevelofaccuracyofpredi
cti
onispossiblethushel
pingt
omi ni
mi set
he
commonpr oblem ofshort
ageorov er
producti
onofitems.

 Thi
smet
hodi soknownaspr
sal oduct
ionpl
anni
ng.

OBJECTI
VESOFVOLUMEFORECASTI
NG(
Aims)

i
. Topredi
ctthet
otalnumberofmeal
stobesoldi
neachsel
l
ing
out
letofanest
abli
shmentateachmeal
peri
od.

i
i
.Topr
edi
ctt
hechoi
ceofmenui
temsbycust
omer
s.

i
i
i.Tof
aci
l
itat
epur
chasi
ng.

i
v.Toensur
eav
ail
abi
l
ityofal
lnecessar
yingr
edi
ent
s.

v
.Toensur
etheappr
opr
iat
est
ockl
evel
sar
ehel
d.

v
i.Tof
aci
l
itat
efoodcostcont
rol
fort
heest
abl
i
shment
.

v
ii
.Toenabl
eacompari
sontobemadebet weenactualandpotenti
al
vol
umeofsal
esandforcor
rect
iveact
iontobetakenifnecessar
y.

NOTE:
-Ver
yfewoft
hisobj
ect
ivesar
eachi
evedi
nmanyest
abl
i
shment
sandt
his

St
anl
eyt
hoi
thikagwi
Page205
causesf
oodcost
stobehi
ghert
hannecessar
yandr
educespr
ofi
tmar
gins.

 Vol
umef
orecast
ingi
sdonei
ntwost
ages:
-

i
.Ini
ti
alf
orecast

i
i
.Fi
nal
for
ecast

I
nit
ialf
orecast

 I
nit
ial
for
ecasti
spr
epar
edaweeki
nadv
ance.

 I
tshows:
-

i
. Theesti
mat
edt
otal
numberofmeal
stobet
akeni
neachsel
l
ing
out
let
.

i
i
.Theesti
mat
edtot
alofeachmenui
temsf
oreachdayoft
he
f
oll
owi
ngmenuweek.

 Thef
inal
for
ecasti
sbasedon:
-

i
. Pastr
ecor
ds(
sal
eshi
stor
ies)

i
i
.Adv
ancebooki
ngs

i
i
i.Curr
entev ents(
whati
staki
ngpl
aceaspert
odat
ee.
gtr
ade
fai
r,exhi
biti
on)

i
v.Curr
enttrends(cur
rentconsi
derat
ionf
orcust
omer
sneeds,
thei
rfav
our i
temeals,ASPetc)

 Oncompl
eti
onoft
hei
nit
ial
for
ecastt
hef
oll
owi
ngt
akespl
ace:
-

a)Thepr
edi
ctedsal
esofeachmenui
tem ar
econv
ert
edi
ntoquant
it
ies
off
oodst
uffs.

 Thesequanti
ti
esareusedf
orwr
it
ingoutr
equi
sit
ionnot
est
ost
oresand
purchasi
ngdepar
tment.

b)Thepurchasi
ngof f
icerusesacopyoft heli
stt oget
herwit
h
requi
si
ti
onor dert
opl acepurchaseordert
akingi nt
oaccount
economicorderi
ngquant i
tyandav ai
l
ablestoragefaci
li
ti
es.

Fi
nalf
orecast

I
tismuchmor eaccur
atef
orecast.I
ttakespl
acet
hedaybef
oret
hepr
epar
ati
on
andser
viceofpar
ti
cul
armeal.Iti
nvolves:
-

St
anl
eyt
hoi
thikagwi
Page206
 i
. Thepr
evi
ousday
’sf
oodpr
oduct
ionandf
oodsal
esf
igur
e.

i
i
.Theweat hercondi
ti
oni.
eweathercondit
ionofpr
evi
ousdayi
smor
e
accur
atethantheweat
herofi
nit
ialf
orecast.

Copiesofthefi
nal v
olumef or
ecastmustbesenttofoodandbev eragemanager
,
foodandbev er
agecontroll
er,
headchef,r
est
aurantmanager,purchasi
ngoff
icer
,
headstoreman, oranyotherper
sonwhom inf
ormationisnecessary.

Ai
dst
ovol
umef
orecast
ing

Theyi
ncl
ude:
-

a)Cy
cli
cmenus

 Theseareser
iesoff
ixedorsemi
-f
ixedmenuswhi
char
erepeat
edatasset
peri
od.

 Theseareser
iesorsetofmenusthatar
erepeat
edatsetper
iodsofti
meby
acater
ingout
let.Eg3weeks,
thatis,
atendofcycl
esamemenur epeat
ed.

Adv
ant
ages

i
. Uset
oav
oidbor
edom oft
hecust
omer
sorwor
ker
s

i
i
.Hel
psi
naccur
atepur
chasi
ng

i
i
i.Staff
ingrequir
ement
swill
befai
rl
yaccurat
eespecial
lywhenprepari
ng
dutyrotas,day
soff
,hol
i
daysetcthussavi
ngi
nkitchenandrestaur
ant
wagebi ll
.

b)Sal
eshi
stor
ies

 Thesear
edetai
ledr
ecor
dsshowi
ngact
ual
sal
esofmenui
temsf
ora
cat
eri
ngout
let.

 I
tprovi
desanaccurat
erecordoff
oodproducedandsoldcomparedwi
th
thef
orecastf
igur
eswhichcanbeusedasar ef
erencef
orfor
ecasti
ngf
utur
e
demand.

NOTE:
-asaleshist
oryrecordsheetshoul
dbeprepar
edforeachsel
l
ingout
let
andwher
enecessaryforeachmeal per
iodi
fthemenuchanges.

STANDARDYI
ELDS

Yi
eld- thi
sistheedi
bleorusabl
epar
tofaf
oodi
tem whi
chi
sav
ail
abl
eaf
ter
pr
epar
ati
onandcooking.

St
anl
eyt
hoi
thikagwi
Page207
St
andardyi
eld -t
hisi
sthey i
eldobtainabl
ewhenani t
em i
spr
ocessedinthe
par
ti
cularst
andardmethodsofpr eparat
ion,cooki
ngandport
ioni
nginan
est
abl
ishment,thei
temshav ingbeenpur chasedtoaknownstandar
d.

OBJECTI
VESOFSTANDARDYI
ELD

i
. Toestabl
i
shastandar
df ort
hequant
it
yandnumberofpor
ti
onsobt
ainabl
e
fr
om aspeci
fi
cit
em offood.

i
i
.Toest abl
i
shast andar
dforcompari
sonwit
hoper
ati
ngr
esul
tsandt
her
eby
measuretheef
fi
ciencyofpr
oduct
iondepar
tment
.

i
i
i.Toestabl
i
shanobj
ect
ivemet
hodoff
urt
herev
aluat
ingst
andar
dpur
chasi
ng
speci
fi
cat
ions.

i
v.Toest
abl
i
shast
andar
dcostf
act
orf
ort
hei
tem off
ood

v
.Toassi
sti
nmenucost
ingandpr
ici
ng

v
i.Toassisti
nconver
ti
ngf
orecastr
equi
rement
sint
oraw-
mat
eri
als
requi
rements.

NOTE:
- standar
dyi
eldsareusual
l
ypr
epar
edf
ort
hemor
eexpensi
vei
temsof
foode.gmeat,f
ishet
c.

Themet
hodusedi ndetermini
ngthestandardyi
eldofacommodi tyisoneof
experimentati
oninordertoarr
iveatanacceptabl
eproductforthe
customeratanaccept abl
ecommodi tycostandlabourcost
st othe
establi
shment

Pr
ocedur
eofset
ti
ngst
andar
dyi
elds

i
. Consi
derthedi
ff
erentf
ormsbywhi
chaf
oodi
tem maybepur
chasedand
pr
ocessed.

i
i
.Carryoutaseri
esofexper
iment
sunti
lyouar
esati
sfi
edthattheend
pr
oductaspercust
omeraccept
anceandpri
cear
econcerned.

i
i
i.Thisdeter
minesthef
ooditemstobebought,
exact
lyhowi
tist
obe
processedandthesi
zeofport
iont
obeserved.

NOTE:
- fi
guresobt
ainedfrom t heacceptanceexperi
mentwi
llbeknownas
standar
dyi
eldfiguresandt heyformt hebasi
sofcompari
sonand
measurementofef fi
ciencywhenev erthef
oodit
em i
sprepared,
cookedandserved.

Adv
ant
agesofprepar
ingt
esty
iel
dst
oest
abl
i
sht
hest
andar
dyi
eldoff
ood
pr
oducts

i
. Est
abl
i
shi
ngast
andar
dfoodcostf
ordi
shesandmenus

St
anl
eyt
hoi
thikagwi
Page208
 i
i
.Assi
sti
ngi
ndi
shandmenupr
ici
ng

i
i
i.Est
abl
i
shi
ngthenumberofpor
ti
onsobt
ainedf
rom di
ff
erentt
ypesofor
cut
sofmeatandf
ish.

i
v.Compari
sonofdi
ff
erentmet
hodsofpr
epar
ati
onandcooki
ngbyt
hey
iel
d
pr
oduced.

v
.Assi
sti
ngi
nthepr
epar
ati
onofpur
chasespeci
fi
cat
ions.

v
i.Assi
sti
ngi
nthepr
epar
ati
onofor
der
sforr
awmat
eri
als.

v
ii
.Measur
ingef
fi
ci
encyoff
oodpr
oduct
ion.

STANDARDRECI
PES

 Thi
sisawrit
tenf
ormul
aorschedul
ef orpr
oduci
ngaf oodorbev
erageit
em
ofaspeci
fi
edqual
it
yorquant
it
yforuseinapart
icul
arestabl
i
shment.

 I
tshowsthepr
eci
sequantit
iesandqual
it
iesoft
heingr
edi
ent
stobeused,
t
ogetherwi
tht
hesequenceofprepar
ati
onandserv
iceoft
heit
em.

 i
tal
soshowst
henameofpr
oductt
obepr
oduced.

 Photosaresomet
imesuseasanemphasisofhowt
hef
ini
shedpr
oduct
shouldl
ookli
keandi
tshoul
dbepresent
ed.

 I
tmayalsoincl
udesuchi
nfor
mat
ionast
hecost
ingoft
hedi
sh,
its
nut
ri
ti
onalv
alueetc.

OBJECTI
VESOFPREPARI
NGSTANDARDRECI
PES

i
. Topre-
det
erminet
hequanti
ti
esandqual
ityofi
ngredi
ent
st obeused,
st
ati
ngthest
andar
dpurchasespeci
fi
cat
ionwherepossi
ble.

i
i
.Topr e-det
erminethey
iel
dobt
ainabl
efr
om ar
eci
pei
fast
andar
dyi
eldhas
notbeenprepared.

i
i
i.Topr
e-det
ermi
net
hef
oodcostperpor
ti
on.

i
v.Topr
e-det
ermi
nenut
ri
ti
onal
val
ueofapar
ti
cul
ardi
shory
iel
d.

v
.Tofacil
i
tatemenuplanning(avoi
ddomi
nanceofameal
bypar
ti
cul
arcol
our
,
t
ext
ure,
ingredi
ent
s,f
lavouretc.
).

v
i.Tof
aci
l
itat
epur
chaseandi
nter
nal
requi
sit
ioni
ng.

v
ii
.Tofaci
l
itat
efoodpreparat
ionandpr
oducti
on(
achi
evedbyuseofst
andar
d
pr
oductsforapar
ti
culardishandpr
ocessi
ngt
hem byst
andar
dmethod).

St
anl
eyt
hoi
thikagwi
Page209
 v
ii
i.
Tofaci
l
itatepor
tioncont
rol(
standar
dr eci
pessetsoutpor
ti
onsizeofa
par
ti
culardishi
n3way s:
-rawweight,cooked(f
inal
lypr
epared)
,as
pur
chased)

i
x.Topr
ovi
deanaccur
atesour
ceofr
efer
encet
oal
lst
affconcer
ned.

HONEYDROPSRESTAURANT
RECIPE: Carbonat eofbeef STANDARDRECI PENO.301
QUANTI TY: 20 PORTI ONSI ZE:112g( Raw
Porti
ons weight )
Price
per Total Total Costper
Units I
ngredi ent s unit amount cost por
ti
on
150/
11/4kg Topsi debef kg 187.50
1
2/ 2L Brownst ock 5/L 12.50
125g Meatdr ippi ng 50/kg 6.250
1
/2kg Cast ersugar 20/kg 10.00
1kg Sl
icedoni ons 40/kg 40.00
1L Beer 60/L 60.00
125g Fl our 25/kg 3.15 319. 40 15.
97
Preparati
onandser vice
1
. Cutmeati ntot hi nslices.
2
. Seasonwi thsal t,pepperandpasst hroughflour.
3 Qui cklycolouronbot hsidesofinhotf atandplacein
. casserole
4
. Fryonionst oal i
ghtbr owncolour
5
. Addt hemeat
6
. Addt hebeerandsugarandbr ownst ockt oj
ustcov ert
hemeat
7 Cov erwithtightf itt
inglidandcookinov enat175° cunti
lmeat
.i stenderapx.2hr s
8
. Skim andcor rectseasoni ng
9
. Serveincasser oledi sh.

Eachr
eci
peshoul
dshow:
-

i
. Thesect
ionnumber(
typeofdi
sh)e.
gsect
ion1sauces,
2soupset
c.

i
i
.Ther
eci
penumber
.

i
i
i.Thel
i
stofi
ngr
edi
ent
s.

St
anl
eyt
hoi
thikagwi
Page210
 i
v.Thequant
it
iesofi
ngr
edi
ent
s.

v
.Thepor
ti
ony
iel
dfr
om eachr
eci
pe.

v
i.Themet
hodofpr
epar
ati
onandser
vice.

MEATCOSTI
NG

Buyi
ngmeati nlargechunksinsomet imescheaperf orlar
geestabli
shmentthan
pur
chasingpre-port
ionedpieceswhi chwil
lrefl
ectlabourinvol
vedincutt
ingand
por
tioni
ngthemeatt osi
zes.Iffoodcostisincreased,thegrossprofi
tmargi
nswill
bereducedifthesell
ingpri
cer emainsthesame.

Boneandcooki
ngl
oss

Boneloss - t
hisi
sther
educt
ioni
nthewei
ghtofmeatduet
oremov
alof
bones.

Cookingloss- t
hisi
sther
educt
ioni
nwei
ghtofmeatdur
ingcooki
ngand
shr
inking.

Thetri
mmi ng,
boningandcookinglossofmeati susual
l
ycalculatedas%oft he
weightoft
herawmeatpur chased.Regularchecki
ngwil
lstandardisetheaverage
%ofl ossandkit
chenproceduresshoul
dbel aidandadheredtobyst affonthe
tr
eatmentofmeatsot hatanyunusualvari
ancesin%willbenoted.

Tr
eat
mentofmeat

i
. Thej
ointomeati
swei
ghedbef
orecooki
ng.

i
i
.Thej
ointofmeati
swei
ghedaf
tercooki
ng.

i
i
i.Thecooki
ngl
ossasaper
cent
agei
scal
cul
ated.

Exampl
e

Joi
ntbef
orecooki
ng 8.
0kg

Joi
ntaf
tercooki
ng 6.
5kg

Cooki
ngl
oss 1.
5kg

Ther
efor
e,cooki
ngl
ossasa%ofr
awmeat

Cooki
ngl
oss% = x100

= x100 = 18.
75%

i
v.Aft
ercar
ving,
thebonesandscr
apsar
ewei
ghedt
oest
abl
i
sht
ri
mmi
ngand
bonel
oss.

St
anl
eyt
hoi
thikagwi
Page211
 Exampl
e

Joi
ntbef
orecooki
ng 8.
0kg

Wei
ghtofbonesandscr
aps 2.
0kg

Joi
ntaf
tercooki
ng 6.
5kg

Ther
efor
e;

Cooki
ngl
oss 1.
5kg

Bonel
oss 2.
0kg

Boneandcooki
ngl
oss 3.
5kg

Weightofusabl
ecookedmeat 8.0kg
Less bonesandcokingl
oss 3.5kg
4.5kg
v
.Ifthestandardport
ionofcookedmeatt
obeserv s150g,
edi thecar
verhas
t
heresponsibil
i
tyofproduci
ng:
-
4.
5kgs÷150g = 30porti
ons

Weareal
soabletocal
cul
atet
heyi
eldi
nweightofcookedmeatandf
ishf
rom a
gi
venwei
ghtoftherawcommodi
tybyt
hefoll
owingformul
a

Yi
eld% = x 100.

Cookedmeatpr
ice

Tocal
cul
atet
hepr
iceperkgandpr
iceperpor
ti
onoft
heser
vedmeatt
hef
oll
owi
ng
for
mul
ascanbeused:
-

i
. Ser
vedmeatpr
iceperkg =

i
i
.Ser
vedmeatpr
iceperkg =

Exampl
e

If45%oft
herawmeati
slostbyboneandcooki
ngl
oss,
theusabl
e
cookedmeat%ofr
awmeatl ef
tis55%.

i
i
i.Numberofpor
ti
ons =

i
v.Ser
vedmeatpr
ice(
cost
)perpor
ti
on =

St
anl
eyt
hoi
thikagwi
Page212
Exampl
e1.

Ajoi
ntwei
ghi
ng10kgi
spur
chasedatKsh.
180perkg.Theboneandcooki
ngl
oss
i
s40%.Cal
cul
ate:
-

a)Thepr
iceperkgofser
vedmeat
.

b)Thenumberof150gpor
ti
onsobt
ainabl
efr
om car
vedmeat
.

c)Thecostperpor
ti
onofcookedmeat
.

d)Thesell
i
ngpr i
ceofone150gpor
ti
onofcookedmeatat65%gr
oss
prof
itmargi
n.

Sol
uti
on

a)Ser
vedmeatpr
iceperkg =

= Ksh.300perkg
Or

Ser
vedmeatpr
iceperkg =

= Ksh.300perkg

b)Numberofpor
ti
ons =

=
= 40por
ti
onsor40x150gpor
ti
ons

c)Ser
vedmeatpr
ice(
cost
)perpor
ti
on =

= Ksh.45perpor
ti
on

d)Sel
l
ingpr
iceofone150gofser
vedmeatat65%gr
osspr
ofi
tmar
gin

Sel
l
ingpr
ice =

= Ksh.
128.
50perpor
ti
on.

Exampl
e2.

Ajoi
ntweighi
ng50kgi
spur
chasedat£9perkg.Theboneandcooki
ngl
ossi
s
40%.Cal
culat
e:-

St
anl
eyt
hoi
thikagwi
Page213
 a)Thepr
iceperkgofser
vedmeat

b)Thenumberof150gpor
ti
onsobt
ainedf
rom car
vedmeat

c)Thecostperpor
ti
onofcookedmeat
.

Sol
uti
on

a)Ser
vedmeatpr
iceperkg =

= £15
Or
Ser
vedmeatpr
iceperkg =

= = £15

b)Numberofpor
ti
ons =

=
= 200por
ti
onsor200x150gpor
ti
ons

c)Ser
vedmeatpr
ice(
cost
)perpor
ti
on =

= £2.
25perpor
ti
on

EXAMPLE3.

Theresult
sbel
owwer
eobt
ainedf
rom ay
iel
dtestper
for
manceonbeefonboneat
Wendor est
aur
ant
.

Meatcut - beefonbone

Pur
chasedr
awwei
ght - 24kgs

Pur
chasepr
ice - Shs.280perkg

Lossduet
otr
immi
ng,
fat
,bone - 4kg

Por
ti
onsi
zeofbeefwi
thoutbone- 0.
230kg

Usi
ngtheinf
ormat
ionabov
eandshowi
ngal
lcal
cul
ati
onsandf
ormul
aused
cal
cul
ate:
-

a.Yi
eldpercent
age (
3
marks)

b.Pr
iceperser
vabl
eki
l
ogr
amme (
3
marks)

St
anl
eyt
hoi
thikagwi
Page214
 c.Numberofpor
ti
onsobt
ainabl
efr
om ser
vabl
emeat
(
4marks)

Sol
uti
on

a)Yi
eld% = x 100.

= x 100.

= x 100.

= 83.
33%

b)Ser
vedmeatpr
iceperkg =

= Shs336.
00perkg
Or
Ser
vedmeatpr
iceperkg =

= = Shs336.
00perkg

c) Numberofpor
ti
ons =

= 87por
ti
ons

STANDARDPORTI
ONSI
ZES

Def
ini
ti
on - thi
sist
hequant
it
yofapar
ti
cul
arf
oodi
tem t
hatwi
l
lbeser
ved
t
othecust
omer.

Por
ti
oncont
rol meanscont
rol
l
ingt
hesi
zeorquant
it
yoff
oodt
obeser
vedt
o
eachcust
omer.

But
chert
est- i
sat estdesi
gnedt
odeter
minestandar
dporti
oncostsfor
t
hosei
temsporti
onedbef
orecooki
ng.Eg.Meat,
poult
ryandfi
sh.

 Thequanti
tymaybemeasur
edinter
msofounce(e.
g4ozport
ionofmeat
i
.e120g)ornumer
ical
quant
it
y(e.
g1breadr
oll
perperson)
.

 Por
ti
onsi
zei
sdet
ermi
nedbyt
hemanagementoft
heest
abl
i
shmenti
n

St
anl
eyt
hoi
thikagwi
Page215
 conj
unct
ionwi
tht
heheadchefandr
est
aur
antorcant
eensuper
visor
.

I
mpor
tanceofst
andar
dpor
ti
onsi
zes

i
. Ensuresafairser
viceoff
oodandbeverageit
emst oeachcust
omer.That
i
s, al
lcust
omer sshoul
dbeservedasaccurat
elyaspossi
blet
hequanti
tyof
foodforwhichtheyarepayi
ng.

 Ir
regul
arpor
ti
onsi
zesofanit
em ser
vedtocustomer
seat
ingatt
he
sametablemayl
eadtocust
omerdissat
isf
act
ion.

i
i
.Ensurespricespai
dforit
emsareinrel
ati
ont
ostandar
dpor
ti
onsize.That
i
s,anyexcessinport
ionsi
zecauseshi
gherf
oodcostf
ort
hatdi
shanda
r
educedgrossprofi
t.

St
andar
dfoodpor
ti
onsi
zesi
ntheoper
ati
onmaybeachi
evedby
:-

a)Pur
chasi
ngpr
e-por
ti
onedf
oodi
tems

b)Buy
ingf
oodi
temsi
nbul
kandpor
ti
oni
ngt
hem i
ntheki
tchenbef
oreser
vice.

c)Por
ti
oni
ngf
oodi
temsast
heyar
ebei
ngser
vedt
ocust
omer
.

DETERMI
NANTSOFPORTI
ONSI
ZES.

(
Fact
orsi
nfl
uenci
ngpor
ti
onsi
zeorf
act
orst
oconsi
deri
ndet
ermi
ningpor
ti
onsi
ze)

Whendet
ermi
ningthesi
zeofpor
ti
ont
obeser
vedt
hecat
erer
swi
l
lconsi
dert
he
f
oll
owi
ngfact
ors:
-

i
. Thet
ypeofcust
omert
obecat
eredf
or

 Thenatur
eofaper
son’
sworkcanhaveanef
fectonhi
sappet
it
eand
eat
inghabi
te.
goff
icewor
k,manual
work.

i
i
.Thet
ypeofest
abl
i
shmentandmenu

 Porti
onswil
lbesmal
l
erfort
abled’
hôtemenusoffer
ing3or4courses
thanforal
acart
emenuswherepri
cesar
edirect
lypr
oport
ional
tosize
ofporti
on.

i
i
i.Pr
iceschar
ged/cust
omerspendi
ngpower

 Manyhotel
sandrest
aur
antshavetofi
xthei
rpr
icesaccor
dingt
othe
av
eragespendi
ngpowerofthei
rcust
omer.

St
anl
eyt
hoi
thikagwi
Page216
  Thesi
zeofport
iont
heycanoff
eratsetpr
iceswi
l
ldependonhow
muchthecust
omercanaff
ordtospend.

AI
DSTOPORTI
ONCONTROL(
Met
hods)

Therear
eavar
iet
yofport
ioncontr
olai
ds(anobject,
machi
ne,
atool
thaty
ouuse
tohelpy
oudosomethi
ng)avai
labl
etothecat
erer.

Theyi
ncl
ude:
-

i
. Useofpor
ti
oncont
rolequi
pment
s

 Equi
pment
susedf
orpor
ti
oncont
rol
maybeputi
ntot
wocat
egor
ies:
-

a)Foodpr
epar
ati
onandcooki
ngequi
pment

b)Ser
vingequi
pment
s

Foodpr
epar
ati
onandcooki
ngequi
pment

 Therearevar
iousfoodpr
eparati
onandcooki
ngequi
pment
sav
ail
abl
etoai
d
port
ioncontr
ol.Theyi
ncl
udes:-

 Scal
es(
wei
ghi
ng)

 Measur
es

 El
ect
ri
csl
i
cingmachi
nes

 Teaandcof
feedi
spenser
s

 Mi
l
kdi
spenser

 But
terpatmachi
nes

 Puddi
ngsl
eev
es

 Dar
iol
emoul
ds

 Pi
edi
shes

 Baki
ngt
ins

 Moul
ds

 Ser
vingspoonsandscoops.

Ser
vingequi
pment
s

Ser
vingequi
pment
sav
ail
abl
etoai
dpor
ti
oncont
rol
incl
udes:
-

St
anl
eyt
hoi
thikagwi
Page217
  Ladl
es,
forsoupsandsauces

 Scoops,
fori
ce-
cream ormashedpot
atoes

 Gl
asses,
forj
uices,
wines

 Coupes

 Souf
fl
écases

 Cocot
tes

 Soupbowl
s

 Veget
abl
edi
shes

 Tur
eens

 Sauceboat
s

 Ent
reedi
shes

 Casser
oles

 Baropt
icsandmeasur
es

 Aut
omat
icbev
eragedi
spensi
ng

Adv
ant
ageofAut
omat
icbev
eragedi
spensi
ng

i
. Eachpor
ti
oni
saccur
atel
ymeasur
ed.

i
i
.St
and

i
i
i.ar
ddr
inksar
eal
way
sser
vedt
oncust
omer
.

i
v.Somemachi
nescanpourandmi
xdr
inksqui
ckert
hanbarper
son.

v
.Thei
rusecut
sdownbr
eakages,
wast
agesandt
hef
t.

v
i.Barl
ayout
scanbecomemor
ecompactandsav
eonspacer
equi
rement
.

v
ii
.Ifmachi
nehavemeter
,thenumberofdr
inksser
vedandamountofmoney
takenbybarman.

Di
sadv
ant
ageofAut
omat
icbev
eragedi
spensi
ng

i
. Sui
tabl
eforcer
tai
nty
pesofbev
erages.

i
i
.Costofi
nst
all
i
ngmachi
neshi
gh.

i
i
i.Onl
ysui
tabl
einbar
sver
yhi
ghv
olumeofsal
es.

St
anl
eyt
hoi
thikagwi
Page218
 i
i
.Useofpr
e-por
ti
onedf
oods

 Theindiv
idualport
ioncont
rol
concepti
sbei
ngi
ncr
easi
ngl
yusedby
cat
eringestabl
ishment.

 Manyconveni
encef
oodpr
oduct
sav
ail
abl
etot
hecat
erer
sar
epackaged
i
ndi
vi
duall
y.

Example:
-butterpat
s,j
ams,br
eakf
astcer
eals,
meatsandfi
sh,bever
ages
maybepur chasedpre-
por
ti
onedi
nfor
m ofteabags,
indi
vi
dualcof
fee
fi
lt
ers,
milksachetsetc

Adv
ant
agesofusi
ngpr
e-por
ti
onedf
oods

i
. Conv
eni
ence

i
i
.Exactpor
ti
onandcostcont
rol

i
i
i.Nopr
epar
ati
onr
equi
red

i
v.Ti
meandl
aboursav
ed

v
.Nowast
eormess

v
i.Hy
gieni
c

v
ii
.Meal
tray
scanbepr
epar
edi
nadv
anceofuse.

v
ii
i.
Consi
stentandat
tract
ivepr
esent
ati
onofi
ndi
vi
dual
por
ti
ons.

i
i
i.Useofst
andar
dreci
pes

Mostest abl
ishment shaveafi
leofstandardreci
pesfrom whicht heypl
anthei
r
menus.Thei ngredientsoft
hesereci
pesar ecostedouttothenumberofpor ti
ons
expectedfrom eachr eci
pefi
xed.Toachievestandar
dpor t
ions,thequanti
ti
esand
quali
ti
esofi ngredientsinst
andardrecipeshavetobeadher edto.

i
v.Regul
archecki
ng

 Foodandbev
eragecontr
oll
ersshoulddoregul
arspotchecksont
hef
ood
l
eavi
ngtheki
tchenforqual
it
y,port
ionsi
zeandpresentati
on.

 Por
ti
onsi
zesshoul
dbeoccasi
onal
l
ycheckedont
hescal
es.

 Thenumberofportionssol
dshouldbecross-
checkedagai
nstthenumber
ofporti
onsexpect
edt obeproducedf
rom t
hecommodi t
iesusedbythe
ki
tchen.

St
anl
eyt
hoi
thikagwi
Page219
 v
.Useofpor
ti
oncont
rolchar
ts(
visualai
dst
opor
ti
oncont
rol
)

 Thisarei
ll
ust
ratedchart
sormanual
sofdisheswi
thnumberofpor
ti
ons
requi
redandtheirpr
esent
ati
onandgar
nishi
ng.

 Allfoodspr
eparati
onandser
vicest
affmustbetr
ainedi
npor
ti
onsizesand
theuseofcor r
ectequi
pment
sandtoolsandthi
scanbeachi
evedbyuseof
visualai
ds(chart
s).

 Chart
sshowingthisshoul
dbedi
spl
ayedatconv
eni
entpoi
ntsi
ntheki
tchen
forr
eadyref
erence.

 Thewayi
nwhi
chpor
ti
onsi
zei
sexpr
essedshoul
dbeconv
eni
entt
othe
ser
ver
.

