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Organizational Culture by Charles Handy

Course Outline

There will be 3 form of assessment to be used for this subject.

  • Written Assessment (Total: 80%)
  • iMid – Term Exam (Chapter 1 – 4)
    • Paper 1 – Theory (15%)
    • Paper 2 – Application (25%)
  • Final Exam (Chapter 5 – 10)
    • Paper 1 – Theory (20%)
    • Paper 2 – Application (30%)


  • 1. The dates of your written assessment will be announced in the class.
  • 2. There will be NO RE-SIT ATTEMPT given for each individual quiz/exam except for the following:
    • a. Student is sick and produces a Medical Chit: OR
    • b. Student is granted an excuse to take the exam at a later date.

  • 3. Students who are able to fulfill one of the conditions listed in Article a.2 are required to set a date and sit for the written assessment within 1 week after the original scheduled assessment that they have missed.
  • 4. A student who fails to comply with Article a.3 will receive grade ‘F’ for the written assessment that he or she has missed.
  • 5. A re-sit examination combining all the topics taught in this subject will be given to students who did not managed to pass after combining all the results of the assessments.

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    The lecturer will announce the date for the RE-SIT EXAMINATION.

  • 6. The result of the RE-SIT EXAMINATION will be the final result awarded to students who have failed.
    • b. Course Work (Total: 10%)

To be based on submission of all exercises given during the class lecture.

2. Objective of Course Unit

The objective of this unit is to introduce food cost control to students preparing for careers in the food and beverage management as well as hotels and other enterprises where this knowledge is necessary.

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3. Synopsis

The subject consist of 10 topics with the earliest topics touching on fundamentals issues such as understanding the definition of the cost terms that will be applied throughout the learning process. The first three topics also introduce students to the common formulas used in controlling cost, which will also be applied throughout the learning process. The remaining chapters’ touches on other form of controls applied in the industry with the final chapter summarizing the importance of cost control and touching on sales control as well.

4. Topics

  • Chapter 1 – Cost and Sales Concepts
  • Chapter 2 – The Control Process
  • Chapter 3 – Cost/Volume/Profit Relationships
  • Chapter 4 – Purchasing/Receiving/Storing/Issuing Control
  • Chapter 5 – Food Production Control 1 – Portion
  • Chapter 6 – Food Production Control 2 – Quantities
  • Chapter 7 – Monitoring Foodservice Operations 1 – Monthly Food Cost
  • Chapter 8 – Monitoring Foodservice Operations 2 – Daily Food Cost
  • Chapter 9 – Monitoring Foodservice Operations 3 – Actual vs. Standard
  • Chapter 10 – Controlling Food Sales

5. Student Reference Notes

Student Reference Notes will be distributed in the first week of the semester. Please take note that your student reference notes is a summary of selected topics compiled from various reference books. Students who wish to pursue in-depth knowledge are strongly advised to do their own reading on the reference books available in the College’s library.

6. Others

  • a. Please feel free to meet up with the lecturer for any clarification on this subject.
  • b. Should there be any class cancellation; a notice will be issued 48 hours before the class cancellation either by sms or email.
  • c. Due to the job nature of the lecturer, class session may at times start 15 minutes late than the scheduled time.


Chapter 1 – Cost and Sales Concept

Key Terms

  • Average number of coversPrime Cost
  • Average saleSales
  • Average sale per customerSales mix
  • Average sale per serverSales price
  • Controllable costSeat turnover
  • CostSemivariable cost
  • Cost per dollar of saleTotal cost
  • Cost percentTotal covers
  • CoverTotal number sold
  • Directly variable costTotal sales
  • Fixed costTotal sales by category
  • Historical costTotal sales per seat
  • Labor costTotal sales per server
  • Noncontrollable costUnit cost
  • OverheadVariable cost
  • Planned cost

Cost Concepts

Definition of Cost

Accountants define a cost as a reduction in the value of an asset for the purpose of securing benefits or gain. This definition, although technically correct, is not useful in a basic discussion of controls, so it is modified to suit this subject. In the food and beverage industry, cost is defined as the expense to a hotel or restaurant for goods or services when the goods are consumed or the services are rendered. Foods & beverages are considered “consumed” when they have been used, wastefully or otherwise, and are no longer available for the purposes for which they were acquired.

The cost of labor is incurred when people are on duty, whether or not they are working and whether they are paid at the end of a shift or at some later date. The cost of any item may be expressed in a variety of units: weight, volume, total value, portion, per bottle, per drink, per hour, or per week. Costs can be viewed in a number of different ways, and it will be useful to identify some of them before proceeding.

Fixed Costs

Fixed costs are cost that are normally unaffected by changes in sales volume. They are said to have little direct relationship to the business volume because they do not change significantly when the number of sales increases or decreases. Some examples of fixed costs are as follow: insurance premiums, real estate taxes, or depreciation on equipment.

The term fixed should never be taken to mean static or unchanging, but merely to indicate that any changes that may occur in such costs are related only indirectly or distantly to changes in volume.

All fixed costs change over time, sometimes increasing and sometimes decreasing. However, changes in fixed costs are not normally related to short-term changes in business volume. They are sometimes indirectly tied to long-term volume changes.

Variable Costs

Variable costs are costs that are clearly related to business volume. As business volume increases, variable costs will increase; as volume decreases, variable cost should decrease too. Some examples of variable costs are food, beverages, and labor

However, there are significant differences between the behavior of food and beverage costs and the behavior of labor costs. Food and beverage costs are considered direct variable costs. Direct variable costs are those that are directly linked to volume of business, so that every increase or decreases in volume brings a corresponding increase or decrease in cost.

Labor costs on the other hand are considered semivariable costs. Semivariable costs are those that have elements of fixed and variable, which in this case labor. Labor in the hospitality industry is divided into two categories.

The first category is the permanent personnel where the number of personnel will remain the same regardless whether the business volume is high or low. The number and cost will however change but not due to the business volume.

The second category is the part-time personnel where the number of personnel increases or decreases based on the business volume. Labor cost however is possible to remain entirely on fixed cost if every personnel are permanent or on variable cost if every personnel are paid on an hourly wages.

Controllable and Noncontrollable Costs

Costs may also be labeled controllable and noncontrollable. Controllable costs are those that can be changed in the short term. In this case, variable costs are normally controllable. For example, the cost of food and beverage can be considered controllable because it can be change in several ways by changing portion sizes, ingredients, or quality of products purchased. Noncontrollable costs are those that cannot normally be changed in the short term and these are usually fixed costs.

Unit and Total Costs

It is also important to distinguish between unit costs and total costs. Unit costs may be food and beverage portions i.e. one steak or one martini, or units of work, as in hourly rate for an employee.

Total costs would on the other hand represent all the cost of the food served in one period, such as a week or a month, or the total cost of labor for one period. It is important to note that, as business volume changes, total costs and unit costs are affected in different ways.

Prime Cost

Prime cost is a term the food and beverage industry uses to refer to the costs of materials and labor: food, beverage, and payroll (Labor). Prime cost is defined as the sum of food costs, beverage costs and labor costs. These combine together represents the largest portion of total costs for virtually all food service operations. Prime cost is of the greatest interest to most owners and managers as it determines if establishment will meet its financial goals.

Overhead Cost

Overhead cost is used to mean all costs other than prime cost. Overhead normally consist of all the fixed costs associated with operating the business.

Sales Concepts

Definition of Sales

The term sales is defined as revenue resulting from the exchange of products and services for value. In the food service industry, food and beverages sales are exchanges of the products and services of a restaurant, bar, or related enterprise, for value. There are two basic groups of terms normally used in food and beverage operations to express sales concepts: monetary and nonmonetary

Monetary Terms

Total Sales

A total sale is a term that refers to the total volume of sales expressed in dollar terms. This may be for any given time period such as weekly, monthly, or yearly.

Total Sales by Category

Total sales by category are total food sales or total beverage sales. It refers to the total dollar volume of sales for all items in one category.

Total Sales per Server

A total sale per server is the total dollar volume of sales for which a given server has been responsible in a given time period such as a meal period, a day, or a week. These figures are sometimes used by management to make judgments about the comparative performance of two or more employees.

Total Sales per Seat

Total sales per seat is the total dollar sales for a given time period. The figure is obtained by dividing the total dollar sales for a given time period by the number of seats in the restaurant. The normal time period used is one year. This figure is most frequently used by chain operations as a means for comparing sales results of one unit with those of another.

Sales Price

Sales price refers to the amount charged each customer purchasing one unit of a particular item. The unit may be of single item (i.e. an appetizer) or an entire meal depending on how the restaurant prices its product.

There are two such averages commonly calculated: average sale per customer and average sale per server.

Average Sale per Customer

This sale concept is also expressed as the average check or the average cover. This figure is often used by managers to perform the following tasks:

  • Comparison of employee performance
  • To identify sales trend
  • To compare effectiveness of various menu, menu listings, or sales promotions.

Average Sale per Server

This figure is also used for comparative purposes and it is usually considered a better indicator of the sales ability of a server.

Nonmonetary Terms

Total Number Sold

Total number sold refers to the total number of menu items sold in a given time period. This figure is useful in a number of ways: o To identify unpopular menu items

  • Historical records of total numbers of specific items sold are used for forecasting sales.
  • Total number of specific items sold – To make judgments about quantities in inventory and about sales records


Cover is a term used to describe one diner, regardless of the quantity of food he or she consumes.

Total Covers

Total covers refer to the total number of customer served in a given period of time: an hour, a meal period, a day, a week, etc. Foodservice managers are particularly interested in these figures, which are compared with figures for similar periods in the past so that judgment can be made about business trend.

Average Covers

The average derived can be of considerable help to a manager attempting to make judgments about common questions such as:

  • Efficiency of service in the dining room
  • Effectiveness of a promotional campaign
  • Effectiveness of a particular server.

Seat Turnover

Seat turnover may be calculated for any period, but is most often calculated for a given meal period.

Sales Mix

Sales mix is a term used to describe the relative quantity sold of any menu item as compared with other items in the same category. The relative quantities are normally percentages of total unit sales and always total 100%.

The Cost-to-Sales Ratio: Cost Percent

Foodservice managers calculate costs in dollars and compare those costs with sales in dollars. This practice enables foodservice managers to discuss the relationship between costs and sales, sometimes described as:

  • The cost per dollar sale
  • The ratio of costs to sales
  • Cost-to-sales ratio

Industry-wide Variations in Cost Percents

Cost percents vary considerably from one foodservice operation to another. There are many possible reasons for these variations.

  • Type of service
  • Location
  • Price structure
  • Type of menu
  • Types of foodservice operations, etc.

Chapter 2 – The Control Process

Key Terms

  • BudgetQuality standards
  • ControlQuantity standards
  • Control processSales control
  • Control systemStandard cost
  • Cost controlStandard procedures
  • Cost/benefit ratioStandards
  • Operating budgetTraining
  • Procedures


Control is the process used by managers to direct, regulate, and restrain the actions of people so that the established goals of an enterprise may be achieved.

Cost Control

Cost control is defined as the process used by managers to regulate costs and guard against excessive costs. It is an ongoing process and involves every step in the chain of purchasing, receiving, storing, issuing, and preparing food and beverage for sale.

The particular methods used to control costs vary from one establishment to another, depending in part on the nature and scope of operations. However the principals behind the different methods are constant.

The obvious objective is to eliminate excessive costs of food, beverages, and labor to ensure that the enterprise will operate at a profit. Two of the principal causes of excessive costs are inefficiency and waste. Cost control alone will not ensure profitability. Additional steps must be taken to ensure that all sales result in appropriate income to the business (sales control).

Sales Control

Sales control is needed in order to ensure that menu items are sold correctly according to the market price. Sales control often starts by comparing sales records to production records to ensure that all quantities produced are accounted for.

Another method of conducting sales control is by numbering all guest checks to ensure accountability. Establishment that use industry-specific computer program find that controls is much easier to institute than those without such programs.

Responsibility for Control

Responsibility for every aspect of any food and beverage enterprise rests with management. Control, therefore, is clearly a responsibility of management. In some food and beverage enterprises – managers take personal charge of directing and supervising the control procedures in every phase of operations.

The nature, size and scope of operations help determine the extent to which managers can exercise direct control rather than delegate responsibility. In larger and more complex operation, delegation is necessary to ensure effectiveness.

Instituting Control

At each stage of operation, it is necessary to institute control in order to prevent problems. Control may be accomplished in a variety of ways, and anyone who attempts to manage a food and beverage operation should be aware of the range of techniques available.

Control Techniques

There control techniques available to a manager include the following: o Establishing standards

  • Establishing procedures
  • Training
  • Setting examples
  • Observing and correcting employee actions
  • Requiring records and reports
  • Disciplining employees
  • Preparing and following budget

Establishing Standards

Definition of Standards

Standards are defined as rules or measures established for making comparisons and judgments. In business these standards are set by management and are used for judging the extent of which results meet expectations.

Quality Standards

Quality standards are used to define the degree of excellence of raw materials, finished products, and, by extension, work. In one sense, establishing quality standards is a grading process.

Quantity Standards

Quantity standards are defined as measures of weight, count, or volume, which are used to make comparisons and judgments. Management must establish a number of quantity standards. Quantity standards are often important in the control of labor cost as well.

