Program B.A.

Degree in Hotel Management

Course Title Food and Beverage Control II

Course Code HMgt 4102

Course Credit 3

Prepared by Zelalem.B 1
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 CHAPTER ONE
INTRODUCTION TO FOOD AND BEVERAGE CONTROL


Food and beverage control may be defined as the guidance and regulation of the
costs and revenue of operating the catering activity in a food and beverage
establishment. A successful holistic food and beverage control is imperative for any
type of food and beverage operation regardless of its size. The cost of food and
beverage can range from 25% to up to 50% (even more) depending on the type
of operation.
In restaurants, food and beverage can be the only source of revenue. In the
public sector catering, employee restaurants and similar operations, food and
beverages are the main day-to-day expenditure, which is controlled by budgets
and possibly a level of subsidy, either on a total company or on a per unit basis.
The amount of control is related to the size of the operation. A large group
operation would require much more precise, detailed, up-to-date information, than
a small operation. 2
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Additionally a larger operation will be able to support the control with a computerized system when a smaller
operation may not be able to afford it (however the cost of such technology has been greatly reduced in recent
years so much so that even smaller operations can now afford such a system). In both instances the type and
volume of data required needs to be selectively determined if control is to be meaningful and effective. It is important
at this stage to clarify the limitations of a control system; a control system:
1. can only identify problem areas and trends in the business.
The system cannot automatically correct problem areas.
2. will require constant management supervision to ensure that it functions efficiently.
3. will need management action to evaluate the information produced and to act upon it 3
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THE OBJECTIVES OF FOOD AND BEVERAGE CONTROL
● Analysis of income and expenditure:
The analysis is solely concerned with the income and expenditure related to food and beverage operations. The
revenue analysis is usually by each selling outlet, of such aspects as the volume of food and beverage sales, the
sales mix, the Average Spending Power (ASP) of customers at various times of the day, and the number of
customers served. The analysis of costs includes departmental food and beverage costs, portion costs and labour
costs. The performance of each outlet can then be expressed in terms of the gross profit and the net margin (i.e.
gross profit minus wages) and the net profit (i.e. gross profit minus wages and all overhead expenses such as
rent, rates, insurance, etc.).
● Establishment and Maintenance of Standards:
The basis for the operation of any food and beverage outlet is the establishment of a set of standards which would
be particular to an operation, for example, a chain of steak house restaurants. Unless standards are set no employee
would know in detail the standards to be achieved nor could the employee’s performance be effectively measured
by management. An efficient unit would have the set standards laid down in manuals often known as SOPs
(Standard Operational Procedures) which should be readily available to all staff for reference. 4
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● Pricing:
An important objective of food and beverage control is to provide a sound basis for menu pricing including quotations
for special functions. It is, therefore, important to determine food menu and beverage list prices in the light of
accurate food and beverage costs and other main establishment costs; as well as general market considerations,
such as the average customer spending power, the prices charged by competitors and the prices that the market
will accept.

● Prevention of waste:
In order to achieve performance standards for an establishment, targets are set for revenue, cost levels and profit
margins. To achieve these levels of performance it is necessary to prevent wastage of materials caused by such
things as poor preparation, over-production, failure to use standard recipes, etc. This can only be done with an
efficient method of control, which covers the complete cycle of food and beverage control, from the basic policies
of the organization to the management control after the operation has been completed

● Prevention of fraud:
It is necessary for a control system to prevent or at least restrict the possible areas of fraud by customers and
staff. Typical areas of fraud by customers are such things as deliberately walking out without paying; unjustified-
ably claiming that the food or drink that they had partly or totally consumed was unpalatable and indicating that
they will not pay for it; disputing the number of drinks served; making payments by stolen cheques or credit cards.
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Typical areas of fraud by staff are overcharging or undercharging for items served and stealing of food, drink or
cash. 03/29/2023
● Management information:
A system of control has an important task to fulfill in providing accurate up-to-date information for the preparation
of periodical reports for management. This information should be sufficient so as to provide a complete analysis of
performance for each outlet of an establishment for comparison with set standards previously laid down (e.g. budget
standards).
Information overload can be a major issue when managing an operation. Often management will be presented with
enormous amount of reports and statistical information that they may not know how to use or do not have the time
to act upon.
It is therefore imperative that depending on the size of the operation appropriate control is applied, for example, a
small operation may not require daily, weekly and periodic reports whilst a larger operation will probably require
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them so that management may take both corrective and preventive action quickly. 03/29/2023
SPECIAL PROBLEMS OF FOOD AND BEVERAGE CONTROL
Food and beverage control tends to be more difficult than the control of materials in many other industries. The
main reasons for this are:

● Perish-ability of the product:

Food, whether raw or cooked, is a perishable commodity and has a limited life. The caterer, therefore, has to
ensure that she buys produce in the correct quality and quantity in relation to estimated demand, and that it is
correctly stored and processed (beverages are less perishable and this contributes to easier control).

● Business volume unpredictability:

Sales instability is typical of most catering establishments. There is often a change in the volume of business from
day to day, and in many establishments from hour to hour. This causes basic problems with regard to the quantities
of commodities to be purchased and prepared as well as to the staffing required.

● Menu mix unpredictability:

In order to be competitive and satisfy a particular market, caterers must often offer a wide choice of menu items
to the customer. Predicting menu item preference on top of customer volume can be a challenge. Effective forecasting
as part of the total food and beverage control system is therefore necessary. 7
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● Food and beverage operation short cycle:
The speed at which catering operations take place, relative to many other industries, allows little time for many
control tasks. It is not uncommon that items ordered one day are received, processed and sold the same or next
day. It is for this reason that in larger catering establishments cost reporting is done daily or at least weekly.
Further problems, particularly with perishable foods, are that with a short life for produce, items cannot be bought
very much in advance of their need; and the problem of availability at times of produce relative to the price that
can be afforded in relation to the selling price.

● Departmentalization: Many food and beverage operations have several production and service departments,
offering different products and operating under different policies. It is, therefore, necessary to be able to produce
separate trading results for each of the production and selling activities.
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THE FUNDAMENTALS OF CONTROL
Effective control systems and procedures consist of three broad phases: planning, operational
and management control after the operation has taken place.
A. The planning phase
It is difficult to run an effective catering operation without having firstly defined the basic
policies. Policies are pre-determined guidelines, laid down by the senior management of an
organization, which outline such matters as the market or segment of the market that is being
aimed at, how it is to be catered for, and the level of profitability/subsidy to be achieved.
Policies in general are particular to individual companies and establishments, although in the
public sector operations, there may well be broad national policies, for example, for hospital
catering. A catering operation should have its policies clearly defined before it commences
business, and re-defined whenever a major change takes place, for example, when a new
theme is chosen for a restaurant to aim for a different market segment. Ideally, in a large
organization the policies should be written down and periodically reviewed in relation to the
current business and future trends; however, in smaller organizations there is not the
communication problem of a large organization and to formally draw up and commit policies 9to
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paper is not so vital.
THREE BASIC POLICIES WHICH NEED TO BE CONSIDERED ARE:

1. The financial policy will determine the level of profitability, subsidy or cost limits to be expected from
the business as a whole and the contribution to the total profit, subsidy or cost limit that is to
be expected from each unit, and then from the departments within them. This involves the
setting of targets for the business as a whole as well as each unit and the departments within
them. Thus, the financial policy for a large hotel will set profit targets for the hotel, and
departmental profit targets for the accommodation and catering as well as other departments.
The financial policy for the catering department will set the overall target for the department
itself, which will be further divided into targets for the various restaurants, bars and function
facilities. The financial policy for an industrial contract catering operation will set the overall
target for the operation, the level of subsidy and the level of management fee, as well as the
cost limits per unit (meal or employee).

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1. The marketing policy will identify the broad market the operation intended to serve and the particular segment(s)
of the market upon which it intends to concentrate. It should also identify the immediate and future consumer requirements
on a continuous basis in order to maintain and improve its business performance. It is obvious then that the broad
market intended to be served by a large city hotel could be broken down into the specific segments of the various
types of users of, for example, the coffee shop, the carvery, the cocktail bar, the banqueting rooms, etc. each
having specific and different consumer requirements.