Por
ti
onsi
zesf
ordi
ff
erentf
oodi
tems

Sauces

- Hol
l
andai
se - cust
ard

- Béar
nai
se - Apr
icot

- Tomat
o - Jam ½l
i
tre-8-
12por
ti
ons

- Chocol
ate - Anydemi
-gl
ace

* Appl
e * Tar
tar

* Cr
anber
ry ½l
i
tre-8-
12por
t. * Vi
nai
gret
te ½l
i
tre-8-
12

* Br
ead * May
onnai
se

Soups - ½l
i
tre-2-
3por
ti
ons

Hor
sedoeuv
res - 120-
180gperpor
ti
ons

Smokedsal
mon - 16-
20por
ti
onsperkg

Shel
lfi
shcockt
ail - 16-
20por
ti
onsperkg

Mel
on - 2-
8permel
ondependi
ngont
ypeofmel
on

Meat
s

St
anl
eyt
hoi
thikagwi
Page220
 Beef

a)Roastont
hebone - 4-
6por
ti
onperkg(
170-
225g)

b)Roastbonel
ess - 6-
8por
ti
onperkg(
110-
170g)

c)Boi
l
edorbr
aised - 6-
8por
ti
onperkg(
110-
170g)

d)St
ews,
puddi
ng,
pie- 8-
10por
ti
onperkg

e)St
eaks:
-*Rump - 120-
250gperpor
ti
on

*Si
rl
oin - 120-
250gperpor
ti
on

*Tour
nedos- 90-120gperpor
ti
on

*Fi
l
let - 120-
180gperpor
ti
on

Of
fal

a)Ox-
li
ver - 8por
ti
onsperkg

b)Sweetbr
ead - 6-
8por
ti
onsperkg

c)Sheep’
ski
dney - 2perpor
ti
on

d)Oxt
ail - 4por
ti
onsperkg

e)Ox-
tongue - 4-
6por
ti
onperkg

Lamb

a)Roast - 110-
170gperpor
ti
on

b)St
ewed - 4-
6por
ti
onsperkg

c)Cut
let
s - 90-
120gperpor
ti
on

d)Chops - 12-
180gperpor
ti
on

Por
k

a)Leg - 8por
ti
onsperkg

b)Shoul
der - 6-
8por
ti
onsperkg

c)Loi
nont
hebone - 6-
8por
ti
onsperkg

d)Por
kchops - 180-
250gperpor
ti
on

Ham andcol
dmeat - 55-
85gperpor
ti
on(
10-
12por
ti
ons)

Poul
tr
y

St
anl
eyt
hoi
thikagwi
Page221
 a)Ducksandchi
cken - 360gperpor
ti
on

b)Tur
key - 250gperpor
ti
on

Veget
abl
es

a)Newpot
atoes - 8por
ti
onsperkg

b)Ol
dpot
atoes - 4-
6por
ti
onsperkg

c)Cabbage -

d)Tur
nips -

e)Par
sni
ps -

f
) Swedes -

g)Br
ussel
sspr
out
s - 6-
8por
ti
onsperkg

h)Tomat
oes -

i
) Fr
enchbeans -

j
) Caul
i
flower -

k)Spi
nach -

l
) Peasandr
unnerbean - 4-
6por
ti
onsperkg

Bev
erages

nce1stJanuar
 Si y1195whisky
,gi
ns,
vodkaandr
um mustbesol
din25ml
s
or35mlsormultipl
est
her
eof.

 For
ti
fi
edandar
omat
isedwi
nesar
esol
din50ml
tot
s.

Measur
eperbot
tl
e

Bev
erage Bot
tl
esi
zes Met
ri
cmeasur
e

Spi
ri
ts 75cl 30x25ml/21x35ml

Spi
ri
ts 70cl 58x25ml/20x35ml

Spi
ri
ts 65cl 26x25ml/18x35ml

Ver
mout
hs 75cl 15x50ml

For
ti
fi
edwi
nes 75cl 15x50ml

Li
queur
s - 25mlor35ml(dependi
ng
onbot
tl
esi
ze)

St
anl
eyt
hoi
thikagwi
Page222
Wi
nes

 Nospeci
fi
cquant
it
yifwi
nesar
esol
dinseal
edcont
ainer
sorbot
tl
es.

 Opencar
afesmustbeof25cl
,50cl
,75cl
or175ml
.

 Wi
negl
assesi
nquant
it
iesof125ml
or175ml
areused.

Beer
sorci
der
s

 Mayonl
ybesol
dinquant
it
iesof1/
3pi
ntor½pi
nt

 Mustbeprov
idedinacapaci
tymeasur
eeg.Al
i
nedgl
assorsol
dthr
ougha
di
spensi
ngmeter.

NOTE:
-

 10ml - 1cl

 1000ml - 1L

 100cl - 1L

 10dl - 1L

 100ml - 1dl

Dev
icesusedbybar
tendert
omeasur
ebev
erages

i
. Theshor
tgl
ass

 Thesear
egl
assesdesi
gnedt
ohol
dpr
e-det
ermi
nedquant
it
ywhen
fi
l
ledtot
her
im.

 Av
ail
abl
eei
therpl
ainorwi
thmar
kedl
i
nes.

i
i
.Thej
i
gger(
outmeasur
e)

 Thi
sisadoubl
e-endedstai
nlessst
eel
measur
ingdev
ice,
eachendof
whi
chresembl
esashor tgl
ass

 Thetwomeasur
ingdev
icesthatmakeuptheji
ggerar
eofdi
ff
erent
si
zes–onemayhold15ml andtheother30ml.

i
i
i.Thepour
er

 Thi
sisadevicethati
sfi
tt
edontopofabott
leandper
mit
sthe
pour
ingofonlyapredet
ermi
nedamount.

i
v.Theaut
omat
eddi
spenser

St
anl
eyt
hoi
thikagwi
Page223
  Thisi
scomput
eri
sedanddi
spensespr
edet
ermi
nedmeasur
esof
l
iquor
.

 Theyvaryfr
om compar
ativ
elysi
mplesyst
emsforcontr
oll
ingonl
y
thepouri
ngbrandst
ohighlyel
abor
atet
hatcont
rolandmixesdri
nks
atthepushofabutt
on.

v
.Gl
asswar
e

 Gl
assesar
eav
ail
abl
eforspeci
fi
cdr
inksandwi
thst
andar
dsi
zes.

 Glassesmakeworkfort
hebart
endereasybecausehedoesnot
needtouseall
theabovedev
ices.

v
i.St
andar
dbot
tl
es(
met
eredbot
tl
es)

v
ii
.Bev
eragegun

KI
TCHENCONTROL

Emphasi
sonkit
chencont
rol
ast
hemai
npr
epar
ati
onar
eai
nanest
abl
i
shmenti
s
ofut
mostimpor
tance.

Dut
iesofheadcheforchefdecui
sine

Thechefhastheoverall
responsi
bil
i
tyf
ortheor
gani
sat
ion,pr
oduct
ivenessand
eff
ici
encyoftheki
tchen.Theheadchefdi
schar
gest
hefoll
owingdut
iestoensure
ki
tchencontr
ol:
-

i
. Menupl
anni
ng

 Thechefdemonst
rat
eshiknowl
edge,
ski
l
l,i
ngenui
tyandcul
i
nar
yar
t
thr
oughmenuplanni
ng.

 Heensur
esbasi
cfundament
als,
foodcost
sandki
tchenpr
ofi
ttar
get
.

i
i
.Engagi
ngki
tchenst
aff

 Thechefengagesst
afft
omeett
her
equi
rement
sofki
tchen.

i
i
i.Ki
tchenor
gani
sat
ion

 Ar
rangementofst
affandt
heall
ocationofdut
iessot
hatal
lthesect
ions
i
ntegr
ateandworkasoneint
hekitchen

i
v.Prov
idi
ngmanagementwi
thf
ulli
nfor
mat
ionont
heef
fi
ciencyofki
tchen
oper
ati
on

St
anl
eyt
hoi
thikagwi
Page224
  Thechefgi
vesinf
ormati
onr
egar
dingequi
pment
srequi
redf
oref
fi
ciency
oper
ati
onintheki
tchen.

v
.Ensur
ingt
hatt
her
equi
redki
tchenpr
ofi
ttar
get
sisat
tai
ned(
grosspr
ofi
t)

v
i.Adv
isi
ngmanagementonki
tchenequi
pmentr
equi
rement
s

v
ii
.Ov
eral
lsuper
visi
onofki
tchen,
especi
all
yatser
vicet
ime

 Thechefensur
esov er
allsupervi
sioni
ntheki
tchenespeci
all
yduri
ngservice
toensuret
hatproduct
ionflowsmoot hl
yandcustomersar
esatisf
ied.That
i
s,port
ionsi
ze,appear
ance, hotf
oodsetc.

Summar
yofdut
iesofchef

 Menupl
anni
ng

 Engagi
ngst
aff

 Ki
tchenor
gani
sat
ion

 Managementi
nfor
mat
ion

 Ki
tchenpr
ofi
t

 Ki
tchenequi
pment

 Ser
vicet
ime

Fr
audsi
ntheki
tchen

 Therearemanyty
pesoffr
audsper
pet
rat
edintheki
tchenandonl
yspot
checksandconst
antv
igi
l
anceonheadchef
,cont
rol
l
ersandsupervi
sor
s
wil
lcombatthem.

 Thi
smakesi
tdi
ff
icul
ttoachi
evet
heki
tchenpr
ofi
ttar
get
s.

 Theyi
ncl
ude:
-

i
. Eat
ingbyst
aff

i
i
.Pi
l
fer
ing

Way
sofcont
rol
l
ingpi
l
fer
ageoff
oodst
uff
.

i
. Gi
vest
affi
ncent
ivest
oav
oidpi
l
fer
agee.
ggi
vi
ngt
hem l
eftov
ers.

i
i
.Usecent
ral
requi
sit
ionf
ormsandot
hercent
ral
document
s.

i
i
i.Av
oidov
eri
ssui
ngasl
eftov
ersencour
agepi
l
fer
.

i
v.Keepi
ngf
oodst
orel
ockedal
lthet
imet
oensur
enounaut
hor
isedper
son

St
anl
eyt
hoi
thikagwi
Page225
 hasaccess.

Pr
ecaut
ionst
obet
akent
opr
eventf
raudi
ntheki
tchen

i
. Pr
ovi
dingst
affwi
thmeal
s

i
i
.Lockerroomsf
orst
afft
obeout
sidet
heki
tchenandnobagsal
l
owedi
nsi
de
t
hekit
chen

i
i
i.Recei
vi
nggoodsdir
ect
lyt
otheki
tchent
obei
nthehandsofar
esponsi
ble
memberofstaf
f.

i
v.Goodf r
om thestoreorcel
lartothekit
chenorrequi
sit
ionsshoul
dbe
checkedagainstthecopyofrequisi
ti
onintheki
tchen.

v
.Regul
arspotchecksshoul
dbemadeonpor
ti
onsi
zesser
vedt
ocust
omer
s.

v
i.Pr
e-por
ti
onedf
oodse.
gbut
tershoul
dbecount
edandacheckkeptont
hei
r
i
ssue.

v
ii
.Noi
ssueshoul
dbemadeatahotpl
atewi
thoutawai
terf
oodcheck

v
ii
i.
Car
ryi
ngoutconst
antchecksofal
laspect
soft
heki
tchenatal
lti
mes.

Ki
tchendaybook

 Thepur
poseoft
hisbooki
stor
ecor
dandanal
yseal
lrecei
val
sint
oki
tchen.

 Thi
sanal
ysi
senabl
esthecheft
oknowex act
lyhowmuchoneacht
ypeof
commodi
tyandwhat%oftotal
weekl
yreceiv
als.

 Anydev
iat
ionsf
rom nor
mal
%spentcal
l
sfori
nvest
igat
ion.

Fr
audsi
nbar
s

 ‘
Theper petr
atedoff r
audi
snotalway
scausedbysomeoneact
ingout
necessit
ybutwi thsomemisgui
dedpersoni
tamount
stoalmostagame
againsttheestabli
shment
’.

 Thereisnocompl eteanti
-fr
audsystem,butbycar
efulsel
ect
ionofstaf
f,
constantvigi
l
ance,str
ictcontr
olsystemsandanawarenessofthety
peof
fr
audt hatcanbe

Per
pet
rat
ed,
agr
eatmeasur
eofcont
rol
canbeexer
cised.

 Thi
sincl
udes:
-

i
. Shor
tmeasur
e

 Bygiv
ingshor
tmeasuresofdri
nktocust
omers,
agr eat
eryiel
dperbot
tl
e
canbeobtai
nedandthebarmancanpockett
hedif
ference.

St
anl
eyt
hoi
thikagwi
Page226
  Thecontrol
lershoul
dvisitt
hebarisbusyperi
ods,
bewatchful
,ensur
ethat
al
lsalesarerungupont hetil
landl
ist
enforcomplai
ntsf
rom cust
omers
aboutshortmeasure.

i
i
.Shor
tchangi
ng

 Thi
sinv
olv
esgi
vi
ngl
esschanget
ocust
omer
s.

i
i
i.Ri
ngi
ngupt
hewr
ongamount
sorf
ailt
o‘r
ingup’
eachdr
inksol
d

i
v.Di
l
uti
on

 Bywater
ingdr
inksabarmancanproducemore-
thanaver
agemeasur
es
fr
om t
hebottl
esandtakeaddi
ti
onalr
evenuehi
mself.

v
.Adul
ter
ati
on

 Anexperi
encedbar
mancanadul
ter
atedri
nkssuchassher
ryorl
iqueurwi
th
cheapert
ypesofdr
ink,
maki
ngaprofi
tonthesal
eswhichhewil
lpocket
.

 Akeeneyeandpalat
eonthepartoft
hecontr
oll
erwhensampl
i
ngwi
l
lbean
i
mportantdef
enceagai
nstf
raudsoft
hisnat
ure.

v
i.Mi
xi
ngdr
inks

 Mixi
ngexpensi
vespi
rit
swithcheaper
,especi
all
ywhenmi
xi
ngcockt
ail
s
coul
dproduceaddi
ti
onalr
evenuewhichcouldbeski
mmedoffbyt
he
barman.

v
ii
.Car
ryi
ngi
nbot
tl
es(
bri
ngi
ngi
nthei
rownbot
tl
es)

 Bycar
ryi
ngi
nthei
rownstockofl
i
quorandsel
l
ingi
tatt
hebar
,thebar
man
canmakeaper
sonalpr
ofi
t.

 Thecontrol
ler
,whenanalysi
ngther
esul
tsoft
hebar,
shoul
dwatchf
ora
fal
li
ngoffinsalesandnot
eunusuall
yhi
ghsalesoft
oni
csorsol
dwit
houta
rel
ati
veconsumpt i
onofspir
it
s.

v
ii
i.
Stocksubst
it
uti
on

 Inthecell
arandbarthestockchecker
smustalwayslookbehindt
he
facade.Al
lbott
lesshoul
dbeexami nedcar
eful
ly
,sealsshoul
dbechecked,
bottl
eswrappedinti
ssuepapersshouldbeunwrappedandthebackof
shelvesofst
ockcheckedaswat ercanbesubst
itut
edforbeerandteaf
or
whisky.

 Hydrodermicneedl
escangothroughcor
ksanddrawoffmeasur
esof
l
iquor,andcrowntopscanberemovedandrepl
acedbyexper
tst
olook

St
anl
eyt
hoi
thikagwi
Page227
 undi
stur
bed.

 Cell
armanorbarmenperpet
rat
ingthi
sty
peoff
raudshowsrel
uctancet
o
al
lowanyoneel
setohandlet
heirst
ockandt
otakehol
iday
sortaketimeof
f
work.

i
x.Char
geabl
econt
ainer
s

 Str
ictcont
rol
shouldbeexerci
sedov
err
etur
nabl
econt
ainers,
asdishonest
cel
larmenanddeliver
ymencanhaveamethodofdi
sposingoffcont
ainer
tothei
rownpersonalbenef
it
s.

 Cont
roll
ersmustcheckt
hatcr
edi
tsar
erecei
vedf
oral
lret
urnabl
e
cont
ainer
s.

x.Al
ter
ingr
equi
sit
ion(
0-9)

 Allcopi
esofrequi
siti
onshouldbemarr
iedtogetherandfi
guresoneach
shouldbechecked,asiti
sasimplematt ora3t
erf obealter oan8or
edt
fora0toa9whenwi thdr
awingstockf
rom thecell
arorbar.

xi
.Ci
gar
ett
esandt
obacco(
easi
l
ypi
l
fer
ed)

xi
i
.Dr
inkatwor
k

xi
i
i.Pr
ovi
def
reedr
inkst
ofr
iends.

REVI
SIONQUESTI
ONS

1.Statesevendutiest
heheadchefdischargestoensur
eki
tchencontr
ol.
(7marks)
2.Givesixobject
ivesofvol
umeforecasti
ng.
(6marks)
3.Explai
nfouradvantagesofusi
ngstandardreci
pesasameanofpr oducti
on

St
anl
eyt
hoi
thikagwi
Page228
 cont
rol
. (
8
marks)

4.Expl
ainthr
eemainadvant
agesofcy
cli
cmenuswhi
char
eusedt
oassi
sti
n
thef
orecasti
ngofpr
oduct
ion.

(
9mar
ks)

5.Out
li
nefourbenefi
tsofusi
ngautomaticbev
eragedi
spensi
ngmachi
nesas
ameansofcontrol
li
ngbeveragecost
s.

(
4mar
ks)

6.a) Descr
ibet
hreebasi
sforni
nit
ial
for
ecastf
orf
ood.

(
12mar
ks)

b) St
atef
ourobj
ect
ivesofpr
epar
ingst
andar
dreci
pes.
(
8marks)
7.Suggestani
tem ofequi
pmentwhi
chcanassi
sti
nmai
ntai
ningcont
rol
of
eachofthegi
venporti
onsoff
ood:
-

i
.ice-
cream

i
i
.

i
i
i.

i
v.but
terpat
s

v
.soups

v
i.wi
ne

v
ii
.mashedpot
atoes

v
ii
i.
sauces

(
6mar
ks)

8.Explai
nthreeobj
ect
ivesofpr
epar
ingst
andar
dreci
pesf
orusei
naf
ood
producti
onunit
.

(
6mar
ks)

9.Expl
aint
woadv
ant
agesofbuy
ingpr
e-por
ti
onedmeat
.

(
4mar
ks)

10.
Expl
ainhowachefusest
hef
oll
owi
ngt
echni
quest
ocont
rol
product
ion:
-

i
. Vol
umef
orecast
ing

St
anl
eyt
hoi
thikagwi
Page229
 i
i
.Ki
tchendaybook

(
6mar
ks)

11.
Expl
aint
hreef
act
orst
oconsi
derwhendet
ermi
ningpor
ti
onsi
zes.

(
6mar
ks)

12.
Explai
nfiveway
sinwhi
chf
raudmaybepr
act
isedwhensel
l
ingal
cohol
i
c
beverages.

(
10mar
ks)

13.
Ajointwei
ghi
ng20kgi
spur
chasedatKsh.
120perkg.Theboneand
cookingl
ossi
d50%.Showi
ngthefor
mulaeused,
calcul
atet
hefol
lowi
ng:
-

i
. Thepr
iceperkgofser
vedmeat (
3mar
ks)

i
i
.Thenumberof200gpor
ti
onsobt
ainabl
efr
om t
he
car
vedmeat (
3
marks)

i
i
i.Thecostperpor
ti
onofcookedmeat (
2
marks)

14.Li
stanyf
ourdet
ail
spr
ovi
dedi
nast
andar
dreci
pe.

(
2mar
ks)

15.
Expl
ainanyt
wobenef
it
sofest
abl
i
shi
ngpor
ti
onsi
zes.

(
2mar
ks)

16.
Stat
eanyf
iveobj
ect
ivesofpr
oduct
ionf
orecast
ing.

(
5mar
ks)

17.
a) Acat
ereri
stor
nbet
weenbuy
ingwhol
ecar
casesandpr
e-por
ti
oned
cut
sof

meat.Adv
ise. (
14
marks)

b) Def
inet
het
ermv
olumef
orecast
ing.

(
2mar
ks)

18.
Indi
vidualpor
ti
oncontr
olconceptsarei
ncr
easi
ngl
ybei
ngusedbycat
eri
ng
establi
shment.Out
li
nesevenreasons.

(
7mar
ks)

St
anl
eyt
hoi
thikagwi
Page230
 19.Descr
ibet
hreebasi
sforani
nit
ial
for
ecastf
orf
ood.

(
6mar
ks)

20.
Expl
aint
hethr
eef
act
orswhi
chdet
ermi
net
hepor
ti
onsi
zesofdi
ff
erent
foodi
tems.

(
6mar
ks)

21.
a) Def
inet
het
erm cy
cli
cmenusi
npr
oduct
ionpl
anni
ng.

(
2mar
ks)

b) Expl
aint
woadv
ant
agesofusi
ngcy
cli
cmenusi
npr
oduct
ionpl
anni
ng.

(
4mar
ks)

22.
indicat
etheav
eragenumberofpor
ti
onsobt
ainedf
rom t
hef
oll
owi
ngf
ood
items:-

i
. 1kgf
ishf
il
let

i
i
.2kgspr
ingchi
cken

i
i
i.1kgbeefst
ew

i
v.1kgsweet
bread

v
.700ml
sauce

v
i.1.
5kgl
ambchops

v
ii
.2kgham andcol
dmeat

v
ii
i.
3.9kgr
oastbeef

i
x.1kgnewpot
atoes

x.1kgl
ambcut
let
s

(
5mar
ks)

23.
Givingoneexampl
eineachcase,
expl
aint
hreefact
orst
hatinf
luencethe
planningoft
hepor
tionsi
zetobeser
vedinfoodandbever
ageoper at
ion.

(
6mar
ks)

24.
Howmanyt
otsar
econt
ainedi
nthef
oll
owi
ngbev
eragesbot
tl
es:
-

i
. Whi
sky(
960ml
s)

i
i
.Ver
mout
h(570ml
s)

St
anl
eyt
hoi
thikagwi
Page231
 i
i
i.Sher
ry(
480ml
s)

i
v.Dubonnet(
630ml
s) (
4mar
ks)

25.Aj oi
ntweighi
ng50kgispur
chasedat£9.
00perki
l
ogr
am.Theboneand
cooki
nglossis40%.Cal
cul
ate:
-

i
. Thepr
iceperkgofser
vedmeat (
2mar
ks)

i
i
.Thenumberof150gpor
ti
onsobt
ainedf
rom t
hecar
vedmeat
.

(
2mar
ks)

i
i
i.Thecostperpor
ti
onofcookedmeat
. (
2
marks)

26.
Outl
inet
hreeobj
ecti
vesofv
olumef
orecast
ingi
nasy
stem ofpr
e-cost
ingof
foodandbever
ages.

(
3mar
ks)

27.
Givi
ngt
woexampl
esi
neachcase,
ident
if
ytwoway
sinwhi
chacat
erer
coul
dbuyhi
sbeef
.

(
3mar
ks)

28.
Statefouradvant
agesofpr
epari
ngt
esty
iel
dsi
nor
dert
oest
abl
i
sht
he
standardyi
eldsofacommodity
.

(
4mar
ks)

29.
Descr
ibet
wodev
icesusedbybar
tender
sformeasur
ingst
andar
dquant
it
ies.

(
4mar
ks)

30.
a) Def
ine‘
sal
eshi
stor
y’asusedi
nfoodpr
oduct
ion.

(
2mar
ks)

b) Explai
ntwoway
sinwhi
chanest
abl
i
shmentcanmai
ntai
nit
ssal
es
hi
stor
y.

(
4mar
ks)

31.
Theresul
tsbel
owwereobt
ainedf
rom ay
iel
dtestper
for
manceonbeefon
boneatWendorest
aur
ant.

Meatcut - beefonbone

Pur
chasedr
awwei
ght - 24kgs

Pur
chasepr
ice - Shs.280perkg

St
anl
eyt
hoi
thikagwi
Page232
 Lossduet
otr
immi
ng,
fat
,bone - 4kg

Por
ti
onsi
zeofbeefwi
thoutbone- 0.
230kg

Usi
ngtheinf
ormat
ionabov
eandshowi
ngal
lcal
cul
ati
onsandf
ormul
aused
cal
cul
ate:
-

a.Yi
eldper
cent
age (
3mar
ks)

b.Pr
iceperser
vabl
eki
l
ogr
amme (
3mar
ks)

c.Numberofpor
ti
onsobt
ainabl
efr
om ser
vabl
emeat (
4
marks)

32.
Descr
ibeanyf
ivedev
icesf
ormeasur
ingst
andar
dquant
it
iesofal
cohol
i
c
bever
ages

(
15mar
ks)

33.
Stat
esi
xpr
ecaut
ionst
obet
akent
oav
oidf
raudi
ntheki
tchen.

(
6mar
ks)

34.
Stat
et wor
easonswhykit
chenempl
oyeesmayhav
eanegat
iveat
ti
tude
towardsst
andar
dreci
pes.

(
2mar
ks)

35.
Expl
ainf
ourf
act
orst
hatdet
ermi
net
hequal
i
tyoff
oodt
obeser
vedt
oa
cust
omer.

(
8mar
ks)

Ref
erences:
-

i
. KotasRi chardandDav i
sBer nard( 1986);Foodandbev eragecont r
ol,
Int
ernat i
onal textbookcompanyl t
d, 3rdedi
( tion)greatBr i
tain.(pg101-126).
i
i
.Dav isB.Etal l(2004);FoodandBev er
agemanagement ,Butterwor t
h
Heinemann, (3rdediti
on)U. k.(pg105- 1..
***).
i
i
i.DavisBer nardandSt oneSal ly(1985) ;FoodandBev eragemanagement ,
HeinemannPr ofessionalPubl i
shingLt d,(1stediti
on),Oxf ordLondon.( pg
190-206) .
i
v.Odger sPet er;Purchasingcost i
ngandcont r
ol ,
StanleyThor nespubl i
sher s
LTD, London.( pg49-50,122-123) .
v
.Set hiMohi ni (2008);Insti
tuti
onal foodmanagement ,NewAgeI nter
national
publi
sher s.(pg335- ****).
v
i.Ceser aniV.Etal l(2003);Thet heor yofcat ering,Bookpower ,London.(pg
315-317,349- 352)
v
ii
.McCr eeryCat hyEtal l;Introductiont ocatering,Longman, London.( pg242-
248)
v
ii
i.
LeaR.DopsonandDav i
dK.Hay es( 2010);foodandbev eragecostcont r
ol,

St
anl
eyt
hoi
thikagwi
Page233
 London( 5thedi
ti
on),(
pg201-228)
i
x.Boar dmanR. D(1986)
;Hot
el andcat
eri
ngcost
ingandbudget
s,Hei
nemann,
(3rdedi
ti
on)London.(pg35-45)
x.

SELLI
NG

Themai
nfact
orsinvol
vedherear
e:-
i
. Pri
cingofmealsandbever
ages
i
i
.Rev enuecontrol

Prici
ngofmeal sandbev erages
Prici
ng:-isthepr ocessofdet erminingwhatt ochar gethecust omerf orf ooditems,
menusorser vi
ces.
Selli
ngpr i
cesar emaj ordet ermi nant
sofanyhospi tali
tyindustry
establi
shment ’
spr ofitabili
ty.Whenpr icesarenotpr operlyestablished,theresul tis
af ai
lur
et omaxi mi sepr ofi
ts.Whenpr icesar etoolow, t
heest ablishmentwi ll
reali
selessr evenuet hani tcouldgener atethroughitsoper at
ions.Al t
ernately
, too
highpriceswi l
lreducesal es,therebyf ail
ingtoachiev etheorgani sati
on’spotent ial
forprofit
.Managementshoul dt hereforeaim atsettingpricesthatr esultinprof i
t
maxi misati
on.
Thisshoul dbedonef oral lmeal sandbev eragessoast oachi evet he

St
anl
eyt
hoi
thikagwi
Page234
i
ntendedpur
pose.

Obj
ect
ivesofpr i
cing
i
. Toear nasatisfact
orypr ofiti
.ethehigherthepri
cecharged,t
hehigherthe
netprofi
t
i
i.Tomaxi miset heprofi
tsr egardlessofthelongrunconsequences.
i
ii
.Tomai ntai
nthest andardoff oodandser v
icesandgoodwi l
lofan
establ
ishment
i
v.Toat t
ractcustomer sandbui ldupasuf fi
cientvol
umeofbusi ness(hasto
sacri
fi
cecur r
entpr ofi
tinor dertoachievethedesi
redrateofgrowth)

Purposeofpr ici
ng
i
. Fixasel l
i
ngpr icef orapr oductcoveri
ngallcost
sinvol
v ed
i
i.Pr oduceapr ofi
tsuf fi
cienttomaket heinvest
mentwor thwhil
e
i
ii
.Fixacompet it
ivepr i
cewi thsimil
arproductorserv
icesavail
ablei
nthe
mar ket
.i.ecompet it
orspr i
ces.
I
tsdiffi
culttofixapr iceonapr oductespecial
lyi
nindustr
iesthathav
ehigh
proporti
onof
fi
xedcost s(meani ngt hatthei ndust
ryisoperati
ngatahighpr of
itmargi
n)

Fact
orsaff
ecti
ngprici
ng
Therear
eseveralf
actorsnamel y:-
i
. Foodservi
ceest ablishment
 Thisincl
udef act orssuchas: -
 Locat ion
 Sizeandt y peofest ablishment
 Ser vicest y l
e
 Menu - composi t
ionoft hemenudet erminesprici
ng
- Ty peofmenupl annedal soaf f
ectspri
cing
- Thel argert hev arietyandflexibil
i
tyoff
eredona
menut he gr eaterwi l
lbether angeofpriceschar
ged.
i
i
.Cust omer
 Cust omerpr ofil
e(soci o-economi cstatusofcustomer)
 Pur chasi ngpower
 Likesanddi sl
ikesofcust omer s
 Cust omer sexpect ati
ons
i
i
i.Envi
ronmentalfact ors
 Poorhar vestepi demi cs
 Tr anspor tst ri
kes
 Gov ernmentpol icy
 Mar ketcl osure
 Riot s, curfews
 Fuel
 Pol iti
cal andeconomi cal stabili
ty

Somet i
mesitispossi
blef
oranest
abl
i
shmentt
okeepi
tspr
icesatl
ow
level
sinorder
t
oremaininbusi
ness.

N/
B pr
ici
ngl
evel
int
hecat
eri
ngbusi
nessaf
fect
sthenumberofcust
omer
s,

St
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Page235
v
olumeoft
otal
sal
esandhencet
hepr
ofi
tabi
l
ityoft
hecat
eri
ngbusi
ness.