Standard Cost

The term standard cost is defined as the cost of goods or services identified, approved, and accepted by management. Standard costs are used for various purposes: o For comparisons against actual cost as a basis for establishing sales price

Standard costs are useful in measuring the effectiveness of operations. It is also particularly useful in cost control because they provide a means for management to compare what is actually happening in an enterprise with what should be happening, given the standards established for operations.

Establishing Procedures

Definition of Procedures – Procedures are methods employed to prepare products or perform jobs.

Standard Procedures – Standard procedures are those that have been established as correct methods, routines, and techniques for day-to-day operations.

Training – Training is a process by which managers teach employees how work is to be done, given the standards and standard procedures established.

Setting Examples

Employees in an operation follow the examples set by the manager – the manager’s behavior, manner, responses to questions, and even a failure to speak or take action in some situations. In general, the behavior of individuals in a group tends to be influenced by the actions, statements, and attitudes of their leaders. It must be noted that any manager must be consistent in setting examples as inconsistency confuses employees and has the effect of working against the control processes and procedures in effect.

Observing and Correcting Employee Actions

One of manager’s important tasks is to observe the actions of all employees continually as they go about their daily jobs, judging those actions in the light of the standards and standards procedures established for their work. If any are failing to follow the standards, it is a manager’s responsibility to correct their performance to the extent necessary at the appropriate time.

Requiring Records and Reports

Records and report are required as it is impossible for a manager to be in all places at the same time. From the records and reports, information can be abstracted, determined, and judge.

Disciplining Employees

Discipline is defined as action taken to admonish, chastise, or reprimand an employee for work performance or personal behavior incompatible with established standards. Discipline is used as a control technique in many food and beverage operations and may take up of a number of forms. Discipline is not the same as observing and correcting employee actions; it is the next step beyond. It must be understood that the object of discipline is to change or modify employees’ job performance or personal behavior – to improve performance so that the work is done in conformance with the standards and procedures that management has identified as those most likely to achieve the organization‘s goals and objectives.

Preparing and Following Budgets

A budget is defined as a financial plan and may be describe as a realistic expression of management’s goals and objectives expressed in financial terms. Examples of the various types of budgets include such as sales budgets, cash flow budgets, capital equipment budgets, advertising budgets, etc. The most important type of budget a manager can prepare is operating budget. Operating budget is a forecast of sales activity and an estimate of costs that will be incurred in the process of generating sales. An operating budget is clearly a financial plan for the period it covers.

Preparing an Operating Budget

Operating budget is normally prepared using historical information from previous budgets and other financial records. This information, together
with anticipated changes in sales and cost, provides the basic data needed to prepare an operating budget for an upcoming period. Operating budget can be prepared for any period of time – a day, a week, a month, a quarter, six months, or a full year.

Constructing a budget

The first step that we need to do when we construct a budget is to classify all the items. Classifications can be done by grouping the information into the following groups:

  • Sales
  • Variable
  • Fixed

Once we have done the classification, we would then arrange the information by listing sales, then followed by variable cost then followed by fixed cost. When the arrangement of information has been done, then we can therefore proceed with the mathematical calculations. A sample of an operating budget can be viewed on page 18.

The Control Process

The control process consists of four steps:

  • Establish standards and standard procedures for operation.
  • Train all individuals to follow established standards and standard procedures.
  • Monitor performance and compare actual performance with established standards.
  • Take appropriate action to correct deviations from standards.

Control is one key to successful food and beverage management and must be established if success it to be achieved. Experience throughout the industry has long proven that establishing control means instituting the identified four-step process.

Control System

Control system is the term used to describe that collection of interrelated and interdependent control techniques and procedures in use in a given food and beverage operation. Historically, control systems were heavily dependent on paper-and-pencil method, which is very time consuming. Today most operations are using some type of computer control system as an aid to managing.


1. The manager of the Market Restaurant has prepared the following information. It represents his best estimates of sales and various costs for the coming year. Using this information, prepare an operating budget for the Market Restaurant for the coming year, following the illustration provided in this chapter.

Food sales: RM820,000.00
Beverage sales: RM290,000.00
Cost of food: 36% of food sales
Cost of beverage: 24% of beverage sales
Variable salaries and wages: 20% of food sales
Fixed salaries and wages: RM102,000.00
Employee benefit: 25% of total salaries and wages
Other controllable expenses: RM95,000.00
Depreciation: RM65,000.00
Interest: RM55,000.00
Occupancy cost: RM56,000.00

For the coming year, the following changes are expected:

  • a. Food sales will increase by 10%
  • b. Beverage sales will increase by 6%
  • c. Food cost percent and beverage cost percent will remain the same.
  • d. Fixed salaries and wages – RM69,300.00 for this year – will increase by RM8000.00. Variable salaries and wages will be 16% of the expected food sales.
  • e. Employee benefits will remain the same percentage of salaries and wages.
  • f. Controllable expenses will increase by RM12,000.00
  • g. Occupancy costs will increase by RM5000.00
  • h. Interest and deprecation will remain the same.

Given these anticipated changes, prepare an operating budget for the Downtowner Restaurant for the coming year.

3. Referring to Question 2, assume that the operating budget you prepared for this upcoming year has been adopted. After the first six months of the year, financial records reveal the following:

  • a. Food sales have increased by 12% rather than by the 10% anticipated.
  • b. Beverage sales have increased by 5% rather than the 6%.
  • c. Food cost percent is 1% lower than budgeted, but beverage cost percent is 2% higher.
  • d. Variable salaries and wages are 14% of food sales, rather than the 16% anticipated.

Assuming that the trends evident in the first 6 months continue for the rest of the year and that both sales and costs are equally divided between the two halves of the year, prepare a revision of the budget for the second 6six-month period.

Chapter 3 – Cost / Volume / Profit Relationship

Key Terms

  • Break-even pointCost/volume/profit equation
  • Contribution marginVariable rate
  • Contribution rate

The Cost / Volume / Profit Equation

The cost/volume/profit relationships can be expressed as follow:

Sales = Cost of Sales + Cost of Labor + Cost of Overhead + Profit

Because cost of sales is variable, cost of labor includes both fixed and variable elements, and cost of overhead is fixed, the equation can be restate as follow:

Sales (S) = Variable Cost (VC) + Fixed Cost (FC) + Profit (P)

Variable Rate Equation

Variable rate is the ratio of variable cost to dollar sales. It is determined by dividing variable cost by dollar sales and is expressed in decimal form.

Variable Rate (VR) = VC ÷ S

Contribution Rate Equation

Contribution rate is defined as the amount/rate needed to cover fixed cost and provide profit. The contribution rate is determined by subtracting the variable rate from 1.

CR = 1 – VR

Break-Even Point Equation

The break-even point (BE) is defined as the point at which the sum of all
costs equals sales, so that profit equals zero. In other words, this means that the dollar sales are sufficient to cover both variable and fixed costs. Break-even point can be determine by:

S = (FC + P) ÷ CR

However, based on the above formula, if must be remembered that P must be equal to zero or other wise the formula above can be applied.

Variable Cost Equation

The variable cost can be determined using the following formula:

VC = S x VR

Contribution Margin Equation

Contribution margin (CM) is defined as the dollar amount remaining after variable costs have been subtracted from the sales dollar.

CM = Selling Price – VC of the Item

As an example if the selling price of the item is RM12.00 while the VC is RM5.00, then the CM is RM7.00. The total contribution margin is also usually known as the gross margin or the gross profit on sales. As an example:

  • Food Sales = RM786,250
  • Food Costs= RM275,188
  • Contribution Margin = RM511,062

The above final figure, which is the total contribution margin, is often referred to as the gross margin or the gross profit on sales. The calculation of CM does not stop after subtracting the VC but continues to subtract all FC to determine the profit or loss.


1. Given the following information, determine total dollar sales.

  • a. Cost of sales RM46,500.00; cost of labor RM33,247.00; cost of overhead RM75,883.00; profit RM3129.00
  • b. Cost of sales RM51,259.00; cost of labor RM77,351.00; cost of overhead RM42,248.00; loss RM41,167

2. Given the following information, find contribution margin:

  • a. Average sales per price per unit RM13.22; average RM5.78 variable cost per unit
  • b. Average sales price per unit RM14.50; average .36 variable rate
  • c. Average sales price per unit RM16.20; average .55 contribution rate
  • d. Average variable cost per unit RM6.20; average .3 variable rate
  • e. Average variable cost per unit RM3.60; average .6 contribution rate

(From this point on, the term average is eliminated from the problems. This will affect neither the problems not the solutions.)

3. Given the following information; find variable rate:

  • a. Sales price per unit RM19.25; variable cost per unit RM6.70
  • b. Total sales RM164,328.00; total variable cost RM72,304.00
  • c. Sales price per unit RM18.80; contribution margin RM10.72
  • d. Sales price per unit RM16.37; total fixed costs RM142,408; total unit sales 19,364; total profit RM22,952.80

4. Given the following information, find contribution rate:

  • a. Sales price per unit RM18.50; contribution margin RM10.08
  • b. Sales price per unit RM17.50; variable cost per unit RM6.95
  • c. Total sales RM64,726.00; total variable cost RM40,130.12
  • d. Sales price per unit RM16.50; profit RM33,381.80; total unit sales 18,440; total fixed costs RM136,137.00

5. Given the following information, find break-even point in dollar sales:

  • a. Fixed costs RM113,231.64; contribution rate .6
  • b. Variable rate .45; fixed costs RM155,410.31
  • c. Variable cost per unit RM5.85; sales price per unit RM17.40; fixed costs RM164,065.60

6. Given the following information, find break-even point in unit sales:

  • a. Fixed costs RM113,231.64; contribution margin RM2.28
  • b. Sales price per unit RM17.22; fixed costs RM215,035.68; variable cost per unit RM6.98
  • c. Contribution rate .6; sales price per unit RM18.20; fixed costs RM219,423.16

7. Given the following information, find dollar sales:

  • a. Fixed costs RM60,000.00; profit RM18,000.00; sales price per unit RM8.00; variable cost per unit RM5.00
  • b. Variable rate .45; profit RM21,578.10; fixed costs RM58,382.00
  • c. Sales price per unit RM16.60; profit RM21,220.00; contribution margin RM9.29; fixed costs RM126,000.00

8. Given the following information, find unit sales:

  • a. Fixed costs RM58,992.00; profit RM9838.00; contribution margin RM3.82 per unit
  • b. Profit RM33,603.00; sales price per unit RM17.00; fixed costs RM97,197.00; contribution rate .6
  • c. Variable cost per unit RM5.30; profit equal to 18% of RM211,000.00; sales price per unit RM16.30; fixed costs RM86,609.00
  • d. Sales price per unit RM16.20; fixed cost RM129,425.36; variable rate .4; profit RM44,000.00

9. Given the following information, find fixed costs:

  • a. Total sales RM104,672.00; profit RM18,000.00; variable rate .42
  • b. Profit RM12,000.00; unit sales 32,392; variable cost per unit RM4.63; sales price per unit RM10.34
  • c. Sales price per unit RM14.60; profit RM34,000.00; unit sales 26,712; variable rate .35
  • d. Contribution rate .65; sales price per unit RM18.40; unit sales 26,549; profit RM33,000.00

10. Given the following information, find profit:

  • a. Fixed costs RM82,449.40; total sales RM167,543.20; variable cost RM55,629.60
  • b. Variable rate .4; unit sales 26,412; fixed costs RM193,764.40; sales price per unit RM17.60
  • c. Total sales RM190,830.66; variable cost per unit RM5.64; fixed costs RM75,919.70; sales price per unit RM16.22

11. The owner of the Barn Lodge Restaurant estimates that fixed costs for the coming year will be RM360,000.00. Based on his investment in the business, he wants a profit of RM120,000.00 for the year. Experience has shown that the average check is RM12.00.

  • a. If total variable cost is RM720,000.00, what level of dollar sales will be required to earn the target restaurant profit?
  • b. Given total variable cost and total sales figures calculated in Question 11a, what variable rate is the owner projecting?
  • c. Given variable rate calculated in Question 11b, determine the contribution rate.
  • d. Given contribution rate calculated in Question 11c, determine the average contribution margin based on a RM12.00 average sales.
  • e. At what level of dollar sales will the restaurant break even?

12. The following information is from the records of Daphne’s Restaurant:

  • Sales RM800,000.00
  • Variable cost RM342,400.00
  • Fixed cost RM345,600.00

Assume that sales volume equals 40,000 covers:

  • a. Calculate profit.
  • b. Calculate average dollar sales
  • c. Calculate dollar sales required to earn a profit of RM125,000.00, assuming variable rate does not change.

Chapter 4 – Purchasing, Receiving, Storing & Issuing Control


All foodservice businesses, regardless of size or type, have certain processes in common. Whether the foodservice business is a fast-food restaurant or a fine dining establishment, it must purchase supplies from purveyors. Both type of establishment must receive the supplies when they arrive, and someone must verify that the quantity, quality, and price are the same as ordered.

The food must be put away in storage and when needed, it will be taken and prepared for customers who order it. Finally, the food must be served to them. All foodservice establishments, then, have the following sequence of operation:

  • (1) Purchasing,
  • (2) Receiving,
  • (3) Storing,
  • (4) Issuing,
  • (5) Producing,
  • (6) Selling and serving.