The interpretation of the marketing policy for a national commercial catering organization into a marketing plan for the
next year may include some or all of the following objectives:
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● National identity- to achieve a better national identity for all units by corporate design and by meeting consumer
expectations of what a ‘popular restaurant’ concept should be
● Customer- the customer profile being the business person, shopper, tourist of either sex, aged twenty-
five years or more, commonly using the high street of any major town, requiring food and beverage
of good general standard, waitress served, for a typical price of £n per meal
● Market share – to achieve, maintain or increase the percentage of ‘our’ market
● Turnover – sales volume to be increased by x% on previous year
● Profitability – profit to be increased by each unit by y % on previous year
● ASP per customer to be increased by z % – to achieve a new ASP of not less than £n
● Product – the product to be maintained at a consistently high standard
● Customer satisfaction – the net result must be the satisfaction of every customer
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 THESE FIVE STAGES ARE:
1. Purchasing:
There are five main points to be considered
(a) Product Testing-to identify, due to a series of taste panel evaluations, particular products to be used.
(b) Yield Testing- to identify, due to tests, the yield obtainable from all the major commodities used.
(c) Purchase Specifications- a specification is a concise description in writing of the quality, size, weight, etc. for
a particular food or beverage item.
(d) Method of Buying- contract, quotation, cash and carry, etc.
(e) Clerical Procedures- it is necessary to determine who originates sanctions and places orders and what
documentation is required for control. 13
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2. Receiving:
There are three main points to be considered:
(a) Quantity inspection - a person must be nominated to be responsible for physically counting and weighing
goods and checking that the quantity and size of items in the delivery matches the purchase order. If there
is a shortage in the delivery, the purchasing manager or a member of the management must be informed.
(b) Quality inspection - this is particularly important with perishable foods where inspection may be made by a
senior chef. Whenever possible the items should be checked against the appropriate purchase specification.
(c) Clerical procedures - this is a very important aspect as all necessary documentation must follow a set
procedure. It includes the acknowledgement of the receipt of acceptable goods and the delivery person’s
signature on a ‘request for credit’ note for returned goods and short deliveries. 14
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3. Storing and issuing:
There are four main points to be considered:
(a) Stock Records - it is necessary to decide what records are to be kept.
(b) Pricing of Items - the method of pricing of the various types of items must be decided upon so that there
is consistency within the operation.
(c) Stock Taking - the points to be considered here are the level of stock to be held, rate of stock turnover,
dealing with discrepancies, identification of slow-moving items, etc.
(d) Clerical Procedures - there is a need to determine what documentation is necessary, for example, requisitions,
record-cards, bin-cards, stock-taking reports, etc.
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3. Preparing:
This is a critical stage in the control cycle, in particular for food. There are three main points to be considered:
i. Volume Forecasting-a method of predicting the number of customers using the catering facilities on a specific
day, and also of predicting as accurately as possible what items they will eat and drink. ii. Pre-Costing -a
method of controlling food and beverage costs in advance of the preparation and service stages. It is done by
preparing & using standard recipes for all food and beverage items and by using portion control equipment, for
example, ladles, scales, optics, standard glassware, etc.
iii. Clerical Procedures – what documentation is required and the distribution and destination of this information.

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3. Selling:
This important stage of operational control needs to take into consideration the following points:
I. A Checking System - this is necessary to keep control of the number of covers sold & of the items sold.
This may be done through a standard type of waiter’s check system or through a tillroll or in the case of
hospital patients, by the summary-analysis of completed individual patient menu cards.
II. The Control of Cash - this is vitally important. It is necessary to ensure that all items sold have been paid
for and that the money is received or credit has been authorized.
III. Clerical Procedures - these would be necessary to control items sold and the money received or credit
entitled, and would often include a restaurant checking system, meal and sales analysis, cashier’s paying-in
book, etc.

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C. The post operation phase
This final phase of food and beverage control is in three main stages:
1. Food and beverage cost reporting
As mentioned earlier in this chapter, the cycle of production is very short and the product is perishable. These
factors together with the variations in demand for the product necessitate up-to-date reporting at least weekly if not
daily.
2. Assessment
There is a need for someone from the food and beverage management team in the case of a large unit, or the
proprietor or manager of a small unit, to analyze the food and beverage reports and to compare them with the
budget for the period and against previous actual performance.
3. Correction
A control system does not cure or prevent problems occurring. When the analysis of the performance of a unit or
department identifies that there is a problem; it is up to the management to take all the necessary and timely and
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organizationally effective measures to correct the problem as quickly as possible. 03/29/2023
 Chapter two
FORECASTING SALES

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 Forecasting your future sales is an important part of planning a new business, and of running an existing
 operation. In both cases, forecasting sales is the only way of estimating how much money your business
will
 make - and you have to know this to show whether your business will be viable or not. Predicting the
future
 can never be an exact science, but you must be able to make credible, evidence-based projections about
your
 future sales to help you plan your business strategy.
 Some people think that sales forecasting is not worth doing because it is just guesswork, especially for a
new
 business. But this guide will give you some simple ideas and practical strategies to help you predict
possible
 scenarios. It also has a sample to help you understand the process.
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 WHAT IS A SALES FORECAST?
 A sales forecast is a financial projection of the amount of revenue that a business will generate from the
 sales of its products or services. But it is not just a calculation; it also gets you to consider various 'outside'
 issues affecting your business, such as the competitive economic environment and the political climate.
 Sales forecasting is not an exact science but is a balance between:
 ¨ Facts that you can find by research;
 ¨ Your assessment of conditions in the market; and
 ¨ Being aware of uncontrollable factors that may affect your business.
 In your business's financial plan, the sales forecast gives you vital figures that you need in your profit-and loss
 forecast, as well as your cash flow forecast. It also needs to be closely connected with the marketing
 plan, as your marketing activities will be your way of achieving the sales that you predict.
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 WHY DO YOU NEED TO FORECAST SALES?
 Forecasting sales is necessary for a number of important business purposes:
 ¨ To establish that your business is viable: it must demonstrate that the business is likely to generate
 enough sales to make it viable (especially in the case of start-ups), and to reassure you (as well as
 lenders and other shareholders) that it will eventually be profitable, even if this takes time.
 ¨ To plan and manage cash flow: lenders and investors want to see how and when the finance they are
 putting in will come back into the business, and you need to avoid unforeseen cash flow problems by
 establishing if and when capital needs to be injected.
 ¨ To plan future resource requirements: for example, you need to plan for how many staff you will need
 to produce the number of products you plan to sell.
 ¨ To plan your purchasing, production and marketing activities, as they will all be determined by how
 much you estimate you can sell. 22
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 Market research will always be the basis of your business plan; for start-up businesses, your sales forecast
 will flow from and will help you to decide whether or not your idea is viable. This will be a crucial factor in
 getting initial funding, if you don't have enough yourself.
 For businesses that are already running, the sales forecast (and ongoing market research) will enable you
 to plan for future growth and get the necessary people, resources and finance in
 place.
 Whatever your situation, it is vital that you look carefully at what sales expect in the next month, three
 months, six months, or year regularly and realistically, and take appropriate action to review your strategy
 in the interests of the long-term success of your business. You should understand that the sales forecast
 is the benchmark against which to measure what actually happens - the important thing is to understand
 the variances, why they happened and to incorporate what has been learned into future forecasts.