Exampl e
Theimper i
alrestaurantscompanyi splanninganewr estaurantinahi ghly
compet i
ti
velocation.Youar einf
ormedt hatfoodcostsar etobemai ntai
nedat
40%oft hesalesv olume.Thecostofl abourandov erheadsisest i
mat edat
£75,000p.a,for15,000t o23,000coversp.a;
For23,001to33, 000cov er
s,labourcostandov erheadsshouldamountt o£90,
000;
anylargernumberofcov erswill
incr
easet heabov ecoststo£105, 000.Iti
s
esti
mat edthatthenumberofcov erwillbeinfl
uencedbyt hepricesasf oll
ows:
-
Pri
cepercov er£ Numberofcov ersp.a
6.00 36,000
6.60 34,000
7.20 31,000
7.80 27,000
8.40 22,000
9.00 16,000

Profi
tabi
li
tyst
atement
Pri
ceper Numberof Sal
es Grossprof
it Labourand Netprofi
t
cover(£) cover
s vol
ume (£) overheads( (
£)
(£) £)
6.00 36,
000 216,
000 129,
600 105,000 24,
600
6.60 34,
000 224,
400 134,
640 105,000 29,
640
7.20 31,
000 223,
200 133,
920 90,000 43,
920
7.80 27,
000 210,
600 126,
360 90,000 36,
360
8.40 22,
000 184,
800 110,
880 75,000 35,
880
9.00 16,
000 144,
000 86,
400 75,000 11,
400

Not
esonpr of i
tabi lit
ystatement
i
. Ther elati
onshi pbet weenpr iceandnumberofcov er
ssuggest sthatt he
volumeofbusi nessisv erysensi t
ivetot hepri
cechar ged
 Thi si spar ti
cularl
ysobet ween£7. 20- £9.
00.t hust heincreasei nthe
pricef rom £7. 20-£7. 80isani ncreaseof8.4%.t hecor respondi ng
decr easei nthenumberofcov ersis4000( 31,000- 27,
000) (14.8%)
i
i
.Fr om t hepr ofit
abil
itystatementgi venabov e,itmaybeseent hatt he
highestv ol umeofsal esdonotnecessar yresultinthehi ghestnetpr ofit
.At
£6.60-£7. 20t hevolumeofsal esandt hegrosspr ofi
tar ealmosti dentical,
butthel ev el oflabourcost sandov erheadisconsi derablydi f
ferent .
i
i
i.Thenetpr ofitismaxi mi sedbyt hechoi ceofthecor rectpricel evel whichin
turnhast or esultint hecorrectnumberofcov ersandcauseanappr opriat
e
l
ev elofoper ati
ngexpenses.
 Thesear et hemostessent ialfactorsdeterminingt hepr ofi
tabi l
it
yoft he
cater i
ngbusi ness.

PRICINGPROBLEMS
Therearef
ourmajorareasthatmustinvest
igat
ebeforeanymajorpri
ce
l
evel
sdecisi
onismade.Theseare:-
i. Thebasicpri
cel
evelofestabl
ishmentandtheov er
all
%gr osspr
ofi
ton

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Page236
 foodandbeverage
i
i
.Theov eral
lgrossprof
itmargi
nforeachrev
enuepr
oduci
ngdepar
tment
i
i
i.Thegrossprofi
tdi
ffer
enti
alwit
hindepar
tment
,menusandwi
neli
sts
i
v.Otherr
elat
edmat t
ers

BASICPRI CELEVESANDOVERALLGROSSPROFI T
Aresev eral factor st hatwi lldetermi net hebasi cpr i
celev elofthecat eri
ng
establ
ishment :
-
 Thepr i
cel ev el mustbesuchast opr oducet hehighestnetpr ofit
compat i
bl ewi t
happr opriatef ood- qual itystandards, acceptableser vi
ceand
thecont inuedgoodwi lloft hebusi ness.Thebusi nessmustnotconcent rate
ont hei mmedi ateshor t
-r
unpr of it
si rr espect i
veofl ong- r
unpr ospects.
 Pr i
cel ev el mustbecor r
ecti nr elat i
ont ot hespendi ngpoweroft he
cust omer sf orwhom i tisdesi redt ocat er
 Thepr i
cel ev el mustbecor recti nr el ationt otherequi redportionsizesand
foodqual ityst andar dsandmustr esul tinanappr opriate%ofgr ossprofi
t
andnetpr ofitont hecapi talinv est edi nt hebusiness.
 Thepr i
cel ev el hast obef i
xedi nr elat iont othekindofcompet iti
on
prev aili
ngi nt hel ocationconcer ned.
 Theef fectoft hepr icelev el ont henumberofcov er
swi llvar
yfrom
onel ocat i
ont oanot herandal sof rom onet ypeofcat eringoperati
on
toanot her .
N/B-whent hebasi cpr i
cel evelhasbeenf ixedi tsnecessar ytodecidewhatov eral
l
grosspr ofi
tshoul dbeachi evedbyt heest abl ishmenti nor derforittoear nthe
desir
edr ateofr eturni nt hecapi talinv est edi nt hebusiness.

DEPARTMENTALPROFI TMARGI NS
 Abusi nesswhi chconsistsofsev eraldepartment s,mayhav eadiff
erent
pri
celevelsandoper at
eatadi fferentgrosspr ofi
tmar gin%ateach
depart
mente. gAhot elmayai m at65%gr osspr ofitonal l
banqueti
ngsal es
andyetbesat i
sfi
edwi thagrosspr ofi
tof55%onal lotherfoodsales
 Thesameappl iestoprofitmarginsofbev eragese. gAt ablewinebottle
sol
dint heusuallunchtimemayat t
ractagr osspr ofitmarginsof55%, the
samebot tl
emaybepr i
cedat65%gr osspr ofitmar ginsi nthebanqueting
depart
ment
 Whenf ormulat
ingapr i
cepolicyi t
snecessar yt oident i
fyallt
hesell
ing
outl
etsanddet er
mi nethecorrectgr ossprofitmar ginsforeachout l
ets.

GROSSPROFI TDI FFERENTI ALS

 Itsnotusual l
ypr opertoappl yauni f
ormr ateofgr ossprof i
ttoallit
emsona
par t
icularmenu
 Itiseasi ertoachi eveahi gher%ofgr osspr ofitonsoups, vegetables,teas
andcof feest hantheav eragerateofgr osspr ofi
t
 Anest ablishmentmaybebudget edf oragr osspr ofi
tof65%oni t
salacar t
e
menu, itmayatt hesamet i
mebeai mingat75%onsoupsandv eget ables,
55%onmeat sandf i
shitemsand65%onal lotheritemsf eatur
edont he
menu
 Ifiti
sdesi redtoachi eveapar t
icularoverall%ofgr osspr ofi
t,i
tisessent i
al
toanal y seallfoodsal esunderappr opri
ateheadi ngs,establi
sht hesales
mi xandt hencal cul
atethewei ghtedav erage

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Page237
  Bev eragesaleshav ethesameappl i
cati
onondi f
ferent
ialpr
of i
tmargi
ns
 Bev erageconsi st
sofsev er
al distr
ictel
ement se.
gbeer s,
mi neral
s,t
able
wines,for
ti
fi
edwi nesandspi rits.
 Eachel ementoft het ot
alsales-mi xwil
latt
ractadiffer
entrate.
N/B-I ti
sessentialtocontrolthedifferenti
alprof
itmarginsonbev eragesal
esin
r
elat
iont othebudget edbeveragesal esmi xinordertoensureanadequat eoveral
l
r
esults.

OTHERRELATEDMATTERS( Specialpr
ici
ngconsi
derat
ions)
- Manycateri
ngestabl
i
shmentshav eoneormoreotherchargesaddedt
othe
guestbi
l
l.Thi
schargesi
ncl
udes:-Servi
cechar
ge,cov
ercharge,mini
mum char
ge,
sal
estaxe.t
.c

SERVI CECHARGE
Thisi sanext rachar gemadet ocust omersi nsomehot elsandr estaur antsinl i
eu
ofgr atuiti
es( ti
ps) .Thi schargei smadet ocust omer sataf i
xed%oft het otalcost
oft hef oodandbev er ageser ved.Thef i
xed%i sdet erminedbymanagementand
printedont hemenuorbev eragel ist
.Thishel pst hecust omerf rom pr oblem of
det erminingwhatsi zeoft iptogi v
einapar ticularest abli
shment .Thi schar gei s
distri
but edt ost affinal aterdat eei t
herasanaddi t
ional t
ooraspar toft heir
wages.I tvariesf rom 10%-20%.
Exampl e
I
faguest ’
sbi llinahot eli
s£52. 80and10%ser vicechar gei slevied.Whatwi l
lthe
guestpay ?
Solution
10%of52. 80+52. 80
i
.e52.80x10/ 100=£5. 28+52. 80
=£58. 08
SALESTAX
Thisi sat axi mposedbyt hegov ernmentonnonessent i
al goodsandser vices.Iti
s
alsoknownasv alueaddedt ax, indir
ecttaxorconsumert axandi scol l
ectedby
thegov ernmentt hroughcust om exci se.Itisi mpor tanttocust omer stoknow
whet hert hepr icesdi splayedorquot edarei nclusi v
eorexcl usi
veofsal est ax.The
V.A. Thasr angedf r
om 8- 15%si nceitwasi ntroducedandt hecur rentr ateis15%.
TheV. A.Tshoul dnotbei ncludedwhencal culatingr evenueorav eragespendi ng
fi
gur e.
N/ B-Thi sV. A.Ti salsol eviedonser vicechar gemadei nhot elsandr estaurants.

Calcul
ati
onofV.A.
Tcharges
Somet i
mesest
abli
shmentsaddV.A.
Ttothei
rcust
omer
’saccount
swhi
l
stot
her
s
chargepri
cest
hatarei
nclusi
veoft
hetax.

Example1
Thebil
lforahot
elguesti
s£66.
00.ser
vicechar
geat10%.Howmuchwi
l
lthe
guestpayift
heV.A.
Tratei
s15%.

Sol
uti
on
Guestbi
ll =£66.
00
+Ser
vicechar
ge10%

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Page238
 £66x10% =£6.60
£72.
60
+VAT15%
£72.
60x15% =£10.
89
Tot
alguestbi
l
l =£83.
49
Example2
Thepr i
ceofanight’
sbedandbr eakfasti
ncl
usiveofV.A.
Tis£25.00.Calcul
atet
he
pri
cetheguestwi l
lpayexcludingV. A.T
Sol
uti
on
=pricechar gedx100
100:( 100+VATr ate
=£25.00x100
115
=£21.74
COVERCHARGE
Thisisanaddit
ionalchargetoameal inr
estaurant
stocoversuchcostsasthe
breadroll
andbutterandi t
emsi ncludedbutnotpr i
cedonamenu.Car eshouldbe
exerci
sedastowhet hertoimpl ementornot .

MINIMUM CHARGE
Thisisoftenenf or
cedbyr est aur
ant stodi scouragesomepotenti
alcl
i
ent sf
rom
usingthepremi sesandt odi scourageclient sfr
om taki
ngupaseatandonl y
purchasingav erylow-pr
icedi tem.Thi schar geismadepurelyonfi
nancial
groundsandi sjustif
iedonlyi ncir
cumst anceswhenanest abli
shmentisoperat
ing
atfull
capacityandi sdesiredt oexcludel owspender sinor
dertomakespace
avail
ableinexcessofst i
pul atedmi nimum.

METHODSOFPRICING
Ar
ebasi
cal
l
ydi
videdi nt
ot wocategori
esorappr
oachesnamel
y:
-
i.I nformalapproaches
ii
.For malappr
oaches

INFORMALAPPROACHES
Thismet hodsar
equalitat
iveinnatureanddon’
tal
waystakei
ntoaccountt
het
otal
i
nv est
ment smadeinthebusi ness.Ther
earebasi
cal
l
yfourmethodsinthi
s
categorynamely
:-
i
.I ntuit
ive
i
i.Compet i
tiv
e
i
ii
.Imitati
ve
i
v.Trialander r
or

INTUITIVE
Thismet hodi soknownasr
sal uleofthumbmet hod.Thismethodisbasedon
i
ntuiti
onaboutwhatt hemarketwi l
lacceptoronthebasisofwhattheguest
“expects”topayandnotonanysci enti
ficanal
ysisofi
nvestmentsandcostsof
i
nv estment.Thismethodsucceedsbecauseofl uckandcannotbedependedupon
formaxi mizingpr
ofi
tsofestabl
ishmentorprovidi
ngvalueformoneytothe
customer .
COMPETI TIVE
Inthismet hodcater
ersset
spr i
cesofitemsbasedonwhatcompet i
tor
sare

St
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Page239
char
gingthei
rcustomers.I
tassumesthatt
heproduct
ssoldar
esimi
l
ari
nqual
i
ty
andcostsandthatthecompetit
orshav
epricedt
hem prof
it
abl
y.

IMITATIVE
Inthi
smet hodt hepr i
cesaresetbyf ollowingt hoseofthemostsuccessf ul
establ
ishmenti nthesamecl assoffoodser vices.Thismet hodhowever,hasthe
samedi sadvantagesast hecompet i
ti
vemet hodbecauset hecostingst
ructur
esof
theestabli
shment smaydi fferdramaticall
y,asal sotheguideli
nesbywhicha
successfulorganizati
onisjudged.Suchpr i
cingmet hodsmayt her
efor
enot
necessari
lyprovepr ofi
tabl
ei nthelongr unorbecust omerfri
endly
.

TRIALANDERROR
I
nt hi
smet hodv ariouspriceslev elsaret r
iedandt hesalesachiev edateachpr i
ce
arerecordedovert ime.Thepr iceatwhi cht hehi
ghestsalesv ol
umei sachi evedis
thenselectedandused.Thi smet hodhast hefol
lowingproblems: -
 Moni t
ori
ngguest ’
sreactionssoast oadjustpri
cesmayt aketool ong.
 Theguest ’
sr eacti
onsmaycausef requentpricechangest hatmayr esul
tin
pri
ceconf usionamongguest s.
 Itdoesnotconsi derotherout si
deuncont roll
ablefact
orst hataffectthe
guest’
spur chasingdecisions, e.gcompet iti
on,weathercondi t
ionse. t
.c.
 Themet hoddoesnotconsi dercost sofproducingtheproduct .

FORMALAPPROACHES
Thesemet hodsar ebasedonmat hematicalcal
cul
ationsfrom whichformulaear e
establ
ishedf oruseindeterminingtheprices.Thesemet hodsusuallytakeinto
accountf actorsl
ikecapit
alinvestmentandexpect edrateofr et
urn,
expected
salesvolumeandact ualoperati
onalcosts.Whilequantit
ativ
emet hodscan
provi
dewel lcal
culat
edpr of
itmargins,t
heymaysomet i
mesl eadtounusuallyhigh
pri
cefixation.
Themostcommonmet hodsadopt edare:-

COSTBASEDPRI CINGMETHODS( Costapproachest opricing)

Ast henamesuggest st hesemethodsarebasedont hecostst r
uctureofan
establi
shment .Usi
ngcostapproachest opri
cingpr oductsusual l
yresult
sinwhat
i
sr efer
redtoasBasesel li
ngPr
ice(BSP).TheBSPi sthe“floor”from whichot
her
qualit
yfactorsareconsideredi
nordertofixthef i
nalselli
ngpr i
ce.Iti
sconsidered
thelowestpriceatwhi chaproductshouldbesol dbasedoni tscost.
Therearesev eralmethodsofprici
ngthatusecostofpr oductionsast hebasi
sf or
setti
ngprices.Thissectionout
li
nesthefoll
owi ngmet hods:-

1)Si mple(ingredi
ent)mar k-uppr i
cing(Fact
orpricing)
Thismet hodofpr ici
ngmar ksupt hecostofgoodssol d.Themar k-
upisdesigned
tocov erall
non-foodcostsandy ieldsadesi rednetpr ofit
.Themet hodther
efore
considersthecostofal l
ingredient sincurredinproduci ngtheit
em.Thisiscarri
ed
outint hr
eestepsasf oll
ows:-
i. Determinethecostofi ngredi
ents
ii
.Det erminethemul t i
pliertousei nmarkingupt hecostofi
ngredient
s
basedont hedesi redf oodcostper centage.
ii
i.Multipl
ytheingredient scostbyt hemul tipli
ertoarr
iveatt
hebase
sell
ingpri
ce.

St
anl
eyt
hoi
thikagwi
Page240
Workedexampl e
Assumethatgr i
l
ledsirloinsteakinaci tycafecost sKshs.154. 85,anda35%f
ood
costi
sdesir
ed.Thebasesel l
ingpr i
ceiscalculatedasf oll
ows:-
i
. Thei ngr
edientscosti salreadygivenasKshs. 154.85
i
i.Basedont hedesiredf oodcostper centage,themul ti
pli
eri
s
calculat
edt hus:-
_____1_____= 1 =2.857 =2. 86orMUF= 100 =100
=2. 86
Desi r
edFC% 0.35 F.cost% 35
i
ii
.Basesel l
ingprice=i ngredientcostxmul tipl
ier
154. 85 x 2. 86
=442. 87

Di
sadv
ant
ages
i.I tdoesnotr ef
lecthi
gherorlowerl abour,energyorot hercosts
associatedwithproducingspecifi
cmenui tems.Itassumest hatall
oper at
ingcostsrel
atesomehow
directl
ytofoodcosts,orignorethesedi f
ferencesaltogether.
ii
.I tassumest hatallf
oodcost sassociatedwi t
hamenui t
em are
known.I nfact,
manyot hercostsar eexcludedfrom thecostof
i
ngr edient
susedast hebasef orthemar k-up.
Forexampl e,howar et
heft,over
-porti
oningandspoi lageaddr essed?

2)Contri
butionmar ginpr i
ci ng
Theterm“contri
but i
on”referst ot heamountl eftaftersubtr
acti
ngamenui tem’s
foodcostfr
om itsselli
ngpr ice.Cont ri
but i
onmar gi
nistheamountthatthesaleof
amenui t
em cont r
ibutestowar dsnon- f
oodexpensesandpr of
itr
equir
ementsof
thefoodservi
ceest abli
shment .
Thismethodisappl i
edf oll
owi ngt wost epsout l
inedbelow:-
i. Determinet heav er agecont r
ibuti
onmar gin(ACM)perguest:Divi
de
non-foodexpensespl usrequiredpr of
itbyexpectednumberof
guests.
ii
.Addt heav eragecont r
ibutionmar gintotheit
em’sstandardf
ood
costtodet erminet hebasesel li
ngpr i
ce.

Workedexample
Assumetheapprov
edoper
ati
ngbudgetofadownt
ownr
est
aur
antpr
ovi
dest
he
fol
l
owinginf
ormati
onf
oronemonth.

I
TEM KSHS.
AllNon-foodExpenses 1,
475,
000.
00
Requiredprof
it 120,
000.
00
ExpectedNumberofguests (7,
080)
StandardFoodCostofT-boneSt
eak 188.
82

Tocal
cul
atet
hebasesell
ingpri
cetheT-boneSteak:-
i
. Det
erminetheaveragecontr
ibut
ionmar gin:
ACM =Non- f
oodcosts+Requiredprofit
Expect
edNumberofguest s

St
anl
eyt
hoi
thikagwi
Page241
 =1,475,000. 00+120, 000.00 =225.28
7080
i
i
.Det erminet hebasesel l
ingpri
ce:
BSP = I
tem’ sStandardfoodcost+ACM
= 188.82 + 225. 28
=414.10
Adv
ant
ages
i
. Easyandpr acti
cal touse-whenr easonabl yaccurat
einformati
oni
s
avail
ablefrom t heoper ati
ngbudget
i
i
.Pr acti
calinoper ati
onswher ecost sassociatedwithservi
ngeach
guestarebasi cal l
ythesame.
i
i
i.Itt
endst oreducet herangeofpr icesont hemenu.

Amajordisadv
antage,
howeverist
hateachguesti
sassumedtopayanequal
shar
eoftheoperati
on’
snon-f
oodexpensesandprof
itr
equi
rement
s,ev
enfor
i
temsthatarerel
ati
vel
ycheaptopr
oduce.

3)Rat
iopr
ici
ng

Thismethoddet ermi nest her elat

ionshi pbet weenfoodcost sandal l
non-f ood
expensesplusprof itrequirement s.Thi sr ati
oisthenusedt ocal cul
atet hebase
sel
li
ngpricesfort hemenui tems, followingt hesethreesteps:-
i. Divideal l
non- f
oodcost splusr equi
redpr of
itbyfoodcostt o
deter mi nether ati
ooff oodcostt onon-foodcost splusrequi red
profit
ii
.Mul tiplythest andardf oodcostoft hemenui tem byt herati
of r
om
step( i
)abov et odeter mi net heamountofnon- f
oodcost spl uspr of
it
requi redf oramenui tem
ii
i.Addt her esultfrom st ep( i
i)abov etothestandardf oodcostoft he
menui t
em t oar ri
veatt hebasesel l
ingpr i
ce.

Wor
kedexampl
e

Assumethatt
heapprovedoper
ati
ngbudgetf
oramedi
um si
zer
est
aur
ant
pr
ovidest
hefol
lowi
nginfor
mati
onforonemonth:
-

ITEM KSHS.
Foodcost s 618,
750.
00
Allnon-f
oodexpenses 720,
000.
00
Requiredprof
it 96,
250.
00
StandardfoodcostofT-
bone 188.
82
steak

Tocal
cul
atet
hebasesel
l
ingpr
icef
ort
heT-
Bonest
eak:
-

i
. Det
ermi
net
herati
o:-
Rat
io= Non-
foodcosts+Requi
redpr
ofi
t
Foodcost
s

St
anl
eyt
hoi
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Page242
 = 720,
000. 00+96, 250.00 = 1.32
618,750.
00
i
i
.Non-foodcosts+prof i
trequi
redpermenuit
em:-
= Menui tem’scostsxRat i
o
188.82x1. 32 = 249.
24
i
i
i.Det
erminet
hebasesel l
i
ngprice:-
BSP = (Non-f
oodcost s&Requi r
edpr
ofi
t)+Menuitem’
scost
= 249.24 + 188. 82 = 438.
06

Advantage
I
tissimpletousebasedonanoper
ati
ngbudget
,assumi
ngt
hatt
heoper
ati
on
of
fersfoodorbever
ageonly

Di
sadv
ant
ages
i.I tcannotbeeasil
yappli
edtoanoper ati
onthatoffer
sbothfoodand
beverage–non-foodcostsandpr ofitr
equir
ement shavetobe
sharedsomehowbet weenthet wodepar t
ment s
ii
.I tassumesthateachmenui t
em shoul dcontr
ibuteanequalshare
towardsnon-f
oodcostsandpr ofit
.
ii
i.Itdoesnotcompensateforhigherlabourcostassociat
edwiththe
preparat
ionofl
abour-
int
ensiv
ei tems.

Assi
gnment

Theoper
ati
ngbudgetf
orFi
ndost
affcant
eenf
oronemont
hisasf
oll
ows:
-

ITEM KSHS.
Foodcost s 70,
000.00
Requiredprofi
t 30,
000.00
Non-foodexpenses 82,
200.00
Standardfoodcostoffr
ied 120.00
l
iver
a)Calcul
atet
hebasesel li
ngpri
ceforf
riedl
i
verusingrati
opr
ici
ngmet
hod.
(
9mar
ks)
b)Giv
et wodi
sadv antagesofusi
ngrat
iopri
cingmethod.
(
2mar
ks)

4)Simpl epr i
mecost s
Theterm“ pri
mecost s”referst
ot hetot
al off
ood,beverageandlabourcostsi
na
foodandbev er ageser vi
ceoper at
ion.Thismethodinvolvestheassessmentand
consider
ationoft heoper ati
on’
slabourcostinthepri
cingequation.Basedonan
operati
onbudget ,thebasesel l
ingpri
cei scal
culat
edthroughthreestepsas
shownbel ow:-
i
. Di videt hebudgetedt ot
allabourcostbytheexpectednumberof
guest st odetermi
ne
thel abourcostperguest .

St
anl
eyt
hoi
thikagwi
Page243
 i
i
.Addl abourcostperguestt
othemenuitem’
sfoodcostdeter
mi ne
pri
mecostperguest.
i
i
i.Div
idepri
mecostperguestbythedesi
redpri
mecostspercentageto
deter
minethemenui t
em’sbasesel
l
ingpri
ce.

Workedexample
Theinf
ormati
onbelowi savai
labl
efr
om theapprov
edoperati
ngbudgetofa
medium si
zerest
aurantforonemonth:
-
ITEM KSHS.
TotalLabourCost
StandardFoodcostofT-bone 962,
500.00
steak 188.82
Numberofexpectedguests (6,
250)
DesiredPri
mecosts 62.0%
percentage

Thebasesel
l
ingfortheT-bonesteaki
sdeter
minedasf ol
l
ows:-
i. Labourcostperguest = Totall
abourcost = 962,
500.
00
=154. 00
No.OfExpectedGuests 6,
250

i
i
.Pr
imecost
s/guest= Labourcost/
Guest+ I
tem’
sFoodcost
= 154.00 + 188.
82
=342.
82

i
i
i.BSP = Pr
imecost/guest= 342.
82 =
552.
94
Desi
redpri
mecost% 0.
62
Advantage
I
tfocusesonbot
hthefoodandlabourcostsandiseasyt
ouse,
prov
idedt
herei
s
anaccurat
eoper
ati
ngbudgett
owor kfrom.

Di
sadvantages
I
ttendstoassignanequalshar
eoflabourcostt
oeachmenui
tem al
though
l
abourcostsfordi
ff
erentmenuitem mayvarygr
eat
ly.

5)Costpl usPr ici

ng
Ast henamesuggest sthef oodcostperuni tofsalesi scalculat
edandagi ven
percentageisaddedt ot hefoodcost .Thisisusuall
yequi valenttothegrossprofi
t
percentageestimatedt hroughtheprocessofbudget ing,andi sint
endedtocov er
l
abourandov erheadexpensesal ongwi thanesti
mat edmar ginofnetprof
it.
Alt
hought henetprofi
tdesi r
edwilldependont hepr i
ci ngpolicyofevery
establi
shment ,f
oodoper at
ionsgener all
yadd150%t ot hefoodcostt oesti
mate
theappr opri
atesell
ingpr i
ce.Thi
sisbasedont heest imat ethatthefoodcostsof
theoper ati
onwoul dbe40%andt hegr ossprof
it60%ofsal es.

Workedexample
Ifarest
aur
antisf
uncti
oni
ngatagr ossprof
itesti
mateof60%andt her
ebyafood
costof40%andthecostofi
ngredi
entsforadishormealisKshs.100.Cal
cul
ate
thesell
i
ngpri
cebasedoncostpluspri
cingmet hod.

St
anl
eyt
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thikagwi
Page244
Sol
uti
on
Sel
l
ingpr
ice = Foodcost+Foodcostx150%
= 100+100x1. 5
= 100+ 150
=Kshs.250.
00

Advant
age
Thecostpl
usmet
hodi
seasyt
oappl
yandunder
standandi
sther
efor
ewi
del
y
used.

Di
sadv
ant
ages
i.Itisbasedent i
rel
yoncost sanddoesnott akeintoaccountthe
demandf ortheproductorser v
ice,andt herefor
eifused
i
ndiscriminatel
ybecomesi rrati
onal.
ii
.Netpr ofitbecomest hedirectfunctionofsal esturnov
erwhi chcan
theref
orev aryanddeviat
ef rom estimatedf igur
esappreciably
.
ii
i.Thegr ossprofitmargini
saddedt ot hefoodcostandt henetpr of
it
i
st her
efor eunrel
atedtocapi t
alinv
est ed.

6)Ot herpr ici

ngconsi der ati
ons( Modi f
yingFactors)
I
nconj unctionwi tht hebasesel l
ingpricederivedfr
om acostappr oach,t
he
fol
lowingqual i
tyfact orsthatr elatetoprici
ngshoul dbeconsideredbefor
efi
xing
thefinalsell
ingpr i
cef oranypr oductorser vi
ces:-
i. Historicalpri
ces
Theoper atorshoul dconsi derpr icesthathav ebeenchargedinthepast.Ahuge
andsuddenpr i
cechange( increase)di ct
atedbyacostappr oachmayappear
unreali
sti
ct ocust omer s.Itwoul dbebet tertoimplementtheincreasebysmall
amount sinsev er
al stepsov eraper iod

i
i.Per cei
vedpri
ce/v al
uerelati
onship
Thisconsider
swhet hertheproductpriceisreasonabl
e,andwhethert
heguest
feel
shei sgett
inggoodv alueformoney .Manyoft oday’
sguest
swouldnotmind
payingahigherpri
ceasl ongast heyaregettinggoodvaluef
orthepri
ce.
Perceivedval
ueincl
udest heproductorser v
icesaswel l
astheatmospher
e,
l
ocat i
on,qual
it
yofser v
ice,andot heri
ntangi
blefactor
s.

i
ii
.PriceRoundi
ng
Pri
ceroundingi
snecessar
ytofitinwit
hthecurr
encyunitoft
hecount
ry,andf
or
conveni
encesofmakingchange.Thusacalcul
atedsel
li
ngpri
ceofKshs.233.
87
mayber oundeduptoKshs.235.00orevenKshs.240.
00

i
v.Statut
or yTaxes
Theoperati
onshoul dtakeintoaccountanylocaltaxesthatmustbeleviedand
col
lect
edont heoper at
ion’
spr oductsandservi
cesonbehal fofthegovernment
.
Theseincl
ude:-
 Val ueAddedTax: - Thegovernmentreviewstherateannuall
y
 Tr ainingLevy:
- 2%onf oodandbev erages
 Ser vicecharge:
-r angesfrom 5%to10%.

St
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eyt
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thikagwi
Page245
Mostest
abli
shment
sei
theri
ncl
udethesetaxesint
het ot
almenuprice,ori
ndi
cat
e
t
hatthepr
int
edmenupri
cesaresubj
ecttovari
oustaxesatspeci
fi
edr at
es.