Responsibility for Purchasing

Responsibility for purchasing can be assigned to any one of a number of persons in foodservice operations, depending on organizational structure and management policies. For the purpose of control, the authority to purchase foods and the responsibility for doing so should be assigned to one individual. That individual can then be held accountable for the system of control procedures establish by the food controller.

Perishables and Nonperishables

The type of foods to be purchased for any foodservice enterprise can be divided into two categories: perishables and nonperishables. Because there are significant differences between the approaches to purchasing foods in these categories, it is important to differentiate between them. Perishable foods are those items, typically fresh foods that have comparatively short useful life after they have been received. Nonperishable foods are those food items that have longer shelf lives.

Developing Standards and Standard Procedures for Purchasing

The primary purpose of establishing control over purchasing is to ensure a continuing supply of sufficient quantities of the necessary foods, each of the quality appropriate to its intended use, purchased at the most favorable price. In order to practice effective purchasing, standards must be developed for the following:

  • Quantity of food purchased
  • Prices at which food is purchased

Establishing Quality Standards

Before any intelligent purchasing can be done, someone in management must determine which foods, both perishables and nonperishables, will be required for day-to-day operations. The basis for creating this list is the menu, which is not as easy as it may at first appear. Developing a complete list of foods and their characteristics for a foodservice operation is clearly a complex and time-consuming enterprise. It must be done however, if one is to establish effective control over purchasing.

These carefully written descriptions are known as standard purchase specifications. The specifications are often based on grading standards established by the authority or by the appropriate market. Many write specifications that are precise and thus more useful for indicating to purveyors the exact quality desired. An example of a precise specification:

Standard purchase specifications, if carefully prepared, are useful in a least six ways:

  • 1. They force owners or managers to determine exact requirements in advance for any product.
  • 2. They are often useful in menu preparation: It is possible to use one cut of meat, purchased to specifications, to prepare several different menu items.
  • 3. They eliminate misunderstandings between purchaser and purveyors.
  • 4. Circulation of specifications for one product to several purveyors makes true competitive bidding possible.
  • 5. They eliminate the need for detailed verbal description of a product each time it is ordered.
  • 6. They facilitate checking food as it is received.

Although specifications are written at one particular time, they need not be considered fixed for all time.

Establishing Quantity Standards

Unlike quality standards, quantity standards are subject to continual review and revision, often on a daily basis. All foods deteriorate in time, some more quickly than others, and it is the job of the food controller to establish a system to ensure that quantities purchased will be needed immediately or in the relative near future. There are two types of quantity control systems used in foodservice operation.

Perpetual Inventory

A perpetual inventory system allows you to keep track of items in storage on an on-going basis. This concept is identical to the way a checkbook record is maintained. As food enters the storeroom, the running balance increases and is noted on an inventory form. When food are been issued, the running balance decreases and is subtracted from the running total of the inventory form. Therefore, at any time, the amount of food can be known. This is useful for managers when they want to calculate food costs. Perpetual inventory records tell a manager the quantity of each product at regular intervals by a physical count.

When a periodic inventory system is used, the operation does not keep track of what is added and subtracted from inventory on an on-going basis. Rather, a periodic inventory system relies on physically counting what is in storage on a periodic basis – usually at the end of each month using a periodic inventory form.

An advantage of the periodic inventory system is that it avoids the trouble and cost of the paperwork involved with perpetual inventory system. A disadvantage is that food cost information can only be figured out for month. With perpetual inventory system, food costs can be figured for each day or any combination of days. Comparatively, then, the measurement of inventory and the accounting and operating information that can be calculated is much less accurate when a periodic inventory form is used.

Establishing Standards for Price

The availability of sources of supply varies considerably from one location to another. Major metropolitan areas tend to offer the greatest number of possibilities, both in terms of different categories of suppliers and number of suppliers in each category.

In contrast, remote rural areas tend to offer few possibilities; sometimes establishments in remote areas must be content with what they can get. In general depending on ownership policy, availability of suppliers, and general market conditions, foodservice operators depend on suppliers who can be grouped in the following general categories: o Wholesalers

  • Local producers
  • Manufacturers
  • Packers
  • Local farmers
  • Retailers
  • Cooperative associations

In most instances the foodservice operator will deal with several of these sources of supply to obtain the necessary foods. To ensure that purchases are made at the most favorable prices, quotation from several suppliers must be obtain for comparison purposes.

Means of Obtaining Price Quotations

Today purchasing has several means of obtaining price quotation:

  • Telephone
  • Fax
  • Quotation sheets obtained by mail
  • Fax modem
  • Information supplied by salespersons who call on customers
  • Direct computer links with purveyors via the Internet or dedicated telephone line.

Centralized Purchasing

Centralized purchasing is widely used by chain operators with similar needs. Under centralized purchasing system, the requirements of individual units are relayed to central office, which determines total requirements of all units and then purchases that total, either for delivery to individual units by the dealer or for delivery to a central warehouse. There are both advantages and disadvantages to such centralized systems that should be understood by anyone involved in food management.

  • Advantages:
    • Foods and beverages can be purchased at lower prices because of volume.
    • Desired quality can be obtained more readily because the purchasing agent has greater choice of market.
    • Foods can be obtained that meet purchaser’s exact specifications.
    • The possibilities for dishonest purchasing in individual units are greatly reduced.

  • Disadvantages:
    • Each unit must accept the standard item in stock and has little freedom to purchase for its own peculiar needs.
    • Individual units may not be able to take advantage of local “specials” at reduced price.
    • Menus are normally standardized, thus limiting the individual unit manager’s freedom to change a menu.

Standing Orders

Although it is desirable for the needed quantity of a given item to be determined with great care each time an order is placed, purchasers commonly make arrangements with certain purveyors for the delivery of goods without specific orders.

These arrangements are known as standing orders and typically take one of two forms. One arrangement calls for the delivery of a specific quantity of a given item each day whereby the quantity remains constant unless specifically changed by the purchaser.

The second arrangement calls for the replenishing of stock each day up to a certain predetermined number. For instance, the purchaser may arrange with a dairy supplier to leave a sufficient quantity of bulk milk each morning, to bring the total supply up to a predetermined figure, such as 20 gallons. Although these arrangements are convenient, they do present a number of possibilities for waste and excessive cost to develop.


If great care is taken to establish effective controls for purchasing, but no attention is given to receiving controls, it is conceivable that all earlier effort may have been wasted. There is no guarantee that purveyors will actually deliver the correct quality and quantity requested. The primary objective of receiving control is to verify that quantities, qualities and prices of food delivered conform to orders placed.

Establishing Standards for Receiving

The primary purpose of receiving control is to verify that the quantity, quality, and price of each item delivered conform to the order placed. To ensure that this is the case, it is necessary to establish standards to govern the receiving process, as follow:

  • 1. The quantity delivered should be the same as the quantity listed on the purchase order, and this should be listed on the invoice or bill that accompanies the delivery.
  • 2. The quality of the item delivered should conform to the establishment’s standard purchase specification for that item.
  • 3. The prices on the invoice should be the same as those circled on the purchased order.

Purchase Order

Every time a particular food item needs to be purchased, the purchasing department issues a purchase order. This purchase order informs the purveyor the quantity and quality needed as well as the agreed buying price of the particular item. The purveyor would then prepare the food item according to the purchase order and deliver it to the establishment.

The Invoice

When food is delivered to an establishment, it should be accompanied by a document that lists the items being delivered. For food, the document is normally an invoice, which is the same as a bill.

The supplier usually presents the invoice to the receiving officer, which serves as an acknowledgement that the establishment has received the product.

Establishing Standard Procedures for Receiving

The exact technique and procedures of receiving vary from one establishment to another. However, common procedures that are found standard in most receiving procedures are as follow:

  • Verification of quantity, quality and price.
  • Acknowledgement of quantity, quality and price.
  • Compilation of daily receiving report.
  • Tagging
  • Storage

Verification of Quantity, Quality and Price

To carry out verification procedures, the following supplies and equipment must be available:

  • Permanent copy of standard purchase specification.
  • Weighing equipment
  • Certain paper forms, tags, rubber stamp, and related office supplies.

Quantity verification entails weighing, counting, or otherwise itemizing the supplies delivered to ensure it tallies with the delivery invoice. Quality verification requires knowledgeable inspection of delivered foods and careful comparison or perceived quality with the quality established in the standard purchase specification.

Price verification requires comparing the unit price appearing on an invoice with the price quote stated at the purchase order.

In the event that the quantity, quality or price does not conform to the orders placed, appropriate steps need to be taken in rejecting the delivered foods. However, prior to rejecting, it is advisable that a second opinion must be obtained from another employee such as the Chef or the Food and Beverage Manager or even the Purchasing Officer.

Acknowledgment of Quantity, Quality, Price

An acknowledgement rubber stamp is usually provided for the purpose of acknowledgement that the establishment has received the delivered product. This rubber stamp serves a number of reasons:

  • 1. Verification of the date the food was received.
  • 2. Accuracy of quantity, quality and price has been confirmed.
  • 3. Approval for bill of payment to be process.

Compilation of Daily Receiving Report

The receiving report is an important accounting document. For most establishments, food is divided into at least 2 categories because some foods received are for immediate use, which is referred as direct while the others are for stocking up which is referred as storage.

Direct are those foods that because of their extremely perishable nature are purchased on a more or less daily basis for immediate use. Storages are those food that, although ultimately perishable, will not diminish significantly in quality if they are not immediately used.

There are no industry-wide rules to indicate that nay food item is always categorized under on of the categories. This is entirely left to the discretion of the establishment. The Daily Receiving Report is usually prepared by the receiving officer, which the information will be used to update the financial standing of the establishment.


In the majority of restaurants, meats, poultry, fish, and shellfish constitute the most costly group of foods on the menu. Due to the cost, a control system is set up to control these items. One approach is to tag each package or piece received before it is placed in storage. These food items are usually tag in numbered sequence. Tagging enables the restaurant to keep track of the total amount of these food items as well as in controlling quality – first in first out.


Once deliveries have been received according to the establishment receiving procedures, it is important that foods be moved to appropriate storage areas as quickly as possible. This is to minimize the spoilage and theft that may occur between receiving and storing foods, which can be an excessive cost if not prevented.


Establishing Standards and Standard Procedures for Storing

In general, the standards established for storing food should address five principals concerns:

  • Condition of facilities and equipment
  • Arrangement of foods
  • Location of facilities
  • Security of storage areas
  • Dating and pricing of stored foods

Condition of Facilities and Equipment

The factors involved in maintaining proper internal conditions include the following:

  • Temperature
  • Storage containers
  • Shelving
  • Cleanliness

Problems with any or all the above may lead to spoilage and waste.


One of the key factors in storing foods is the temperature of the storage facility. This is particularly important for perishables. Food life can be maximized when food is stored at the correct temperature and at the proper level of humidity. The temperatures that follow are generally accepted as optimum for storing the foods indicated: o Refrigerated storage:

  • 0oC – 4oC
  • Dry storage: 10oC – 21oC
  • Frozen: -18oC

If temperatures are permitted to rise above these levels, shelf life is shortened and the risk of food spoilage is increased.

Storage Containers

In addition to maintaining foods at proper temperatures, care must be given to storing them in appropriate containers. Many foods are purchased in airtight containers, but offers are purchased in unsealed containers. Whenever practicable, products purchased in unsealed packages should be transferred to tight, insect-proof containers.


For perishable foods, shelving should be slated to permit maximum circulation of air in refrigerated facilities. For nonperishables, solid steel shelving is usually preferred. At no time should any food products be stored on the floor. Appropriate shelving raised a few inches above the floor should be provided for larger and heavier containers.


Absolute cleanliness is a condition that should be enforced in all food storage facilities at all times. In refrigerated facilities, this will prevent the accumulation of small amounts of spoiling food, which give off odors and may affect other foods. In storeroom facilities, it will discourage infestation by insects and vermin. Storeroom should be swept and cleaned daily, and no clutter should be allowed to accumulate.

Arrangement of Foods

The factors involved in maintaining an appropriate internal arrangement of foods include:

  • Keeping the most-used items readily available
  • Fixing definite locations for each item
  • Rotating stock

Keeping the Most-used Items Readily Available

It is usually helpful to arrange storage facilities so that the most frequently used items are kept closest to the entrance. Although it has no effect on spoilage or theft, this arrangement does tend to reduce the time required to move needed foods from storage to production and thus tends to reduce labor costs.

Fixing Definite Location

Each particular item should always be found in the same location, and attention should be given to ensuring that new deliveries of the item are stored in the same location. A same product that has several locations in a storage area may cause the establishment to over purchase, increase spoilage, and theft, as it may be difficult to keep track of the amount.

Rotation of Stock

The storekeeper must establish procedures to ensure that older quantities of any items used before any new deliveries. The procedure used to do this is known as the first-in, first-out method of stock rotation (FIFO). Using this method will reduce the possibilities for spoilage. Ensuring that stock rotation takes place is particularly important with perishables, but it should not be neglected with nonperishables.

Location of Storage Facilities

Whenever possible, the storage facilities should be located between receiving areas and preparation areas. Such locations facilitate the moving of foods from the receiving areas to storage and from storage to the preparation areas. A properly located storage facility will have the effect of:

  • 1. Speeding the storing and issuing of food.
  • 2. Maximizing security
  • 3. Reducing labor requirements.