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 WHAT TO CONSIDER WHEN FORECASTING SALES
 A sales forecast in a business plan should show your sales by month for at least the next 12 months, and
 then by year for the following two years. Three years, in total, is generally enough for most business plans.
 If you are looking for finance or funding, make sure you find out the requirements of the lenders or funders
 you plan to approach; some organizations need only a month-by-month forecast for one year, while others
 want to see this projected in full over three years.
 It is very difficult to predict sales exactly, so a good forecast allows for the factors that affect expected sales
 and builds in a margin for error. It is advisable to calculate some 'what if?' scenarios too, to consider the
 likely outcomes for your business if sales are only 90% of predicted levels, or indeed if they turn out to be
 120% of expected levels. It is also important to list the assumptions made in reaching the various
 predictions and to be able to justify these on the basis of evidence, not just instinct.
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 Sales forecasting can also be approached from a different angle. By reviewing costs and establishing what
 your business must sell in order to break even, you will be able to establish very quickly whether your idea
 is viable or what your sales targets will have to be. When allied with a consideration of what your business
 could sell (based on market demand) and what it is able to sell (due to the limits of production), a powerful
 model can be created.
 The sales forecast should be prepared after consideration of the following issues:
 Market awareness
 ¨ Is there an established market for your product?
 ¨ What is the size of the market?
 ¨ Is the market growing or declining, and if so, by what percentage each year?
 ¨ What factors are currently influencing that market?
 ¨ What may influence it in future?
 ¨ How do seasonal factors affect purchases of your product or service?
 ¨ What trends or fashions are relevant to the sector?
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 Knowledge about your customers
 ¨ It will be important to develop a clear picture of who your existing and potential customers are.
 ¨ You also need to be realistic about how many of these customers will wish to purchase your product.
 ¨ Detailed customer knowledge can help determine strategy by enabling differentiation of the business,
 and hence affects pricing policy and sales forecasts.
 Capacity
 ¨ Make sure that the sales forecast is within the limits of your capacity to produce.
 ¨ How will any changes in personnel or size of marketing budget impact on future capacity?
 Competition
 Even if your business has an initial advantage, competitors are likely to respond. You need to stay
competitive by being flexible with your pricing and the range of products and services you offer.

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 External factors
 Political, economic, socio-cultural, technological, environmental and legal (PESTEL) factors, such as oil
 prices, seasonal trends, interest rates, legislation, political and health issues, will all have an impact on your
 future sales. How do the economic climate and other external factors impact on your business and on your
 customers' attitudes?
 New or existing business?
 Your approach to preparing a forecast depends mainly on the age of the business, but all forecasts should
 be based on accurate and up-to-date market research.

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 New businesses
 A new venture will have no previous history on which to base a forecast. Many formal methods of
 estimating future sales are really only useful if the business has been running for some time and has a
 history of sales trends from which to work. Accurate market research is crucial to the start up business as
 you will still need to make projections that can be justified.
 Secondary (desk) market research can be helpful. If you have no access to documentary research, you can
 still carry out primary (field) research among your target customer group. Interviewing potential customers,
 obtaining 'letters of intent' and testing the market with some advance/prototype products or services can
 provide information you can use to estimate potential future sales. For instance, a person opening a
 restaurant or cafe could approach potential customers to ask:
 ¨ How often do you eat out?
 ¨ On average, how much do you spend on a meal?

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 After that, it is possible to calculate how many customers who fit within the customer profile live within
 that area. You can then estimate:
 ¨ How often your product will be bought.
 ¨ How much you can charge for the product.
 From this, you can estimate the total number of sales per week/month/year for your business.
 These figures can be saved in a spreadsheet and plotted on a simple graph against high, medium and low
 monthly sales expectations.

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 Existing businesses
 If your business is already trading, you will have sales data from previous years on which to base your
 forecast; you will also have a clearer picture of the market as a whole, because you deal with it every day.
 Future sales can be estimated on the basis of current trading levels (that is, on existing customers
 continuing to buy from your business for the foreseeable future).
 However, your business may be in a position where sales have been growing, or even declining, steadily. In
 this case, you should identify the main trend in past sales, and then project this forward to give a general
 picture of future sales. Talk to your salespeople and key customers about any potential changes in
 purchasing patterns. It is also important to take into account the likely effect of your sales strategy, which
 you might be gearing up to boost sales in one or more areas.
 Even as an existing businesses, you should treat market research as an ongoing process, and include this
 information in your sales forecast. This is vital if you want to keep your competitive edge. 30
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 PREPARING THE FORECAST
 If you sell more than one product or service, you should prepare a separate forecast for each item in your
range. Each forecast will need to consider:
 ¨ The volume you expect to sell, measured in units of the product sold per month. Product based
 businesses obviously sell in units, but so do many service businesses (for example, accountants sell
hours of their time and restaurants sell meals).
 ¨ The price you expect to sell at. The price charged will have an impact on the volume of sales, and the
total revenue earned by the business is therefore equal to the volume of units sold, multiplied by the price of each
item.
 ¨ The number of customers you expect to sell to. Are your sales one-offs or do you expect to achieve regular
repeat business from each customer?
 By considering both volume and price, you can decide on a pricing strategy. Is your business going to sell a
large volume at low prices (for example, a fast food restaurant), or a low volume but at premium price (for
example, an exclusive French restaurant)? It may be that raising or lowering your price could impact

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significantly on sales. When preparing your forecast, you will need to consider the impact of any decisions on
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total revenue and profitability.

 Choosing a forecasting method
 If you have been operating for a while, one way to select a technique is by using data from past sales
 periods. Various methods can be tested on these figures to see which one produces the forecast that most
 accurately matches the sales the business actually made.
 For a new business, you will be able to use these techniques after the first few weeks or months
 of trading.
 1. The graphical analysis method
 A useful first step is to plot your past sales data on a line graph to give you a visual picture of seasonal
 patterns and general direction. Both graphs and tables can be produced using a basic spreadsheet
 computer program (like Excel), so different sales figures can be plotted for different scenarios.
 For instance, by using different colours you can compare forecasts with actual figures and see at a glance
 how your sales strategy is working. You can also choose to plot sales levels by volume or value, or to
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 calculate a percentage increase for annual sales. 03/29/2023
 2. The moving averages method
 A moving average is an indicator that shows the average level of sales over a given period of time. They
can be useful tools for forecasting, but do require the use of past sales data to predict future increases or
 decreases. It is then possible to forecast sales for the year ahead so that a three-month and twelve-month
moving average can be calculated and plotted on a line graph.
 Useful tips
 Once the work has been done to create the forecast, it should be put to good effect. Use it to set targets
 and prepare budgets, to raise finance, and to determine staff and resource requirements if necessary. The
 forecast will also give clues about how your business can shape its future strategy, by correlating sales
 with promotional spending or pricing.

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 Many of the elements involved in sales forecasting are inextricably linked with other parts of the business
 planning process, so be careful how you arrive at your assumptions. Follow the checklist below to avoid
common pitfalls when forecasting sales:
 ¨ Is the forecast based on verifiable, realistic and unbiased market research information?
 ¨ Have you perhaps ignored some results of the research if it didn't suit you?
 ¨ Don't make projections solely on the basis of historical performance. Instead, keep looking at what else
 might affect your sales in the future and adjust the forecast accordingly.
 ¨ Is it physically possible to produce the amount of goods that you predict selling in your forecast? In
 other words, do you have the staff, equipment and other resources - or is your forecast based on
 wishful thinking? Do you understand your capacity limits?
 ¨ Are the prices you use in your sales forecast really achievable (do they match or under-cut what your
 competitors charge)?
 ¨ Do you understand the link between sales and costs, and hence the meaning of profitability?
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 When you prepared the sales forecast, did you also carry out sensitivity analyses to consider the 'what
 if?' scenarios, such as what would happen to the forecast if customer numbers dropped by 20%?
 ¨ If you have just started up in business, have you considered that it may take far longer for your
 enterprise to become established (and for your sales targets to be achieved) than you expect?
 ¨ Also, have you allowed for the possibility that high initial sales (based on novelty and a big marketing
 ‘splash') may drop off soon afterwards, leading to a need for more intensive marketing and higher
costs?
 ¨ Review your sales performance every month and compare this with your targets. This will help you to
 anticipate cash flow requirements and will also be useful when adjusting future forecasts.
 ¨ Computer software packages can make the forecasting process much easier.
 ¨ Finally, make sure you can identify and justify the assumptions you have made in reaching the forecast, and
explain them to interested parties (banks, investors, etc.) if necessary.
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 Chapter Three
MANAGING FOOD AND
BEVERAGE PRICING

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 CHAP TWO Food menus
37
& beverage lists
Introduction
The menu is the primary selling tool of any establishment that offers food and
beverage for sale.
For the customer it identifies the items that are available, shows prices and
any other charges and together with other external features may characterize
the style of food service offered.
From the establishments perspective the menu should meet the objectives of the
marketing policy, the catering policy and the financial policy.