7)Di scountpr i
cing
Discount inginvol vesthepr acticeofchargingt hecust omerlessthanthedeclar
ed
ratesonpr oduct smenus, orser vi
ces.Thisisusual lypract
icedtoenhancesales
duringf estiv
alsandot hercel ebrati
ons,byof feringspecial
sfortheday,group
discount s,buffetsandpr ov idingcorporateorcont r
actfaci
lit
ies.
Ther ear emanyv ari
ationsi ndi scounti
ngpr actisesuchasr esort
ingtoquanti
ty
discount s,tr
adedi scount s,cash, seasonaldi scounts,tr
ade-i
nallowancesandso
on.Di scount sar eoffer edformanyr easons: -
 Seasonal clearanceofst ocks
 At tracti
ngcust omer s
 Pr omot inganov elorcreati
vei dea
 Cl osingdown

MARKETBASEDPRI CINGMETHODS
I
nt hismet hod,pr i
cesdependagr eatdeal onthemar kettr
endsbecauset he
proportionoffixedcost si
srelati
velyhighandt heprofi
tmarginsexpectedarefar
greaterthanthosef orsocial
insti
tutions.Inthese, pr
ici
ngtakesonacost -ef
fecti
ve
ratherthanapr of i
t-
maki nggoal.
Thesemet hodsofpr ici
ngarequalitati
v einnatureanddonotal way scovercost
s
tothesameext entinev er
ysituati
on, andr equireknowledgeofthemar ketand
thecust omer,bot hofwhi chneedt obei nnovativ
elyandcreati
velymanagedf or
maxi misingprof i
ts.Thesestrategiesv arywidelyandbr i
efl
ydiscussedbelow:-

a)Floorpri
cing
Thisref
erstoapr i
ci
ngstr
ategyt
hatjustcov
ersthecostsofanestabli
shment
suchasusedbynon- pr
ofi
tmakingfoodservi
ces.Establ
i
shmentssuchas
orphanagesandothergover
nmentandsocialser
vicesoper
ateonthisstr
ategy
.

b)Penetrati
onpricing
Thi
sisapri
cef oranypr oductdel
i
beratel
yfi
xedlowerthatthepr
icesof
compet
it
ors,
andonet hatcustomersarenotusedtopay i
ng.Thi
sisusual
l
ydone
whenanewpr oduct,i
deaori nnovat
ionisi
ntr
oducedintothemarket.

c)Par i
typri
cing
Int
hiscasethepricesf
ixedf
orsi
mil
arpr
oduct
sandser
vicesar
ethesameas
competi
tor
’spri
ces.

d)Pr emi
um pri
cing
Thisstr
ategyal
lowspricef
ixat
ionatf
ixat
ionatl
evel
shighert
hancompet
it
ors,
but
ensurethatt
heyarewhatcustomersareusedtopayi
ng.

e)Leader
shippri
cing
Thisi
nvolv
esbeingt
hel eaderinfi
xi
ngpri
cesbybenchmar
kingt
hem,
alt
houghon
theconser
vat
ivesi
de,fortheindustr
ytof
oll
ow.

f
) St
ay-
outpr
ici
ng

St
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eyt
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Page246
Pricesarefi
xedaccor dingtot
hisstr
ategyisindi
cati
veoft
heest abl
i
shment
want i
ngtostayoutoft hewayofcompet it
ion.Thepri
cesther
eforearef
ixedlower
thant hel
evel
swhi chdemandcanbear .
g)Bundlepri
cing
I
nt hisasetofproduct sandservi
cesareclubbedtoget
herandchargedatlower
thant hesum oft
hei ndivi
dual
elementsinthemi x.

h)Val ue-basedpr i
cing
Dif
ferentsegment schar gedif
ferentpr
icesforthesameproductandservi
ces
accordingtot hevaluepercei
vedi nasit
uation.Managementsusethi
sconcept
whent heysubsi di
zethemeal sofempl oyeestovari
ousextent
s,i
nthehopeof
i
ncreasingproduct i
vit
yandt herebyaddingv al
uetotheest
abli
shmentthr
ough
i
ncreasedpr ofit
abil
ity
.

i) Cross-
benefi
tpr
ici
ng
Thisstrat
egyinvol
vespri
ceadj
ust
ment
sbet
weendi
ff
erentpr
oduct
soft
hel
i
ne
thatcomplementeachother
.

MENUPRI CI
NGAPPLI CATIONS
Thesy st
em ofprici
ngusedbymosthot elsandcater
ingoperati
onisknownas:
-
i. Profitmargi
n
ii
.Mar k-up
Profi
tmar gi
n
Term usedwhenal lcostsareexpressedasapercentageofsalesorsel
li
ngpri
ce
whichisalways100%.
Mark-up
Thisisaterm usedwhenorwher ethefoodcostisexpressedas10%.

Exampl
e

Wher
ethefoodcost,
grossprofi
tandsell
i
ngpr i
ceisthesame.
Pr
of i
tmar
ginpri
cing Mark-uppri
cing
Foodcost Kshs. 40% Foodcost Kshs. 100%
Grossprofi
t 60 60% Gr ossprofi
t 60 150%
Kshs. Kshs.
90 90
Sell
i
ngpr i
ce Kshs. 100 Sel l
i
ngpr i
ce Kshs. 250%
150 % 150

Grosspr ofit
Thisisthedi ff
erencebet weenmat eri
alcostofadi shandthesell
ingpr
ice.Itmust
besufficienttocov ertheexpensesi nvolvedinrunningabusinessandl
eav ea
profi
tfort heowner .Var i
ati
onsbet weengr ossprofi
tandfoodcostmaybedue
(majorreasonsf orf oodcostandgr ossprofitv
ariance)
:-
i
.I ncreasei npurchasepr i
ceofsomecommodi ti
es
i
i.Changesi nsalescomposi ti
on
i
ii
.Ineffi
cientstocktaking
i
v.Poorr ev enuecontrol
v.Poormenu
vi
.Lackofadher encet ostandards

St
anl
eyt
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thikagwi
Page247
 vii
.Hi ghper ishabili
tyoff ood
vii
i.
Shr i
nkagedur ingcooki ng
i
x.Fai l
uret oaccountf ormanagementandst affmeals
x.Poorr ecei ving
xi.Poorst oring(poorst ockr otat
ionresulti
ngtowast age)
xii
.Clerical errors
xii
i.
Ov erchar gingbysuppl iers.
Ineachcasesomeact i
onshoul dbet akeninordert oensurethatbusiness
remainspr ofi
tableandt hev ariationin%i sanindicati
onthatsomet hi
ngr equir
es
i
nvestigat
ion.Hot el andcat eringoper ationshouldfixgrossprofit%tocov eral
l
expensesandi tisdesi rednetpr ofi
t,andi twil
lvaryfrom establ
ishmentto
establ
ishmentandt hemar kett owhi chi tai
mst osell.

Gr
osspr
ofi
tcal
cul
ati
ons

Grosspr of
iti
sexpressedasapercent ageofsel
li
ngpri
ce.
Grossprof
itformul
a= sel
li
ngpr i
cexgr osspr
ofi
t%
100
Exampl e
Adi shonanal acartemenuispricedatKshs.460.00perpor
tion,t
he
establishmentworksonagr osspr of
itmarginof60%.Cal
cul
atethegrossprof
it
andt hef oodcost
.
Solution
a)Gr ossprof
itformul
a= sel
li
ngpr i
cexgr osspr
ofi
t%
100
= Kshs460.00x60
100
=Kshs.276.00
b)Foodcost = Sel
li
ngpr i
cexf oodcost%
100
= Kshs.460x40
100
= Kshs.184.
00

Sel
li
ngpr i
cecalcul
ati
ons
Whent hegrossprofi
tmargi
nhav
ebeenset ,
iti
seasiert
ocalculatesel
l
ingpri
ce.
Fi
rst
,thefoodcost%mustbecalculat
ed.Thesell
i
ngpr i
ce%i salways100%
ThereforeFoodcost%=Sell
i
ngprice%-Gr ossprof
it%

Sel
l
ingpr
icef
ormul
a=Costpr
ice(
Foodcost
)x100÷f
oodcost%

i
.e =Costpr
ice(
Foodcost
)x100
Foodcost%
Exampl e
Thef oodcostofadishisKshs.570.Cal
cul
atethesel
li
ngpri
ceoft
hedi
sht
o
achieveagrossprof
itof60%.
Soluti
on
Sell
i
ngpr i
cefor
mul a=Costprice(Foodcost
)x100
Foodcost%
=Kshs.570x100

St
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Page248
 40
=Kshs.1425.
00

Tabl ed’hôtemenus.
Thisi sasetmenuf ormi ngacompl et
emeal atsetpr i
ce.Tocostat abled’hôte
menui tisnecessar ytocosteachdi shsepar atelyandaddt heseindividualcosts
togethert omaket hetot alcostoft hemeal .Itisimpor tanttocost
accompani ment sintot hemenut oachieveanaccur atefigure.Iti
simpor tantto
selectdisheswhi chhav easi mi larcostforeachcour seandt hattheav er
agepr i
ce
ofthedi shesisusedwhent hemenui scosted.
Exampl e
Por kchops Kshs.180. 00
Springchi cken Kshs.190. 00
Fi
lletoffish Kshs.185. 00
Aver agecostofKshs.185. 00woul dbeused.
Ast andar dgrosspr ofit%i saddedt ofoodcostsoast oachi ev eexpectedr et
urn
oni nvestment( sell
ingpr i
ce).i.etotalfoodcost+gr osspr ofit%soast oget
sell
ingpr ice.

Al
acar
temenu
 Theyvaryconsiderablyf
rom oneest abl
ishmentt oanother.
 Fir
stest
abli
shpol i
cydeci si
ononov eral
l grosspr of
itrequi
rede.g60%
grosspr
ofit
.
 Secondestabli
shwhat%ofgr osspr ofi
tisr equir
edoneachsect ionofala
cart
esales-
mix.
Example
75%gr osspr ofi
tonsoups
55%gr osspr ofi
tonmeat s
60%gr osspr ofi
tondesser t s
 Wheretherearecost edrecipesinuse, t
hesel l
ingpriceofanyit
em will
be
obtai
nedbyaddi ngthepr e-
determined%ofgr osspr ofi
ttocostperport
ion.

FUNCTI
ONCOSTI
NGANDPRI
CING

 Whencost ingandpr icingf orev entssuchasweddi ngsandbanquet st here

aredifferentmet hodst hatcanbechosen.
 Af unctionini t
smostbasi cf orm maybecost edi nt henor mal mannerf ora
dishormenu, howev er, t
hisappl iest osmal lev ent
s.
 Wi t
hlargerf unctionshowev eritispossi blefort hecat erertobemor e
accuratei nest abli
shi ngt hecost sinvolvedr atherthanest imatingthem.
 Itwillbenecessar yt oest imat epr ofit
sandsomeov erheadssuchast hose
ofaf i
xednat ure,ot hercost swhi char edirectlyconcer nedwi ththefunct i
on
maybeeasi l
ycal cul ated.
 Theconceptoff unct i
oncost ingist hereforetoest abl i
sht hedi r
ectcost s
i
nv olv
edt ocov erfood, extralabourandspeci alcost se. gDi scohire,and
addonaper cent aget ocov erf i
xedl abour ,
fixedov er headsandpr ofi
t.
 Thef oodcost sar eest ablishedbyusi ngast andar dr ecipecostf oreach
dishinvolvedandt het otal calculatedaccor dingt ot henumberofcov er s
beingcat eredf or.

St
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Page249
  Wagesf orsuchf unctionwi l
l haveadual nature;thoseat t
ri
butedt o
permanentmember sofst affe.gmanagementandki tchenbrigade, and
thosedi r
ectl
yengagedf ort hef uncti
one.gcasualwai t
ingandcl oakroom
staff.
 Ov erheadar eofdual nature;fixedandsemi -
fi
xedcost sanddi rectlyrelat
ed
overheadse. glaundryandst at i
onery.
 OtherCost sinvolveddi r
ect l
ywi ththefuncti
onar eal sot akenint o
consi derati
on,thesedependont hetypeoft hefunct ione.gext rasas
fl
ower s,weddingcakes, discoandbandhi re,toastmast ersandot her
i
rregul archarges.
 Thecost sarethent ot al
ledandaper centagepr ofitcalculatedtof ixa
selli
ngpr i
ceforthef unct i
on.
 Thepr icequotedt othecust omerwi l
lusuallybeperheadbuti nsome
casest heactualt ot
alwi l
lbeusedf orthequot ati
on.

Sel
l
ingpr
icecal
cul
atedby
:- Knowncost
sx100
Knowncost%
Exampl e
Aweddi ngpar t
yf or200guesthasselectedasitdownweddi ngbr eakfastwitha
foodcostof£3. 35perhead, 20part-
ti
mewai t
ingstaffarerequi r
edf or4hour sat
therat
eof@ £3. 50perhour,theyhavealsor
equestedf l
oral decorati
onscost i
ng
£80,print
edmenuscost ing£24andadi scot
hequecost i
ng£65t of oll
owt he
weddingbr eakf
ast .Dr
inksaretobequotedseparatel
y .I
tisthepol icyofthe
establ
ishmentt ocharge20pperheadt ocoverlaundrycost sandt oallocate25%
oftheselli
ngpr i
cet ocoverfi
xedlabourandoverheadchar ges.Theyal sowi shto
makeapr ofi
tof15%onal lf
uncti
ons.

Sol
uti
on
Foodcost: 200cov ers@ £3.35 =£670.00
Labourcost:20par ttimewai t
ingst
aff
For4hr s@ £3.50perhour=£280. 00
Overheadcost: Laundr
y200@ 20p =£ 40.
00
Stationery(menu) =£ 24. 00
Othercosts:Fl
or aldecorat
ions =£ 80. 00
Discotheque =£ 65. 00
TotalknownDirectcost =£1159.00

All
ocatedindi
rectcost
s =25%
Requirednetprof
it =15%
Totalunknowncosts/prof
it =40%
Totalknowncosts =60%
Totalsell
i
ngprice =100%

Sel
l
ingpr
icecal
cul
atedby
:- Knowncost
sx100
Knowncost%

= £1159x100
60
=£1932

St
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Page250
 Costpercov
ercal
cul
atedby:
- Tot alcost÷Numberofcov
ers
£1932÷200
=£9.66

Assi
gnment

Yourcol
legestudent suni onhasaskedyourdepart
menttocaterf
orit
’sChri
stmas
Ballest
imat ing
300peoplewil
l attend.Thecust omerhassel
ectedamenuwi thafoodcostof£15
percover.A
ki
tchenbri
gadeof10bei ngpaid£50eachandawai ti
ngstaf
fof1to25guest sat
£30eachf orthe
buff
etservi
cear erequired.
Fi
xaselli
ngpriceperheadt oi
ncludet
hefoll
owing:
-

i. Allow10%ofsal est ocoveroverheadchar ges.

ii
.Thecol legecharges£500t ocov erroom hi r
eandcar et
aker’
scost s.
ii
i.Disco- hireof£400i stobei ncl
udedi nthequot edpr i
ce.
iv.Post ersandt i
cketscost£300t obepr i
nt ed.
v.Anetpr ofi
tof15%i srequir
ed.
(
10marks)
Bev
eragecost ingandpr ici
ng
 Thepr incipl
eofall f
oodandbev eragecost i
ngisbasednt heuni toft
hesal
e
i
.et hecostperpor t
ionormeasur eofdr i
nk,thi
suni tcostist henusedto
calculat ethesell
ingpr i
ceaccordingtot heprofitmar gi
nrequi red.
 Bev eragesar eeitherpurchasedbyt heuni t(multi
plesofunits)asi nt
he
caseofbot t
ledbeer s,wi
nesorinbul kasi nthecaseofspi r
its,thi
s
therefor emakescost i
ngofunitpr i
cemucheasi er.
 Li quori temspur chasedbyuni t
,thensel l
ingpriceiscalculatedasbelow

Li
quorSel
l
ingpr
ice= Li
quorcostx100
Liquorcost%
Example
TheFendocat er
spurchasedabot
tleofwineat£2. 20perbot
tl
e.Howmuchwi
l
lhe
sel
lthebottl
esoast oachiev
eagrossprofitof60%.
LiquorSell
ingpr
ice= Liquorcostx100
Liquorcost%

= £2.
20x100
40
= £5.
50
 Li
quorit
emst hatar
epurchasedinmul t
ipleunit
smustfir
stbecalcul
ated
i
ntoaunitcosti.
ecostpermeasur eorpint.Uni
tcostf
orastandardbott
le
ofspi
ri
ts(75centi
li
tr
es)whichholds32st andardmeasureswoul
dbe
cal
cul
ated:-

CostperBott
le÷Numberofmeasur
es(
32)
 Thent
heabov
emet hodisused.

Exampl
e

St
anl
eyt
hoi
thikagwi
Page251
Ali
treofgincostsKsh.2,795,excludingVAT.Apubwishestomakeagrossprof
it
marginof55%.Cal cul
atethesell
ingpr i
ceof25mlmeasureofgin.
(
4marks)
Sol
ution
ALitr
eofgin - Ksh.2,
795
Grossprofi
tmargin- 55%
Beveragecost% = sal
es% -Gr osspr
ofi
tmargin%
= 100-55 =45%

Sel
l
ingpr
ice= Beveragecostx100
Bev
eragecost%
= Ksh.2,795x100
45
= Ksh.
6211
nd
2 st
ep
1li
tr
e = Ksh.
6211
25ml = x
Ther
efor
e
= Ksh.6211x25ml
1000
= Ksh.155.
30

SALESORREVENUECONTROL

 Thi
sisasy
stem t
hatcont
rol
sthei
ncomeofanest
abl
i
shment
.

 Thecontr
olofr
evenuei
fofut
mosti
mpor
tancei
nanycat
eri
ng
est
abl
ishment.

 Tocont
rol
revenue,par
ti
cularatt
enti
onmustbepai
dtot
hef
act
orswhi
ch
hav
eaninfl
uenceintheprofi
tabi
li
tysuchas:
-

a)Themenuorbev
eragel
i
st

b)Thet
otal
vol
umeoff
oodandbev
eragesal
es

c)Thesal
esmi
x

d)Theav
eragespendi
ngpowerofcust
omerf
oreachsel
l
ingout
let

e)Thenumberofcov
ersorcust
omer
sser
ved

f
) Thegr
osspr
ofi
tmar
gin

 I
tisimport
anttoaccountf
orwhathasbeenservedtocust
omer(t
hatis,
paymenthasbeenmadef oral
lfoodandbev
eragethathav
ebeenissued
fr
om ki
tchenandbar.

 Al
lst
affhandl
i
ngcashshoul
dbeadequat
elyt
rai
ned.

St
anl
eyt
hoi
thikagwi
Page252
  Cashi
ersorwai
ter
’smanual
orhandbookshoul
dbeproducedsothatan
est
abli
shedpr
ocedur
eofensur
ingcashsecur
it
yisef
fi
cient
lycar
ri
edoutat
al
lti
mes.

 Thehandbookwi
l
lcont
ainsuchi
nfor
mat
iononst
andar
dpr
ocedur
essuch
as:
-

a)Openingprocedure-inst
ruct
ionsherewouldincl
udeprocedures
aboutcheckingthef
loat
,havi
ngafloatofspecif
icdenominat
ions,
checkingt
he

t
il
lrol
l
,recor
dingwai
ter
’sbi
l
lpadnumber
set
c.

b)Wor
kingprocedur
es-inst
ruct
ionsonhowt
oacceptpay
mentand
t
heprocedur
et of
oll
ow.

c)Closi
ngprocedur
e-instr
ucti
onsonanydocument
ati
onand
recor
dingstobecompl
eted,
cashi
ngup,r
ecordi
ngofcredi
tcar
ds,
cheque,et
c.

d)Procedureforaccept
ingf
orei
gncurr
ency-whatcurrencyistobe
accepted,howtoobtaint
hecurr
entexchanger
ates,
howt hisi
stobe
recor
ded.

e)Procedureforaccepti
ngcredi
tcar
ds-whichcr edi
tcardsar
etobe
accepted,howtheyaretobechecked,
met hodofprocessi
ngcr
edi
t
cardsforpayment,recor
dingofcr
edi
tvouchers,et
c.

f
) Proceduref
oraccepti
ngvoucher-whi
chv
oucher
sar
eaccept
abl
e,
howt hi
sistoberecor
ded.

g)Procedur
eforaccepti
ngcheques-howchequesar
etobenadeout,
customerst
opr ov
ideval
i
dbanker’
scar
d,checki
ngt
hatsi
gnat
ures
corr
espond,et
c.

h)Procedur
eforaccept
ingt
ravell
ers’
cheque-whatt ravel
l
erscheque
areaccept
able,
whatcurr
enciesareacceptabl
e,wi
tnessi
ngand
checki
ngsignat
ures,
howthisistorecorded.

i
) Procedur
eforcompl
iment
aryorsi
gnedbi
ll-checkagai
nstcur
rent
l
istofaut
hori
sedper
sonsandthei
rsi
gnat
ure,howthi
sistobe
recor
ded.

Member
sofst
affchar
gedwi
tht
her
esponsi
bil
i
tyofi
mpl
ement
ingcont
rolsy
stems

 Revenuecontr
ol i
sacollecti
ver
esponsi
bil
it
yincater
ingestabl
i
shments.
Thefoll
owingstaffcont
ribut
esi
mmensel yi
nimplementingcontr
olsy
stems:
-

St
anl
eyt
hoi
thikagwi
Page253
 i
. Manager
s

 Manager
sandthei
rassi
stant
shavearesponsi
bil
i
tyf
oract
ion
oft
heemploy
eesunderthem andt
hei
racti
ons.

 Expectedtoaccountfort
heprof
it
abi
l
ityandef
fect
ivenessof
theareasunderthei
rcontr
ol.

i
i
.Headofdepar
tment
s

 Moni
tor
scont
rol
syst
emsi
nthei
rar
easofoper
ati
ons.

 Makesrepor
tsr
egardi
ngthosepoli
ciest
hatwor
kandt
hose
t
hatposeachal
lengetot
hesy st
em.

 Takecar
eoft
heasset
sint
hei
rar
eas.

i
i
i.Cont
rolcl
erks

 Bookkeepi
ngr
ecor
ds.

 Moni
tor
stheusageandsal
esofi
tems

 Monit
orscostbehav
iour
sandsal
estr
endsinal
ldepar
tment
s
andgi
vesreport
stothemanager
sandheadsofdepar
tment
s.

i
v.Account
sper
sonnel

 Accountful
lyal
lthemoney
sinv
olv
edi
nthecour
seof
tr
ansacti
ons.

 Ensuresal
ltr
ansacti
onsarerecor
dedandtheappr
opr
iat
e
accountsandfi
nanci
alcontr
oldocument
s.

v
.St
orekeeper
sandst
ockcont
rol
l
ers

 Responsi
blef
oral
lgoodsr
ecei
vedandst
ored.

 Mustensur
ethatstockr
otat
ionisadher
edt
oavoi
ddead
st
ockandredundancyofmater
ial
sandequi
pment
s.

 Maint
ainr
ecor
dsandmoni
tort
hepr
ogr
essaspr
oposedby
pol
i
cymakers.

SALESANALYSIS
 Forcater
erstoassesshi
ssuccessorf
ail
ureitisnecessar
ytoanal
ysehi
s
sal
es,
costsandprofi
tsi
ntot
al.Thi
swi
llenablehimtomakeany

St
anl
eyt
hoi
thikagwi
Page254
 adjustment stohi soper ati
onwi t
ht hepur poseofmaki ngitmor eef f
ici
ent
andpr ofitable.
 Mosthot elsandcat eringoper ati
onssel lmor et hanonepr oduct.This
i
ncludesr oom sal es, f
oodsal es, beveragesal es, tobaccosalesandot her
ancil
larygoodandser v i
ces.
 Inestablishmentwher ethereismor ethanonear eaofsal e,t
heni tis
necessar yt obr eakt heseareasdepar tment ally.
 Iti
sal sowor thwhilet ocalculatedai l
yormont hlysalesofeachdepar t
ment
andf oll
owt heirpatternsandt rends,aswel last heav eragespendi ngpower
percust omeri nhot elsandr estaurants.
 Thisanal ysishel pst hecaterert oplanhi sbusi nessandi tsdevelopment
wellinadv anceandt ot akeadv antageofantt rendsheobser v
ed.

Sal
esmi
x

 Asalesmi
xisabreakdownofdepar
tment
alsal
esi
nrel
ati
ont
othet
otal
sal
esandexpr
essedasapercent
age.

For
mul
a = x100

Exampl
e

Ahotelhastotalsalesof£132,800fort
heyear
,abr
eakdownoft hesesal
esshows
Room saleswer e£82,700,Foodsal
eswere£27,
450andLiquorsaleswer
e
£22,
650.Calculatethesalesmix.

Sol
uti
on

Room sal
es = x100

= x100

= 62.
27%

Foodsal
es = x100

= x100

= 20.
67%

Li
quorsal
es = x100

= x100

= 17.
06%

 Expr
essi
ngt
hisasaper
cent
ageenabl
est
hecat
erert
ocompar
ether
esul
ts

St
anl
eyt
hoi
thikagwi
Page255
 ofhisbusi
nessfr
om daytoday,monthtomont
hory
eart
oyearandt
osee
theaff
ectofanychangeshehastr
iedtomake.

Pr
esent
ati
onofsal
esandcosti
nfor
mat
ion(
anal
ysi
s)

Theanalysi
sandcompari
sonofsalesandcostsinf
ormati
onisof
tenbetter
present
edbyusi
ngvisual
andpict
orial
techni
ques.Thi
stechni
queincl
udes:
-

i
. Useofchar
tsandgr
aphsorhi
stogr
ams

i
i
.Rest
aur
antsal
esanal
ysi
s

Useofgr
aphsandchar
ts

 Consi
derableusehasbeenmadeinr
ecenty
ear
sofgr
aphsandchar
tsi
n
thepr
esentati
onofinf
ormat
ion.

 Suchmethodsofpr
esentat
ionhaveanimport
antrol
etoplayint
hefieldof
cont
rol
general
l
yand,ofcourse,
inthecont
roloft
herevenueofabusiness.

 Thi
sshowsbot
hst
ruct
ural
dev
iat
ionsandt
renddev
iat
ions

St
ruct
uraldev
iat
ions

 Thesearethosewhi
choccurwithi
napart
icul
artradi
ngperi
od.E.
gwhen
act
ualfoodcosti
s44%andi nt
endedorbudgetedfoodcostwas40%.

Tr
enddev
iat
ions

 Trenddev i
ati
onsoccurov eraperiodoftimeandr epr
esent
schangesin
costlev
elsonpr ofi
tmar gi
nsfrom onetradi
ngperiodtoanother.E.
g
whenper cent
ageofl abourcostsincr
easesfrom 25%inonet r
ading
peri
odto27%i nthesuccessiv
et r
adingperi
od.

Usesofgr
aphsandchar
tsi
nthepr
esent
ati
onofsal
est
rends.(
Adv
ant
ages)

i
. Theycomparedif
fer
entmont
hsf
ort
hewhol
eyearandonecanseet
he
resul
tsatagl
ance.

i
i
.Theyar
eeasi
l
yint
erpr
etedbecausei
tssal
esv
ersusdur
ati
on.

i
i
i.Theyar
ecl
ear–gener
alpat
ter
nisi
mmedi
atel
yappar
ent
.

i
v.Vol
umesandper
centagesshowhighandl
owpi
cksandt
heyar
eeasi
l
y
pr
esent
edusi
nggraphsorchar
ts.

Rest
aur
antsal
esanal
ysi
s

 I
naddi
ti
ont
ocont
rol
l
ingdepar
tment
alsal
es,
sal
es-
mix,
ASP,
NOC,
etc.
,i
tis

St
anl
eyt
hoi
thikagwi
Page256
 essent
ial
tocont
rol
thesal
esbyi
ndi
vi
dual
wai
ter
sorwai
tr
esses.

 Manyhot
elandrest
aur
antsoperat
orstakethevi
ewt
hatt
hemai
nfunct
ion
oft
hewait
ingst
affi
sto‘sel
l
’rat
herthan‘ser
ve’
.

 Theaim ofr
estaur
antsal
esanalysi
sist
ocontr
olt
heweeklysalesby
i
ndiv
idualwai
tersorwait
resses,
aswell
asthei
ndi
vidual
sales-
mix.

 Fai
lureonthepar
toft
hewaiti
ngstafft
osell
itemswithahighgrosspr
ofi
t
l
oadingcanmakeagreatdealofdi
ff
erencet
ot het
otalpr
ofit
softhe
est
ablishment
.

APPROACHESTORECORDI
NGANDCONTROLLI
NGFOODANDBEVERAGESALES

 Therearebasi
cal
lyt
woappr
oachest
orecor
dingandcont
rol
l
ingf
oodand
beveragesal
esnamely
:-

i
. Manual
syst
ems

i
i
.Anaut
omat
edsy
stem

MANUALSYSTEMS

 Thi
sinv
olv
est
hef
oll
owi
ng:
-

Rest
aur
antchecki
ngsy
stemsorsal
eschecksorf
oodcheck

 Arest
aurantchecki
ngsy
stem i
stheessent
ial
foundat
ionofasy
stem of
r
evenuecontrol
.

 Oneofthesi
mpleststepst ot
akewhenat t
empt i
ngtoest
abl
i
shsales
cont
rol
procedur
esistor equi
rethateachi
tem order
edandi
tssel
l
ingpr
ice
i
srecor
dedonawai ter’
ssalescheck.

Usesorf
unct
ionsoff
oodcheck

i
. Tor
emi
ndt
hewai
ti
ngst
affoft
heor
dert
heyhav
etaken;

i
i
.Togi v
ear ecor
dofsal
essot
hatpor
ti
onsal
esandsal
esmi
xesand
sal
eshist
ori
escanbecompi
l
ed;

i
i
i.Toassi
stt
hecashi
erandf
aci
l
itat
eeasychecki
ngofpr
iceschar
ged;

i
v.Toshowt
hecust
omeradet
ail
edl
i
stofchar
gesmade.

 Anadditi
onalai
distousenumberedchecksandcont
rol
theset
ight
ly,
recor
dingal
lcancel
l
edandmi ssi
ngchecks.

 Iti
smor ecommontofnddupl
i i
cat eort
ri
pli
cat
echecksbei
ngusedasan
aidtocontr
olf
ort
hefol
lowi
ngreasons:
-

St
anl
eyt
hoi
thikagwi
Page257
 i
. Theyprov
idethekit
chen,buff
et,
orbarwi
thawr
it
tenr
ecor
dofwhat
hasbeenorderedandissued.

i
i
.Theyaut hor
izet
heki
tchen,
buf
fet
,orbart
oissuet
hef
oodand/
or
bev
erage.

i
i
i.Theypr
ovi
detheopport
uni
tytocomparethetopcopyoft
hecheck
wit
hthedupl
i
catet
oensurethatal
lthathasbeeni
ssuedhasbeen
char
gedandpai
dfor.