Food should never be stored in manner that permits theft. That is another reason for moving foods from receiving area to storage area as quickly as possible. Security is an important consideration in storing particularly in the case of high-cost items. The importance of security obviously increases with the value of the items stored.

Dating and Pricing

It is desirable to date items as they are put away on shelves, so that the storekeeper can be certain of the age of all items and make provisions for their use before they can spoil. In addition, all items should be priced as goods are put away, with the cost of each package clearly marked on the package. Following this procedure will greatly simplify issuing, because the storekeeper will be able to price requisitions with little difficulty.


Establishing Standards and Standards Procedures for Issuing

There are two elements in the issuing process: The first is the physical movement of foods from storage facilities to food preparation areas; the second is the record keeping associated with determining the cost of the food issued.

Physical Movement of Foods from Storage Facilities

Practices of doing this vary from one establishment to another. In some operations, all facilities are locked and cooks must list all their needs on requisitions, which are turned over to storekeeper for issuance. In other operations, facilities are not locked and cooks may simply go to get it whenever they need.

However, most operations practice locking their supplies for the purpose of controlling. There is no universal practice, but it should be obvious that establishment that takes greater precautions tend to have greater control over unauthorized issuing. At the same time, it must be noted that these establishments tend to make issuing more costly and time consuming, by requiring written requisitions that must be filled by additional specialized personnel. In general, small establishments tend to follow more informal practices, and large organizations are more likely to rely on specific procedures requiring paper records and specialized staff.

Standards and standard procedures for the physical movement of foods must be determined specifically for a given establishment, often on the basis of a cost/benefit ratio.

Record Keeping for Issued Foods


Directs are charged to food cost as they are received, on the assumption that these perishables items have been purchased for immediate use. Theoretically, these foods will be moved to appropriate facilities in or near the kitchen and will be used entirely in food preparation on the day they are received. For record keeping purposes, directs are treated as issued the moment they are received and no further record of particular items is kept.


When purchased, these foods are considered part of inventory until issued for use, and are not included in cost figures until they are issued. Therefore, it follows that records of issues must be kept in order to determine the cost of stores. For control purposes, a system must be established to ensure that no stores are issued unless kitchen personnel submit lists of the items and quantities needed.

When it comes to issuing, a requisition will be used. A member of the kitchen staff will fill the requisition form. It lists the items and quantities of stores the kitchen staff needs for the current day’s production. Each requisition should be reviewed by the chef, who should check to see that all required items are listed and that the quantity listed for each is accurate.

After stores have been issued, it is the responsibility of the storekeeper to record on each requisition the cost of the listed item and determine the total value of the foods issued. The items listed on requisitions fall into two categories:

  • Staples
  • Meats and similar entree items

Values for foods in these two categories are determined as indicated in the following lists:

  • Staples. The unit cost is derived from one of the following depending on the system in use:
    • The unit cost of each item is marked on each container, as it is stored, making it readily available to the storekeeper.
    • A book or card file is maintained for all staple items, one page or one card per item. As price changes, the most recent purchase price is entered.
    • The most recent purchase price for each item is listed on a perpetual inventory card or in a computer.
    • The storekeeper keeps a mental record of the orders placed and usually remembers the purchase prices because of constant use.

  • Meats and similar entree items
    • Cost is obtained through the tag.

Once unit cost of each item on the requisition has been recorded, it becomes possible to determine the total value of the food issued. The store total value and the direct total value is then added together to determine the total food cost for the day.

Chapter 5 – Food Production Control 1 (Portions)

Establishing Standards and Standard Procedures

The standards and standard procedures for production control are designed to ensure that all portions of any given item conform to management’s plans for that item and that, as far as possible; each portion of any given item is identical to all other portions of the same item.

Portions of a given menu item should be identical to one another in four respects:

  • Ingredients
  • Proportions of ingredients
  • Production method
  • Quantity

To reach this goal, it is necessary to develop the following standards and standards procedures for each menu item:

  • Standard portion size
  • Standard recipe
  • Standard portion cost

Standard Portion Size

One of the most important standards that any foodservice must establish is the standard portion size. It is defined as the quantity of any item that is to be served each time that item is ordered.

In effect, the standard portion size of any item is the fixed quantity of a given menu item that management intends to give each customer in return for the fixed selling price identified in the menu. It is possible and desirable for management to establish these fixed quantities in very clear terms. There are many devices available to help the foodservice operators standardize portion size. Among the common are scoops, ladles, portion scales, and measuring cups to name a few.

Standard portion sizes help reduce customer discontent, which should be viewed as a major cause of customer loss and lost sales. If standard portion sizes are established and served, no customer can compare his or her portion with another customer.

Standard portion sizes help to eliminate dislike between production and service staffs, which can lead to delays in service if portioning are left to the whims of the production staff. It can also help to reduce excessive costs.

Once standard portion sizes have been established for menu items, it is obviously important to see that each person producing portions of a given item knows the correct portion size of the item. Every item on a menu can be quantified in one of the three ways: by weight, by volume, or by count.


Weight is normally expressed in ounces (grams), is frequently used to measure portion sizes for a number of menu items. Meat and fish are two of the most common. Vegetables, particularly those purchased frozen, are commonly portioned by weight as well.


Volume is used as the measure for portions of many menu items. Liquids are commonly portioned by volume expressed as liquid ounces (milliliters).


Count is also used by foodservice operators to identify portion size. Examples of food portioned by count are bacon, link sausage, eggs, chops, shrimp and asparagus. Some foods are purchased by count, and this play a major role in establishing portion size. For example, shrimp are purchased by number per kilogram and then portioned by number per shrimp cocktail (4 or 5 in one order).

Standard Recipes

Another important production standard is the recipe. A recipe is a list of the ingredients and the quantities of those ingredients needed to produce a particular item.

A standard recipe is the recipe that has been designated the correct one to use in a given establishment. Standard recipes help to ensure that the quality of any item will be the same each time the item is produced. They also help to establish consistency of taste, appearance, and customer acceptance.

In many operations, these standard recipes are written or printed on cards to be used by kitchen workers. They are made available to any workers responsible for producing menu items.

Standard recipes are also very important to food control. Without standard recipes, cost cannot be controlled effectively. If a menu item is produced by different methods, with different ingredients, an in different proportions each time it is made, costs will be different each time any given quantity is produced. Once standard recipes and standard portion sizes are established and steps are taken to ensure that personnel follow the standard preparation and portioning procedures, standard costs for portions can be developed.

Standard Portion Cost

A standard portion cost can be calculated for every item on every menu, provided that the ingredients, proportions, production methods, and portion sizes have been standardized. Calculating standard portion cost merely requires that one determine the cost of each ingredient used to produce a quantity of a given menu item, add the costs of the individual ingredients to arrive at a total, and then divide the total by the number of portions produced.

However, there are several techniques of doing this. It must be understood that portion cost is only a planned portion cost or calculated cost. It may differ from the real cost which is subject to the production employee preparation method. For example, if a production employee gives 7 shrimps instead of 5 shrimps, which is called by the standard recipe, then cost will go up. Likewise, if the employee gives 3 instead of 5, then cost is lower than the portion cost.

Calculated or planned cost is best known by the term standard portion cost. Standard portion cost is defined as the dollar amount that a standard portion should cost, given the standards and standards procedures for its production. The standard portion cost for a given menu item can be viewed as budget for the production of one portion of that item. There are several reasons for determining standard portion costs.

The most obvious is that one should have a reasonably clear idea of the cost of a menu item before establishing a menu sales price per item. For control purpose, there are additional reasons, including the need to make judgments in the future about how closely real or actual costs match standard costs, as well as the extent to which operating efficiency can be improved.

Calculating Standard Portion Cost

There are several methods for calculating standard portion costs:

  • Formula
  • Recipe detail and cost control
  • Butcher test
  • Cooking loss test


Portion cost can be determined using the following formula:

Std. Portion Cost = Purchase Price Per Unit * Portions Per Unit

This simple formula can also be used to find standard cost for each of the additional items in a standard meal. The sum of the standard costs of the individual items will thus be the standard cost for the standard meal.

Recipe Detail and Cost Card

For menu items produced from standard recipe, it is possible to determine the standard cost of one portion by using a form known as a recipe detail and cost card. A standard recipe yields a predetermined number of standard portions. Thus it is possible to determine the standard cost of one portion by dividing the number of portions produced into the total cost of preparing the recipe.

To find the total cost, one lists each ingredients and quantity from the standard recipe on the recipe detail and cost card and then multiplies the quantity of each ingredient by the unit cost for that ingredient. In the example given, the second ingredient is ½ pound of shrimp. If 1 pound costs RM12.30, then ½ pound costs RM6.15; that figure is entered in the column on the right headed “extension’.

For inexpensive ingredients used in small quantities such as “a pinch of salt”, it is not worthwhile to calculate the actual value. Such ingredient, the figure entered is some token amount, usually more than enough to cover the cost. When fresh meat, poultry, or fish is used, it is sometimes necessary first to follow certain procedures involving butcher tests, cooking loss tests, or both of these, to determine ingredient costs.

Once the cost of each ingredient has been established, the total cost of preparing the recipe is determined by adding the costs of the individual ingredients. This total, divided by the number of portions produced (called yield), gives the cost of one standard portion.

Butcher Test

When meat, fish, and poultry are purchased as wholesome cuts, the purchaser pays the same price for each and every pound of the item purchased, even though, after butchering, the resulting parts may have entirely different values.

A butcher test is usually performed under the supervision of a manager, chef, or food controller, who would ask a butcher to assist in testing a particular item. The butcher uses his or her special skills to break the item down into its respective parts, keeping the part separate so that they can be weighed. As the butcher prepares to begin, the other individual records some basic information about the item being tested at the top of the butcher test card. Butcher test however is seldom being practiced today, as there are ample suppliers that supply primal cuts.

Cooking Loss Test

The primary purpose for the cooking test is the same as that for the butcher test: determining standard portion cost. The cooking loss test is used for those items that cannot be portioned until after cooking is complete. With this one must take into account the weight loss that occurs during cooking. Therefore, one cannot determine the quantity remaining to be portioned until cooking is completed and portionable weight can be determined. Cooking loss varies with cooking time and temperature, and it must be taken into account in determining standard portion costs. Cooking test is best illustrated in the following manner:

  • (OW) Original Weight
  • (TW) Trimmed weight
  • (LT) Loss in trimming
  • (CW) Cooked weight
  • (LC) Loss in cooking
  • (BT) Bones and trim
  • (SW) Salable weight

Trimmed weight is the weight remaining after the meat is made free from unnecessary parts, primarily fat and bone. Loss in trimming is the total amount of unnecessary parts removed to make the meat trimmed (Original weight – Trimmed weight). Cooked weight is the weight after the meat has been cooked. Loss in cooking weight is the total amount of weight that is loss during the cooking process (Trimmed weight – Cooked Weight).

Salable weight is the nett weight of the meat that can be use to sell to customer. It is the weight where unusable parts such as bones and fats are removed. Bones and trim are the total amount of weight of removed unusable parts (Cooked Weight – Salable Weight).

Using Yield Percentages

The yield percentage (or yield factor) is defined as the percentage of a whole purchase unit of meat, poultry, or fish that is available for portioning after any in-house required processing has been completed.

This percentage is calculated by dividing the portionable weight by the original weight of the purchase unit before processing. This calculation can be found both in butcher test and cooking loss test under the “Ratio to Total Weight.”

Once the yield percentage has been determined, it can be used for the purpose of quantity calculations. The general formula for these is:

Quantity = [No. of Portions x Portion size (as decimal)] Yield %

As an example to show how this calculation work, we assume that we need to feed 32 people with each person getting a 4-ounce portion of roast lamb. Our yield percentage based on cooking loss test is 47.1% or 0.471. Hence, we would calculate as follow:

Quantity = [32 portions x 0.25 (4 oz. as decimal)] *0.471 Yield %

Quantity = 16.985 lbs., rounded to 17 lbs.

To check for calculation accuracy, we need to refer to the sample of cooking loss test card where given similar legs of lamb, one can see that each leg would produce 16 portions, because each portions weight ¼ of a pound and there are 4 pounds of salable meat. One can also see that if we need 32 portions then 2 legs of lamb of the same size are needed to produce this quantity.

As with any formula, it is possible to solve for any one of the terms, provided the other three are known. Thus given quantity, portion size, and yield factor, one could determine the number of standard portions that should be produced from given quantity. Or, given quantity, number of portions, and yield factor, one could determine the portion size that should be served to feed a given number of people with a given quantity of meat. The following are three variations on the basic formula:

No. of portions = (Quantity x Yield %) ÷ Portion Size

Portion Size = (Quantity x Yield %) ÷ No. of Portions

Yield % = No. of Portions x Portion Size x 100 Quantity

Weights and Measures


1. In each of the following case, determine selling price for 1 portion of a recipe yielding 30 portions, when standard recipe cost and desired cost-to-sales ratio are indicated in the following table:

Recipe CostCost percent for one portion

  • a. RM55.2530.0%
  • b. RM22.5818.0%
  • c. RM124.5045.0%
  • d. RM105.0021.0%
  • e. RM12.6040.0%

2. The steward of Phil’s Restaurant uses specifications to purchase oven-ready legs of lamb, U.S. Choice. They are used to produce 7-ounce portions of roast lamb. Over a period of several weeks, records were kept of the original weights, cooked weights, and salable weights of 15 legs selected at random from the total number purchased. These records are summarized as follows:

  • Original weight (15 pieces): 135 lbs
  • Cooked weight: 120 lbs
  • Salable weight: 75 lbs

  • a. Using the preceding data, complete cooking loss test calculations for the 15 legs of lamb to determine yield factor and standard cost of the 7-ounce portion.
  • b. Find the cost of the standard 7-ounce portion at each of the following dealer prices:
    • 1. RM22.50 per lb.
    • 2. RM24.90 per lb.
    • 3. RM18.90 per lb.