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 Food menus
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TYPE OF MENUS
 There are many types of eating establishments offering many types of menu
and meal experiences, basically there are only two types of food menus:
 table d ’ hôte ; and à la carte.
From these two types of menus in practice there are many adaptations of each.

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39

Table d ’ hôte
Table d ’ hôte means food from the hosts’ table and is identified by:
1. Being a restricted menu.
2. Offering a small number of courses, usually three or four.
3. A limited choice within each course.
4. A fixed selling price.
5. All the dishes being ready at a set time.
It is common practice in many restaurants for a table d ’ hôte menu to be offered to a
customer together with an à la carte menu

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40

Table d ’ hôte menus can be offered for breakfast, lunch and dinners.
Their many adaptations are used for:
Banquets : A banquet menu is a fixed menu at a set price offering usually no
choice whatsoever to the customers, unless the client informs the caterer in
advance.
Buffets : Buffet type meals vary considerably depending on the occasion, and
the price paid, from the simple finger buffet, to the exotic fork buffets where
hot and cold food and many large dishes will be carved and portioned for the
individual guest.

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41

Coffee houses : A coffee house menu is a more recent form of

table d ’ hôte menu that is commonly used today in hotels and restaurants and is
characterized by being:
A set menu offered often for twelve to eighteen hours of the day, reasonably priced, with
each dish / section of the menu.
Individually priced, offering a range and choice of items that are suitable for snacks,
light meals, lunch or dinner and a simplified form of service being offered, plate service,
counter service, etc.
Cyclical menus : These are a series of table d ’ hôte menus, for three weeks, which are
repeated again and again for a set period of, four months. used in hospitals, industrial
catering and even in schools.

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À la carte
À la carte means a free choice from the card/menu and is identified by:
1. Being usually a larger menu than a table d ’ hôte menu and
offering a greater choice.
2. Listing under the course headings all of the dishes that can be prepared by the
establishment.
3. All dishes being prepared to order.
4. Each dish being separately priced.
5. Usually being more expensive than a table d ’ hôte menu.
6. Often containing the exotic and high cost seasonal foods.

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Part of an à la carte menu may contain a plat du jour or ‘ specialty of the house ’
section. This consists usually of one or two main dishes, separately priced, which are
already prepared and change daily.
À la carte menus, due to their size and the unknown demand of each item, are more
difficult to control than the table d’ hôte menus.
A special promotion menu is a form of à la carte menu which is at times offered to
the guest.
This type of menu is concerned with the selling of a particular
part of a menu to increase the interest for the customer to increase the average
spending by the customer and in turn to increase the turnover and profit for the
caterer.

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44

Content of food menus

 The content of food menus varies with the type of menu, the segment of the
market it is aimed at, the occasion, the food cost available, the country or
region, etc.
 Table d ’ hôte menus are often of three to four courses only.
 A’ la carte menus often differ for lunch and/or dinner periods, as well the
same à la carte menu can be offered throughout the day.

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45

 The combination of the various sections of the menu depends very much on
the occasion, the prices to be charged and the wishes of the customer.
 There is an established order of sequence of sections of the menu, which by
tradition are followed.
 This accepted sequence enables the caterer to compile the separate courses on
table d ’ hôte and à la carte menus and to suggest to clients suitable special
and/or function menus of varying lengths.
 It is very seldom the practice for all of the possible courses of a menu to be
served, but as a general rule it is possible to state that when a large number of
courses are served that the portion sizes are relatively small.

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46

The classical European menu structure identified by M. J. Leto and W. K. H. Bode

consists of 16 courses excluding coffee.
They are in order of service:
cold starter, soups, hot starters, egg and farinaceous,
fish, small hot meat dishes, large meat joint, small cold meat course, sorbet,
roast with salad, vegetable course, potato course, warm sweet course, cold
sweet course, cheese course and fresh fruit.

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Menu planning
As stated earlier the menu is the key marketing and selling tool available to the
restaurateur and as such meticulous attention to detail is the key to making this work
successfully and is a positive step towards a profitable food and beverage enterprise.
The menu communicates a wide range of information to the customer both in terms of the
words used to describe dishes, referred to as ‘ copy ’ and more subliminally through
color, layout, quality of material used, and style and needs to be reflected conceptually
throughout the whole restaurant.

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 The menu, together with other physical attributes of a property

contributes to creating a level of expectation from the customer.
 Meeting this customer expectation or in fact exceeding this
expectation should be the primary objective of the restaurateur
in the quest for a successful and profitable business.
 Because the menu plays such a pivotal role in operational style, in the planning stage
pricing, location, market and local competition need to assessed carefully.
 In an affluent residential area a small restaurant may be successful with high priced,
high quality items and a low volume of customers whereas in a less affluent area,
perhaps with a high student population on restricted budgets a small restaurant may
have more success with a takeaway menu.

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Themes
The design of a menu concerns more than the typography, color, graphics, and shape or
production material, important as these areas might be. Today a modern computers ability
to produce high quality print and production of high quality colorfully designed menus
with large amounts of graphics is relatively simple and inexpensive.
If foreign guests are frequently served the menu may be written in the corresponding
language but it is essential that an accurate description of each dish be given properly
translated into English.
A catering business, therefore, relies more heavily for its overall design appeal on what
and how it describes the menu items.

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 Menu presentation
 Damaged, soiled menus or those that have prices overprinted or in some cases where new prices
have been stuck over existing prices are not acceptable and customers will regard the
establishment as being of a low standard.

 Comparatively lower production costs and modern materials should ensure that menus are always
kept clean and presentable.

 Menus should be easy to read, clear and precise and enable a

customer to calculate approximately how much they are likely to
spend and show clearly if any additional charges are to be made,
for example service charge.

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 Menu items should have accurate descriptions where required, reflect the expectations
of customers in terms of the style of restaurant the menu portrays and the service style
they should expect. Explain kitfoo
 The menu should reflect the restaurant offering in line with current market trends,
customer expectation and entice diners to eat.
 The average customer spends only two minutes reading the menu.
 In only two minutes your menu must communicate the full range of food and beverages
offered and sell the guest to both satisfy them and your financial objectives.

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Layout of the menu

The larger the menu the more time consuming it is for customers to make their
selection of food or wine, and if it is too short customers may not be entirely
satisfied by what is offered. Caterers need to adjust the length of their menu to the
particular needs of their customers.
Unless the customer is very knowledgeable, the length of wine lists offered in many
restaurants if not extremely well laid out and contain additional help to customers to
aid their selection, they will do very little to help the potential sales of a restaurant.
The layout of a menu should take into consideration how a customer normally reads
a menu.

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53

Size and form

The size and shape of a menu can add to and complement the
uniqueness of the facility.
 A menu must be easy to handle and in no way confusing to read.
The various forms that the menu can take are unlimited, from a menu
chalked up on a blackboard, to a large illuminated display board with
photographs, conventional menu cards, tent cards, placemats, menus printed
in the shape of a fan or even hand printed onto silk handkerchiefs as
mementoes for the guests at a banquet.
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54

Menus are one of the most effective ways managers can communicate with
their guests. Some facilities create separate menus for food and beverage
products. Other operators find it more appropriate to have menus that
combine both their food and beverage offerings. Regardless of the choice the
business makes, the menu is an excellent opportunity to build impulse sales or
to communicate special sales and services the facility has to offer.
Menus in foodservice establishments generally fall into one of the following
three major categories:
1. Standard menu
2. Daily menu
3. Cycle menu
The most commonly used menu is the standard menu. 03/29/2023
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55

STANDARD MENU standard menu is printed, recited by service

staff, or otherwise communicated to the guest.
The standard menu is fixed day after day. While you may periodically
add or delete an item, the standard menu remains virtually constant.
DAILY MENU In some restaurants, you might elect to operate
without a standard menu and, instead, implement a daily menu, that
is, a menu that changes every day.
CYCLE MENU A cycle menu is a menu in effect for a specific time
period. The length of the cycle refers to the length of time the menu is
in effect. Typically, a cycle menu is repeated on a regular basis

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MENU SPECIALS
Regardless of the menu type used, you can generally incorporate relatively
minor menu changes on a regular basis.
This is accomplished through the offering of daily or weekly menu
specials, that is, menu items that will appear on the menu as you desire
and be removed when they are either consumed or discontinued

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57

 Menu pricing needs to fulfill two needs, for the caterer the need to make
profits and for the customer to satisfy.
 A policy on pricing should take a holistic view of the business, and
expected return on investment, market demand, competition, where price
should be measured against quality, location, overheads including staff
costs, rents and council charges.