Thecashi
er’
srol
e

 Thecashi
erincater
ingest
abli
shment
swor
kingwi
thamanual
syst
em
per
for
mst hefol
lowingrol
es:
-

i
. Tocheckthepr
ici
ngandv
eri
fyt
het
otal
sandent
erst
het
otal
amountdue.

i
i
.Tor eceiv
eandcheckmoney,
creditcar
dsorwhenappli
cablean
approv
edsignat
urei
npaymentforthetot
alamountdueforeach
check.

i
i
i.Toissuecheckpadstothewait
erspri
ort
oameal per
iodandonthe
complet
ionofthemealperi
odtorecei
veusedandunusedcheck
padsforrecor
dingpur
poses.

i
v.Tocompl
etet
her
est
aur
antsal
escont
rol
sheetf
oreachmeal
per
iod.

v
.Tocompletethenecessar
ypay
ingi
nofal
lcash,
inaccor
dancewi
th
t
heest
abl
ishmentspoli
cy.

v
i.Tocomplet
ethemissingcheckl
i
stt
oeachmeal
per
iodt
ohel
p
cont
rol
thechecksused.

v
ii
.Addsanygover
nmentt
axes,
serv
iceschar
geandV.
A.Tt
othe
guest
s’bi
l
landent
erst
hetot
alamounts.

Pr
obl
emsoft
heManualsy
stem

 Theday -
to-
dayoper
ati
onal
probl
emsofamanual
syst
em ar
emanyand
i
ncludes:
-

a)Poorhandwr
it
ingbywai
ti
ngst
affr
esul
ti
ngi
n:-

i
.Incor
rector
dergi
vent
otheki
tchenordi
spensebar
.

i
i
.Wr
ongf
oodbei
ngof
fer
edt
othecust
omer
.

i
i
i.I
ncor
rectpr
icesbei
ngchar
gedt
othecust
omer
.

St
anl
eyt
hoi
thikagwi
Page258
 i
v.Poor
lypr
esent
edbi
l
lfort
hecust
omeret
c.

b)Humaner
rorcanpr
oducesuchmi
stakesas:
-

i
.Incor
rectpr
iceschar
gedt
oit
emsont
hebi
l
l.

i
i
.Incor
rectaddi
ti
onst
oaconsumer
’sbi
l
l.

i
i
i.I
ncor
rectser
vicechar
gemade.

i
v.I
ncor
rectgov
ernmentt
axmadee.
gV.
A.Tchar
ge.

c)Thecommuni cati
onbetweendepartmentssuchastherestaur
ant,
di
spensebar,ki
tchenandcashierhastobedonephy si
cal
lybythe
wait
ingstaf
fgoingtothevar
iousdepartments.Thi
sisnotonlyti
me
consumingbutineff
ici
ent
.

d)Manualsystemsdonotpr ov
ideanyqui
ckmanagementi
nfor
mati
on
data;
anydat aatbestbei
ngnormal
ly24-
48hr
sold,aswel
lasbei
ng
costl
ytoproduce.

e)Manualsyst
emshaveahighcosttolabour
.Thismeansthatmany
peopl
eareinvol
vedi
npr
ov i
dingdet
ail
edup-to-
dat
einfor
mation.

AUTOMATEDSYSTEM

 In bi
g organi
zat
ions,manualorsemi-aut
omated systems cannotbe
appli
cabl
ebecauseoft hehugeamountoft henumberoft ransact
ions,
thei
rcont
rol,
andthelar
geamountofmoneyassoci
atedtothem.

 Inful
lyautomatedsy stems,inorderto maint
ainanadequateint
ernal
cont
rol and i
nf or
mat i
on f l
ow, t
he indiv
idual comput
ers must be
el
ectr
oni
call
yconnectedt oeachot
her.

 Themaj
oradv
ant
agesoft
hesy
stem ar
e:

i
. On-l
i
neinf
ormationisavai
l
able
i
i
.Noneedf orre-
enteri
ngdata
i
i
i.Mini
mum int
ernalcontr
olr
equi
rement
 Thi
saut
omat
edsyst
emsincl
udes:-

Pr
e-checki
ngsy
stems

 Theyaresomewhatsi
milari
nappearancet
oast andardcashr
egi
sterand
aredesi
gnedtooper
ateonlywhenasalescheckisinser
tedi
ntot
he
pri
nti
ngtabl
etothesi
deoft hemachi
ne.

 Themachi
nei
soper
atedi
nthef
oll
owi
ngway
s:-

St
anl
eyt
hoi
thikagwi
Page259
 a)Awai
terhashi
sownmachi
neoper
ati
ngkey
.

b)Acheckisi
nsert
edi ntothepri
ntingtableandthepar
ti
cul
arkeys,
dependi
ngontheor dertaken,
arepr essedgi
vi
nganitem andpri
ce
recor
daswellasrecordingthetablenumber,thenumberofcover
s
andthewai
ter
’sreferencenumber .

c)Adupli
catechecki
spri
ntedandissuedbyt
hemachinewhi
chis
t
henissuedasthedupl
i
catechecktoobtai
nfoodand/
orbever
age.

d)Foreachtr
ansact
ionar
efer
encenumberi
sgi
venont
hesal
escheck
andthedupli
cat
e.

e)Alldataisrecordedonacont i
nuousaudi
ttapethatcanber emoved
onlybyaut hor
isedpersonsattheendofthedaywhent hemachine
i
scl earedandt ot
alsal
estakenandcompar edt
oact ualcash
received.

Adv
ant
agesofPr
e-checki
ngsy
stems

i
. Thesal
eschecki
smadeoutandarecordofitmadeontheaudi
ttape
bef
oret
hespecif
ici
temscanbef
rom t
hekitchenorbar
.

i
i
.Analysisoftot
alsal
esperwai
teri
smadeont
heaudi
ttapeatt
heendof
eachshif
t.

i
i
i.Nocashieri
sr equi
redaseachwait
eract
sashisowncashi
er,eachkeepi
ng
thecashcoll
ectedfrom cust
omer
sunti
ltheendoft
heshi
ftandthen
payi
ngitin.

i
v.Aseachwaiterhashi
sownsecuri
tykeytooper
atethemachi
ne,t
hereis
ther
efor
erestr
ict
edaccesst
othemachinesandnootherwaybywhichpre-
checkscanbeprovi
dedandusedi
nexchangeforit
emsf r
om t
hekit
chenor
bar.

El
ect
roni
cCashRegi
ster
s(ECRs)

Manycater
ers’todayarepurchasi
ngel
ectroni
ccashr egist
ersystemswhich
prov
ideamor eeffi
cientser
viceatt
hepointofsaleit
selfaswellasimpr
ov i
ngt
he
fl
owandqualityofinfor
mationtomanagementf orcontrol
purposes.

Adv
ant
agesofEl
ect
roni
cCashRegi
ster
s(ECRs)

i
. Pr
icecust
omer
s’checkst
hroughpr
e-setorbypr
icel
ook-
ups;

i
i
.Pr
intchecks,
incl
udi
ngt
hepr
int
ingofpr
evi
ousl
yent
eredi
tems;

i
i
i.Hav
eanaddi
ti
onal
speci
alkeysot
hatt
hepr
e-setpr
icecanbechanged

St
anl
eyt
hoi
thikagwi
Page260
 dur
ingpr
omot
ional
per
iodssuchas‘
happyhour
s’i
nbar
;

i
v.Provi
deananal
ysi
sofsal
esmadebyt
het
ypeofpr
oductandi
frequi
redby
houroft
radi
ng;

v
.Pr
ovi
deananal
ysi
sofsal
esbywai
terperhourorpershi
ftper
iod;

v
i.Anal
ysesal
esbymet
hodofpay
mente.
gcash,
cheque,
typeofcr
edi
tcar
d,
et
c;

v
ii
.Compl
eteaut
omat
ict
axcal
cul
ati
onsandcov
erandser
vicechar
ges;

v
ii
i.
Prov
idesomel
i
mit
edst
ockcont
rol
;

i
x.Pr
ovi
dewai
terchecki
ng-
inandchecki
ng-
outf
aci
l
iti
es;

x.Pr
ov i
defaci
l
iti
esforoperat
ortrai
ningtot
akepl
aceont
hemachi
newi
thout
di
srupti
nganyinf
ormationalr
eadyintheECR;

xi
.Restri
ctaccesst
otheECRandt
het
il
ldr
awerbyt
hekeyorcodef
oreach
oper
ator
;

xi
i
.Hav erotati
ngcur
rentdi
spl
ay sofpri
ceschar
gedtoi ndi
vi
dualcust
omer
tr
ansacti
on.Thi
sisofpart
icularv
aluei
nself
-ser
viceandcounter
oper
ations.

xi
i
i.Eli
mi natet
heneedforacashi
er-
byrequi
ri
ngeachwai
tert
ober esponsi
ble
fortakingpay
mentfrom t
hecustomersandpayi
ngi
ntheexactamountas
recordedbytheECRattheendoftheshif
t.

Funct
ionofanEl
ect
roni
cCashRegi
ster(
ECR)

i
. Changeofcomput
ati
on

 Theregist
erautomat
ical
l
ypri
ntst
hetot
alsal
esandcal
cul
atesand
pri
ntsthechangedueoramountowi
ng

i
i
.Addi
ti
onandsubt
ract
ion

 Cust
omersrecei
pti
spri
ntedshowingtheamountofeachi
tem
pur
chasedandtheamountofeachcredi
t.

i
i
i.Quant
it
yext
ensi
ons

 Mul
ti
plei
temst
hatsel
lfort
hesamepr
icear
eeasi
l
yrecor
ded.

 Thenumberofuni
tsandt
het
otal
pri
cear
epr
int
edont
hecust
omer
’s
recei
pt

i
v.Si
ngl
eit
em

St
anl
eyt
hoi
thikagwi
Page261
  Si
ngl
eit
emscanberecor
dedwithoutgoi
ngt
hrought
he
pr
ogr
ammedsequenceofsubt
otals.

v
.Moneycount

 Amoneykeymakesi
teasyt
ocountt
hemoneyf
rom t
hedr
awer
whenbal
anci
ng.

 Thi
sall
owsaquickcompar
isonoft
heact
ual
moneyi
nthedr
awer
wit
hthecash.

Poi
nt-
of-
sal
econt
rolsy
stem

Thi
sisamodernECRwithaddi
tional
feat
ureofsev
eral
pri
nter
satsuchl
ocat
ions
ast
hekit
chenordi
spensebar.

Obj
ect
ivesofhav
ingpr
int
ers

i
. Tospeedupt
hepr
ocessofgi
vi
ngt
heor
dert
otheki
tchenorbar
;

i
i
.Toai dcontr
ol,i
nthati
temscanonl
ybeor
deredwhent
heyhav
ebeen
enteredint
otheECRort er
minal
byani
dent
if
iabl
ememberoft
hewai
ti
ng
staffandpri
nted;

i
i
i.Toreducethetimetakenbythewaiteri
nwalki
ngtot
hekit
chenorbarto
pl
aceanor derand,
asf r
equent
lyhappens,
tochecki
fanorderi
sreadyf
or
col
lect
ion;

i
v.Toaf
for
dmor
eti
me,
ifr
equi
red,
forcust
omercont
act
;

v
.Topr ov
ideaninstantandsepar
atecl
earandpr
int
edor
dert
otheki
tchenor
bar
,ofwhati
sr equi
redandbyforwhom.

CASHCONTROL

 Thecont
rol
ofcashrecei
ptandcashexpendi
tur
eincat
eri
ngest
abl
i
shment
i
sofutmostimpor
tance.

 Thi
sinvolv
esmethodsofsecur
ityforcash,
procedur
esforchecki
ngcashi
n
andoperati
onst
ocontr
olcashreceipt
sandexpendit
ure.

Secur
it
yofcash

 Moni
esi
ncateri
ngest
abl
i
shment
sar
ecol
l
ect
edbydi
ff
erentdepar
tment
s
upt
otwent
y-f
ourhour
saday.

 I
nthesecasesanoperat
ionmustest
abl
ishasecur
esystem,enabl
i
ngst
aff
t
opayincashtakentoacentr
alpoi
ntasandwhennecessar
y.

St
anl
eyt
hoi
thikagwi
Page262
  Thecashi
er’
soff
iceinsuchoper
ati
onsisonl
yopendur i
ngnormalwor
king
hour
sandaccessshouldbeli
mit
edtothoset
imes,excepti
nthecaseof
seni
ormanagementrequi
rement
s.

 I
tisusualfort
hehotel
safetobelocat
edi
nthecashi
er’
sof
fi
ce,
whi
chwi
l
l
besubjecttomaxi
mum securi
ty.

 Anightsaf
eisprovi
dedinordertofaci
l
itat
est
affpay
ment
sofmoney
whenthecashi
er’
soffi
ceisclosed.

 Thedutymanagerorcontr
oll
erwi
ll
readthet
il
lateachchangeofshif
tor
cashi
er,
thet
il
lrol
lwil
lthenbecol
l
ectedandtakentocashi
er’
soff
ice.

 Staf
fshoul
dnothav eaccesst
oti
ll
rol
lsexceptf
orreadi
ngpur
poses,
contr
olst
affshoul
donlybeall
owedtoreneworremovethem.

 Til
lshoul
dbecheckedregul
arl
yforchanger
equi
rementsandemergency
stocksofchangebekepti
nasecureplacet
ocopewithanyneedsoutsi
de
normalhours.

 Thetranspor
tat
ionofcashfrom t
heestabl
i
shmentt
othebankneeds
car
efulconsi
derat
ionbyall
typesofoperat
ion.

 Securi
tycompaniesprovi
deanexcell
entser
viceandar
eusedbybigger
establ
ishmentswhichhandl
elar
gesumsofcashandt heyarehowever
expensiveandcannotbeconsi
deredbysmall
erorgani
zat
ions.

 Whencashhast
obet akentot
hebankbytheseor
gani
sat
ions
consi
der
ati
onmustbegivenastowhot
akesitandwhen.

 Cashshoul
dnotbetr
ansport
edatthesamet
imeeachdayorweekand
i
deall
ynotal
waysbythesameperson.

 I
tisal
soadvi
sabl
efort
hepersoncar
ryi
ngt
hecasht
obeaccompani
edand
notmakei
tobvi
ousastowhatisbei
ngcar
ri
ed.

Pr
ocedur
esf
orchecki
ngcashbal
ances

 Allestabli
shmentsshoul
dusetil
l
sthatr
ecordallt
ransact
ionsandhav
ea
controlfunct
iont
hatenabl
est
otal
stobereadandreset.

 Thet il
lshould ber
ead atthebegi
nni
ng ofeach shif
torr esetwher
e
pract
ical;det
ail
soft
hereadi
ngshoul
dbeenter
edont hecashier
scont
rol
form.

 Thecashi
ershoul
dthencheckt
hatt
he‘
fl
oat
’int
het
il
li
scor
rect
.

Fl
oat-t
hisi
sthecashi
nat
il
lusedf
ort
hepur
poseofgi
vi
ngchanget
ocust
omer
s.

St
anl
eyt
hoi
thikagwi
Page263
  Attheendoft
heshift
,thecashi
ershoul
dtakeacl
osi
ngt
il
lreadi
ngand
cal
cul
atet
heamountofcasht
aken.

 Thecashi
ershouldthencountthecashi
nthet
il
landr
epl
acet
hef
loati
nthe
smal
lestpossi
bledenominati
onsofcash.

 Theremaini
ngcashi
sent er
edontothepayi
nginfor
minit
sdiff
erent
denominati
onsandt
otal
led;t
hecashisthenpai
dint
othechi
efcashi
er
toget
herwitht
hecompletedfor
m.

 Thecashpaidinandt
hecashi
er’
scont
rolfor
msarecheckedwi
theach
otheratal
aterst
agei
ncontr
olanddi
ff
erencesnot
ed.

 Cashshoul
dneverbelef
tinthet
il
lwhenadepar
tmentiscl
osed,t
il
l
drawer
sshoul
dber emovedandtakent
othechi
efcashi
er’
soff
iceforsaf
e
keepi
ng.

SomeGui
del
i
nesf
orCashi
ers:

1.Theopeni ngmachi net ot al

sf orpai dandpai d- outmustbet hesamef igures
thatappearont hepr ev i
ousshi f
t'
scashr epor tast hecl osingmachi net ot
als
forpaidandpai d-out
2.Atthecl oseoft heshi ft,thecashi ershoul dsubt otalpai dandpai d-outfort he
currentshif
t, andr ecordt hecl osi
ngf iguresi nthemachi ne'stotalscolumn
3.Ifatanyst age,cashi eracci dentallymi ss-key sanyt r
ansact i
on,adj ustment s
canbemadet othemachi ne
4.Netcashr ecei ved=cashpai d-in(closing)-cashpai d-in( beginning)
5.Netcashpai d-out=cashpai d- out(closing)-cashpai d-out( beginning)
6.Netcashsum ofcashi er '
sshi ft=netcashr eceived-netcashpai d-
out
7.Thecashi ershoul dext ractt henetcashsum f r om thecashdr awer ,andsecur e
themoneyi nt hegener al cashi er'
ssaf edeposi tboxunt i
l depositedi ntheBank
8.Att heendofanyshi ft,t hecashdr awershoul dcont ainexact lyt hesame
amountasi tdi dwhent hecashi eropenedhi s/hershi ft.
9.Ifanycashov er
ageorshor tagesoccur ,thecashi ermustr echeckt hecash
reportandsear challthet ransact ionr ecordsf orpossi bl
emi ss-keyedent ri
es.

Recor
dingcashr
ecei
ved

 Oncethei
ndi
vidual
cashdeposit
shavebeencheckedtheymustbe
r
ecordedi
na‘cashrecei
vedbook’bef
orebei
ngpaidtobank.

 Attheendofeachday
,thecashbooki
sbal
ancedandt
het
otal
ispai
dint
o
thebank.

 Thebankpayi
ngi
nformisthenusedasprooft
hatt
heday’srecei
ptshav
e
beenbanked,
whi
chini
tsel
fispar
tofthecashcont
rol
procedure.

 Att
heendofeachmont
hthe‘
tot
alcashr
ecei
ved’
col
umnshoul
dequal
the

St
anl
eyt
hoi
thikagwi
Page264
 ‘
cashbanked’column,t
hebankpay
ingi
nbookagai
nfor
mingapar
toft
he
cashcont
rolprocedur
e.

 Themainf
unct
ionoft
hisst
agei
ncashcont
rol
ist
ocompl
etet
heov
eral
l
cont
rol

System,from cashbei
ngpai
dbycustomert
odet
ail
sofal
lcashr
ecei
ved
beingrecordedonthebankst
atement.

Recor
dingcashexpendi
tur
e

 Themostcommonmethodofr
ecor
dingt
hist
ypeexpendi
tur
eisbyset
ti
ng
upapet
tycashsy
stem.

Pet
tycash -ist
heamountofmoneyent
rust
edt
othecashi
erf
or
pur
chaseofsmal
li
tems

 Amethodofpet
tycashcontr
oli
sthe‘
imprest
’sy
stem;
thepet
tycashi
eri
s
gi
venafl
oatatt
hebeginni
ngoftheweek.

 Wheniti
snecessaryhewil
lpaymoneyoutforgoodsorser
vices,
asking
t
hereci
pientt
osignavoucherrecor
dingt
hedetai
lsoft
hetr
ansaction

 Therecei
ptf
orgoodsorser
vicesobt
ainedi
sst
apl
edt
othebackoft
he
voucher
.

 Thecashi
erwi
l
lthenmaket
heappr
opr
iat
eent
ryi
ntohi
spet
tycashbook.

 Attheendoftheweekthepet
tycashierwil
lbalancehisaccountbyt
otal
l
ing
theent
ir
eanalysi
scol
umn,heshouldhav evouchersrepr
esenti
ngthi
s
amountandtheremai
nderofhisi
nit
ialcash.

 Thecashi
eranal
ysi
ssheetandvoucher
sar
eret
ainedbyt
hecashi
erand
sentt
othemainaccount
soffi
ce.

 Thi
sinf
ormat
ioni
susedt
opr
epar
ethecashf
lowoft
heest
abl
i
shment
.

Cashfl
ow -t hi
sisafi
nanci
alst
atementsummarisi
ngthefl
owofcashi
n
andoutoveraperi
odofti
me,usual
lyayearandgi
vi
ngi t
seff
ectont
he
cashbal
ance.

REVI
SIONQUESTI
ON

1.Explai
nfiveway
sinwhi
chf
raudmaybepr
act
isedwhensel
l
ingal
cohol
i
c
beverages.

St
anl
eyt
hoi
thikagwi
Page265
 (
10mar
ks)

2.Descr
ibeanyf
ivedev
icesf
ormeasur
ingst
andar
dquant
it
iesofal
cohol
i
c
bever
ages.

(
15mar
ks)

3.Cal
cul
atet
hesell
i
ngpricefort
hef
oll
owi
ngbev
erages,
whosegr
osspr
ofi
t
margi
nhasbeensetat65%:

i
. 750ml
vodkaboughtatksh.
1,200 (
4mar
ks)

i
i
.1bottl
eofwi
neboughtatksh.
3,275 (
2
mar
ks)

i
i
i.1bot
tl
eofbeerboughtatksh.
52 (
2mar
ks)

4.St
atesi
xpr
ecaut
ionst
obet
akent
oav
oidf
raudi
ntheki
tchen.

(
6mar
ks)

5.Stat
et wor
easonswhykit
chenempl
oyeesmayhav
eanegat
iveat
ti
tude
towardsst
andar
dreci
pes.

(
2mar
ks)

6.Stat
ef ouradv
ant
agesofusi
nganel
ect
roni
ccashr
egi
sterf
orcomput
ing
guests’bi
ll
s.

(
4mar
ks)

7.Theoper
ati
ngbudgetf
orFi
ndocant
eenf
oronemont
hisasf
oll
ows:

I
tem Ksh.

Foodcost 70,
000

Requi
redpr
ofi
t 30,
000

Non-
foodexpenses 82,
200

St
andar
dfoodcostoff
ri
edl
i
ver 120

a) Cal cul
atet
hebasesel
l
ingpr
icef
orf
ri
edl
i
verusi
ngr
ati
opr
ici
ng
met
hod.

(
9mar
ks)

b) Gi
vet
wodi
sadv
ant
agesofusi
ngr
ati
opr
ici
ngmet
hod.

(
2mar
ks)

St
anl
eyt
hoi
thikagwi
Page266
 8.Expl
aint
wot
ypesoff
raudsi
ntheki
tchen.

(
4mar
ks)

9.a) Li
stf
ourt
ypesofar
est
aur
antchecki
ngsy
stems

(
2mar
ks)

b) Gi
vet
hreer
equi
rement
sofar
est
aur
antchecki
ngsy
stem.

(
3mar
ks)

10.
Thecostofhamburgerser
vedtoaguestisKsh.80.i
thasbeengar
nished
wit
hlet
tuceandtomatoeswor t
hKsh.
5.therest
aurantappl
i
esagrossprofi
t
of65%.Atwhatpri
cemustt hehambur
gerbesol d?

(
4mar
ks)

11.
Expl
ainbr
ief
lyanyt
hreef
unct
ionsofar
evenuecont
rol
syst
em.

(
6mar
ks)

12.
Giv
eanyt
hreeadv
ant
agesandt
hreedi
sadv
ant
agesofcostpl
uspr
ici
ng.

(
6mar
ks)

13.
Aschool pr
oducti
onuni ti
ntendst oinv estKsh200,000inabi scui
t
product i
onventur
efrom whi cht hepr oducti
onunitheadrequiresaret
urnof
atleast15%perannum.Theav eragespendi ngpowerpercust omeris
anticipat
edtobeKsh. 5.acti
v i
tyisest imatedtobeintheregionof40,000
unitsperannum andassoci atedl abourandov erheadscostsof
Ksh. 100,
000.Youarer equi
redt odet erminethegrossmar gi
n.

(
8mar
ks)

14.Findthesell
i
ngpr i
cetoachi
eveagr
osspr
ofi
tof60%ont
hesel
l
ingpr
icei
f
t
hef oodcostisKsh360.

(
4mar
ks)

15.
Bott
ledlagercost
sKsh.960.
00perdozenexcl
udi
ngVAT.Calcul
atethe
ret
ailpr
iceperbott
leaf
teral
l
owi
ng15%VATt omakeagrossprof
itof40%.

(
4mar
ks)

16.
Explai
nthreefuncti
onsofanel
ect
roni
ccashr
egi
steri
naf
oodand
beverageestabl
ishment
.

(
6mar
ks)

17.
Stat
efi
veobj
ect
ivesofhav
ingpr
int
ersi
ntheki
tchen,
abarorcel
l
ari
na

St
anl
eyt
hoi
thikagwi
Page267
 cat
eri
ngest
abl
i
shment
.

(
5mar
ks)

18.
Expl
aint
her
oleofacashi
eri
nacat
eri
ngest
abl
i
shment
.

(
10mar
ks)

19.
Dist
ingui
shbet
weenpr
ofi
tmar
ginandmar
k-uppr
ici
ngmet
hods.

(
2mar
ks)

20.
a) Expl
aint
het
erm‘
mar
ginal
cost
ing’
.

(
4mar
ks)

b) St
atet
hreeadv
ant
agesofmar
ginal
cost
ing.

(
3mar
ks)

21.
Ahotelhastot
alsal
esof£870,
400perannum wit
hasalesmixofrooms
61%,food23%andbeverages16%.Thegrosspr
ofi
tforeachdepar
tmenti
s
rooms100%, f
ood55%andbev er
ages60%.

Cal
cul
ate:

a)Theact
ual
sal
esperdepar
tment
.

b)Thegr
osspr
ofi
tperdepar
tment
. (
3mar
ks)

22.
Stat
etwopur
posesofpr
ici
ng.

(
2mar
ks)

23.
Costthef
oll
owingreci
peandcal
cul
atethesel
l
ingpri
ceperpor
ti
onto
achi
eveagrossprofi
tmargi
nof60%.(uset
heprof
itmargi
nmethod)

St
andar
dreci
peNo.38

FI
SHFI
LLETALAMEUNI
ERE

I
ngr
edi
ent Quanti
ty Uni
tof Costperunit Costoft
he
used pur
chase ofpurchase dish£
£

Ti
lapi
afi
sh 4kgs Kg 12.
00
fi
l
lets

Mar
gar
ine 200g Kg 8.
50

Eggs 6Nos Tr
ay 7.
50

St
anl
eyt
hoi
thikagwi
Page268
 Lemons 500g Kg 2.
00

Sal
t 25g Kg 1.
00

Whi
tepepper 10g Kg 40.
00

(
10mar
ks)

24.
Eggsarequotedat£100.
00percr
ateof360.I
f45eggsar
eusedi
nthe
kit
chen,
calcul
atet
hecost.

(
2mar
ks)

25.
Aguestbil
linahotel
amount
sto£180.
00.howmuchwil
lhehavetopay
aft
erser
vicechar
geof10%andV.A.
Tof15%hasbeenaddedtothe
account
.

(
3mar
ks)

26.
Givenbelowar
eparti
cul
arsofBuf
fetpar
kpubbev
erageoper
ati
oni
n
respectofmay20.
.

Descr
ipt
ion Openi
ngst
ock Purchases Cl
osi
ngst
ock(
£)
(
£) (£)

Spi
ri
ts 250 230 180

Li
queur
s 280 210 240

For
ti
fi
edwi
nes 120 180 160

Tabl
ewi
nes 900 780 640

Beer
sandmi
ner
als 100 150 80

Youar
erequi
redt
ocal
cul
ate:

a)Thet
otal
costofbev
eragesconsumed

b)Thepotent
ial
bever
agessalesandgrosspr
ofi
t,assumingt
hat
thebudget
edproi
tmar gi
nsare;
spi
ri
tsandli
queurs70%,
for
ti
fi
edwines65%,tablewi
nes55%,beer
sandmi neral
s50%

(
8mar
ks)

27.
Yourcol
legest
udentsuni
onhasaskedy
ourdepartmenttocaterf
ori
t’
s
Chri
stmasBall
esti
mating300peopl
ewi
llat
tend.Thecustomerhas

St
anl
eyt
hoi
thikagwi
Page269
 select
edamenuwi t
haf oodcostof£15percov
er.Aki
tchenbr
igadeof10
beingpaid£50eachandawai ti
ngstaffof1t
o25guestsat£30eachfor
thebuffetser
vicear
erequir
ed.

Fi
xasel
li
ngpr i
ceperheadt oincludet hefollowing:
-
i. All
ow10%ofsal estocov erov erheadchar ges.
ii
.Thecol legecharges£500t ocov erroom hireandcaret
aker
’s
costs.
ii
i
.Di sco-
hireof£400ist obei ncludedi nthequotedpri
ce.
iv
.Post ersandticket
scost£300t obepr int
ed.
v.Anetpr ofi
tof15%isr equir
ed.
(10marks)

28.
Adi shonanal acart
emenuispr
iced@ £4.60perpor
ti
on,t
he
establishmentworksonagr
ossprofi
tmarginof60%.Cal
cul
atet
hegr
oss
profitandfoodcost.

(
4mar
ks)

29.
Dist
ingui
shbet
weensal
escont
rol
andr
evenuecont
rol
.

(
4mar
ks)

30.
a) Def
inecashf
low.

(
2mar
ks)

b) Expl
aint
hreedi
sadv
ant
agesofusi
ngr
ati
opr
ici
ngmet
hod.

(
6mar
ks)

31.
Thecostofpr
oduci
ngbeefol
i
vesi
sKsh240.Foodcostper
cent
agei
s40.
Cal
culat
ethesel
l
ingpr
ice.

(
3mar
ks)

32.
Theinf
ormati
ongi
venbel
owwasext
ract
edf
rom t
her
ecor
dsofagi
ven
rest
aur
ant.

Foodsal
es Drinksal
es Tobaccosal
es
(Ksh) (Ksh) (Ksh)

Monday 410 170 30

Tuesday 480 190 40

Wednesday 540 210 50

Thur
sday 560 260 60

Fr
iday 680 300 80

St
anl
eyt
hoi
thikagwi
Page270
 Sat
urday 900 390 100

a)Youarer
equir
edtocal
cul
atet
hesal
esmi
xforeachdayoft
he
weekandtheweekl
yaver
age.

(
11mar
ks)

b)Usi
ngapi
e-char
til
l
ust
rat
etheweekl
yav
eragedat
a.

(
6mar
ks)

33.
Stat
efourusesofaf
oodcheck.

(
4amr
ks)

34.
Sall
yandfr
iendsvi
sit
edPoshrest
aurantandorder
ed3platesoff
ood@
Ksh180each,3dri
nks@ Ksh80.00eachand1cr edi
tcar
d@ Ksh200.00.
prepar
esal
ly’
sbil
l
,incl
usi
veofserv
icechargeof10%andV. A.
Tof15%.