  • c. Find the cost of each of the following:
    • 1. A 6-ounce portion, if dealer price is RM21.90 per pound.
    • 2. A 5-ounce portion, if dealer price is RM22.90 per pound.

  • d. How many average size legs of lamb should be purchased to serve 6-ounce portions to 270 people?
  • e. Last month, this restaurant used 82 legs of lamb. How many standard 7-ounce portions should have been produced from these 82 legs?
  • f. If standard portion size had been 6 ounces, how many portions could have been produced from the 82 legs of lamb used last month?
  • g. The restaurant has only 30 legs of lamb on hand today, and these must be used for a banquet function tonight for 350 people. What size portion should be served?

Chapter 6 – Food Production Control 2 (Quantities)

Establishing Standards and Standard Procedures

The standard for controlling production volume is to determine and produce, for any menu item, the number of portions that is likely to be sold for any given day. It is essential that foodservice establishment know this number with some reasonable degree of accuracy so that intelligent plans can be made for purchasing and production. Failure to set up procedures for establishing this need can lead to excessive purchasing, with its obvious implications for cost.

To achieve any aim, it is necessary to establish appropriate procedures. To control production volume, several standard procedures are required:

  • Maintaining sales history
  • Forecasting portion sales
  • Determining production quantities

Maintaining Sales History

A sales history is written record of a number of portions of each menu item sold every time that item appears on the menu. It is a summary of portion sales. In some establishments, sales histories are maintained for every item on the menu. In others, the only records kept are for entrées items.

In many instances, the extent and complexity of the sales history is related to length and scope of the menu itself. The best decisions on the nature of the sales history are based on the need for information that can be used to improve operations. Because a sales history records customers’ selections, those who record these selections: the sales staff or servers gather the basic information.

There are two methods used for recording customers’ selections: manual and electronic. Regardless whether the establishment is using manual or electronic, sales history information is likely to be arranged in one of the three ways:

  • o By operating period i.e. weekly, monthly
  • o By day of the week
  • o By entrée item

Many have found it desirable to combine two of these three systems to provide an overall picture of sales for the entire week at one glance.

Electronic Method

Electronic terminals are becoming more common in foodservice establishments everyday. Some interface with complex computer systems, and others are little more than electronic versions of the old mechanical cash registers. A number of these have the capacity to maintain cumulative totals of the numbers of portions of menu items sold.

Other Information in Sales History

Sales histories often include provisions for recording additional relevant information – internal and external conditions that may shed light on sales data. One of the most common of these conditions is weather. Most foodservice operators find that weather conditions have a noticeable impact on sales volume. By including weather information, it can at least help to explain why sales were high or low on that day.

Other conditions that can be useful to be included are special events and internal conditions i.e. faulty equipment that may have prevented the establishment from producing the menu item.

Popularity Index

In addition to keeping records of numbers of portions sold, many foodservice operators use the date to determine a popularity index. A popularity index is defined as the ratio of portion sales for a given menu to total portions sales for all menu items. The popularity index is calculated using the following formula:

PI = PS Item A ÷ Total PS All Menu Items
PI – Popularity Index * PS – Portion Sales

These ratios are of far greater use in determining the following:

  • An item’s popularity
  • To predict future sales
  • To determine whether to continue offering the item in the future.

Forecasting Portion Sales

Sales forecasting is a process in which managers use data and intuition to predict what is likely to occur in the future. Forecasting is a principal element in cost control. If sales can be predicted accurately, then plans can be made for purchasing appropriate quantities of food to prepare for anticipated sales.

The usual steps involved in forecasting are as follow:

  • To predict total anticipated volume: total number of customers anticipated for particular days or particular meals.
  • To judge the extent to which additional conditions i.e. weather, special events, will exist and affect sales on the particular day.
  • To forecast the anticipated number of sales of each item on the menu.

Forecasting is educated guesswork, and two heads are usually better than one. Completed forecast represents management’s best judgment of the sale volume anticipated and should be shared with appropriate personnel.

Determining Production Quantities

Production Sheet

A production sheet is a form on which one lists the names and quantities of all menu items that are to be prepared for a given date. It translates management’s portion sales forecasts into production targets.

The production sheet is best viewed as a tool used by management to control production and eliminate waste. Production sheets vary in form and complexity from one establishment to another. It would be filled out by a manager and forwarded to the chef as many days in advances as possible. Upon receipt of this sheet by the chef, the chef would be better equipped to determine needs for perishables and non-perishables foods, which would be requisitioned from the storeroom.


1. Compute the popularity index for the following sales. Round each percentage to the nearest 1 percent.

a. Item Portion sold

  • A60
  • B20
  • C80
  • D40

b. Item Portion sold

  • A30
  • B42
  • C73
  • D115

c. Item Portion sold

  • A86
  • B113
  • C55
  • D44
  • E25

2. Using the popularity indexes in Question 1a, predict the sales for each item if total sales for all items are expected to be 300.

3. Using the popularity indexes in Question 1b, predict the sales for each item if total sales for all items are expected to be 150.

4. Using the popularity indexes in Question 1c, predict the sales for each item if total sales for all items are expected to be 450.

Chapter 7 – Monitoring Foodservice Operations 1

Taking Physical Inventory

In most business establishments, including food and beverage operations, taking physical inventory is a universally accepted practice. Physical inventory is taken at the close of an accounting period, typically after the close of business on the last day of a calendar month.

Taking physical inventory requires counting the actual number of units on hand of each item in stock and recording that number in an appropriate place. The purpose of this process is to provide a list of goods on hand so that the value of the goods may be determined and recorded.

Physical inventory may be recorded in an inventory book, or in some other type of permanent business records. It is normally considered good practice to list the items in stock in a book set up for that specific purpose and list them in the same order in which they are maintained in stock. Once the units in inventory have been counted and the count has been recorded, total values can be determined for the items listed. To determine these totals, one records the unit cost of each product and multiplies it by the number of units of that product in the physical inventory.

When the total value of each product has been determined this way, the totals are added to find the total dollar value of all items in the inventory. This figure, known as closing inventory for the period, automatically becomes the opening inventory for the next period.

Valuing the Physical Inventory

There are at least 5 possible ways of assigning values to units of product in a physical inventory. For the purpose of understanding the 5 methods of assigning values, the discussion is restricted to only one item in the stores inventory as listed below.


A physical inventory on the 31st of the month showed that 20 cans remained in stock. From this information, one can deduce that 50 cans were consumed during the month, as follows:

  • Opening Inventory 10 cans
  • + Purchase during the month60 cans
  • = Total Available70 cans
  • – Closing Inventory20 cans
  • = Units Consumed50 cans

Because both the value of the opening inventory (RM59.00) and the value of the purchases (RM372.00) are known, one can add the two values to determine the value of the total number of units available – RM431.00. It should be obvious that one can determine the value of the units consumed only by determining the value of the units in the closing inventory and then subtracting it from the value of the total available. The following are 5 accepted methods for assigning values to units of the product inventory.

Actual Purchase Price Method

Perhaps the most reasonable unit value to assign to the items in the closing inventory is their actual purchase price. However, this can be done only if those prices are marked on the units. Assuming the cans are marked with purchase prices indicated in the following list, the value of the 20 cans can be determined as follows:

  • 4 RM5.90= RM23.60
  • 12 RM6.20= RM74.40
  • 4 RM6.30= RM25.20
  • 20 = RM123.20

However, if the actual purchase price were not marked on the cans, an alternative procedure would be required.

First-in, First-out Method (Latest Prices)

An alternative procedure is to assume that stock has been rotated properly during the period, so that the units consumed were the first to be placed on the shelf. In that case, those remaining on the shelf are those most recently purchased (first-in, first-out method).

To establish the value for the units in closing inventory using this method, it is necessary to know that the latest purchase on the 26th of the month was 12 cans and the next previous purchase on the 15th was 24 cans. With that information available, it is possible to determine the value of the 20 cans as:

  • 12 RM6.20= RM74.40
  • 8 RM6.30= RM50.40
  • 20=RM124.80

However, without some assurance that the stock on the shelves has been properly rotated during the month, this procedure may lead to inaccurate valuation. After all, it is based on an assumption about rotation that may not be valid.

Weighted Average Purchase Price Method

If there is no assurance that the stock has been properly rotated and if large quantities of goods are involved, this method offers a reasonable alternative. One can determine a weighted average purchase price by multiplying the number of units in the opening inventory and in each subsequent purchase by their specific purchase prices, adding these values to determine a grand total for all units together, and then dividing this grand total by the total number of units. By following this procedure, the weighted average value of one unit can be determined by dividing 70 units into the RM431.00 total value. The result is a weighted average value of RM6.16. Using that figure, the value of the closing inventory is:

20 RM6.16=RM123.20

This method is seldom used in food and beverage operations.

Latest Purchase Price Method

A simpler, faster, and more widely used approach is to use the latest purchase price method for valuing the closing inventory. A justification for this approach is that if it were necessary to replace the remaining cans, the cost of replacement at the present moment would likely be the latest price, which the items were purchased.

If this method is followed, as it frequently is in the food and beverage business, the value of the closing inventory of this item will be:

20 RM6.20=RM124.00

Last-in, First-out Method (Earliest Prices)

In certain special circumstances (when tax rates or inflation rates are particularly high, for example), management may choose to minimize profits on financial statements in order to decrease income taxes. To minimize profits, one might seek to maximize cost by minimizing the value of the closing inventory.

Doing this in periods of rising prices is easy: One merely values the units in the closing inventory by using the earliest purchase prices (last-in, first-out method). If this method is used, the value of the 20 cans would be:

  • 10 RM5.90= RM59.00
  • 10 RM6.10= RM61.00
  • 20 = RM120.00

One should keep in mind that managers and food controllers do not normally determine the method to be used in valuing inventories. Although they may be asked to contribute to the discussion of which method to use, an accountant will probably make the decision.

Comparison of Methods

If the prices of goods purchased were fixed, the selection of method for valuing a closing inventory would be of no importance: all methods would yield the same figure. However, in times of fluctuating prices, which, after all, describes most times in the food and beverage business, the selection of one method over another may be considerable significance.

A comparison of values of the 20 cans in closing inventory describe earlier illustrates the point:

  • 1. Value based on actual purchase price method: RM123.20
  • 2. Value based on first-in, first-out method: RM124.80
  • 3. Value based on weighted average method: RM123.20
  • 4. Value based on latest purchase price method: RM124.00
  • 5. Value based on last-in, first-out method: RM120.00

Using the lowest value, RM120.00, as base, there is a difference of 4% between the highest value and the lowest value established for these 20 cans. Although the dollar differences for this single inventory item do not appear significant, the difference can be quite large if one is dealing with an entire inventory. For example, for an inventory that is valued at RM10,000.00, a 4% differential amounts to RM400.00

Monthly Food Cost Determination

At this point, it is possible to turn the attention to the monthly food cost and food cost percent. The procedures discussed in this section are applicable to any foodservice enterprise, regardless of its size or the nature and complexity of control procedures in effect. The cost of food sold for any month is determined by means of the following formula:

  • Opening Inventory
  • + Purchase
  • = Total Available
  • – Closing Inventory
  • = Cost of Food

Once food cost for a given period has been determined, food cost percent may be calculated. The formula for calculating food cost percent is as follow:

(Cost ÷ Sales) x 100 = Cost % 


Given the following information, find cost of food:

  • Food Sales: RM115,000
  • Food Purchases: RM 44,000
  • Closing Inventory: RM 20,000
  • Opening Inventory: RM 20,000
  • Opening InventoryRM15,000
  • + Food PurchaseRM44,000

Total Available RM59,000

  • – Closing InventoryRM20,000
  • = Cost of FoodRM39,000

(RM39,000 ÷ RM115,000) x 100 = 33.9% 

Saying that food cost percent is 33.9% is the same as saying that the cost of food has been RM.339 per dollar sale. At this point, it is important to recognize that, although the RM39,000 figure is the cost of food, it is really the cost of food issued.

This is not necessarily the same as the cost of food consumed. Determining the cost of food consumed may require that the cost of food issued be adjusted to account for a number of possible alternative uses of the food issued.

Adjustment to Cost of Food Issued


If there have been any transfers between the kitchen and the bar, adjustment must be made to take the value of the transfers into account. Similarly, if there have been transfers from units in a chain to other units in the same chain, these must be totaled and used to adjust the cost figures of all units concerned. There are various kinds of transfers, which include:

  • Intraunit transfer where those occurring within a given property include:
    • Transfer of alcoholic beverages from bar to kitchen, used in food preparation. The term cooking liquor is commonly used to refer to these items.
    • Transfer of directs from kitchen to bar, where they will be used in drinks preparation. The term food to bar (directs) is often used for these items.