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58
menu pricing
Menu prices are significantly affected by all of the following factors:
Factors Influencing Menu Price
1. Local competition
2. Service levels
3. Guest type
4. Product quality
5. Portion size
6. Ambiance
7. Meal period
8. Location
9. Sales mix
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59
menu pricing
LOCAL COMPETITION
Your competition’s selling price is somewhat important when establishing
price, but it is a well-known fact in foodservice that someone can always sell
a lesser quality product for a lesser price. The price a competitor charges for
his or her product can be useful information in helping you arrive at your
own selling price.
SERVICE LEVELS
Guests expect to pay more for the same product when service levels are
higher. The can of soda sold from a vending machine is generally less
expensive than one served by a human being. Picked Pizza is cheaper than
delivered. Guests are willing to pay more for increased service levels, but this
higher price should provide for extra profit as well not only for labor alone.
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60
menu pricing
GUEST TYPE
Some guests are simply less price sensitive than others. All guests,
however, want value for their money.
The question of what represents value varies by the type of clientele. Sped,
Convenience, …
PRODUCT QUALITY
As an effective foodservice manager, you will choose from a variety of
quality levels when developing product specifications and, consequently,
planning menus and establishing prices. To be successful, you should
select the quality level that best represents your guests’ anticipated desire
as well as your goals, and then price your products accordingly.
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61
menu pricing
PORTION SIZE
Portion size plays a large role in determining menu pricing. The great chefs
know that people “eat with their eyes first!” This relates to presenting food that
is visually appealing. It also relates to portion size. A burger and fries that fill
an 8-inch plate may well be lost on an 11-inch plate.
Portion size, then, is a function of both food quantity and how it is presented. It
is no secret why successful cafeteria chains use smaller than average dishes to
plate their food. For their guests, the image of price to value comes across loud
and clear. Simply put, the larger the portion size, the higher your costs.
One very good way to determine whether portion sizes are too large is simply to
watch the dishwashing area and see what comes back from the dining room as
uneaten.
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62
menu pricing
AMBIANCE
If people ate only because they were hungry, few restaurants would be open
today.
People eat out for a variety of reasons, some of which have little to do with
food. Fun, companionship, time limitations, adventure, and variety are just
a few reasons diners cite for eating out rather than eating at home.
For the foodservice operator who provides an attractive ambiance, menu
prices can be increased. Ambiance may draw guests to a location the first
time. When this is true, prices may be somewhat higher if the quality of
products also supports the price structure.

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63
menu pricing .
MEAL PERIOD
In some cases, diners expect to pay more for an item served in the evening than for that same item
served at a lunch period. Sometimes this is the result of a smaller “luncheon” portion size, but in other
cases the portion size, as well as service levels, may be the same in the evening as earlier in the day.
Guests should clearly understand why a menu item’s price changes with the time of day. If this cannot be
answered to the guest’s satisfaction, it may not be wise to implement a time-sensitive pricing structure.
LOCATION
Location can be a major factor in determining price.
Location can be an asset or a liability. If it is an asset, menu prices may reflect that fact. If location is
indeed a liability, menu prices may need to be lower to attract a sufficient clientele to ensure the
operation’s total revenue requirements.

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64
menu pricing
SALES MIX
Of all the factors mentioned so far, sales mix would most heavily influence the
menu pricing decision, just as guest purchase decisions will influence total product
costs.
Managers can respond to this situation by employing a concept called price
blending. Price blending refers to the process of pricing products, with very
different individual cost percentages, in groups with the intent of achieving a
favorable overall cost situation.
The ability to knowledgeably blend prices is a useful skill and one that is well worth
mastering. Since price itself is one of the factors that impact percent selecting
figures, a change in menu price may cause a change in item popularity.
The sales mix and the concept of price blending will have a major impact on your
overall menu pricing philosophy and strategy.
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65

 There are a number of well-established pricing models some of which are

suited to commercial undertakings while others are used in ‘ not for profit
organizations.
 Benchmarking in the sector may provide a good suitable pricing model.
 Cost plus : pricing takes the ingredient of a menu item and simply adds a
predetermined multiplier or markup, commonly used where a simple
pricing model will provide the desired return and there are few additional
costs

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66
MODELS
 Assume the restaurateur simply multiplies the buying price by say three, if cost price is
£4 selling price becomes £12 plus or including any sales tax.
 Alternatively by adding a fixed markup of say 150% x 4 the wine Selling Price
becomes £10.
 Competition pricing
 Competition pricing as the name suggests copies the prices of competitors.
 As a short-term strategy this may achieve increased business but it can easily spiral out
of control into a price war, and margins maybe severely compromised.

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67
MODELS
 Special pricing considerations
 Sales tax: The money collected on behalf of the government has to be paid to that
government.
 Service charge: As this charge is to be distributed to the staff at a later date, it should be
treated similarly to a sales tax and not included in the calculation of revenue.
 Cover charge: Care should be exercised as to whether to
 implement this or not as it is most likely to cause aggravation to some clients when it is
applied.
 Minimum charge: To discourage some potential clients from using the premises and,
taking up a seat and only purchasing a very low priced item often enforce this.

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68
MODELS
The exact method of pricing used by an establishment will depend on such matters as
the level of profit/subsidy required; its basic
Policies; price as a valuable selling tool aids in achieving the desired volume of sales.
Table d ’ hôte menus :The price may be just one price for any three courses chosen, or
may vary in price depending on the main course chosen.
The method of pricing chosen should take into account the departmental profit
required and the differential profit margins of the menu.
Based on the forecasted sales take-up by guests, the average should be taken to fix the
price.
It is not desired to encourage too many guests away from the à la carte menu by
making the price differentiation too attractive.

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 3.2.1.MENU PRICING MODELS69

 À la carte menus: The pricing take into account the departmental profit
required and profit margins ,and then to price each item separately using
standard recipes and note should be taken of the potential sales mix .
 Banqueting menus: This is a specific type of table d ’ hôte menu offering
normally no choice to the customers. In pricing this menu apart from the food
and often the liquor, all the additional items are normally priced and charged
separately. Ex band meals, Flowers..

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 3.3.Assigning70Menu Pricing
Product cost percentage or product cost margin
Proponents exist for both of these approaches to menu pricing. Some large foodservice
organizations have established highly complex computer driven formulas for determining
appropriate menu prices.
For the average foodservice operator, however, utilizing product cost percentage, contribution
margin, or a combination of both will usually suffice when attempting to arrive at appropriate
pricing decisions.
While the debate over the “best” pricing method is likely to continue for some time, you should
remember to view pricing, not as an attempt to take advantage of the guest, but rather as an
important process with an end goal of establishing a good price/value relationship in the mind of
your guest.
Regardless of whether the pricing method used is based on food cost percentage or contribution
margin, the selling price selected must provide for a predetermined operational profit being
sensitive to both required profit and your guests—their needs, wants, and desires—is very critical to
a pricing philosophy.
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71
Some pricing decisions faced by foodservice managers call for a unique
approach. In many cases, pricing is used as a way to influence guests’
purchasing decisions or to respond to particularly difficult pricing
situations. The following are examples of special pricing situations:
1. Coupons
2. Value pricing
3. Bundling
4. Salad bars and buffets
5. Bottled wine
6. Beverages at receptions and parties

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72
Coupons: Coupons are a popular way to vary menu price. Essentially,
there are two types of coupons in use in the hospitality industry. The
first type generally allows the guest to get a free item when he or she
buys another item. This has the effect of reducing by 50% the menu
price of the couponed item. With the second type, some form of
restriction is placed on the coupon’s use. For example, the coupon may
only be accepted at a certain time of day, or the reduction in price may
be available only if the guest purchases a specific designated menu item.
Coupons are a popular marketing tool, but their use should be carefully
evaluated in terms of effect on menu price, product cost percentage, and
product contribution margin.