(
4mar
ks)

35.
Suggestei
ghtf
act
orst
oconsi
derwhenpr
ici
nghot
elmenus.

(
4mar
ks)

36.
Asabanqueti
ngmanagerof4starrest
aurant,y
ouhavebeenr equest
edt
o
suppl
yaquotat
ionfortwoweddi
ngrecepti
ons.Iti
stherestaur
ant’
s
pract
icet
oadd20%f oradmi
nist
rat
iveexpensesandprofi
t.Cost
inf
ormati
oni
sasf ol
lows:

Ksh

Rentf
orgr
ounds 1,
000.
00

Rentf
ordi
shes(
per100per
sons) 40.
00

Foodperper
son 30.
00

Cooksandot
herki
tchenst
aff 600.
00

Tr
anspor
ttot
hev
enue 200.
00

Wai
ter
s(eachwai
tercanser
ve20guest
) 60.
00

Gi
vet
hequot
ati
onf
or800guest
sand1000guest
s.*
***
**

(
14mar
ks)

37.
Alit
reofGincost
sSh.
2,795,excl
udingV.A.
T.Apubwishest
omakeagross
prof
itmargi
nof55%.Calcul
atethesell
i
ngpriceof25mlmeasur
eofGi
n.

St
anl
eyt
hoi
thikagwi
Page271
 (
4mar
ks)

38.
Hi ghl
i
ghtf
ouradv
ant
agesofgr
aphsandchar
tsi
nthepr
esent
ati
onofsal
es
trends.

(
4mar
ks)

39.
Dist
ingui
shbet
weencashf
loatandpet
tycash.

(
4mar
ks)

40.
Expl
aint
hei
mportanceofarevenuecont
rol
syst
em i
nacommer
cial
ori
ent
edcat
eri
ngestabl
ishment.

(
3mar
ks)

41.
Describetherol
eofanyfourmembersofstaf
fchar
gedwi
tht
he
responsibi
li
tyofi
mplementi
ngcont
rolsy
stem.

(
8mar
ks)

42.
Def i
netheter
m‘ checki
ngsy
stem’
.Uset
ri
pli
cat
echecki
ngsy
stem t
o
il
lustr
ateyouranswer.

(
10mar
ks)

43.
Expl
ainfouradv
ant
agesofaut
omat
edor
dert
aki
ngi
nahi
ghcl
ass
rest
aurant
.

(
8mar
ks)

44.
UncleRaymond’
srestaur
anti
ntendstoint
roducef
ri
edi
nthemenu.The
foodcosti
sKsh.280.Cal
cul
atethesell
i
ngpr i
cewi
thagr
osspr
ofi
tof60%,
16%V.A.Tand10%ser vi
cecharge.

(
10mar
ks)

45.
Aluncheoni
stobeor
gani
sedf
or60cov
ers.Themenuhasbeencost
edas
fol
l
ows;

Foodcost Ksh.13,
800
Labour Ksh.4,
200
Decorat
ions Ksh. 900
Menuprinti
ng Ksh.1,
000
Hir
ingofequipment
s Ksh.3,
200

Themanagementwishestoal
l e171/
ocat 2%ofsal
esf
orov
erheadsand
1
achi
eveanetpr
ofi
tof12/ 2%.

Requi
red:
Cal
cul
atethet
otal
costoft
hemenuandchar
gesf
orcov
er.

St
anl
eyt
hoi
thikagwi
Page272
 (
6mar
ks)

Ref
erences:
-

i
. Kot asRi char dandDav i
sBer nar d( 1986) ;
Foodandbev er agecont r
ol,
rd
Int
er nat i
onal textbookcompanyl t
d, (3 edi tion)gr eatBr itain.(pg127-
144, 169- 176).
i
i.Dav isB.Etal l(2004) ;FoodandBev eragemanagement ,But ter wor t
h
Heinemann, (3rdedi ti
on)U. k.(pg105- 1..
* *
* )
.
i
ii
.Dav isBer nardandSt oneSal ly( 1985) ;FoodandBev eragemanagement ,
HeinemannPr ofessionalPubl ishingLt d, 1stedi
( ti
on),Oxf or dLondon.( pg
238- 254) .
i
v.Odger sPet er;Pur chasingcost ingandcont r
ol ,
St anleyThor nespubl i
sher s
LTD, London.( pg50- 75,118-136) .
v.Set hi Mohi ni(2008) ;Insti
tuti
onal foodmanagement ,NewAgeI nt er
national
publ i
sher s.(pg335- ****).
vi
.Ceser ani V.Etal l(2003);Thet heor yofcat ering, Bookpower ,London.( pg
356- 357)
vi
i
.McCr eeryCat hyEtal l;Introduct iont ocat ering, Longman, London.( pg245-
249)
vi
i
i.LeaR.DopsonandDav i
dK.Hay es( 2010) ; f
oodandbev eragecostcont r
ol,
London( 5thedi t
ion),(pg201- 228) .
i
x.Boar dmanR. D( 1986) ;Hotel andcat eri
ngcost ingandbudget s, Heinemann,
r
d
(3 edi ti
on)London.( pg7-34)
x.Mi llerE. JackEtal l(2002) ;Foodandbev eragecostcont rol,publ ishedby
nd
Wileyandsonsi nc.(2 edi tion)NewYol k).(Pg237- 274, 441- 468)

St
anl
eyt
hoi
thikagwi
Page273
FOODANDBEVERAGECONTROLLI
NG

 Ear
li
erchapt
erhav
eseent
heobj
ect
ivesoff
oodandbev
eragecont
rol
as
bei
ng:
-

i
. Anal
ysi
sofi
ncomeandexpendi
tur
e

i
i
.Est
abl
i
shmentandmai
ntenanceofst
andar
ds

i
i
i.Pr
ici
ngandquot
ati
onsofmenus

i
v.Pr
event
ionofwast
e

v
.Pr
event
ionoff
raud

v
i.Managementi
nfor
mat
ion

 Wehav
eal
soseenonoper
ati
onal
cont
rol
i.
efr
om r
equi
sit
iont
osel
l
ing.

 Thischapt
erai
mst
odeal
wit
hthe‘
aft
ert
heev
ent
’phaseoft
hecont
rol
cycl
e.

 Thisinvol
vestheday-to-
daycont
rol
bythef
oodandbev er
agecont
rol
departmentbasedoni nf
ormati
onsentt
osuper
visi
on,
depart
mentalheads
foracti
onwher enecessary
.

 Thi
shast
hreest
agesnamel
y:
-

i
. Foodandbev
eragecostr
epor
ti
ng

i
i
.Assessment

i
i
i.cor
rect
ion

St
anl
eyt
hoi
thikagwi
Page274
  Itdealswiththeanaly
sisofexpendit
ureandincome,andt
hemet hodsused
tocalculat
edailyandperi
odf oodcosts,
to-
datecost
s,andpot
entialcosts
aswel lastheinfor
mationforfoodandbeveragemanagementreports.

Essent
ial
sofacont
rolsy
stem (
feat
ures)

i
. Acontrol
syst
em shoul
dbecompr ehensi
vei
.ei
tshouldcov
erall
depar
tmentsoft
hebusinessandallst
agesoft
hecateri
ngcycl
e.

i
i
.Itshoul
dbeeasyt
ooper
ateandt
obeunder
stoodbyal
ll
evel
sofst
aff
.

i
i
i.I
tshoul
dbeseenbyst
afft
obewor
king.

i
v.I
nfor
mat
ionpr
oducedmustbeaccur
ateandup-
to-
dat
etobeef
fect
ive.

Cal
cul
ati
onoff
oodcost

Thefol
lowi
ngt
ermsneedt
obeemphasi
sedwi
thr
egar
dtocal
cul
ati
onoff
ood
cost
:-

Foodcost -t
hisr
efert
othecostoff
oodi
ncur
redi
npr
epar
ingt
hemeal
sser
ved.

Foodcostpercent
age–ref
erstothepercent
ageofther
evenuefr
om sal
es
i
ncurredi
nprepari
ngthemeal
s,thati
s,t
hecostoffoodasapercent
ageofsal
es
offood.

Grosspr
ofit
/kitchenpr
ofi
t-theexcessofsal
esov
ert
hecostoff
oodexpr
essed
asapercentage,ori
nfi
nanci
alt
erms.

Pot
ent
ialf
oodcost(orsal
e)–t
hefoodcost(orsal
e)underper
fectcondi
ti
ons.
Thi
smaybeexpressedasaper
centageori
nf i
nanci
alt
erms.

Met
hodsoff
oodcont
rol

Ther
ear
evar
iousmet
hodsnamel
y:
-

i
) Weekl
yormont
hlyf
oodcostr
epor
t

 Theweeklyormonthl
yfoodcostrepor
tisal
mostareconci
l
iat
ionr
epor
ton
anact
ivi
tythati
sti
ghtl
ycont
rol
leddail
ybymanagement.

Adv
ant
agesofweekl
yormont
hlyf
oodcostr
epor
t

i
.Iti
ssi
mpl
eandqui
ckt
opr
oduce

i
i
.Itcangi
veani
ndi
cat
ionoft
hegener
alper
for
manceoft
heuni
t.

Di
sadv
ant
agesofweekl
yormont
hlyf
oodcostr
epor
t

i
. Thi
sinf
ormat
ioni
sonl
ypr
oducedaf
ter7or28day
sofoper
ati
on

St
anl
eyt
hoi
thikagwi
Page275
 i
i
.Itpr
ovi
desnointer
mediat
einf
ormat
ionsot
hatanyundesi
rabl
etr
ends
maybecor
rect
edearl
i
er.

i
i
i.Itdoesnotprov
idethedai
l
yorto-
datei
nformat
iononpur
chases,
requi
sit
ionandsalest
hatauni
twit
hanav er
ageofadaytur
nover
should.

Exampl
e

Fr
om t
hef
oll
owi
ngi
nfor
mat
ionpr
epar
emont
hlyf
oodcostr
epor
t.

Openingst ockonday1 £2,

200.
00
Totalpurchasesforper i
od £10,
934.00
Closi
ngf oodstocklev el(
28day ) £2,
116.
00
Totalfoodsales £29,
251.00
Sol
uti
on
£
Openi ngfoodst ocklevel
onday
1 2,
220.00
pl
u 10,934.
0
s Pur chasesfortheper i
od 0
13,154.
0
Subt otals 0
l
es Cl osi
ngstocklev el
,p.m(day1-
s 28) 2,
116.00
11,038.
0
= Tot alcostoffoodconsumed 0
29,251.
0
TOTALFOODSALES 0
FOOCOSTPERCENTAGE 37.74%

i
i
) Adai
l
yFoodCostRepor
t

 Thi
smethodi
ssuit
abl
eforasmallt
omedium si
zedoper
ati
onoronewher
e
nott
oosophi
sti
cat
edmethodi
srequir
ed.

 Abasicfoodcostr
epor
tisdoneonadai
l
ybasi
sfort
heper
iodofone
month.

Adv
ant
agesofpr
oduci
ngbasi
cfoodr
epor
t

i
.Iti
ssi
mpl
eandeasyt
ofol
l
ow

i
i
.Itgivesareasonabl
ydetail
edaccountoft
hegener
alper
for
manceoft
he
busi
nessonaday -t
o-daybasi
s

i
i
i.Itr
ecordsthedail
yst
ocklevel
,dai
l
ypurchases,
dai
lyfoodr equi
sit
ioned
anddailyfoodsal
esandenablest
hedail
yfoodcostpercentagetobe
cal
culated.

St
anl
eyt
hoi
thikagwi
Page276
 i
v.Smoothesouttheunevendail
yfoodcostper
cent
agesandhi
ghl
i
ght
s
thecor
rect
iveact
iontobetaken.

Di
sadv
ant
agesoft
hisbasi
cfoodr
epor
t

i
. Alt
houghsi
mpleandeasytopr
epar
e,t
herepor
trel
i
esheav
il
yont
he
accur
acyoft
hebasi
cinfor
mati
ontobecol
lect
ed.

i
i
.Iti
snottot
all
yaccurateasiti
gnor
essucht
hingsast
hecostoft
hest
aff
meal
s;f
oodtransf
erredtobar
.

i
i
i) Adet
ail
edDai
l
yFoodCostRepor
t

Thisfoodcostreportisadev el
opmentoftheprev
iousrepor
tandrefi
nesthe
accuracyofthereportbytakingint
oaccountt
hecostofbeveragestr
ansf
err
ed
i
ntothekitchen,t
hecostoff oodt r
ansf
err
edoutofthekit
chenstothebar
s,and
thecostofemploy ees’meals.

Adv
ant
agesoft
hist
ypeofr
epor
t

i
.Itismoreaccuratei
nthatiti
ncl
udesaddi
ti
onstothecostoff
ood
bever
agestr
ansferr
edtothekit
chenanddeduct
ionsfort
hecostoff
ood
tr
ansfer
redf
rom kit
chentothebarsandf
orthecostofal
lemploy
ees’
meal.

i
i
.Theaccur acyoftheto-datefoodcostpercentageisr
efi
nedt
ot akeint
o
accountal
ldail
ytransacti
onsandt hesefi
guresshoul
dbeful
lyreli
ed
upontobet hebasisagainstwhichcorr
ecti
veactionmaybetaken.

Di
sadv
ant
ages

i
. Thist
ypeofr
epor
tismoredetai
l
edanditr
eli
esv
erymuchont
he
accur
acyoft
hecol
lect
edinf
ormati
on.

FOODCONTROLCHECKLI
ST

 Itwouldnotbepossibl
etostat
einabookwhatcorr
ecti
veact
ionshoul
dbe
takenwhenstandardsarenotbei
ngmetastheoper
ati
ngandt r
adi
ng
condit
ionswouldvaryf
rom oneestabl
i
shmentt
oanother.

 Foodcont
rolcheckl
i
stshouldbeproducedtoactasanaidwhentryi
ngt
o
i
denti
fyt
hereasonforanyvari
anceinstandar
ds,t
hecheckl
istbei
nga
summaryofthecontrol
procedur
eswhichshouldbeused.

 Themajoraspect
sofpost-
oper
ati
onal
cont
rol
arel
ookedi
nrel
ati
ont
othe
cycl
eofcater
ingoper
ati
ons.

Menu

St
anl
eyt
hoi
thikagwi
Page277
 i
. Sui
tabl
efort
hepr
esentmar
ketsegment
.

i
i
.Takesi
ntoaccountcur
rentt
rendsi
ncust
omer
seat
inghabi
ts.

i
i
i.Menui si
nter
est
ing,
imagi
nativ
e,changesdur
ingtheyear
,takesi
nto
accountt
hemajorfoodseasons,assi
sti
nggr
eatl
yinsell
i
ng.

i
v.Accur
atel
ypr
iced,
compet
it
ive,
takesi
ntoaccountt
hel
abourcont
enti
n
the

pr
oduct
ionandser
viceofdi
shes.

Cont
rolmeasur
espr
iort
opr
oduct
ionoff
oodandbev
erage

i
. Col
l
ect
ionofr
awmat
eri
als

i
i
.Wei
ghi
ngofr
awmat
eri
als

i
i
i.Cor
rectpr
epar
ati
onofdi
ff
erentf
oods

i
v.Menupl
anni
ng

v
.Cor
rectt
emper
atur
econt
rol

Pur
chasi
ng,
Recei
vi
ng,
Stor
ingandI
ssui
ngpr
ocedur
es

i
. Pur
chasespeci
fi
cat
ionsusedf
oral
lmai
nit
ems.

i
i
.Pur
chaseor
der
smadef
orev
erypur
chase.

i
i
i.Al
lpur
chasesshoul
dbemadef
rom nomi
nat
edorappr
ovedsuppl
i
er.

i
v.Del
iv
eriesshouldbet
imet
abl
edsot
hatquant
it
yandqual
i
tychecksamybe
ef
fi
cientl
ycarr
iedout
.

v
.Al l
deli
veri
estoberecordedi
nthef
oodsrecei
vedbookandcredi
tnot
es
obtai
nedforanyv
ariancesbet
weenwhati
sstatedonthedel
i
v er
ynot
eand
whatisactual
l
ydel
ivered.

v
i.All
deli
ver
iesoff
oodt
obeent
eredi
ntobi
ncar
dsorl
edger
sont
hedayof
del
iver
y.

v
ii
.Issuesofal
lfoodf
rom t
hest
orest
obeagai
nstaut
hor
ised,
signed
requisi
ti
ononly
.

v
ii
i.
Ent
ryt
ofoodst
orest
ober
est
ri
ctedt
oaut
hor
isedper
sonnel
.

 Atendoftheweekl
ookatpri
cespai
dforpur
chaseandcompar
e
wit
hthebudget
edstat
ingorshowi
ngthevar
iances.

 St
ockt
aki
ngshoul
dbeper
iodi
cal
l
ycar
ri
edoutshowi
ngt
he

St
anl
eyt
hoi
thikagwi
Page278
 shor
tagesofst
ock,
discr
epanci
esandsl
ow-
mov
ingi
tems.

FoodPr
oduct
ion

i
. Yi
eldandproducttest
ingshoul
dbepr
act
isedt
oest
abl
i
shandmeasur
e
st
andardofproducts.

i
i
.Pr
oduct
iont
ober
elat
edt
ovol
umef
orecast
s.

i
i
i.Maxi
mum useofst
andar
dreci
pet
obemade.

i
v.Ef
fi
cientschedul
ingofpr
oduct
iont
obemadesoast
oensur
e
maintenanceofqual
it
yofdi
shespr
oduced.

v
.Allequi
pment
stoberegul
arl
ymai
ntai
nedsoast
oensur
ethest
andar
d
y
iel
dandqual
it
yofdi
shesaremai
ntai
ned.

FoodSer
vice

i
. Foodser
vicest
andar
dsest
abl
i
shedandpr
act
ised.

i
i
.St
andar
dpor
ti
onsi
zesadher
edt
o.

i
i
i.St
andar
dpor
ti
onsi
zeequi
pmental
way
sav
ail
abl
e.

i
v.Caref
ulcont
rolmadetoall
f oodsenttorest
aurant
sandal
lunsol
dfood
tobeaccountedf
orandreturnedtothekit
chen.

Cont
rolmeasur
esi
nfoodandbev
eragedur
ingser
vice

i
. Ti
meandmot i
oneconomy-l i
ttl
eti
meshoul
dbespentbet
weencol
l
ect
ion
off
oodandservi
cet
ot hecust
omer.

i
i
.Wor kcover
ageandeff
ici
ency-workal
locat
edshoul
dbecov
eredand
doneatt
hecorr
ectt
imeandaccor
dingt
ospeedrequi
red.

i
i
i.Hygi
eneandsafet
y-hy gieneandsaf
etyshoul
dbeobser
vedt
oav
oid
acci
dent
sduri
ngserv
ice.

i
v.Port
ioncont
rol-theri
ghtamountoff
oodshoul
dbeser
vedi
nrel
ati
ont
o
theamountbei
ngpai
d.

v
.Av oi
danceofwast
e -onl
yenoughshoul
dbeser
vedbyuseofpor
ti
on
cont
rolequi
pment
.

FoodCont
rolpr
ocedur
es

i
. Checkandmar r
yup(cr
ossref
erence)al
ldel
i
ver
ynot
es,
credi
tnot
es,
i
nvoicesandgoodsr
eceiv
edreport
.

i
i
.Checkar
it
hmet
ict
oal
lpaperwor
k.

St
anl
eyt
hoi
thikagwi
Page279
 i
i
i.Checkcor
rectdi
scount
sar
ebei
ngal
l
owed.

i
v.Checkdel
i
ver
ynot
est
obi
ncar
dsorl
edger
s.

v
.Mai
ntai
ncer
tai
nchar
gesandcr
edi
tsf
orper
iodi
nvent
ory
.

v
i.Atsetper
iodscompl
eteaf
ull
inv
ent
oryofal
lchar
geabl
econt
ainer
s.

v
ii
.Atsetperi
odscomplet
eafull
stocktakeofal
lfoodst
oresandf
oodhel
d
int
hekitchensandcompar
etoledgers.

v
ii
i.
Prepar
east
ockt
aki
ngr
epor
tandst
ockt
akesv
ari
ancer
epor
t.

i
x.Mai
ntai
nup-
to-
dat
efoodcont
rol
repor
t.

NOTE:
-

Themajorr
easonsf
orf
oodcost(andgrossprof
it
)var
iancesf
rom t
he
est
abl
i
shedstandardf
orauni
tincl
udet
hefol
lowing:
-

i
.Inaccur
atear
it
hmet
ict
opaper
wor
k.

i
i
.Inef
fi
cientst
ockt
aki
ng.

i
i
i.Poorr
evenuecont
rol
-Lackofsy
stemat
icpr
ocedur
esandpr
act
ices.

i
v.Poormenu-unr
elat
edtomarketcondi
ti
onsandr
equi
rement
s,l
ackofsal
es
anal
ysi
sandup-dat
ingofmenu.

v
.Poorpur
chasi
ng,
resul
ti
ngi
nhi
gherf
oodcost
s,ov
erst
ocki
ngandwast
age.

v
i.Poorr
ecei
ving,
inf
eri
orgoodsbei
ngaccept
ed,
shor
twei
ghtofgoodsbei
ng
si
gnedfor
.

v
ii
.Poorst
ori
ng,
poorr
otat
ionofst
ockr
esul
ti
ngi
nwast
age,
poorsecur
it
y.

v
ii
i.
Fail
uretoest
abl
ishand/ormaint
ainst
andardsforv
olumefor
ecast
ing,
standar
dreci
pes,st
andardyi
eldsandstandar
dporti
onsi
zes.

i
x.Fai
l
uret
oaccountaccur
atel
yforal
lst
affandmanagementmeal
s.

x.Foodcontr
olnotbeingseenbyst
afft
owor
k,r
esul
ti
ngi
nst
afff
ail
i
ngt
o
maint
aindesi
redstandar
ds.

xi
.Foodcontr
olnotbei
nguptodat
enotpr
ovi
dingessent
ial
managementdat
a
qui
ckl
yaf
tereachtr
adi
ngday
.

BEVERAGECONTROLLI
NG

“
Bev
eragecont
roli
ssi
mpl
ert
hanf
oodcont
rolf
ormanyr
easonsi
ncl
udi
ng”
:-

i
. Ther
ear
eaf
ewernumberofbev
eragei
temst
ohandl
ethanf
ood.

St
anl
eyt
hoi
thikagwi
Page280
 i
i
.Bev
eragesar
epur
chasedi
nst
andar
duni
tsi
zesofknownst
andar
dqual
i
ties.

i
i
i.Bev
eragesar
enotashi
ghl
yper
ishabl
easf
oods

I
tisi
mportantt
hatst
ri
ctcont
rolofbev
eragesi
smai
ntai
nedatal
lti
mesf
orsuch
r
easons:
-

i
. Thedangerofbarst
affappoi
nti
ngthemselv
esas“unof
fi
cial
par
tner
”,e.
g
barmanbringi
nginspi
ri
tsandpocketi
ngthemoney.

i
i
.Iti
seasi
erf
orbarst
afft
ost
eal
moneyt
hani
tisf
orot
herst
aff
.

i
i
i.Bev
eragesar
emor
etempt
ingt
hanf
oodt
omanyst
aff
.

i
v.Bever
agesarei
nthemai
nmor
eexpensi
ve,
andcont
ri
but
emor
etopr
ofi
t
thanf
oodit
ems.

METHODSOFBEVERAGECONTROL

Ther
ear
evar
iousmet
hodsdependi
ngon:
-

i
. Si
zeofoper
ati
on

i
i
.Vol
umeofbusi
ness

i
i
i.Lev
elofsophi
sti
cat
ionofcont
rol
requi
red.

i
v.Ownerormanagedoper
ati
on.

Whatev
ermethodused,i
twoul
dbeofli
tt
levalueunl
esst
hev
ari
ousst
epsof
cont
rolar
eef
fici
ent
lyi
mplement
edandenforced.

1.Barcostsy
stem

I
tmaybepr
oducedf
oreachbaroper
ati
on.

2.Parst
ockorbot
tl
econt
rolsy
stem

 Thi
sismi
nimum l
evel
ofst
ockwhi
chhast
obemai
ntai
nedi
nthebar
.

 Anef
fect
ivemet
hodofbev
eragecont
rol
andi
susef
ulf
orsmal
l
eroper
ati
on.

 Poi
ntst
onot
ear
e:-

i
. Thelevel
ofparstocki
sestabl
i
shedforeachbar,numberofbot
tles
requi
redforabusyday
,pl
usasmallsafet
yfactor(buf
ferst
ock)
.

 Thisnumberi
sthestockl
evel
tobehel
dint
hebaratt
he
beginni
ngoft
heserv
iceeachday
.Tosi
mpli
fyt
hesyst
em,onl
y

St
anl
eyt
hoi
thikagwi
Page281
 f
ull
bot
tl
esar
ecount
ed.

i
i
.Thenumberandt
ypeofempt
ybot
tl
ear
enot
edeachday
.

i
i
i.Thepotent
ialsal
esarebasedonthequant
it
iesusedatsel
l
ingpr
iceand
arecomparedtoactual
revenuer
ecei
ved.

i
v.Adj
ust
ment
stobemadet
othei
nit
ial
sel
l
ingpr
icei
fmanymi
xeddr
inks
ar
esol
d.

Adv
ant
age

i
.Iti
ssi
mpl
e.

i
i
.Iti
seasyt
ooper
ate.

Di
sadv
ant
age

 Thereisthatassumpt i
onthatt
helevelofpar
ti
albott
lesr
emains
constantsothatitbecomesunnecessarytocounteachbot
tl
e
contenttodeter
mi nethet
otalsal
es.

3.Pot
ent
ial(
orst
andar
d)sal
esv
olumesy
stem

 Iti
sdesi
gnedtocontr
olbever
agesal
esandtheref
orebeveragecost
sby
sett
li
ngasal
esvalueoneachbott
lei
tem car
ri
edinstock.

 Therevenuev
alueofeachbot
tl
eisbasedont
hest
andar
dsi
zeoft
he
dri
nk.

 Thesal
esv
alueofeachdr
inki
scal
l
edt
hepot
ent
ial
orst
andar
dsal
es
val
ue.

 Thesyst
em requir
esasabasi
sfortheoperat
ionestabli
shstandar
dfor
abott
lecodenumbersyst
em,dri
nks,reci
pes,dr
inkssizes,
glasswar
e
andparstocks.

 Var
iouscal
cul
ati
onswhichhavetobemadet
oest
abl
i
sht
hepot
ent
ial
sal
esval
ueareconcer
nedwith:
-

i
. Ful
lbot
tl
esofspi
ri
ts-thisi
sequal
tosell
ingpri
cesetbyt
he
management
.Iti
susual
l
ylowert
hanthatsoldbygl
ass.

i
i
.Spi
ri
tssol
dbygl
ass.

i
i
i.Softdr
inkandminer
alwatersal
espotent
ialsal
esv
alueofsoft
dri
nksdependsonthepr
icingpol
ici
esofthemanagemente.g

- Fi
xedpr
icewhensol
doni
tsown.

- Al
owerpr
icewhensol
daspar
tofami
xeddr
ink.

St
anl
eyt
hoi
thikagwi
Page282
 - Costofsof
tdr
inksi
sincl
udedi
nthepr
icewhensel
l
ing
spi
ri
ts.

i
v.Cocktai
ls–whensel l
ingcockt
ail
scont
aini
ngoneormor
ehi
gh
sell
ingpri
ceit
ems,itoft
enrequi
resadj
ustmentt
obemadewhen
prepari
ngthecont
rolsheet.

4.I
nvent
oryorouncesy
stem

 Thi
sisthemostaccur
atenon-
aut
omat
icmet
hodofdet
ermi
ningt
he
amountofbev
eragesol
d.

 I
trequi
rest
hef
oll
owi
ng:
-

i
. Anautomati
canddet
ail
edanal
ysisofal
lsal
esbyt
ypeandbr
andof
dr
inkssol
dbyeachsel
li
ngoutl
et.

i
i
.Thecal cul
ati
onoftheact
ualconsumptionofeachty
peandbrandof
dri
nksbasedonthedail
yphysi
cal st
ocktake,st
ockl
evel
sandplus
anyissuesandminusanytr
ansferoutofthebar.

 Al
ldr
inkssol
dareconv
ertedbacktothenumberofounceseacht
ypeand
br
andofdri
nkssol
dusingthestandar
dbever
agereci
pes.

 Thetotal
consumptionpersal
esbil
listhencomparedwi
thact
ual
consumptiondet
erminedfr
om thephysical
inv
ent
oryandadj
ustment
s.

Di
sadv
ant
ages

i
. Takesal
otoft
imet
oanal
ysesal
esandt
otakest
ockl
evel
sdai
l
y.

i
i
.Itt
akest
imet
ocal
cul
atet
hedai
l
yconsumpt
ionf
oreachout
let
.

i
i
i.Addit
ional
pr obl
emsifalar
genumberofmixeddr
inksar
esol
dandi
f
di
ffer
entsizesaresol
dineachsel
l
ingout
let.

NOTE:
- i
tisnotsui
tabl
eforl
argeest
abl
i
shment
.

5.Banquet i
ngandf unctionbarsy stem
 Banquet sandf unctionbar scanhav ethei rownst or ageandbarar eas.
 Anaut horisedper sonmustr equi
siti
onf oreachdr i
nkr equir
edf oreachfr
om
themai ncel l
arandr eturnallunsolddrinksaf terev ent.
 Thebot tl
esi ssuedwoul dbet hequanti
tyi ssuedf rom thecellarforthe
funct
ion.
 Bottl
esandpar tbot tl
esunusedar eret
ur nedtot hecel l
ar.
 Thenumberofbot t
lesissuedmi nusbot tlesreturnedshoul dbeequal tothe
numberofbot t
lesandpar tofbottl
esused.
 Theact ual costisthepur chasepr i
cepai dperbot tleorhalforspl i
t.
 Potentialsaleswoul dbesel li
ngpr i
ceperdr i
nkt i
messt andardnumberof
dri
nksperbot tl
e.

St
anl
eyt
hoi
thikagwi
Page283
 6.Automat
edbever
agedi
spensi
ngsyst
em
 Thesear
edesi
gnedtohel
pmanagementi
ncont
rol
l
ingbev
eragecost
s.

 Cont
rol
her
eismor
eef
fi
cient
.

 Adv
ant
agesanddi
sadv
ant
agesashi
ghl
i
ght
edi
npr
epar
ing.

REVI
SIONQUESTI
ONS

1.Highl
i
ghtfourcont
rol
measur
espr
iort
othepr
oduct
ionoff
oodand
bever
age.