  • Interunit transfers where those between properties in a chain may involve any foods or beverages.

Grease Sales

In many foodservice operations, particularly those that still butcher their meats on premises, raw fat is one of the normal by products of kitchen operation. Most keep this raw fat under refrigeration until disposing of it – grease sales. For some, this means selling it to rendering companies, which convert it to industrial fats and oils. The sale of this fat at a small value per pound results in the revenue recorded as “Other Income – Salvaged and Waste Sales.” As such, it is treated as credit in determining food cost.

Steward Sales (Staff Sales)

In some establishment – primarily large hotels and a very few restaurants – employees may be permitted to purchase food at cost and take it from the premises for their own personal use (Steward Sales). In those properties that permit steward sales, the amounts paid by employees are customarily treated as credits to cost rather than as revenue. In other words, steward sales are similar to reimbursement; they are considered cost reductions rather than revenue increases.

Gratis to Bar

In many establishments, the kitchen staff is expected to produce various hot and cold hors d’oeuvres that are given free to customers at the bar (Gratis to Bar). Because the purpose of this practice is to promote beverage sales, it seems logical to include the cost of the hors d’oeuvres in the cost of operating the beverage department. To do this, one must first adjust food cost by subtracting the value of the hors d’oeuvres, usually an estimated value, prepared for the bar.

Promotion Expense (Officer’s Check – OC)

In many properties, owners or managers entertain potential customers who are thought likely to bring in banquet business. In large hotels and other properties that depend on conventions and group bookings for a major part of their revenue, sales managers, marketing directors, catering managers, banquet managers, and other sales personnel routinely entertain potential clients.

They may invite potential clients for lunch or dinner where the guest check will be recorded but not included in the sales of the food outlet. This cost will be recorded as cost of operating a sales, banquet, or marketing department. To do this, one must first adjust food cost by subtracting the value of the food. Thus management may credit food cost for the value of foods consumed for these purposes and charge the cost to another account, such as promotion expense.

Determining Cost of Food Consumed

If some or all of the adjustments described in the preceding sector are taken into account, the monthly determination of cost of food consumed is determined as follows:

  • Opening Inventory
  • +Purchases
  • = Total Available for Sale
  • – Closing Inventory
  • = Cost of Food Issued
  • + Cooking Liquor
  • + Transfers from Other Units
  • – Food to Bar (Directs)
  • – Transfers to Other Units
  • – Grease Sales
  • – Steward Sales
  • – Gratis to Bar
  • – Promotion Expense
  • = Cost of Food Consumed

However, although this procedure does enable management to determine a food cost figure that is more accurate than one that ignores the possible need for adjustments of various kinds, it is still not sufficiently accurate for some establishments.

In many operations, meals are provided on the premises for employees as a matter of course. Typically, employees are not charged for the food they consumed. Therefore, to determine a more accurate figure for food cost (cost of food sold), one must subtract the cost of employee meals from the cost of food consumed.

Cost of Employee Meals

There are numerous techniques for determining the cost of employees’ meals. Some are relatively common while others are comparatively uncommon. The four describe here are among those in general use:

  • Cost of Separate Issues. This technique requires that raw materials for employee food be to be requisitioned separately. This makes the task of determining cost easier.
  • Prescribed Amount per Meal Per Employee. A common approach where the chef give employees meals that will cost not more than a specific fixed amount per meal. For example, the fixed amounts established for meals may be RM1.50 for breakfast, RM2.50 for luncheon, and RM3.50 for dinner. A procedure is established to keep daily records of the number of employees consuming each of these meals. These totals are added to cumulative figures for the period.
  • Prescribed Amount Per Period. Because some find it difficult to keep records of the number of employees consuming meals each day, there is a technique that requires no such records. Management simply informs the chef of a fixed amount that will be credited to food cost for employee meals for each period, regardless of the number of employees who actually have meals on the premises. It is then up to the chef to estimate the number who will eat and either prepare the food that will not exceed the cost guideline or offer employees food prepared for customers that does not exceed this permissible cost.
  • Sales Value Multiplied by Cost Percent. Another technique requires that each employee who eats record the selections on a check. This may or may not be the same as the guest check used in the dining room. The menu price is recorded next to each selection. The check is totaled, but employee is not asked to pay for it. The checks are totaled at the end of the period. This grand total is then multiplied by the average food cost percent in recent periods to arrive at a reasonable cost figure for employee meals for that period.

By means of these or other alternative techniques, it is possible to arrive at a reasonable figure for the cost of employee meals.

Determining Cost of Food Sold

Once the total cost of employees’ meals for a period has been established, the figure should be subtracted from the cost of food consumed to determine the cost of food sold. This procedure provides a final figure that should be used for calculating food cost percent (the cost-to-sales-ratio) and for evaluating performance. Using all of the preceding adjustments, the calculation of cost of food sold for the month, the previous procedure will be applied:

  • Opening Inventory
  • + Purchases
  • = Total Available for Sale
  • – Closing Inventory
  • = Cost of Food Issued
  • + Cooking Liquor
  • + Transfers from Other Units
  • – Food to Bar (Directs)
  • – Transfers to Other Units
  • – Grease Sales
  • – Steward Sales
  • – Gratis to Bar
  • – Promotion Expense
  • = Cost of Food Consumed
  • – Cost of Employees’ Meals
  • = Cost of Food Sold

When everything has been accounted and adjusted properly, then it is safe to say that the food cost for the establishment is accurate.

Reports to Management

Once cost of food sold and food cost percent have been calculated, they are normally reported to management. The nature of the report must be determined individually for each establishment or unit in a chain. That will be based on management’s need for information, as well as the availability of the information.

If the food control system is extensive and complex, more detailed information is likely to be available. When it is, management is more likely to be better informed and thus better equipped to make decisions. Reports to management should always be based management’s need for specific information, rather than on the availability of a particular form.

If no appropriate form can be obtained, it is very easy to devise one that will meet the need for specific information in a particular establishment. The form illustrated in Figure 17 is one of the simplest that can be devised for a report to management.

In foodservice, cost percent is often used as a means for monitoring operations and judging the effectiveness of control procedures. Managers routinely compare cost percent for one period with cost percent for another.

If the course percent for a current month is approximately the same as it has been in other recent months, it is likely that cost percent for the current month will also be judge acceptable, provided that cost percent in those recent months was judge acceptable and there have been no major changes in menu, purchases prices, or any of the other principal factors affecting food cost or food sales. However, if there have been no such changes, yet cost percent for the current month is considerably higher or lower than in the recent past, management will normally want to identify the reasons for the change. Once reasons are known, action can be taken aimed at ensuring or preventing their recurrence, depending on whether the current cost percent has been judge acceptable.

Reading operating figures and comparing them are often done to determine the position of the establishment. The more frequently these readings are done, the closer the establishment is likely to stay on its original course. Ideally, the readings used to monitor the progress of a foodservice operation will be both frequent and timely.

For large numbers of foodservice managers, monthly food cost and food cost percent are not truly useful for monitoring foodservice operations, because they fail to meet two important criteria: 1. Frequency. In foodservice, many managers believe that monthly ‘readings’ on the course of business are not frequent enough. A foodservice operation can stray quite far off course in one month. If that occurs, considerable difficulty and expense may be required to bring it back on course. Readings taken more frequently (daily
or weekly) provide managers with information that can be used to make course corrections during the current period.

2. Timeliness. The second important consideration is that information must be timely. A problem with relying exclusively on monthly figures for food cost and food cost percent is that they are not timely. That is, they do not become available until it is too late to determine the cause or causes of unacceptable results. One cannot normally look back over a period of three to four weeks to find explanations let alone remember what happened. And when causes cannot be identified accurately, taking corrective action may be impossible. In addition, even monthly figures do enable one to identify causes and take corrective action that corrective action cannot possibly have any positive effects on the past month. It is clearly too late for that.

Because of the difficulties inherent in relying on monthly figures alone, many food service managers prefer to have food cost, food cost percent, and other operating figures calculated much more frequently (daily or weekly). Daily or weekly calculations make it possible to prepare daily or weekly reports. The manager who can identify a problem that occurred yesterday has a better chance of identifying its causes and taking corrective action immediately. It is much easier to identify causes when time span between the occurrence of a problem and its identification is minimal.

In general, the more frequent the reports and the more detailed the information they include, the better will be the opportunities they offer management to maintain control over operations and to ensure that the results conforms to plans.

Inventory Turnover

It should be obvious that foodservice managers are responsible for ensuring that sufficient supplies of appropriate foods are available for use when needed. At the same time, they are expected to prevent the accumulation of excessive quantities of foods. The stockpiling of quantities greater than
needed can lead to any of a number of significant problems, including:

  • 1. Excessive food costs due to the spoilage of food stored too long. 2. Excessive amounts of cash tied up in inventory.
  • 3. Excessive labor costs to receive and store foods.
  • 4. Excessive space required for storage.
  • 5. Unwarranted opportunities for theft.

It is impossible to establish any valid industry-wide standards for the foods, the number of units of those foods, or the valuation of food that should be on hand in a foodservice operation. The particulars vary from one operation to another and are likely to be related in such considerations as menus, differences in size, sales volume, and financial health, among others.

A technique commonly used to evaluate the adequacy of a food inventory is to calculate how often that inventory has been used and replenished during an accounting period. This frequency varies from one establishment to another and is influenced by many factors. For most foodservice operations, an amount sufficient to last one or two weeks is considered normal, and this range will be used as a guide in this chapter.

To measure how often a food inventory has been consumed and replenished during an accounting period, food service managers calculate a figure known as inventory turnover, or the rate of inventory turnover. It is important to realize that not every item in the inventory turns over exactly twice during a period. Some items in an inventory is likely to turn over more frequently than twice a month, whereas others may turn over much less frequently.

Inventory turnover rate is calculated by means of the following formulas:

Average Inventory = (Opening Inventory + Closing Inventory) 2 

Inventory Turnover = Food Cost ÷ Average Inventory 

Using three figures listed below, one can now determine inventory turnover:

  • Opening inventoryRM 15, 000.00
  • Closing inventoryRM 20, 000.00
  • Food costRM 37, 380.00

Next, one substitutes these figures in the formulas provided, as follows:

  • Average Inventory = RM15,000.00 + RM20,000.00 * 2
  • Average Inventory = RM17,500.00
  • Inventory Turnover = RM37,380.00 |RM17,500.00
  • Inventory Turnover = 2.14

If the rate is the same each month, the inventory turnover rate for the year will be 25.63 times, or once every 2.029 weeks, about the same as the guide indicated earlier – once every one or two weeks.


1. The following figures for November have been taken from the financial records of three units in the Pasta Pit Chain. Determine total food issues for each.

  • a. Opening inventoryRM15000.00
    Closing inventoryRM17220.00
  • b. Closing inventoryRM120830.00
    Opening inventoryRM103710.00
  • c. PurchasesRM658510.08
    Closing inventoryRM183350.15
    Opening inventoryRM198740.77

2. Given the following figures for three units in a chain of restaurant operated under the name Valerie’s Kitchen, calculate cost of food issued and cost of food consumed for each.

  • a. PurchasesRM8300.00
    Opening inventoryRM2688.00
    Closing inventoryRM2540.00
    Grease salesRM76.00
    Cooking liquorRM94.00
    Gratis to barRM119.00
  • b. Food to bar (directs)RM189.00
    Closing inventoryRM6647.00
    Transfer to other unitsRM339.00
    Steward salesRM53.00
    Transfer from other unitsRM223.00
    Opening inventoryRM6531.00
  • c. Opening inventoryRM6622.00
    Transfer from other unitsRM47.35
    Closing inventoryRM6719.00
    Transfer to other unitsRM347.60
    Food to bar (directs)RM337.40
    Grease salesRM91.85
    Gratis to barRM177.35

3. For each of the following, determine cost of employees’ meals. a. In the Meal Mall, employees were served 337 lunches and 381 dinners in March. Food cost is credited RM0.70 per meal for lunch and RM1.10 per meal for dinner. b. In Nora’s Restaurant, employees are required to record their food selections on checks and to enter the menu price. The total sales value of employees’ meals in September was RM7826.95. In recent months, food cost percent in September has averaged 35 percent. c. In Edi’s Pub, the chef was directed to prepare food for employees at a cost not exceed RM25.00 per day, regardless of the number of employees fed. In February, the restaurant was open six days per week, but closed on Mondays.

4. Given the following figures from the financial records of three units in a small restaurant chain in Orange County, determine the cost of food sold for each.