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73
Value pricing
Value pricing refers to the practice of reducing all or most prices on the menu in the
belief that, as in couponing, total guest counts will increase to the point that total
sales revenue also increases.
A potential danger, of course, with value pricing is that if guest counts do not
increase significantly, total sales revenue may, in fact, decline rather than increase.

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74
Bundling
Bundling refers to the practice of selecting specific menu items and pricing them as a
group, in such a manner that the single menu price of the group is lower than if the
items comprising the group were purchased individually.
In many cases, these bundled meals consist of a sandwich, French fries, and a drink.
These bundled meals, often promoted as “value meals” or “combo” meals, encourage
each individual guest to buy one of each menu item rather than only one or two of
them.

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75

Salad bars and buffets

The difficulty in establishing a set price for either a salad bar or a buffet is
that total portion cost can and will vary greatly from one guest to the next.
A person weighing 100 pounds will, most likely, consume fewer products
from a buffet or an all-you-can-eat line than a 300-pound person will.
The general rule, however, is that each of these guests will pay the same
price to go through the salad bar or buffet line.
Short of charging guests for the amount they actually consume a method
of determining a single selling price must be established.

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 3.5.Beverage List Pricing 76

Types of beverage menus/lists:

Types of beverage menus are numerous, but can be grouped into six kinds: full wine
menus, restricted wine menus, banquet/function menus, bar menus, room service
beverage menus and special promotion beverage menus.
Pricing of beverages:
 Pricing may be more accurately calculated for drinks purchased by the bottle based on the given
cost percentage.
 In addition the mixing of drinks is, like food, usually prepared using a standard recipe particular
to an establishment
 The criteria used to prepare a wine menu, or drinks list, are the same as those used when
preparing a food menu.

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77

Bottled wine
Few areas of menu pricing create more controversy than that of pricing wines by the bottle.
The reason for this may be the incredible variance in cost among different vintages, or years
of production, as well as the quality of alternative wine offerings.
An additional element that affects wine pricing is the fact that many wines that are sold by
the bottle in restaurants are also sold in retail grocery or liquor stores. Thus , guests have a
good idea of what a similar bottle of wine would cost them if it were purchased in either of
these locations.
How you decide to price the bottled-wine offerings on your own menu will definitely affect
your guest’s perception of the price/value relationship offered by your operation.
In general, it may be stated that pricing bottled wine only by the product percentage method
is a strategy that may result in overall decreased bottled-wine sales. In this specific pricing
situation, the best approach to establishing selling price calls for you to evaluate both your
product cost percentage and your contribution margin.
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78

Beverages at receptions and parties

Pricing beverages for open-bar receptions and special events can be very difficult,
but the reason for this is very simple. Each consumer group can be expected to
behave somewhat differently when attending an open-bar or hosted-bar function.
One way to solve this problem is to charge each of the guests for what they actually
consume.
In reality, however, many party hosts want their guests to consume beverage
products without having to pay for each drink. When this is the case, you are
required to charge the host either for the actual amount of beverage consumed or
on a per-person, per-hour basis. When charging on a per person, per-hour basis,
you must have a good idea of how much the average attendee will consume during
the length of the party or reception so that an appropriate price can be established.

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79

Establishing product costs and then assigning reasonable menu prices based on
these costs is a major component of your job as a foodservice manager. You must
be able to perform this task well.
Increasingly, however, the cost of labor, rather than the cost of products, has
occupied a significant portion of the typical foodservice manager’s cost control
efforts. In fact, in some foodservice facilities, the costs of labor and employee
benefits provided exceed that of the food and beverage products sold.

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 3.6.Technology
80
Tools

In this chapter you learned about the menu formats you most often encounter as a hospitality
manager, as well as the factors affecting menu prices, and the procedures used to assign
individual menu item prices based on cost and sales data. The mathematical computations
required to evaluate the effectiveness of individual menu items and to establish their prices
can be complex, but there are a wide range of software products available that can help you:
1. Develop menus and cost recipes.
2. Design and print menu “specials” for meal periods or happy hours.
3. Compute and analyze item contribution margin.
4. Compute and analyze item and overall food cost percentage.
5. Price banquet menus and bars based on known product costs.
6. Evaluate the profitability of individual menu items.
7. Estimate future item demand based on past purchase patterns.
8. Assign individual menu item prices based on management-supplied parameters
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81

Menu analysis and pricing software is often packaged as part of a larger

software program. Its importance, however, is great. It is an area that will
continue to see rapid development in the future as software makers seek
additional ways to improve their products.
Fun on the Web!: Advances in menu management software continue to
occur rapidly. Increasingly, restaurateurs are looking for programs that will
give them many options to choose from when designing their own sales
tracking (and pricing) processes.
The Point Of Success (POS) company is one such maker of advanced software
programs designed specifically for the food service industry.
You can visit their Website at www.pointofsuccess.com., where you will
be able to compare the features of their “Standard” and “Premium” Point
of Success (POS) software programs. Which would you choose? 03/29/2023
 82

Chapter Four

MANAGING THE COST OF LABOR

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 83

LLABOUR COST CONTROL

 Labour costs are associated with human beings. To control labour costs one has to understand
human behavior. “Labour cost control means control over the cost incurred on labour”. Control
over labour costs does not imply control over the size of the wage bill; it also does not imply that
wages of each worker should be kept as low as possible.
 The aim should be to keep the wages per unit of output as low as possible. This can only be
achieved by giving workers appropriate compensation to encourage efficiency so that optimum
output can be achieved in effective manner.
 A well motivated team of workers can bring about wonders. Each concern should, therefore,
constantly strive to raise the productivity of labour. The efforts for the control of labour costs
should begin from the very beginning. There has to be a concerted effort by all the concerned
departments.
 In a large organization, generally the following departments are involved in the control of
labour

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Personnel Department
On receipt of labour requisition from the various departments it
searches for the required skills and qualification.
It ensures that the persons recruited posses the requisite qualification
and skills required for the job.
Arranges proper training for the newly recruited workers and workshops
for existing workers.
Maintains all personal and job related records of the employees.
Evaluation of performance from time to time

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 85

Engineering and Work Study Department

Prepares plans and specifications for each job
 Providing training and guidance to the employees
Supervises production activities
Conducts time and motion studies
Undertakes job analysis.
Conducts job evaluation.

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 86

Time-keeping time spent by them on various jobs, etc.

This Department is primarily concerned with the maintenance of attendance
records of the employees and the Time- spent by them on various jobs, etc.
Payroll Department
The preparation of payroll of the employees. It disburses salary and wage
payments.
Cost Accounting Department
This department is responsible for the accumulation and classification etc. of all
type of costs. • All such data pertaining to labour costs are also collected,
analyzed and allocated to various jobs, processes, departments, etc., by this
department.
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 87

IMPORTANT FACTORS FOR THE CONTROL OF LABOUR COST

Assessment of manpower requirements.
 Control over time-keeping and time-booking.
Time & Motion Study.
Control over idle time and overtime.
Control over labour turnover.
 Wage systems.
 Incentive systems.
Systems of wage payment and incentives.
Control over casual, contract and other workers.
 Job Evaluation and Merit Rating.
Labour productivity.
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LABOUR TURNOVER
 Labour turnover in an organization is the rate of change in the
composition of labour force during a specified period measured against
a suitable index.
Labour turnover is an index denoting change (in & out) in the labour
force for an organization during a specified period.
It is the ratio of replaced worker to the total number of worker is called
labour turnover ratio.
If more workers leaves the factory, the turnover will be high & vice-
versa & must be avoided.

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CAUSES OF LABOURTURNOVER
The main causes of labour turnover in an organization/ industry can be
broadly classified under the following three heads :
1. Personal Causes;
2. Unavoidable Causes; and
3. Avoidable Causes.

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PERSONAL CAUSES
Personal causes are those which induce or compel workers to leave their jobs;
such causes include the following:
Change of jobs for betterment.
 Premature retirement due to ill health or old age.
 Domestic problems and family responsibilities.
Discontent over the jobs and working environment.
In all the above cases the employee leaves the organization at his will but the last
one can be overcome by creating conditions leading to a healthy working
environment. For this, officers should play a positive role and make sure that
their subordinates work under healthy working conditions

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UNAVOIDABLE CAUSES
Unavoidable causes are those under which it becomes obligatory on the
part of management to ask one or more of their employees to leave the
organization; such causes are summed up as listed below:
 Seasonal nature of the business;
 Shortage of raw material, power, slack market for the product etc.;
 Change in the plant location;
Disability, making a worker unfit for work;
Disciplinary measures;
Marriage (generally in the case of women).