(
4mar
ks)

2.Expl
ainf
ouradvantagesofusi
nganaut
omat
icdi
spensi
ngmachi
ne,
asa
methodofcont
rol.

(
8mar
ks)

3.Thefol
l
owi
ngfi
gur
eswereext
ract
edf
rom t
hebooksofBi
gpotRest
aur
ant
fort
hemont
hofJul
y2001.

Week1 Week2 Week3

Sal
es 900 920 910

Openi
ngst
ockoff
ood 60 80 50

Pur
chasesoff
ood 400 377 402

Cl
osi
ngst
ockoff
ood 80 60 80

a) Pr
epar
eaf
oodcostr
epor
twhi
chwi
l
lcl
ear
lyshoweachoft
he

St
anl
eyt
hoi
thikagwi
Page284
 f
oll
owi
ng:
-

i
. Thecostoff
oodsol
d

i
i
.Thegr
osspr
ofi
t

i
i
i.Thegr
ossper
cent
ageofsal
es

Ther
epor
tshoul
dshowbot
hweekl
yandcumul
ati
ver
esul
ts.

(
13mar
ks)

b) Out
li
net
hreer
esponsi
bil
i
tiesofaf
oodandbev
eragecostcont
rol
l
er.

(
3mar
ks)

4.St
atef
iver
easonswhygr
ossper
cent
agewoul
dbel
esst
hani
tshoul
dbe.

(
5mar
ks)

5.Expl
aint
het
hreemai
nobj
ect
ivesof‘
cont
rol
aft
ert
heev
ent
’.

(
6mar
ks)

6.Expl
aint
het
hreemat
ersconcer
nedwi
thcont
rol
aft
ert
heev
ent
.

(
6mar
ks)

7.Li
stf
ourcont
rol
measur
esappl
i
edaf
tersel
l
ing.

(
2mar
ks)

8.Expl
ainf
ourcont
rol
measur
esi
nfoodandbev
eragedur
ingser
vice.

(
8mar
ks)

9.

Ref
erences:
-

St
anl
eyt
hoi
thikagwi
Page285
 i
. KotasRi chardandDav isBernar d(1986) ;
Foodandbev er agecont rol,
rd
Int
er nati
onaltextbookcompanyl td,(3 edi ti
on)greatBr itain.(
pg145- 158)
.
i
i
.Dav isB.Etall(2004);FoodandBev eragemanagement ,But terworth
Heinemann, 3rdedi
( ti
on)U.k.
i
i
i.Dav isBernardandSt oneSal l
y( 1985) ;FoodandBev eragemanagement ,
HeinemannPr ofessionalPublishingLt d, 1stedi
( t
ion)
,Oxf or dLondon.( pg
208- 237).
i
v.LeaR.DopsonandDav idK.Hay es(2010) ; f
oodandbev eragecostcont rol
,
t
h
London( 5 editi
on).
v
.Boar dmanR. D( 1986);Hotelandcat eri
ngcost ingandbudget s,Heinemann,
r
d
(3 edi ti
on)London.
v
i.MillerE.JackEtal l
(2002);Foodandbev eragecostcont rol,publishedby
nd
Wileyandsonsi nc.(2 edi t
ion)NewYol k).

CONTROLOFLABOUR

St
anl
eyt
hoi
thikagwi
Page286
  Thepurposeofcont
rol
oflabouristomaxi
misetheeffi
ciencyofthelabour
for
ceinamannerwhichisconsist
entwi
ththeoperat
ingpolici
esofthe
est
abl
ishment.

 Thelabourforceshoul
dnotbel essormor
etocompletet
hemulti
tudeof
tasksfoundincater
ingdepart
menttothesetst
andar
dsofqual
i
tyandthe
servi
cerequir
edforthatest
abli
shment.

 Thecostofl
abouri
sfoundt
obeofanear
lyequal
%ofsal
etot
hatf
orf
ood.

 Thel abourcostwil
lincr
ease,thehigherthelev
eloffoodproducti
onand
servi
cesoffered(e.
gluxuryrestaur
ant)anddecreasewherethelevelof
servi
ceofferedisminimalandtheleveloffoodproducti
onisverysimpl
ifi
ed
(e.
gfastfoodsandt akeawayoper ati
on).

ELEMENTSOFLABOURCOSTS

Ther
ear
etwoel
ement
sofl
abourcost
snamel
y:
-

i
. Fi
xed-
costper
sonnel

i
i
.Var
iabl
e-costper
sonnel

Fi
xed-
costper
sonnel

 Thesearet
hosemembersofstaf
fwhosenumbersbearl
i
ttl
erelat
ionshi
pt o
thevol
umeofbusi gmanager
nessdone.E. ,
chef
,dinni
ng-
room supervi
sion,
cashi
erset
c.

 Thei
risneedforthi
sgroupofpersonnel
becauset
heyar
ethekeyper
sons
wit
hinanestabl
ishment(i
ndi
rectl
abour)
.

Var
iabl
e-costper
sonnel

 Thesearethosest
affwhoset
hei
remploy
mentisrel
atedt
othevol
umeof
sal
esi.
et hemorethevol
umeofsal
es,
themorethenumberofst
affand
vi
ceversa.

 I
fbotharetaken(i.
efixedandv ar
iabl
e)together
,theybecomesemi-
v
ariabl
ecostsbutinnei t
hercase,di
rect
lyproport
ionalt
othechangesi
nthe
v
olumeofbusi ness.

 Thest
affi
ncl
ude:
-

i
. Wai
ter
s

i
i
.Cooks

i
i
i.Bar
mai
ds

St
anl
eyt
hoi
thikagwi
Page287
 i
v.Car
hops

v
.Fl
oorwai
ter

v
i.Loungewai
ter

 Theabov eelement soflabourcostneedstobewel lscheduledt oensure

thatthecorrectnumbersofper sonnel(
bothfixedandv ar
iable)arepresent
andav ai
lablefortheest
ablishment.Thi
swilldependont henumberof
customert heestabli
shmentwi l
lbehavingatagivenser v
icet i
me.

STANDARDSOFPERFORMANCE

 Thet m st
er andar
dsi
susual
l
ydefinedasbeingr
ulesormeasur
es
est
abli
shedformaki
ngcompar
isonsandjudgements.

 Thef i
nanci
alandpersonnelpol
ici
eswoul ddeterminewhatt
hedesiredcost
oflabourshoul
dbef oranoperati
on,andthemanagementoft hatoperati
on
needstobesetstandardsinordertodeterminetheextendt
owhichact ual
resul
tsmeettheresult
smeett heresul
tsmeetf orecast
.

 Ther
ear
etwobasi
cst
andar
dsnamel
y:
-

i
. Qual
i
ty

i
i
.Quant
it
y

Qual
i
tyst
andar
d

 Thesear
edet
ermi
nedbyt
hecat
eri
ngpol
i
cyoft
heest
abl
i
shment
.

 Thequal i
tystandardsar
epeculiartoeachofest
abl
i
shmentandr
elat
e
par
ticular
lytothattypeofoper
at i
oninter
msofthelev
eloff
oodand
beverageproductionandservi
ceof f
eredtot
hecust
omer.

 Thisi
sinturnrel
atestothel
evelofski
l
lsrequi
redfrom st
afft
oper
for
mto
thespeci
fi
edleveland,i
npar
ticul
ar,
toquanti
tystandar
ds.

Quant
it
yst
andar
ds

 Thisneedstobesetbymanagementaf
terhav
ingf
ir
stdeci
dedont
he
quali
tyst
andards.

 Quant
it
yst
andar
dsar
eeasyt
osetandmeasur
einsuchi
nst
ances,
e.g

i
. Await
ressempl
oyedforabanquetf
unct
ionshoul
dser
veat
abl
eof
10cover
sbyful
lsi
lv
erserv
ice.

i
i
.Abanquetwinewai
tershoul
dserve50cust
omer
swi
tht
hei
r
r
equi
rement
sforwi
nesandliquor
s.

St
anl
eyt
hoi
thikagwi
Page288
  Quant
it
ystandar
dsaremor edi
ff
icul
ttoseti
.et
hehi
ghert
hel
evel
off
ood
andbever
agesproduct
ionandservi
cebecomes.

 Managementshoul
dnotsetsomey ar
dsti
cksastohowmanyst af
fofa
cer
tai
ntypeandlev
el ofski
ll
arenecessar
ytoproduceandser
vefoodand
dri
nktot
hequali
tystandardset
.

 Theyardst
ickorst
aff
ingstandar
dsshouldberev
iewedperi
odical
lyand
al
sowhent herei
sanunexpectedvar
iancefr
om thequal
i
tystandardsset
andachiev
edorfrom theact
ualandf
orecastl
abour.

NOTE:
- Foranywel
lrunbusi
nesst
oobt
aint
heef
fi
cientuseofst
afft
her
e
hast
obe:
-

i
. Anor
gani
sat
ional
planorchar
t

i
i
.Jobanal
ysi
sordescr
ipt
ion

i
i
i.Jobspeci
fi
cat
ion

Jobanal
ysi
sordescr
ipt
ion

Jobanal
ysis:
- t
heprocessofexami
ningaj
obinordertoi
dent
if
yit
s
componentpart
sandtheci
rcumst
ancesi
nwhichiti
sperfor
med.

Jobdescript
ion:
-abroadst
atementoft
hepur
pose,
scope,
dut
iesand
responsi
bil
it
iesofapar
ti
cul
arjob.

 Ift
hecorr
ectpersoni
sengaged(ort
rai
ned)f
ort
her
ightj
ob,
labourt
urnov
er
canbereducedandproduct
ivi
tyi
mprov
ed.

 Iti
snecessar
ytoanal
ysetherequi
rement
sofeachposi
ti
onofempl
oyee
andtoprepar
eajobanal
ysiscard.

 Jobanal
ysi
sordescr
ipt
ionwoul
dnor
mal
l
yincl
ude:
-

i
. Jobt
it
le

i
i
.Gr
adeofj
ob(
pur
poseandscopeofj
ob)

i
i
i.Rangeofsal
aryorwage

i
v.Pl
aceofwor
k

v
.Wor
kingcondi
ti
on,
hour
s

v
i.Li
neofaut
hor
it
yi.
e

-Forwhom r
esponsi
ble

St
anl
eyt
hoi
thikagwi
Page289
 -Towhom r
esponsi
ble

 Thi
sinf
ormat
ioni
sthent
ransl
atedi
ntoaj
obspeci
fi
cat
ion.

SERENAHOTELSANDLODGESLTD
JOBDESCRI PTI
ON
Jobti
tl
e Foodandbev eragemanager
Date 15thJanuar y, 20..
Nameofuni t Kil
aguni ser enesaf arilodge
Responsi
ble
to: Thegener al manager
Responsi
ble
for
: Allper
sonnel withint heF&Bdepar tment
1.Tomai ntainef f
icientcat er
ingser vi
ceswithint hehotelfort
hemar ket
Duti
es previ
ouslyi dent i
fiedi nthemar ketingandcat eringpolici
es
2.Tomai nt ainef fectivecont rolofr awmat erial
s, l
abourand
equipment scostusedi nF&Bdepar tment
3.Tol i
aisewi thheadofdepar tmenti nproduci ngdepar t
ment al
budgets
forapprov al byt hechi efaccount ant
4.Tober esponsi blef orachiev i
ngr equir
edr evenueandpr of
itt
argets
foreachsal es uni t.
5.Tober esponsi blef ormaint aini
ngst andards
6.Tol i
aisewi ththeper sonnel depar t
mentint her ecr
uiti
ngandt r
aini
ng
ofnewper sonnel fort hef oodandbev er
agedepar tment

Exampl
eofj
obdescr
ipt
ion

Jobspeci
fi
cat
ion

 Isadet
ail
edst
atementoft
het
asksi
nvol
vedi
naj
ob,
thest
andar
dsr
equi
red
andthe

cor
respondi
ngknowl
edgeandski
l
lsi
nvol
ved.

 I
tismuchmor
edet
ail
edt
hanj
obanal
ysi
sordescr
ipt
ion.

Anor
gani
sat
ionalchar
torpl
an

 Showscl
ear
lyt
hel
i
nesofaut
hor
it
yandr
esponsi
bil
i
tyofal
lst
aff
.

 Eachstaf
fknowswhot
orepor
ttoandal
sohi
sorherposi
ti
onwi
tht
he
organi
sat
ion.

Not
e:-t
heabov
eleadst
ost
afft
rai
ning.

STAFFTRAI
NING

Thi
sist
hesy
stemat
icdev
elopmentofpeopl
e.

St
anl
eyt
hoi
thikagwi
Page290
Obj
ect
ivesofst
afft
rai
ning

i
. Toi
ncreaset
hequal
i
tyandquant
it
yofout
putbyi
mpr
ovi
ng
empl
oyeeski
ll
s.

i
i
.Reduceacci
dent
s.

i
i
i.I
ncr
easet
her
etur
nst
otheempl
oyeei
nper
sonal
rewar
ds.

i
v.Mi
nimi
sedi
schar
gesbecauseofi
nadequat
eski
l
ls.

v
.Impr
ovemor
aleandachi
evemor
esat
isf
act
orywor
kingenv
ironment
.

v
i.Encour
agewi
l
li
ngness,
loy
alt
y,i
nter
estandt
hedesi
ret
oexcel

v
ii
.Maket
heoper
ati
onmor
epr
ofi
tabl
e.

v
ii
i.
Makeitpossi
blef
orsuper
visor
stospendl
esst
imei
ncor
rect
ing
mist
akes.

LABOURCOSTI
NG

Labourcost- r
efert
odi
rectwagesoff
act
orywor
ks.

Consi
stsof
:-

i
. Basi
cpay

i
i
.Labourr
elat
edcost
s

Labourcostcont
rol

 Thi
sisamatt
erofef
fi
cientut
il
izat
ionoft
heabi
l
iti
esofst
afft
oper
for
m
maximal
l
y.

 Somebasictool
sforcontr
olofst
affcost
shavebeendev
elopedandused
bymanagersbasedonti
meandenergymanagement.

 Themet
hodsort
ool
ofcont
rol
arebasedonmai
ntenanceof
:-

i
. Accur
ater
ecor
dsoft
imeandwor
k

i
i
.Super
visi
oni
nrel
ati
ont
ojobdescr
ipt
ions

i
i
i.Anal
ysi
sandaccount
ingf
orwages.

Ti
mekeepi
ng

Refer
stotherecor
dingofti
meperiodsdur
ingwhi
cheachst
affmemberofa
depar
tmenti
spresentandavai
l
abl
ef orwor
k,andt
hemanneri
nwhichti
meis

St
anl
eyt
hoi
thikagwi
Page291
spent
.

Di
ff
erentmet
hodsareusedf
orrecor
dinganemployees’punct
ual
i
tyofar
ri
valand
t
heti
mewhenhel eav
esthewor
kplace.Thesear
e:-

i
. Si
gni
ngt
het
imeofar
ri
val
inar
egi
steri
nthepr
esenceofat
imecl
erk.

i
i
.Keepi ngentr
anceopenabout15minut
esbef
orerequi
redti
meof
arr
ivaland15minut
esafterwhi
chi
sanall
owanceforpermi
ssi
ble
del
ay .

i
i
i.Ti
me cards beari
ng t
he name and i
dent
if
icati
on numberoft he
employ
eear epunchedf oraweekandanal ysed.New cardsare
i
ssuedforeachweek,andcol
lect
edbytheti
mekeeperf orr
ecordof
over
ti
meandr egul
arwork.

i
v.Clockcar dswhichoni nsert
ionattheent r
anceunlockt hegate,
automatical
ly
,punchti
meont hecar
dandr eleaseitf
orthestafft
o
remov eaccompaniedbyautomati
cre-l
ocki
ngoft hegate.Thesame
procedureisfol
l
owedeverytimeonempl oy
eeexi t
s.

Ov
ert
ime

 I
spai
datahi
gherr
atet
hant
henor
mal
rat
e.

 Amountexpendedonov
ert
i sknownasov
mei ert
imepr
emi
ums.

 Ci
rcumst
ancesunderwhi
chov
ert
imewor
kisr
equi
red:
-

i
. Complet
ewor
korj
obwi
thi
naspeci
fi
cdat
easr
equest
edbyt
he
cust
omer.

i
i
.Tomakeupt imecostduetobr
eakdownofmachi
ner
y,power
f
ail
ure,
oranyot
herunavoi
dabl
ereason.

i
i
i.Toworkasamat
terofpol
i
cyduet
olabourshor
tageorf
orany
ot
herr
eason.

Way
sofcont
rol
l
ingst
aff

i
. Super
visi
on

 Super
visi
onensur
est
hatst
affst
ickt
othei
rwor
kschedul
esatal
l
ti
mes.

i
i
.Ti
memanagement

 Ensuri
ngthatstaf
fskeeptotheagr
eedt
ime.I
ntr
oduci
ngcl
ocki
ngi
n
syst
em toestabli
shstaf
frepor
ti
ngti
me,
timeschedul
i
nget
c.

St
anl
eyt
hoi
thikagwi
Page292
 i
i
i.Dut
yrot
as

 Dut
yrotasensur
est
hatal
lst
affar
ewel
lengagedandnoi
dlet
imeor
moonl
ighti
ng.

Met
hodsofcomput
ingwages(
Met
hodsofr
emuner
ati
on)

Thi
sr ef
erstothebasisofdet
ermi
ningwhatt
obepai
dtoanempl
oyeef
orhi
s
ser
vices.Theyincl
ude:
-

i
. Ti
mer
atemet
hod

 Pay
menti
smadeont
hebasi
soft
imet
hatmaybeanhour
,aday
,aweekor
amont
h.

 Acer
tai
nsum i
ssetf
oreachoft
heabov
eti
meuni
t.

 Mostl
y,theworker
sar
epaidaccor
dingt
onumberofhour
swor
keddur
inga
par
ti
cularweekormonth.

Adv
ant
agesofT.
R.M

i
.Iti
saconv
eni
entmet
hodandwagescanbecal
cul
atedeasi
l
y.

i
i
.Employeescanf
orecastt
hei
rincomeandt
heyar
eensur
edt
o
r
ecei
veit
.

i
i
i.I
tel
imi
nat
est
heneedt
omeasur
etheper
for
manceoft
he
wor
k.

i
v.Iti
smoreconveni
entwher
ejobscannotbedi
vi
dedint
o
small
eruni
tse.
gforadri
ver,
atypi
st,of
fi
ceworket
c.

Di
sadv
ant
ages

i
. Discour
agesmor
eef f
ici
entworker
swhohav
etor
ecei
ve
samepayastheotherworker
s.

i
i
.Requir
esclosesupervi
sionofwor
ker
sot
her
wiset
heydonot
showi
nter
estinthei
rwor k.

i
i
.Pi
ecer
atemet
hod

 Anempl
oyeei
spai
dperuni
tofpr
oduct
,ar
ti
cleorperj
obcompl
eted.

 Met
hodusedonl
yift
hewor
kcanbedi
vi
dedi
ntouni
for
m pi
eces.

Adv
ant
agesofP.
R.M

St
anl
eyt
hoi
thikagwi
Page293
 i
.Itprov
idesanincent
ivetomoreef
fi
cientwor
ker
sast
heyar
e
pai
daccordi
ngtothev ol
umeofworkdone.

i
i
.Itdoesnotr
equi
recl
osesuper
visi
onofempl
oyees.

i
i
i.Itpr
ovidest
heempl
oyeraneasywayofdet
ermi
ningl
abour
costperuni
tofapr
oduct
.

Di
sadv
ant
ages

i
. Worker
scanproducei
nfer
iorqual
it
ypr
oduct
sinor
dert
o
pr
oducegreat
erquant
it
yinshortt
ime.

i
i
.Cannotbeappl
iedtothosej
obswhi
char
enoteasyt
odi
vi
de
i
ntosmal
lerpi
eces.

i
i
i.Doesnotensur
east
abl
emont
hlyi
ncomeofwor
ker
s.

Ot
hermet
hods

i
i
i.Hi
ght
imer
atef
orov
ert
ime

 Underthismethod,normalworki
nghour
sarepaidatnor
mal t
imerat
ebut
forovert
imewor kedduri
ngtheweekandweekends,ahi
gherrat
eispai
din
ordertoinduceworker
stowor kf
ormorehour
s

(
Eg.Mon–f ri8hrsandSat5hrs.Anyext
ati
me50%abov
enor
mal
rat
eand
weekendsdoubl
enormalrat
e.)

i
v.Pi
ecer
atewi
thguar
ant
eedt
imer
ate

 Undert
hismethod,aspecif
icamountispai
dtotheworkerondailyor
monthl
ybasisirr
espect
iveofunit
spr
oducedbyhim dur
ingthatperiodbuti
f
hi
soutputexceedsbeyondami ni
mum li
mitt
henheispaidaccordingto
pi
ecerat
emet hod.

 Thi
smet
hodensur
esaspeci
fi
cdai
l
yormont
hlyi
ncomeoft
hewor
ker
.

 Lowerout
putmaybeduet
o:-

i
. Shor
tageofr
awmat
eri
als

i
i
.Powerf
ail
ure

i
i
i.Machi
ner
ybr
eakdown

St
anl
eyt
hoi
thikagwi
Page294
  I
nsuchcases,
theguar
ant
eedwagei
spai
dtowor
ker
.

Exampl
e

Guarant
eedwageofpet
eri
sKsh.1,500andhei
spai
dSh.
5peruni
tpr
oduced.Fi
nd
outhismont
hlywagei
fheproduced:
-

a.500uni
ts

b.270uni
ts

Sol
uti
on

a) 500uni
ts

Totalwage = 5x500 = 2,
500/
=Thi
swagei
smor
ethan
t
heguar
anteedsohewi
l
lrecei
ve sh.2,
500.

b) 270uni
ts

Total
wage = 5x270 = 1,
350/
= Thi
swagei
sless
t
hant
heguarant
eedsohewi
l
lrecei
vesh.1,
500.

v
.Di
ff
erent
ialpi
ecer
ate

 Undert
hismet
hod,
piecer
atev
ari
esatdi
ff
erentl
evel
s.

 Ift
heworkerproducesmor
euni
tst
henheget
shi
gherpi
ecer
atebey
onda
speci
fi
clevel
ofoutput.

Exampl
e

Mr.Al
exi spai
dSh.5peruni
tupto100unit
s,Sh6peruni
tfor101-200uni
ts,and
sh.7perunitpr
oducedi
nexcessof200uni
ts.Howmuchwi l
lhi
swageamountt o
aft
erproduci
ng250unit
s.

Sol
uti
on

100uni
tsatsh.5peruni
t= 100 x5 = 500/
=

100uni
tsatsh.6peruni
t= 100 x6 = 600/
=

50uni
tsatsh.7peruni
t = 50 x7 = 350/
=

Tot
alwage = 1,
450/
=

I
NCENTI
VESCHEMES

St
anl
eyt
hoi
thikagwi
Page295
  Remunerati
onscanbemodif
iedtoprov
ideincenti
vesf
orworker
sto
i
ncreaseoutputandt
hesametimeincr
easetheirownwages.

Obj
ect
ivesofi
ncent
iveschemes

i
.Incr
easedpr
oduct
ivi
ty;

i
i
.Bet
teri
ndust
ri
alr
elat
ions;

i
i
i.Reducedl
abourt
urnov
er;

i
v.Hi
ghempl
oyeemor
ale.

Pr
inci
plesofl
abouri
ncent
iveschemes

Theyi
ncl
ude:
-

i
. Theschemesmustbef
airt
oempl
oyer
sandempl
oyees.

i
i
.Theymustbest
abl
eal
lthr
ough.

i
i
i.Thest
andar
dofper
for
mancemustber
easonabl
e.

i
v.Ther
emustbenol
i
mit
sont
heear
nings.

v
.Ther
emustbepr
opermeasur
ementofempl
oyeesef
for
ts.

Benef
it
sofi
ncent
iveschemes

 Themaj
orbenef
it
sofi
ncent
ivesschemesar
e:-

i
. Empl
oyeesar
eabl
etoi
ncr
easet
hei
rear
ningsasar
esul
toft
hei
r
ownef
fort
.

i
i
.Reducti
onsi
npr oduct
ionov
erheadcost
speruni
toccuras
pr
oduct
ionr
ises,l
eadi
ngtoincr
easedpr
ofi
ts.

i
i
i.Thereispressureonmanagementtoimpr
oveef
fi
ciencyin
producti
onplanningwhi
chisencour
agedt
oavoi
dst ock-
outs,
lost
producti
on,fal
l-
backpay
mentsandapathy
.

 Thesuccessf
uli
mpl
ement
ati
onoft
heschemesr
equi
res:
-

i
. Thattheschemebeseent
obeofequal
benef
itt
oempl
oyeesand
theestabl
i
shment
.

i
i
.Thattheschemebeunambiguous,
ther
ebeingonl
yonewayi
nwhi
ch
t
oint
erpr
ethowtheschemeistobeappli
ed.

 Establ
i
shmentshav
ebeenconcer
nedtoimproveproduct
ivi
tybymeansof
suchschemesandther
ear
eseveral
vari
ant
sf oundnamely:
-

St
anl
eyt
hoi
thikagwi
Page296
 a)Pr
emi
um bonusschemes

b)Gr
oupbonusschemes

c)Pr
ofi
tshar
ingandco-
par
tner
shi
p

PREMI
UM BONUSSCHEMES

 Thi
sispai
dtowor
ker
saccor
dingt
ohour
ssav
ed.

 Empl
oyerassignssomej
obt
othewor
ker
stocompl
etewi
thi
naspeci
fi
c
numberofhours.

 Ifworker
scompl
etethesej
obsinlessthanti
meal
l
owed,
thent
heempl
oyer
savessomemoney.(becauseofsavedtime)

 Thewor
ker
sar
eaccor
dingt
ohour
swor
ked.

 Accordi
ngtopr
emium bonusschemes,t
hesavingsaccr
uingtothe
employer
soutoft
imesavedbyt hewor
kersshouldbesharedbetween
employer
sandworker
s.

 Pr
emi
um bonusesar
epai
dtoawor
keront
hebasi
sofhi
sindi
vi
dual
eff
ort
s.

 Ther
ear
ethr
eepr
emi
um bonusschemesnamel
y:
-

i
. Hal
seyscheme

i
i
.Hal
sey
-wei
rscheme

i
i
i.Rowanscheme

 Thet
hreear
esi
mil
ari
nthef
oll
owi
ngr
espect
s:-

a)At
imei
ssetf
oreacht
ask

b)Theti
met akenbyaworkeri
scompar
edtotheal
l
owedti
me,
andabonusi spai
dift
heti
metakeni
slesst
hanthet
ime
al
lowed.

c)Thebonusi
sshar
edbet
weent
hewor
kerandt
hef
ir
m.

d)Paymentisusual
l
ybasedont
het
imer
ate,
butmaybesubj
ect
tosepar
atenegot
iat
ion.

HALSEY = Bonus =(
Timesav
edxWager
ate)

HALSEY-
WEI
R = Bonus= (
Timesav
edxWager
ate)

ROWAN = Bonus= xTi

mesav
edxWager
ate

St
anl
eyt
hoi
thikagwi
Page297
 Tot
alwager
ate = Bonusont
imesav
ed + Dayr
atewage

Exampl
e

S.kamaucompl
etedaj
obi
n45hour
sforwhi
ch60hour
swer
eal
l
owed.

Hi
swager
ateperhouri
sSh.
16.cal
cul
ateS.Kamau’
stot
alwageaccor
dingt
o:-

a.Hal
seyscheme

b.Hal
sey
-wei
rscheme

c.Rowan

Sol
uti
on

Ti
meal
l
owed(
T.A)= 60hour
s

Ti
met
aken (
T.T) = 45hour
s

Ti
mesav
ed (
T.S) = 15hour
s

Wager
ateperhour= Sh.
16

Basi
cwage = 45xSh.
16 =Sh720.

a)Hal
seyschemebonus =(
Timesav
edxWager
ate)

=x15x16

= Sh.120

Tot
alwage = Basi
cwage+Bonus

= Sh.
720+Sh.120

= Sh.840

b)Hal
sey
-wei
rschemebonus =(
Timesav
edxWager
ate)

=x15x16

= Sh.80

Tot
alwage = Basi
cwage+Bonus

= Sh.
720+Sh.80

= Sh.800

St
anl
eyt
hoi
thikagwi
Page298
 c)Rowanschemebonus =xTi
mesav
edxWager
ate

=x15x16

= Sh.180

Tot
alwage = Basi
cwage+Bonus

= Sh.
720+Sh.180

= Sh.900

GROUPBONUSSCHEME

 Thi
sschemefocusesontheteam f
orpurposeofcal
cul
ati
ngt
heincent
ive
bonus.(
i.
egr
oupofworkersnoti
ndivi
dualasint
heothermet
hod)

 Itmaybebasedonthepiecewor
kmethodorthepremium bonusmethod,
andthecal
cul
ati
onofthebonusissi
mil
artothatoft
heindivi
dual
bonus,
theonl
ydif
fer
encei
sthatthedatai
saggregat
edforthegr
oup.

 I
tmayal
sobebasedont
henumberofdi
rectpr
oduct
ionwor
ker
sint
he
t
eam.

Adv
ant
agesofgr
oupbonusscheme

i
.I tencouragest
eam spi
ri
t,andanydev
iantbehav
iouri
nthef
orm of
absenteeism,

l
atenessandsl
owwor
kingwi
l
lbedi
scour
agedbyt
her
estoft
hegr
oup.

i
i
.Thereissavi
ngi ntheelimi
nati
onoft
heneedt
okeepi
ndi
vi
dualr
ecor
ds,
si
nceiti
sonl
yt hepr oduct
ionoft
hegr
oupwhi
chhast
oberecor
dedfort
he
pur
poseofcalculat
ingthebonus.

i
i
i.Thegroupmaybeexpandedtoi
ncl
udeancil
lar
yworker
swhocandir
ectl
y
i
nfl
uencetheout
putoft
hegroupandconsequent
lyi
ncr
easemot
ivat
ion.

PROFI
TSHARI
NGANDCO-
PARTNERSHI
P

 Thi
sschemeenabl
est
heempl
oyeest
oshar
eint
hepr
ofi
toft
he
est
abl
ishment
.

 Normal l
y,anagreedpercent
ageoftheestabl
i
shmentear ni
ngsisal
l
ocat ed
toempl oyeesasagr oupandapporti
onedtoi
ndivi
dual
sonsomeequi table
basi
st hattakesaccountofsuchfact
orsasstat
us,annualwagesorsalary,
andlengthofservice.