  • a. Cooking liquor RM210.50
    Steward sales RM27.58
    Purchases RM12339.42
    Food to bar (directs) RM201.38
    Gratis to bar RM267.50
    Grease sales RM95.60
    Closing inventory RM4278.37
    Opening inventory RM4031.19
    Employees’ meals:
    328 lunches RM0.65 each
    449 dinners RM0.95 each
  • b. Closing inventory RM3427.30
    Grease sales RM92.60
    Purchases RM11230.45
    Opening inventory RM3012.80
    Transfers from other units RM128.65
    Cooking liquor RM298.40
    Gratis to bar RM427.80
    Food to bar (directs) RM312.45
    Transfer to other units RM155.75
    Employees’ meals:
    RM2576.45 sales value; recent
    average food cost percent: 34.0%
  • c. Purchases RM 68543.36
    Promotion expenses RM 81.17
    Grease sales RM 167.42
    Closing inventory RM20963.71
    Gratis to bar RM58.73
    Transfers from other units RM637.38
    Food to bar (directs) RM296.35
    Opening inventory RM22687.40
    Transfers to other units RM784.29
    Cooking liquor RM543.18
    Employees’ meals:
    Executives: RM1833.75 sales value;
    recent average food cost percent: 31.0%
    Other staff: 1422 breakfasts RM0.55
    1208 lunches  RM0.80
    1012 dinners  RM1.05

5. Using the figures for cost of food sold determined in Question 4, calculate food cost percent and food cost per dollar sale for each of the here restaurants, given the following sales figures:

  • a. RM26173.55
  • b. RM25819.45
  • c. RM191405.95

6. The following information about one of the items carried in the food inventory of the Yellow Dog Restaurant is taken from inventory records for the month of January.

  • 1/1 Opening inventory 12 units RM1.05 each
  • 1/5 Purchased 18 units RM1.15
  • 1/12 Purchased 18 units RM1.20
  • 1/19 Purchased 12 units RM1.30
  • 1/26 Purchased 6 units RM1.40

On January 31, the physical inventory indicated nine units remaining on the shelf. Determine both the value of the closing inventory and the cost of units issued, using the following methods:

  • a. Actual purchase price method
  • 1. 6 units with price tag of RM1.40
  • 2. 3 units with price tag of RM1.30
  • 3. First in, first out method
  • 4. Latest purchase price method
  • 5. Weighted average purchase price method
  • 6. Last in, first out method

7. The following information was taken from the May financial records of three restaurants in Springfield. Calculate inventory turnover for each.

  • a. Opening inventoryRM3287.40
    Closing inventoryRM3322.60
    Food costRM13220.00
  • b. Food costRM18448.30
    Opening inventoryRM6327.65
    Closing inventoryRM6581.75
  • c. Closing inventoryRM21971.38
    Food costRM67346.93
    Opening inventoryRM23168.49

8. Determine inventory turnover for each of the three units in the Orange County chain identified in Question 4, using the information provided and the cost of food sold figures you calculated.

Chapter 8 – Monitoring Foodservice Operations 2

Determining Daily Food Cost

It is possible to determine daily food cost for any operation if certain procedures discussed in previous chapters are used. Because all foods can be categorized as either directs or stores in food control, the total costs for these two are the two basic components of the daily food cost.

As discussed in an earlier chapter, directs are charged to food cost as received. Therefore, to determine food cost for any given day, one must know the total of directs received on that day.

In contrast, stores purchases are added to inventory and charged to the food cost when issued. Therefore, one must determine the value of stores issued on a given day, each day, to obtain the second principal component of food cost for that day. If all foods issued from inventory are listed on requisitions, the determination is not difficult.

In operations where transfer are made between the food and beverage departments, or between units in a chain organization, or where various adjustments discussed in the previous chapters are used, values for these should be determined daily and taken into account as well.

Thus, the daily cost of food can be determined in the following way: After determining daily food cost, the next step is to obtain a daily sales figure, usually from accounting records. When both food cost and food sales figures are known, a daily food cost percent can be determined.

Food Cost ÷ Food Sales = Food Cost % 

By itself, the daily food cost percent for any one day may not be a very accurate figure. For example, many restaurants purchase directs every other day, and this will affect daily food cost, making it artificially higher on the days when directs are received and charged to food cost and correspondingly lower on the other days. In addition, some foods may be issued from stores one or more days before they will be used. Salt, flour, and various cooking oils, for example, may be issued to the kitchen once a week to avoid the need for daily requisitioning. In other instances, wholesale cuts of meat may be issued one full day in advance because of the time required for in-house butchering. These and any similar variances will have the effect of raising food cost and food cost percent on the day of issue, because food is not reflected in sales until one or more days later.

To help overcome the problem of artificially high food cost percent one day and low food cost percent the next, most operations also calculate food cost percent to date. Food cost percent to date is defined as the cumulative food cost percent for a period. It takes into account all food costs and all food sales for all days so far in the period. Thus the food cost percent to date on the fourth day of a period is based on the total food costs for the four days and the total food sales for the same four days.

To determine food cost percent to date, one divides cost to date by sales to date:

Food Cost to Date ÷ Food Sales to Date = Food Cost % to Date 

Figure 8.1 is an example pf the types of simple form that can be designed and inexpensively reproduced to give order and continuity to the procedure for determining daily food cost. Figure 8.2 is an example of an alternative form that can be used in establishments that still use meat tags in order to maintain separate figures for meats and other stores. Figure 8.3 illustrates a form in which basic costs have been subdivided into additional categories. The cost for directs, for example, has been subdivided into four categories to provide detailed information about the daily cost of vegetables, fruits, dairy products, and baked goods. Similarly, the cost of meats has been subdivided into four categories to provide additional detail about the daily cost of beef, poultry, provisions, and other meats.

Daily Reports

Using the basic approach to monthly reports discussed in the previous chapter, it is possible to design a report that:

  • 1. Shows food cost, food sales, and food cost percent for any one specific day and for all the days in the period, and
  • 2. Compares these figures to those for a similar period.

Figure 8.4 is an example of a simple report that accomplishes these objectives. This is a basic report that includes daily figures for food cost, food sales, and food cost percent. In addition, the report includes cumulative figures for the period for food cost, food sales, and food cost percent. When information is presented in this way, it is easier to monitor operations – to compare operating results for similar periods and to make judgements about the effectiveness of current operations. If results are judged undesirable or unsatisfactory, causes can be investigated while the events are relatively fresh in the minds of those concerned. In effect, by using readings or sightings taken daily, operational decisions can be made and corrective actions taken to get the operation back on course.

When food costs and food costs percents are determined daily and to date and used as monitoring devices, the effects of these measures can be assessed daily, with the expected effect that by the end of the operating period, costs, will be in line with management’s goals.

Taking intelligent corrective action to eliminate undesirable effects is not possible until causes have been identified accurately. In many smaller operations, it may be possible to go into the kitchen and make complete first-hand investigation of all possible causes. In larger operations, this is not usually the case, as it will take time and effort to do so. Hence, a more complex report is needed in larger operation for this purpose.

This approach is even more useful for localizing problems and for facilitating more focused investigations than may otherwise be possible.

Book Vs. Actual Inventory Comparison

Some foodservice operators also determine what the value of the closing inventory should be, based on records indicating purchases and issues. This is defined as book inventory. Those who determine a book inventory value normally do so to compare it with the actual inventory value. It is possible to determine the closing book value of the stores inventory in establishments that do not determine daily food cost figures, but only if some form of receiving report and daily issue requisitions are used. If so, book inventory value is determines as follows:

Opening Inventory + Purchases = Total Available – Issues = Closing book value of the stores Inventory

Theoretically, the value of the book inventory should be identical to the value established for the physical inventory taken at the end of the month. This is never true, however. There are any numbers of reasons for discrepancy – some normally acceptable; others never acceptable, Discrepancies may be caused by human errors to issuance of stores without requisition form.

Comparing book and actual inventory values at the end of an accounting period can be an important element in the control process. The actual inventory, although necessary for accurately determining cost of food sols at the end of each month so that proper financial statements can be prepared, provides a value that can be compared with the value of book inventory, enabling management to assess the effectiveness of receiving, storing, and issuing procedures.

Significant differences between actual and book inventory figures provide signals that control procedures need investigations.


1. Following the format illustrated in Table 2, use the following information to determine food cost, food sales, and food cost percent today and to date, as well as book inventory balance for Jessie’s Restaurant for the period November 1 to 5. The opening inventory balance for November 1 is RM9330.00

  • 11/1Purchases: directs, RM403; stores, RM736
    Issues: meats, RM320; other stores, RM271
    Sales: RM2241
  • 11/2Purchases: directs, RM261; stores, RM108
    Issues: meats, RM282; other stores, RM183
    Sales: RM2121
  • 11/3Purchases: directs, RM273; stores, RM1463
    Issues: meats, RM491; other stores, RM330; cooking liquor , RM33; food to bar (directs) RM24
    Sales: RM2740
  • 11/4Purchases: directs, RM521; stores RM281
    Issues: meats RM392; other stores RM552
    Sales: RM4063
  • 11/5Purchases: directs, RM334; stores RM372
    Issues: meats, RM751; other stores RM470; cooking liquor, RM19; food to bar (directs), RM29
    Sales: RM4682

2. Use the following information to determine the book value of the stores inventory on the morning of May 6.

3. In each of the following cases, determine the book value of the closing inventory for the month of October.

  • a. Opening inventoryRM3748.00
  • b. IssuesRM44227.60
    Opening InventoryRM15308.70
  • c. PurchasesRM10601.58
    Opening inventoryRM4219.66

4. For each of the following examples, use the following information to find book value of the closing inventory and the dollar difference between book and actual inventory for the month.

  • a. Opening inventoryRM400.00
    Actual value of closing inventoryRM600.00
  • b. PurchasesRM6327.00
    Opening inventoryRM2184.00
    Actual value of closing inventoryRM1912.00
  • c. IssuesRM12395.00
    Opening inventoryRM4129.00
    Actual value of closing inventoryRM2673.47

5. Using the information form each of the examples in Question 6, determine the difference between book and actual closing inventory figures as a percentage of issues.

Chapter 9 – Monitoring Foodservice Operations 3 (Actual versus Standard Food Cost)

Comparing Actual and Standard Costs

In general, there are two methods for comparing actual and standard costs. The first requires daily calculation of standard costs and actual costs for the day and for all the days thus far in the operating period. Daily reports are prepared to compare actual and standard costs to date, and the last of these in a given period is a final summary report for the period.

The second method does not require daily calculations, relying instead on periodic determination of standard costs from records of actual portion sales in the period.

Choosing one method over the other is a matter for the management of any given operation and should be based on the type of menu in effect, management’s need for information, and the availability of personnel to prepare the needed information.

The first method offers the advantage of immediately and all its attendant benefits, but it does require considerable staff time daily. The second method, although saving many hours of staff time, lacks immediacy. Because of the considerable differences in the procedures they require, both methods will be discussed.

Daily Comparison

If standard costs and selling prices for standard portions are known and forecast have been made, it is possible to determine in advance what food cost percent should be. At the end of the day or after the meal, when actual portion sales have been tallied to add to the sales history, this information can be used to determine standard cost and to calculate standard cost percent. In other words, management can use actual sales records to determine what food cost percent should have been. Both of these procedures are accomplished on a form as the Menu Pre-Cost and Abstract, illustrated in Figure 9.1.

Menu Pre-Cost and Abstract

The Menu Pre-Cost and Abstract form is divided into two parts. The section on the left is based on a sales forecast prepared sometime before a day or a meal. The section on the right (shaded area) is completed later, after the day or meal for which the forecast was prepared.

The Menu Pre-Cost and Abstract is usually useful in a number of ways to foodservice operators. It is used to assist management who intends to change or rewrite the menu, as the numbers presented in the abstract area are the representation of the actual customers demand.

If standards are in effect for every item served, if the standard portion cost for every item is known, and if a Menu Pre-Cost and Abstract prepared daily reflects the total menu, it is possible to compare standard and actual food costs daily and to date regularly during an operating period of any given length. Actual food costs are determined from direct purchases and storeroom issues including various adjustments. The standard cost of all the portions sold is taken from the Menu Pre-Cost and Abstract. Food sales figures come from register readings or accounting department records.

Actual cost percent for any given day equals actual cost for that day divided by sales for that day. Actual cost percent to date on any days equals actual cost to date for all the days thus far in the period, divided by sales to date for all the days thus far in the period.

Similarly, standard cost percent for any given day equals standard cost for that day divided by sales for that day. Standard cost percent to date on any day equals standard cost to date for all the days thus far in the period, divided by sales to date for all the days thus far in the period.

Typically, actual cost today and to date is greater than standard cost today and to date. The difference should be regarded either as waste or as equivalent: excessive cost that can be reduced or eliminated if staff performance is improved. The raw dollar figures indicating that excessive costs have developed are not particularly useful for identifying specific causes of inefficiency or other operating difficulties. To determine specific causes, one must find ways to detect the areas in which waste and excessive costs have developed.

Potential Savings

Potential savings may be defined as the difference between actual costs and standard costs. Potential savings may be recorded as dollars, as percentages, or as both. Regardless of which one is used, potential savings must be regarded as reflecting the difference between existing conditions and those that would exist if all standards and standards procedures were followed to perfection. When potential savings figures are available daily and to date during an operating period, it is possible to make daily investigation into the causes of differences between the two.

It will never be possible to eliminate discrepancies between actual and standard costs. Instead, management must make intelligent judgments about the extent to which reductions are possible and must be ready to accept some small discrepancy between the actual and standard costs. There are no industry-wide figures to use as guides. However, once management has established a reasonable figure for the acceptable variance, exceptions can be noted quickly and investigation can begin at once.

Periodic Comparisons

In establishment where daily calculations of standard costs and potential savings are impractical or impossible, it is often possible to adopt an alternative method that relies on periodic calculations for determining potential savings. Like the daily method, the periodic method presupposes that standard and standard procedures have been established for all phases of operation, that sales histories are maintained, and that standard portion costs are known.