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AVOIDABLE CAUSES
 Avoidable causes are those which require the attention of management on a
continuous basis so as to keep the labour turnover ratio as low as possible.
 The main causes under this case are indicated below :
 Dissatisfaction with job, remuneration, hours of work, working conditions, etc.,
 Strained relationship with management, supervisors or fellow workers;
Lack of training facilities and promotional avenues;
 Lack of recreational and medical facilities;
Low wages and allowances.
Proper and timely management action can reduce the labour turnover
appreciably so far as avoidable causes are concerned.
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Chapter five
CONTROLLING OTHER EXPENSES

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Controlling Other Expenses Overview This chapter explains the management of

foodservice costs that are neither food, beverage, nor labor. These costs can
represent 15%, or even more, of an operation’s sales revenue and must be
controlled well if manager's financial goals are to be achieved. The chapter
teaches how to identify the other expenses costs managers can directly control, as
well as those considered to be non-controllable expenses. In addition, it details
how to express other expenses in terms of both other expenses per guest served
and other expenses as a percentage of sales revenue. Chapter Outline Managing
Other Expenses Controllable and Non-controllable Other Expenses Fixed, Variable,
and Mixed Other Expenses Monitoring Other Expenses Managing Other Expenses

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Conceptual Outline Managing Other Expenses Other expenses can account for
a significant amount of the total cost of operating a foodservice unit. These costs
include a variety of items such as advertising, utility bills, repair and maintenance
of equipment, insurance, property taxes and mortgage payments. Some types of
other expenses are directly under the control of management. When following
the USAR, these types of expense are reported on an operation’s income
statement as “Other Controllable Expenses.” Some other expenses are not
directly controllable by management and, as a result, these are reported on the
income statement as Non-controllable Expenses. Food service operators must
effectively manage both their controllable and non-controllable expenses.

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Controllable and Non-controllable Other Expenses A controllable expense is one in

which decisions made by the food service manager have the effect of either increasing
or reducing the expense. Anon-controllable expense is one that, in most cases, the food
service manager can neither increase nor decrease. Management has some control over
controllable expenses but usually has little or no control over non-controllable
expenses. Because this is true, managers should focus their attention primarily on
controllable, rather than non-controllable, expenses. Each foodservice operation will
have its own unique list of controllable (and non-controllable) other expenses. It is a
food service operator’s ability to manage his or her controllable other expenses that will
most influence how their overall cost control abilities are evaluated and their operating
success is measured. Instructors can address in appropriate detail the two major other
expense groupings and subgroupings as recommended.

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These are:
1.Other Controllable Expenses
Direct Operating Expenses
Music and Entertainment
Marketing
Utilities
General and Administrative Expense
Repairs and Maintenance

2.Non-controllable Expenses
Occupancy Costs Equipment Rental , Depreciation and Amortization , Corporate Overhead (multi-unit
restaurants), Management Fees.

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Costs: Fixed Costs, Variable Costs, and Volume An Addendum to the

“Controlling Costs” Entrepreneur Course Managing costs is one of your most
important jobs as a business owner. There are two kinds of costs, fixed and
variable. Fixed and variable costs impact the business in different ways but both
are important in making the business profitable. In the discussion of costs, it will
be useful to define the word volume. Production volume is the number of units
that your business produces in a week, month, or year. Sales volume is the
number of units your business sells in a week, month, or year. In general, if you
are selling a service, then production volume and sales volume are the same --
you make it and sell it at the same time. If you are selling a product, you can
make more than you sell (and sell more than you make if you have inventory) so
production volume and sales volume can be different.

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Fixed costs are costs that are independent of volume. Fixed costs tend
to be costs that are based on time rather than the quantity produced or
sold by your business. Examples of fixed costs are rent and lease costs,
salaries, utility bills, insurance, and loan repayments. Some kinds of
taxes, like business licenses, are also fixed costs. Since you have to pay
fixed costs regardless of how much you sell, you should be careful about
adding fixed costs to your small business. Fixed cost is often called
overhead.

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Variable costs are costs that change as the volume changes. Examples
of variable costs are raw materials, piece-rate labor, production
supplies, commissions, delivery costs, packaging supplies, and credit
card fees. In some accounting statements, the Variable costs of
production are called the “Cost of Goods Sold.” It is possible for a cost
to be fixed for some kinds of businesses, but variable in other kinds of
businesses. For example, for a food truck, fuel is probably a fixed cost
(it takes the same amount of fuel to move the food truck regardless of
how much food the business sells) but fuel would be a variable cost for a
delivery service (more packages delivered means more fuel).

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Reducing Other Expenses

Tips for reducing expenses in your business
Make a plan
You need to evaluate where your business is now and where you want to take
it in the future. A well thought-out road map is essential to properly forecast
expenses and provide for contingencies.
“For instance, if you intend to pursue a new market next year, you have to
build the related expenses into your forecast.

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Track expenses diligently

You have to understand your historic costs before planning for the future. This
requires gathering data in an effective and efficient way.
“Tracking your costs shouldn’t be an afterthought, it needs to be an integral
part of your ongoing operations,
Benchmark against your industry
Establish metrics that are meaningful to your business and comparable to
those used by other companies in your industry. “If you see you’re spending
more in certain categories, then drill down, investigate why and take
appropriate action to reduce those costs to industry norms.

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Manage variable costs

Look at your company’s past variable expenses and calculate what percentage of sales
they represent. Historic percentages provide both a good indictor of potential future
costs and a benchmark to use in keeping those costs in line with selling activity.
Get tough on fixed costs
People tend to become complacent about fixed costs because they are generally
recurrent and often reflect long-standing relationships with suppliers. But you should
periodically test the market to see if you can get a better deal from competing suppliers.
“It’s good practice to get two or three quotes regularly. “Whether it’s by putting out a
request for proposal (RFP) or a less formal method, it’s important to send out the
message that you are always watching your costs.”

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Invest in technology
Explore new technologies that may help your business improve efficiency,
increase productivity and reduce costs. For example, many companies are now
using cloud computing systems as opposed to in-house hardware that can be
relatively expensive to buy and maintain.
Offer incentives to staff
Make people accountable for costs and establish appropriate rewards for
employees who find ways to reduce expenses. This helps to create a zero waste
culture within your organization. It also helps motivate staff members charged
with implementing expense-reduction initiatives to stay on task and be creative.

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Chapter six
ANALYZING RESULTS USING INCOME STATEMENT

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Analyzing and Managing Food & Beverage Expense

INTRODUCTION
The effective manager has to manage and control all the various operating expenses in a
foodservice operation. In the end, the goal is typically to make a profit. Food and beverage
expenses combined are one of the largest expense categories for foodservice operations.
One of the key figures needed each month (or even more often) is the cost of goods sold.
The food & beverage cost of goods sold is the dollar amount spent on items actually used to
provide the menu items sold to the guests. The amount may significantly differ from the
total spent on food purchase since:
Items purchased in bulk are not entirely used during the accounting period (refer to the
section on inventory)
Items are consumed but not always sold to guests (employee meals, complimentary meals
served for promotion purposes, etc.)

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DETERMINING ACTUAL FOOD EXPENSES

Food & beverage inventory revisited
From an accounting and financial standpoint, a restaurant inventory is the dollar
value of the food and beverage items that are held in storage. While in storage,
the inventoried items are not considered a cost until used or sold. Just like cash,
food and beverage inventory is a company asset. Unlike cash, however,
inventory values may decrease since food and beverage items are perishable and
subject to spoilage and theft.

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Holding inventory has the potential to incur significant expenditures including

operating expenses (such as spoilage, obsolescence, theft, and facility expenses)
and capital investments (such as the construction of the premises and
refrigeration equipment.) Additionally, operations immobilizing too much cash
in inventory could eventually need to borrow money to pay for other expenses.
Accordingly, managers need to implement stringent inventory management
systems to protect the value of their inventory with procedures that avoid over-
ordering (cash spending) and spoilage, including security measures for accessing
the premises, proper requisition procedures for removing inventoried products,
and adequate rotation of perishable items.