 Aco-
par
tner
shi
pschemegivesemployeesast
akei
nthecompanywhich
maybei
nthefor
m ofshar
esandloanswitht
hecompanyatgener
ous

St
anl
eyt
hoi
thikagwi
Page299
 i
nter
estr
ates.

 Co-par
tner
shi
pschemesmayoper
atei
nconj
unct
ionwi
thot
heri
ncent
ive
schemes

LABOURTURNOVER

Def
ini
ti
on - defi
nedasther
ateofchangeint
hel
abourf
orcei
nan
or
gani
sat
iondur
ingaspeci
fi
edperi
od.

- thi
sisthenumberofst
affwholeav
etheorganisat
ionovera
speci
fi
cperi
odoftimeandisexpr
essedasapercentageofthetot
al
numberofemployees.

 I
tmaybet
akentomeanengagement
sandlossesr
elat
edtot
henumberof
wor
ker
semploy
edatt
hebeginni
ngofast
atedperi
od(e.
gweek,
month,et
c.)

Exampl
e

I
f50worker
soutofatot
alof200wor
ker
sleav
etheor
gani
sat
ioni
napar
ti
cul
ar
y
ear.Whati
sthel
abourt
urnover
?

Labourt
urnov
er = x100

= x100

= 25%

 Pr
oblem ofl
abourt
urnov
ervar
iesaccordingt
ogeogr
aphi
calarea,t
he
pr
oporti
onofmalesandfemal
esempl oyedandt
ocondit
ionswithi
nan
i
ndustr
y.

 Labourt
urnov
erl
eadst
ohi
ghcost
sandl
owpr
oduct
ivi
ty.

Causesofl
abourt
urnov
er

(
Whydopeopl
eleav
e?)

 Maincausesoflabourt
urnov
erwi
thi
nanor
gani
sat
ioncanbesub-
div
ided
i
ntotwoheads:-

i
. Av
oidabl
ecauses

i
i
.Unav
oidabl
ecauses

Av
oidabl
ecauses

St
anl
eyt
hoi
thikagwi
Page300
 i
. Redundancy
:-

 Seasonal
nat
ureoft
rade

 Shor
tageofmat
eri
als

 Gov
ernmentpol
i
cy

 Lackofpl
anni
ngandf
oresi
ghtofhi
ghermanagement

 Technol
ogi
cal
unempl
oyment

i
i
.Di
ssat
isf
act
ionwi
thr
emuner
ati
on

i
i
i.Di
ssat
isf
act
ionwi
thj
ob

i
v.Badwor
kingcondi
ti
ons

v
.Di
ssat
isf
act
ionwi
thhour
sofwor
k

v
i.Rel
ati
onshi
pwi
thsupervi
sors(i
.eunsy
mpathet
icandnon-
co-
oper
ati
ve
at
ti
tudeoft
hesuper
visorandormanagementmayforcewor
ker
stoleav
e)

v
ii
.Badr
elat
ionshi
pwi
thf
ell
owwor
ker
s

v
ii
i.
Lackoftr
anspor
t,accommodat
ion,
medi
cal
faci
l
iti
es,
recr
eat
ionandot
her
faci
l
iti
es.

Unav
oidabl
ecauses

i
. Per
sonal
bet
ter
ment

i
i
.Domest
icr
esponsi
bil
i
ties

i
i
i.I
ll
nessoracci
dent
s

i
v.Mov
efr
om l
ocal
i
ty

v
.Dismissalordischar
geduet
oinsubor
dinat
ion,
negl
i
gence,
i
nef
fi
ciencyetc.

v
i.Mar
ri
age

v
ii
.Nat
ional
ser
vice

v
ii
i.
Ret
ir
ementandordeat
h.

Ef
fect
sofl
abourt
urnov
er

 Labourturnov
erl
eadst
oincr
easedcostofpr
oduct
ionduet
othef
oll
owi
ng
reasons:
-

St
anl
eyt
hoi
thikagwi
Page301
 i
.Incr
easedcostofsel
ect
ion,
trai
ninget
cofnewwor
ker
s.

i
i
.Incr
easedt
ool
cost
;lostt
imeduet
omor
eacci
dent
s.

i
i
i.I
ncr
easei
ncostofscr
aps,
def
ect
ivewor
k,addi
ti
onal
super
visi
onet
c.

i
v.Decr
easei
nov
eral
lpr
oduct
ionduet
o:-

a)Lackofdesi
redef
fi
ciencyofnewwor
ker
s.

b)Ti
mel
ostbet
weent
urnov
erandr
ecr
uit
ment

 Hi
ghl
abourt
urnov
eri
sofconsi
der
abl
econcer
nbecause:
-

a)Cancont
ri
but
etot
hei
nfl
ati
onar
ytr
end.

b)Wor
ksagai
nstt
hegoal
off
ull
empl
oyment
.

WAGESCONTROL

 Thewagedepar
tmenti
sresponsi
blef
orpr
epar
ingt
hepay
rol
landpay
ing
wages.

 Corr
ectamountofwagesmustbepai
dtot
her
ightempl
oyeesatt
her
ight
ti
me.

 Wagesshoul
dbepai
daccor
dingt
oter
msandcondi
ti
onsofeachwor
ker
.

 Ifwagesarenotpaidi
nari
ghtmannert
henempl
oyeeswi
l
lnotwor
khar
d
andasar esul
tincomewi
l
lfal
l.

 Themai npur
poseofwagecontrol
ist
oensuret
hepay
mentofwagesf
or
thebenefi
tofbot
hemployerandempl
oyees.

 Al
soensur
ethatnowagepay
mentt
onon-
exi
stentempl
oyee(
dummy
wages)
.

 Ensur
eshourswor kedf
orarecorrect
lyent
eredsot
hatempl
oyeesmaynot
cl
aim moneyforhoursnotworkedfor.

 Wagessy
stem shoul
dbewel
lor
gani
sedandmostef
fect
ive.

Pr
event
ionoff
raudi
nwagepay
ment
.

 Oneoft
hepr
obl
emsassoci
atedwi
thwagepay
menti
sthepossi
bil
i
tyof
fr
aud

per
pet
uat
edbywor
ker
s.

 Thef
oll
owi
ngt
ypesoff
raudar
emor
ecommonl
yseen:
-

St
anl
eyt
hoi
thikagwi
Page302
 i
.Incl
usi
onofghostordummywor
ker
sint
hepay
rol
l
.

i
i
.Incl
usi
onofwr
onghour
swhenpay
menti
sdoneonbasi
coft
ime.

i
i
i.Useofwr
ongr
ateofpayi
nthepay
rol
l
.

i
v.I
nclusi
onofov er
ti
me,bonus,et
c,notent
it
ledordueor
overst
atementoftheamountdue.

v
.Deliber
ateabsent
eei
sm ont
hedat
eofwagepay
mentt
ocl
aim
f
raudul
entpaymentl
ater
.

v
i.Omi
ssi
ont
omakeaut
hor
iseddeduct
ions(
par
ti
all
yorf
ull
y).

St
epst
akent
opr
eventf
raudi
npay
mentofwages

i
. Thenamesofworker
semploy
edshoul
dbecheckedwi
tht
henamesof
worker
stowhom wagesar
epaid.

i
i
.Per
sonnel
recor
dsshoul
dbecheckedf
rom t
imet
oti
me.

i
i
i.Ti
mer
ecor
dsandpi
ecewor
krecor
dsmustbemai
ntai
nedaccur
atel
y.

i
v.Thev
ariousst
agesofwagepr
epar
ati
onshoul
dbeassi
gnedt
odi
ff
erent
empl
oyees.

v
.Thewagesheet
sshoul
dbesi
gnedbyal
lper
sonsr
esponsi
blei
npr
epar
ati
on
ofwages.

v
i.Total
wageshoul
dbecompar
edwi
thor
igi
nal
est
imat
eofcost
ing
depar
tment
.

v
ii
.Recei
ptsofwageshoul
dbedul
l
ysi
gnedbyt
hewor
ker
s.

v
ii
i.
Theamountdr
awnf
rom t
hebankshoul
dtal
l
ywi
tht
heact
ual
amount
s
requi
red.

i
x.Anyunpai
dwagesshoul
dbedeposi
tedi
nthebanki
mmedi
atel
y.

Wagespr
ocedur
es

 Themai
npur
poseofest
abl
i
shi
ngwagepr
ocedur
esar
e:-

i
. Tocalcul
atet
hewagesearnedbyeachemploy
eei
nvi
ewoft
ermsof
employmentandnumberofhour
sworked.

i
i
.Tof ul
fi
lthel
rgal
requi
rement
sli
kededuct
ionsofi
ncomet
ax,
N.S.
S.F
andNHIF.

St
anl
eyt
hoi
thikagwi
Page303
 i
i
i.Tot akei
ntoaccountotherdeduct
ionsl
i
kepensi
oncont
ri
but
ion,
repaymentofloanetc.

i
v.Toprov
idet
headequat
einf
ormati
ont
othecashi
ert
oenabl
ehi
mto
payt
heamountsduetoworker
s.

v
.Tocompl etetheaccount
ingr
ecor
dsoft
hebusi
nessr
egar
dingt
he
wagespaid.

v
i.Toensur
ethepr
operuseofamount
sdeduct
edf
orv
ari
ousr
easons.

Document
susedi
nthecal
cul
ati
onofgr
osspayofl
abour
s.

Theyi
ncl
ude:
-

i
. Cl
ockcar
ds(
ti
mer
ecor
ds)

 Thesegiv
ethenumberofhour
swor
kedbyeachempl
oyee(
i.
e
showstheti
mespentatwork)
.

 I
tcont
ains:
-

a)Nameofempl
oyee

b)Cl
ocknumber

c)Hour
sofwor
kedondi
ff
erentdat
esoft
hemont
h

i
i
.Pi
ecewor
kti
cket
s(pr
oduct
ionschedul
e)

 Thesepr
ovi
deinf
ormati
onregardi
ngthenumberofitemsproduced
byeachwor
ker(i
.er
ecordsthenumberofuni
tsproduced)
.

 Theseareusedf
ort
hosewor
ker
swhoar
epai
daccor
dingt
owor
k
complet
ed.

i
i
i.Empl
oyee’
sper
sonalcar
d(empl
oyeesr
ecor
dcar
d)

 Thesepr
ovidetheinf
ormat
ionregar
dingthewagerate(
i.
ebasi
cand
over
ti
me),hol
idaypayent
it
lementandsickpayent
itl
ement.

i
v.Jobcar
ds

 Jobcardsrecor
dstheti
mespentoneachj
ob:t
hesemaybe
subst
it
utesforcl
ockcar
dsorpi
eceworkti
cket
s.

 Oncet
hegrosspayhasbeencal
cul
ated,
anumberofdeduct
ionsar
emade
t
oarri
veatt
henetpay.

St
anl
eyt
hoi
thikagwi
Page304
  Someoft
hesededuct
ionsar
e:-

a)St
atut
orydeduct
ionssuchas:
-

o Payasy
ouear
ntax(
PAYE)

o Empl
oyee’
snat
ional
insur
ancecont
ri
but
ion

b)Obli
gator
ydeduct
ionsusual
lyar
eli
mit
edt
oempl
oyee’
s
pensi
onfundcont
ribut
ions

c)Vol
unt
arydeduct
ionssuchas:
-

o Tr
adeuni
onsubscr
ipt
ions;

o Heal
thschemecont
ri
but
ions;

o Char
it
ydeduct
ions;

o Soci
alcl
ubdeduct
ions;

o Sav
ingsdeduct
ions.

PAYROLL

Thi
sisali
stofal
lempl
oyeesshowi
ngt
hedet
ail
soft
hei
rgr
osswages,
deduct
ions
andnetwagesduet
othem.

I
tsal edaswagessheet
socal
l .

Par
ti
cul
arscont
ainedi
napay
rol
l

Pay
rol
lcont
ainsdi
ff
erentcol
umnsnamel
y:
-

i
.Ser
ial
numberorcl
ockcar
dnumberorper
sonal
number

i
i
.Namescol
umn

i
i
i.Tot
alhour
swor
ked

i
v.Wager
ate

v
.Incomet
axcol
umni
.ePAYEcol
umn.

v
i.Nat
ional
soci
alsecur
it
yfund

v
ii
.Nat
ional
hospi
tal
insur
ancef
und

v
ii
i.Tot
aldeduct
ions

i
x.Netwagescol
umn

x.Adv
anceorl
oanr
epay
ment

St
anl
eyt
hoi
thikagwi
Page305
 xi
.Wagepay
abl
eorbal
ancedue

 Thesecol
umnsar
eusedt
orecor
dspeci
fi
cfi
gur
es.

 Onel
i
neonpay
rol
li
susedf
oronewor
ker
.

 Thenamesofwor
kersar
earr
angedal
phabet
ical
l
yoraccor
dingt
otheser
ial
numberoft
hei
rcl
ockcar
ds.

 Asepar
atewagesheeti
spr
epar
edf
oreachmont
h.

Pr
ocedur
eadopt
edt
opr
epar
eapay
rol
l

i
. Thenumberofhour
swor
kedi
smul
ti
pli
edbywager
ateperhour
.

 Anyov
ert
imei
smul
ti
pli
edbywager
ateappl
i
cabl
eforov
ert
ime.

 Gr
osswager
ecor
dedonappr
opr
iat
ecol
umn.

i
i
.Incometaxpayabl
ebyeachempl
oyeei
scal
cul
atedundert
hesy
stem of
PAYEandthenent
eredt
ocolumn

i
i
i.Contr
ibut
ionofeachempl
oyeear
eputonr
elev
antcol
umni
.eNSSFand
NHIF.

i
v.Tot
aldeduct
ionf
oreachf
orempl
oyeear
eshowni
.ePAYE+NSSF+NHI
F.

v
.Totaldeduct
ionsaresubtr
act
edfr
om grosswagesandt
heseamount
sar
e
ent
eredi
ntoanothercol
umn(netwage)
.

v
i.Anyadv
ancetakenbyempl
oyeesorl
oanr
epay
ment
sar
esubt
ract
edt
ofi
nd
outt
hewagespayabl
e.

Exampl
e

Rehemaoper
atesafastfoodoper
ati
oninMombasa,wit
hat eam ofsi
xwor
ker
s.
From t
hef
oll
owingi
nformati
on,pr
eparet
hei
rpay
rol
lforthecomingmonth.

Cl
ockno. Name Numberof Rat
eofpay Adv
ancepai
d

Hr
swor
ked Shs. Shs.

5012 A.Rober
t 180 10perhour 500

5016 S.Mwangi 200 14perhour 700

5011 J.Al
ex 190 12perhour 600

5015 R.Josphet 210 10perhour 800

5013 P.Wachi
ra 200 16perhour 800

St
anl
eyt
hoi
thikagwi
Page306
 5014 G.Paul 170 13perhour 500

Addi
ti
onali
nfor
mat
ion

a)Normalworki
nghour
spermont
hare180.Ov
ert
imepay
abl
eforext
rahour
s
att
herateof50%abovenor
malpayr
ate.

b)P.
A.Y.
Etobededuct
edatt
her
ateof10%ofgr
osswage.

c)N.
S.S.
Ftobededuct
edShs.80f
oreachempl
oyee.

d)N.
H.I
.Ft
obededuct
edShs.20f
oreachempl
oyee.

(
16mar
ks)

TOTAL DEDUCTI
ONS
Hrs.
Worke GROSS NSS TOTAL NET
S.
NO NAME d RATE WAGE PAYE F NHIF DEDUCTI
ON WAGE ADVANCE
Shs. Shs. Shs. Shs. Shs. Shs. Shs.
5011 J.Alex 190 12 2, 340 234 80 20 334 2,
006 600
A.
5012 Robert 180 10 1,
800 180 80 20 280 1,
520 500
P.
5013 Wachira 200 16 3,
360 336 80 20 436 2,
924 800
5014 G.Paul 170 13 2,
210 221 80 20 321 1,
889 500
R.
5015 Josphet 210 10 2,
250 225 80 20 325 1,
925 800
S.
5016 Mwangi 200 14 2,
940 294 80 20 394 2,
546 700
12,
81
14,
900 1490 480 120 2090 0 3900

Wor
kings

 Gr
osswage.

1.J.Al
ex

180hour
s x Sh.12 = 2,
160

10hour
s x Sh.18 = 180 sh.2,
340

2.A.Rober
t

180hour
s x Sh.10 = 1,
800 sh.1,
800

3.P.Wachi
ra

St
anl
eyt
hoi
thikagwi
Page307
 180hour
s x Sh.16 = 2,
880

20hour
s x Sh.24 = 480 sh.3,
360

4.G.Paul

170hour
s x Sh.13 = 2,
210 sh.2,
210

5.R.Josphet

180hour
s x Sh.10 = 1,
800

30hour
s x Sh.15 = 450 sh.2,
250

6.S.Mwangi

180hour
s x Sh.14 = 2,
520

20hour
s x Sh.21 = 420 sh.2,
940

 Over
ti
me,
pay
menti
stobemadeatnor
mal
rat
epl
us50%ofnor
mal
r
ate

 P.
A.Y.
Eist
akenat10%ofgr
osspay
.

Pay
mentofwages

 Themet hodofpay
mentofwagesdependsupont
hesi
zeoft
he
organi
sati
onandnumberofempl
oyees.

 Wherepaymenti
smadeincash,
thenot
esandcoinsareencl
osedinpay
env
elopeswhi
charepr
epar
edbysomecler
ksintheorgani
sati
on.

 I
ntheenv
elopes,
wagesl
i
pisputt
oget
herwi
thcash.

Wageorpaysl
i
p-thi
sisapi
eceofpapergi
vent
oanempl
oyeethatshows
howmuchmoneyt
heyhav
ebeenpai
dandhowmuchhasbeentakenawayfor
tax.

I
DLETI
ME

Def
ini
ti
on -Maybedefi
nedastheti
meduringwhichnopr
oduct
ioni
sobt
ained
al
thoughwagesar
epaidfort
hatper
iod.

-thi
sist
hedi
ff
erencebetweentheti
mespentonpr
oduct
ionwor
k
andthet
imef
orwhi cht
hewor keri
spai
d.

-Denot
espaymentmadetoaworkerf
oraper
ioddur
ingwhi
chhe
remai
ns‘i
dle’
anddoesnowor
k.

St
anl
eyt
hoi
thikagwi
Page308
  Thi
sisrepresent
edbyt
hedif
fer
encebetweenthet
imeasperthe
at
tendancerecor
dsandthet
imebookedtothevar
iousj
obsorworkdone.

 I
tisal
socal
l
ed‘
l
ostt
ime’
ofmenandmachi
nes.

 Ther
ear
etwot
ypesofi
dlet
imenamel
y:
-

i
. Cont
rol
l
abl
eidl
eti
me

i
i
.Uncont
rol
l
abl
eidl
eti
me

Causesofi
dlet
ime

 Ther
earevar
iouscausesandar
egr
oupedundert
hreebr
oadheadi
ngs
namely
:-

i
. Pr
oduct
ivecauses

i
i
.Admi
nist
rat
ivecauses

i
i
i.Economi
ccauses

Pr
oduct
ivecauses

 Pr
oduct
ivecausesar
esubj
ectt
ocont
rol
int
ernal
l
yi.
econt
rol
l
abl
eidl
eti
me.

 Thesear
ecl
assi
fi
edasf
oll
ows:
-

i
. Wai
ti
ngf
orwor
k

i
i
.Wai
ti
ngf
ort
ool
sandorr
awmat
eri
als

i
i
i.Wai
ti
ngf
ori
nst
ruct
ions

i
v.Powerf
ail
ure

v
.Machi
nebr
eakdown

v
i.Wai
ti
ngf
orchange-
overt
ime

Admi
nist
rat
ivecauses

 Thesear
iseoutofadmi
nist
rat
ivedeci
sionse.
gfaul
tysuper
visi
on,
str
ikes.

 Thi
sfor
mspar
tofuncont
rol
l
abl
eidl
eti
me.

Economi
ccauses

 Thi
soccur
sasar
esul
toff
inanci
alconst
rai
ns.

Exampl
e

St
anl
eyt
hoi
thikagwi
Page309
  St
oppageofpr
oduct
ionduet
onon-
avai
l
abi
l
ityofr
aw
mater
ial
s

 Fal
li
ndemand

 Cy
cli
cal
fluct
uat
ions

Cont
rolofi
dlet
ime

 Foref f
ecti
vecontrol
,eachty
peofidleti
meshoul dbeal
lot
tedasepar
ate
standingordernumber(i.
eproduct
ivecauses)andaremoreorl
esssubj
ect
tointernal
control
.

 Thepr
oduct
ivecausesment
ionedabov
ecanbecont
rol
l
edasbel
ow:
-

i
. Wai
ti
ngf
orwor
k

 Allj
obsi
nhandshoul
dbeproperl
ypl
annedsothatmachi
necanal
ways
takeupt
hejobsi
nsequenceandwor
kersdonothavetowai
tfort
hem.

i
i
.Wai
ti
ngf
ort
ool
s,mat
eri
alset
c

 Considerabl
eamounti
dbeingspentf
oridl
eti
meduet owaiti
ngfortool
sor
material
s.Thi
scanbeprev
entedbyensuri
ngproperst
orescont
rolandtool
scheduli
ngsystem.

i
i
i.Wai
ti
ngf
ori
nst
ruct
ions

Idl
eti
meduet owaiti
ngf ori
nstructi
onscanbeprev
ent
edi fthepr
oduct
ion
contr
olsdepar
tmentissuesclearinstr
uct
ionst
otheworkersastohowto
handl
et hej
obinsequence.

 Thei
nst
ruct
ionsanddr
awi
ngsshoul
dbecl
ear
lyl
aiddownf
oral
lj
obst
aken
i
nhand.

i
v.Powerf
ail
ure

 Powerf
ail
uremybecausedby
:-

 I
mpr
operi
nspect
ionandmai
ntenanceofpowerpl
ant

St
anl
eyt
hoi
thikagwi
Page310
  Br
eakdownoft
ransmi
ssi
onwi
res

 Ext
ernal
reasonsl
i
kef
ail
uref
rom mai
npowersuppl
y.

 Thi
smayber educedbykeepi
ngproperi
nspect
ionandmai
ntenanceoft
he
powerpl
ant
,transmi
ssi
onwi r
eset
c.

v
.Machi
nebr
eakdown

 Thiscanbepr
event
edbykeepi
ngpr
opermai
ntenancesy
stem i
.er
out
ine
checkofal
lmachi
nes.

FRI
NGEBENEFI
TS

 Thi
sisapay
mentf
orwhi
chdi
rectef
for
tsoft
hewor
ker
sar
enotnecessar
y.

 Thi
sbenef
it
sincl
udes:
-

 Leav
eandsi
ckpay

 Hol
i
daypay

 St
atei
nsur
anceandmedi
cal
benef
it
s

 At
tendancebonusandshi
ftal
l
owance

 Pensi
onprov
isi
on,r
etir
emental
lowance,
andempl
oyer
’s
cont
ri
but
iontoprov
identf
und.

 Othercost
ingrepr
esenti
ngapr esentorf
utur
eret
urntoan
employeewhichisnei
therdeductedonapayrol
lnorpai
dby
theemployee.

REVI
SIONQUESTI
ONS

1.Def
inet
hef
oll
owi
ngt
erms:
-

i
. Labourt
urnov
er

i
i
.Pay
rol
l

St
anl
eyt
hoi
thikagwi
Page311
 (
4mar
ks)

2.Li
stsi
xact
ivi
ti
esf
oundi
naj
obdescr
ipt
ionofawai
ter
.

(
3mar
ks)

3.a) Expl
aint
hemeani
ngofi
dlet
ime.

(
2mar
ks)

b) Di
scusanyt
wocausesofi
dlet
ime.

(
4mar
ks)

4.Outl
i
neanysev
enst
epswhi
chshoul
dbet
akeni
nor
dert
opr
eventt
hewage
fr
aud.

(
7mar
ks)

5.Descr
ibewi
thanexampl
eeachdi
rectandi
ndi
rectl
abour
.

(
6mar
ks)

6.a) Gi
vef
ourcausesofl
abourt
urnov
eri
naf
oodout
let
.

(
4mar
ks)

b) Suggestanyf
ourstepswhichift
aken,
labourt
urnov
erwoul
dcome
downtoanacceptablel
evel.

(
4mar
ks)

c) Di
scustwomethodsofrecor
dingat
tendanceofy
ourempl
oyees
whentheyr
epor
tfordut
yinthemorning.

(
8mar
ks)

d) Supportwi
thtwogoodreasonsyourchoi
ceoft
imer
ecor
dingcl
ocks
overt
heothermethodsofti
me-keepi
ng.

(
4mar
ks)

7.a) Def
inet
hef
oll
owi
ngt
ermsusedi
nst
afft
rai
ning:
-

i
.jobanal
ysi
s

i
i
.jobdescr
ipt
ion

(
4mar
ks)

b) St
atesi
xgener
alobj
ect
ivesofst
afft
rai
ning.

St
anl
eyt
hoi
thikagwi
Page312
 (
6mar
ks)

8.Descr
ibet
het
woel
ement
sofl
abourcost
s.

(
4mar
ks)

9.Pr
epar
eaj
obspeci
fi
cat
ionf
oracat
eri
ngmanager
.

(
6mar
ks)

10.
Arestaurantmanagerengagedthreecasual wait
ersf
oranoutdoorfuncti
on.
Theywer epaidatar at
eofKsh.120,Ksh.150,Ksh.180respecti
vel
y.
Overt
imei stimeandat hi
rd.I
na40hour sperweek, t
heyworkedasf ol
lows,
wait
er1wor kedf
or37hour s,
wait
er2wor kedfor42hour
sandwai t
er3
workedfor50hour s.Wagesareguaranteedforeachweekwor kedatthe
normalrate.

Requi
red:

Computet
hei
rwagesshowi
ngt
hebasi
cwagessepar
atel
yfornor
mal
wages,

Ov
ert
imeandov
ert
imepr
emi
ums.

(
6mar
ks)

11.a) Explai
nthet
erm‘
moni
tor
ingper
for
mance’
asusedi
nlabourcost
cont
rol

(
2mar
ks)

b) Li
stf
oursourcesofi
nfor
mat
ionusedi
nindi
rectmoni
tor
ingof
empl
oyeesperfor
mance.

(
2mar
ks)

12.
Thefol
lowi
ngi
nfor
mat
ioni
scont
ainedi
nthecompensat
ionpol
i
cyofUj
uzi
cat
eri
ngcompany.

i
. Nor
malworki
nghourspermont
hare180,over
ti
mepayabl
e
f
orext
rahour
sattherat
eof50%abovenormalrat
e;

i
i
.P.
A.Y.
Etobededuct
edatt
her
ateof10%ofgr
ossage;

i
i
i.N.S.S.
FtobedeductedKsh.20.
00f
oreachemployeeovert
he
mont hofJuky2007.M,Bar
akawor
kedfor200hours;
heis
paid@ Ksh.12.
00perhour.

Requi
red:

Pr
epar
eM.Bar
aka’
spay
sli
pfort
hemont
hofJul
yassumi
ngKsh.
600.
00

St
anl
eyt
hoi
thikagwi
Page313
 waspai
dinadv
ance.
(
11marks)

13.
Acasual wait
erwasal
lowed12hourst
ohourstocl
earupdi
shesusedfora
functi
on.Hecomplet
edin8hoursandheispai
dKsh500.00perhour
.
Calcul
atehiswageaccordi
ngt
oHalseyscheme.

(
6mar
ks)

14.
Expl
ainhowt
hef
oll
owi
ngar
eusedi
nenhanci
ngef
fi
ciencyt
ost
aff
.

i
. Anor
gani
sat
ional
char
t

i
i
.Jobdescr
ipt
ion

i
i
i.Jobspeci
fi
cat
ion

(
9mar
ks)

15.
Expl
ainanyt
woway
sofcont
rol
l
ingst
aff
.

(
4mar
ks)

16.
Expl
ainhowahotel
managercanappl
ythef
oll
owi
ngt
echni
quesi
nor
dert
o
ensur
ecostcont
rol
.

i
. Tr
aini
ng

i
i
.Requi
ri
ngr
ecor
dsandr
epor
ts

i
i
i.Est
abl
i
shi
ngst
andar
ds

i
v.Di
sci
pli
ne

(
12mar
ks)

17.
Expl
aint
hepur
poseofl
abourcont
rol
.

(
2mar
ks)

18.
Stat
efouradv
ant
agesoft
imer
atemet
hodofcomput
ingwages.

(
4mar
ks)

19.
Comput
ethet
otal
wagef
rom t
hef
oll
owi
ngdat
ausi
ngHal
seyscheme.

WORKERS JUMA RONO ASHA

St
anl
eyt
hoi
thikagwi
Page314
 Ti
meal
l
owed(
hour
s) 48 50 32

Ti
met
aken(
hour
s) 36 40 30

Rat
e(Shs.Perhour
) 160 210 240

(
12mar
ks)

20.
Inthey
ear2009,200workersoutofanaverageof800workersemploy
ed
lef
tuni
querest
aurant
s.Calcul
atet
helabourtur
noverdur
ingtheyear
.

(
4mar
ks)

21.

St
anl
eyt
hoi
thikagwi
Page315
Ref
erences:
-
i
. KotasRi chardandDav isBer nard( 1986) ;Foodandbev er
agecont rol,
Int
ernational t
extbookcompanyl t
d, (3rdedi
tion)greatBri
tain.(pg160- 168).
i
i
.Odger sPet er;Purchasi ngcost ingandcont rol,
StanleyThornespubl i
sher s
LTD, London.( pg216- 240) .
i
i
i.Saleemi AhmadNi sar( 1990) ; Costaccount ingsimpl i
fi
ed,N.A.Saleemi
publi
sher s,Nairobi.( pg71- 87) .
i
v.SethiMohi ni (
2008) ; Inst i
tutional foodmanagement ,NewAgeI nternational
publi
sher s.(pg536- 540) .
v
.McCr eeryCat hyEtal l;I ntroduct iont ocat er
ing,Longman, London.( pg250-
252)
v
i.LeaR.DopsonandDav idK.Hay es( 2010) ;f
oodandbev eragecostcont r
ol,
London( 5thedi t
ion), (pg230- 234)
v
ii
.Glautier
,M.W.E.andUnder down, B.( 1992) ;
Costaccount i
ng, Pitman
publi
sher s,London( pg63- 78) .
v
ii
i.
RaghunandanB. V( 2010) ;Labourcostcont rolincostaccount i
ng, London.

St
anl
eyt
hoi
thikagwi
Page316