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COMPONENTS OF FOOD AND BEVERAGE COST CALCULATIONS

Beginning Inventory
The beginning inventory is the dollar value of the food and beverage items held in
storage at the beginning of an accounting period.
Ending Inventory
The ending inventory is the dollar value of the food and beverage items held in
storage at the end of an accounting period.
The ending inventory of a particular period becomes the beginning inventory of the
next accounting period. Example: In cases where a company implements monthly
accounting periods, the November 30 th ending inventory becomes the December
1st beginning inventory.

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Purchases
Purchases sum up the dollar value of all food and beverage items acquired during the accounting
period. These include direct purchases, which are usually fresh products that are delivered and
used on a daily basis, or par items, products that are held in storage, or items such as salt, sugar,
flour that are ordered cyclically to maintain a permanent minimum amount in inventory.
Credits and transfers (inventory items that are not directly used to generate sales)
Credits: Some inventoried food and beverage products are not used to produce items that
generate sales. One example is when hotels and restaurants provide employees with free or
heavily discounted meals.
Transfers in or out: Multi-unit operations such as restaurant chains or hotels with several
restaurants, bars, or other foodservice operations, such as catering, may move inventory items
from one unit to another based on the needs or particular sales patterns of the various outlets.
“Transfers in” are additions to purchases for the receiving outlet while the issuing outlet would
account for the inventory reduction as a “transfer out.”
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Other Adjustments:
Food to beverage or beverage to food: Food and beverage costs are usually
presented separately in addition to the overall Food and Beverage Cost of Sales
(F&B Cost). Food recipes routinely call for alcohol such as wine or brandy
(beverage to food), while cocktails often include food items such as olives, or
lemons, or come with a side of peanuts (food to beverage). Food to beverage is
credited (subtracted from) the food cost and imputed (added to) to the beverage
cost. Beverage to food credit similarly reduces the beverage cost and increases the
food cost.
Additional adjustments include credits for returned products or discounts and
price adjustments from the purveyor/supplier.
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Inventory issues
Ending Inventory is a credit to food and beverage cost (i.e. it is subtracted
from the overall cost of sales}. The higher the ending inventory amount, the
lower the food and beverage cost. This creates a temptation to overstate the
inventory value (known as “inventory padding”) for employees, such as
managers or chefs, whose bonus and often job preservation, depend on the F&B
cost figure. Several methods may be used to unethically overstate inventory
values such as:
• Creating false entries (non-existing products);
• Manipulating numbers (quantity, prices);
• Valuing spoiled or past due products that should be discarded;
• Counting off-menu products that are in storage but not likely to be used ever again;
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Chapter seven

Planning for Profit

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Introduction :
Modern business world is full of competition, indecision and exposed to
different types of risks. This complexity of managerial problems has led to
the development of various managerial tools, techniques and procedures
useful for management in managing the business successfully. Management
planning and control begins with the establishment of the fundamentals
objectives of the organization, and continues as the process by which
necessary resources are provided and employed effectively and efficiently
toward achievement of desired levels of profits.

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Definition of Budget
The term “budget” has originated from the French word/term “Bougette”
which denotes a leather pouch in which funds are appropriated for meeting
anticipated expenses. At present the same meaning applies to business
management. It is common for the definition of a budget to say that a
budget is an explanatory statement prepared in numerical or in monetary
terms or in combination of both for a future period with a view to disclosing
any detailed future courses of action

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The study of the above definitions reveals the following basic

fundamentals of a budget: Budget is a comprehensive plan of what the
enterprise endeavors to achieve. Budget is a plan expressed either in terms of
money or quantity or both for attaining some objective.
 It is prepared for a definite time period.
 It is prepared and approved prior to a definite period of time.
 It provides a benchmark and measures for the purpose of comparison.
 It is prepared in advance and refers to the future course of action.

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Classification of Budgets:
Budgets can be classified according to the following points of view,
Classification according to time factor;
Functional classification;
Unit-based classification;
Classification according to flexibility factor; and
Other budgets.

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(A) Classification according to time factor : In terms of time factor,

budgets are broadly of three types :
(1) Long-term Budgets : They are concerned with planning the operations of a
firm for a period exceeding one year, may be to ten years. Long-term budgets
are used to formulate development plans, research plans, fixed capital financing
pleas etc. development plans, research plans, fixed capital financing plans etc.
(2). Short-term Budgets : They are generally prepared for a period from one
month to one year with a view to achieving any short term goal . Short-term
budgets are used to make plans for market sales, administrative expenses, cash
requirements, and selling and distribution.

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(3) Current budgets: Budgets which are prepared for using over a very short
period of time and related to current conditions are known as currents
budgets. They are prepared for making very short-term plans relating to
purchase of raw materials, labor costs, use of machinery, cash distribution
etc. Such budgets may be prepared on fortnightly, monthly, bi-monthly,
quarterly or half yearly basis and they are meant to be an elaboration of the
annual budgets.

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Unit-based classification: According to this classification budgets are of

two types.
Monetary budgets: Budgets prepared in monetary unit is termed as monetary
budgets. Most of the budgets prepared in a firm are monetary in nature.
Examples of such budgets are sales budgets, production budgets, production
cost budgets, selling and distribution cost budgets, purchase budgets,
personnel budgets, research and development budgets, capital expenditure
budgets, cash budgets, office and administrative
budgets etc.

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Non-monetary budgets: Budgets prepared in unit other than money,

quantity measuring unit like quintal, tones, kg, liter, gallon, number etc
are known as non-monetary budgets. Examples of such budgets are raw
materials usage budgets, production volume budget, sales volume budget,
human resource budget etc.

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Classification according to flexibility factor: According to this classification

budgets are of two types.
(1) Fixed budgets: This is a budget in which targets are rigidly fixed.
According to the Chartered Institute of Management Accountants “ a fixed
budget is a budget which is designed to remain unchanged irrespective of the
level of activity actually attained. ”

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Flexible budgets: The flexible budgets portray the planned courses of action
and expenditure for different levels of operating activity and is capable of
accommodating any sort of change in the current operating level. This is a
dynamic budget. It is a budget that can be adjusted to any unforeseen
changes. It is also called variable or sliding scale budget.

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The advantages of budgeting can be stated as follows:

a). Budgets provides a means of communicating management’s plans
throughout the organization.
b). Budgets provides definite objectives for evaluating subsequent
performance.
c). It creates an early warning system for potential problems, which gives
management additional time to solve the problem.

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It facilitates the coordination of activities within the business by

correlating the goals of each segment with overall company objectives.
 It results in greater management awareness of the entity’s overall
operations and the impact of external factors such as economic trends on the
company’s operations.
It makes” management by exception” possible through variance analysis
and by distinguishing between controllable and non-controllable costs.

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The cash budget contains following four major sections:

1. The cash receipts sections.
2. The cash disbursement sections.
3. The excess cash or deficiency sections.
4. The financing sections.

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Definition of Master Budget:

A master budget is, essentially, an overall budget for an entire organization.
In reality, it is an amalgamation of smaller specialized budgets, each based
on information provided by appropriate manager.

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Components of the Master Budget

The Sales Budget:

The sales budget is the starting point in the development of the master
budget. It is the key budget that leads to the preparation of all other functional
budgets. A budget prepared with the object of expressing in physical
quantities and /or in money values the probable sales of a specific future
period is known as sales budget.

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The Production Budget:

Once the sales forecast and the sales budgets are completed, the next
phase is to prepare the production budget. A production budget is a
formal plan prepared to express the probable volume of production and
its expected cost for the coming year based on budgeted sales and
budgeted inventories of finished goods.

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The person responsible for preparing production budget should consider

Following factors in preparation of production budget:
(1). Maximum production capacity of the industry.
(2). Production planning of the concern.
(3). Management’s policy regarding production and purchase of
components.
(4). Available storage facility.
(5). Amount of investment needed.

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The cash budget contains following four major sections:

1. The cash receipts sections.
2. The cash disbursement sections.
3. The excess cash or deficiency sections.
4. The financing sections.

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Thank you!!!

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