Under these circumstances, one can calculate standard cost for a test period (one week, for example) and compare that figure to actual cost for the same period to determine the extent of potential savings. This information can be found in sales history. Standard portion costs are entered as well, derived from records of calculations based on formulas, recipe detail and cost cards, butcher tests, cooking loss yield, and cost factors.

When selecting test periods, it is advisable to select it at random as this will truly represents the actual scenario. This is to avoid employees knowing it in advanced where they would be likely to pay more careful attention to both the standards set by management and their own performance with respect to those standards.

Chapter 10 – Controlling Food Sales

The Goals of Sales Control

In previous chapter, we have defined control as the process used by managers to direct, guide, and restrain the actions of people so that the established goals of an enterprise may be achieved. Revenue control is clearly an important goal of sales control, but it is not the only one. There are at least two others.

The second goal of sales control is to optimize the number of sales – to undertake those activities that are likely to maximize the numbers of sales or customers. This begins with selecting a target market that is large enough to provide sufficient customers for the type of restaurant one intends to operate.

A third goal of sales control is to maximize profit. Profit maximization requires two essential activities: pricing products properly and selling those products effectively. Pricing products effectively means that menu items should be priced so that the number of sales will result in the most profit for the foodservice operation.Selling product effectively has two essential requirements: carefully crafted menu and certain sales techniques to be used by the staff.

In broad sense, then, there are three principle goals of sales control:

  • 1. Optimizing number of customers
  • 2. Maximizing profit
  • 3. Controlling revenue

Optimizing Number of Customers

The most productive efforts in capturing a market are made by those who understand the determinants of customer selection of restaurants. The following are the most important to most people:

  • 1. Location
  • 2. Menu item differentiation
  • 3. Price acceptability
  • 4. Décor
  • 5. Portion size
  • 6. Product quality
  • 7. Service standards
  • 8. Menu diversity

All customers have their own important reasons for patronizing restaurants, and these change under varying circumstances.


If one were to take a given population center and draw concentric circles around it, each one and additional mile from the center, and then places a restaurant on each of these concentric circles, as shown in Figure 10.1, one could judge the effect of location in relation to the population center.

Generally, the greater the distance of the restaurant, the fewer the customer the restaurant can reasonably expect to attract from the population center. Other things being equal, customer will normally choose the most convenient location.

Menu Item Differentiation

Economists characterize goods and services as homogenous and differentiated. This distinction is based on how similar or different goods and services are in relation to one another.

A homogenous product or service is one that is so similar to another that customers do not have a preference and will purchase whichever costs less. Therefore, there is a general ‘market price’ for homogenous goods and services, and no individual operator can raise prices without the risk of losing some or all customers.

Differentiated goods or services, on the other hand, are sufficiently different from others in their class that customers develop preferences for them. Customers may actually consider differentiated products unique. The uniqueness can be real or imagined.

As long as customers prefer one product or service over another, whatever their reasons for preference, that product or service is differentiated. There are comparatively few product and services that can be truly labeled homogenous. Most are differentiated, some more so than others.

Differentiation is a matter of degree for most product and services, and the greater the degree of differentiation, the greater the degree of customer loyalty that can be detected among those seeking the particular type of product or service.

The terms homogenous and differentiated are useful for classifying menu items. To the extent that foodservice operators can develop and include in
the menu products that are differentiated, potential customers seeking those products are likely to be willing to travel greater distances and pay higher prices to obtain them.

Unique menu items created for this purpose are called signature dishes. Signature items are often specially named for a restaurant, a chef, or a locality. Waldorf Salad, for example, was originally a signature item created and served in one of New York’s most famous hotels, the Waldorf Astoria.

Price Acceptability

Restaurant menu items tend to be price sensitive, meaning that there is a relationship between sales price and sales volume. As the price of a menu item is increased, it can be expected that fewer customers will order the item especially when it is a homogenous item. However, this may not be true for foodservice operator whose operation’s has the business monopoly for that area. As an example, foodservice operator at an airport where the market is a captured market leaving customers no other choices but to seek for goods and services in the establishment.


Décor helps to differentiate one restaurant from another. Each establishment attracts customers who prefer-or at least accept-its décor. A restaurant décor helps determine not just the type of customer, but the number of customers as well. One key to restaurant success then is to select décor that will appeal to a sufficiently large segment of the targeted market and thus will help maximize the number of customers.

Portion Sizes

Customers want value for their money, and portion size is only one of the
factors they consider when determining whether any given establishment offers value. Portion sizes must satisfy the clientele a foodservice operator seeks to attract. If portions are too small, business will be lost and if portions are larger than necessary, food will be wasted, food cost will be higher than necessary, and profits will be lower than they may have been.

Product Quality

Quality is a term that conveys different meanings to different people. Those with particular refined taste-people sometimes referred to as gourmets-are more likely to seek perfection in food and may be inclined to accept nothing less.

Then there are those who consider food is food and willing to patronize places where food products served are of very low level of quality-so low that most people find that the quality is unacceptable. In any given population, various segments demand food products of various levels of quality.

It is the responsibility of management to assess the market and then to offer products of an appropriate level of quality such that they will appeal to a large enough segment of the market to ensure the level of sales volume required for profitability.

Service Standards

Whenever possible, the customer tends to select a restaurant offering a type and level of service that he or she finds appropriate to the occasion. Managers who seek to optimize the number of customers should be aware of the extent and quality of service that their customers want. With that in mind, they may find it comparatively easy to adjust some aspects of service so as to increase customer satisfaction.

Menu Diversity

The number and range of items on any menu are governed by several important considerations, including the equipment available in the kitchen, culinary abilities of the kitchen staff, and the considerations that arise when the large number of items offered results in considerable leftover food. As a general rule, the greater the scope of the menu consistent with these other considerations, the larger the segment of the market to which the menu will appeal and the more likely the restaurant will be to succeed.

Maximizing Profit

There are two principal means for maximizing profit: pricing products properly and selling those products effectively.

Pricing Products Properly

Cost is normally the most significant consideration in establishing the sales price for any menu item. In any given restaurant, higher cost items typically have higher sales prices than lower cost items. Another important consideration is the desire to maximize sales.

Restaurants with highly differentiated products have more flexibility to raise or lower menu prices than those with homogenous products. There are a number of methods for establishing menu prices. Many of these, however complex they may appear, are variations on the three basic approaches:

  • 1. Matching competitors’ prices
  • 2. Calculating prices from costs and costs percents
  • 3. Adding desired contribution margin to portion costs

Matching Competitors’ Prices

Perhaps the most widely used approach to menu pricing is one that may be best described as “follow the leader” – establishing prices that meet those competitors. This is an approach that is commonly used by people who have little or no idea of the costs of the items they sell.

The use of this imitative approach is not restricted to those who lack of knowledge to do otherwise; it is not uncommon among seasoned and successful operators. Many operators use this technique in order to maintain business than losing business to competitors. Tacitly, they are defining their products are homogenous rather than differentiated. In many cases, they are correct: They are offering price-sensitive, homogenous products. Although the policy of pricing to meet competition may be satisfactory for some operators in some markets, it can lead to disastrous consequences to others.

Calculating Prices from Costs and Cost Percents

The second approach to menu pricing has two variations. The first variation proceeds as follow: Dividing the portion cost by the desired cost-to-sale ratio (desired food cost percentage) and then adjusting the answer to a suitable amount to print in a menu. The second variation is slightly different where managers use the Menu Pre-Cost and Abstract to obtain a satisfactory projected cost percent. Whichever type of variations used, the most important is that staff practices standards and standards procedures set by management properly in all phases of operations. These in return will that the pricing technique will be accurate.

Adding Contribution Margins to Portion Cost

The third approach is becoming more common in the industry. This approach requires that foodservice operator determine the average contribution margin required to cover costs other than food and to yield the desired level of profit at the expected level of sales volume. This average contribution margin is then added to the portion costs of menu items to determine their menu. The use of this approach can be illustrated as follow:

Food sales (RM500, 000) – Cost of sales (RM200, 000)=  Gross profit (RM300, 000) – All other costs RM250, 000 = Profit RM50, 000

If one divides the RM500, 000 food sales by the 30, 000 customers, it is apparent that each customer in this example spent an average of RM16.67. Dividing the gross profit by the number of customers, it is also apparent that each customer contributed an average of RM10.00 to cover costs other than food and providing profit.

This method suggests that each menu item should be priced at RM10.00 above portion cost, regardless of the item. For example, a steak with a portion cost of RM8.00 would be priced at RM18.00, and a pasta item costing RM2.50 would be priced at RM12.50.

If this approach were followed and if sales volume matched or exceeded forecasts, the minimum acceptable dollar profit would be assured, provided that costs were kept strictly under control in all areas.

Selling Products Effectively

Essentially, a restaurant has two principal means available for selling product’s effectively:

  • 1. The menu
  • 2. The sales techniques used by the staff

The Menu

The menu is the primary sales tool in most restaurants. Menu preparation is a complete subject in itself, which renders full coverage beyond the scope of a text on food, beverage, and labor cost control. However, because the menu is such a key ingredient in efforts to maximize profits, a person should have general knowledge of the most important elements in menu preparation:

  • 1. Layout and design. It should be apparent that the entire physical menu should suit the character and style of the restaurant.
  • 2. Variety. For a menu to have maximum public appeal, it should offer a suitable variety of foods, preparation methods, and prices. Variety will satisfy the needs of a broad market and will help the restaurant operator capture the largest possible number of customers.
  • 3. Item arrangement and location. Items on the menu seen first by customer tend to be ordered more frequently than those seen later.
  • 4. Descriptive language. The menu itself and the language used to describe menu items may make a good impression and induce customer orders. A food and beverage operator can exercise great influence over the amount of the average check by using written descriptions that make the menu items sound interesting.
  • 5. Kitchen personnel and equipment. Anyone writing a menu should have a clear, unbiased view of the culinary abilities of present staff and should be entirely realistic about the possibility of replacing any staff member with another of equal skill. At the same time, the menu writer should be aware not only of the equipment needed to prepare the foods on the menu, but also the kinds of equipment available in the kitchen and its general conditions.

By taking these basic elements of the menu preparation carefully into account, a menu writer can substantially increase the possibility of developing a menu that will produce an appropriate level of sales volume and a growing number of satisfied customers.

Sales Techniques

The second means for selling products effectively is to develop appropriate sales techniques to be used by servers, who are, after all, a restaurant’s sales force. In many instances, the customer’s decision to order an item (or not to order it) is influenced by the server. Because of the important role that servers play in influencing customers’ selections, managers are usually interested in developing appropriate sales techniques for their servers and in providing some basic sales training.

Daily meetings/Daily briefing is one of the techniques where managers go over the day’s menu with the servers to be sure they can describe each item to the customers. In this way, customers are able to get an immediate feedback on the menu item offered hence ensuring an immediate sale. Another useful technique that many successful restaurateurs train their personnel to use is suggestive selling of menu items that customers might not otherwise consider ordering.

If management takes the steps mentioned in both elements; the menu and sales techniques, there is a greater likelihood that sales revenue and numbers of sales in a restaurant will be maximized and that sale of those items that produces the highest contribution margins and greatest profits.

Controlling Revenue

To control revenue, one must institute the process, beginning by establishing standards and standard procedures. Standard and standard procedures for revenue control are aimed at one clear and simple goal: to ensure that all food served produces the appropriate revenue for the enterprise.

For any menu item served to a customer, appropriate revenue is the selling price stipulated in the menu. For food served to an employee at the discretion of management, appropriate revenue may be a menu price, discounted price, or no price at all, depending on the management’s policies.

In any case, all food served must be accounted for in an appropriate manner. If one fails to account for all food served to customers and employees, the result will be a distortion of the cost-to-sales-ratio. The specifics required to achieve the necessary level of control are the following:

  • 1. Documenting of food sales
  • 2. Using numbered checks
  • 3. Checking and verifying food sales
  • 4. Recording revenue

A great many systems and procedures for controlling food sales are presently in use in the industry. The larger the organization, the more complex these are likely to be. Sometimes the standard procedures used to control revenue in one restaurant appear to differ markedly from those used by another. On closer inspection, however, one is likely to find that they are merely variations.

Documenting Food Sales

One of the most basic steps in food sales controls is to require that each menu item ordered be recorded in some way. The traditional method is to record guests’ selections and menu prices in a form called guest checks or sales checks. Guest checks, used almost universally in the past and still very common today are used to:

  • 1. Help servers remember the specifics of guests’ orders
  • 2. Give itemized bills to guests
  • 3. Maintain written records of portion sales to add to a sales history
  • 4. Prove the accuracy of cashiers work
  • 5. Verify the accuracy of prices charged
  • 6. Provide the records required for tax purposes

Documenting of food sales may be done by handwriting or using the assistance of computer technology.

Using Numbered Checks

There are two kinds of numbered guest checks: padded and unpadded.


Some operators buy sequentially numbered guest checks in pads of 25, 50, or some other amount. Each server would be assigned with one pad of checks, which will then be held accountable for all the checks in that pad. Padded checks are more common in restaurants that are somewhat less formal, where seat turnover tends to be higher and servers tend to use greater numbers of checks in any one day.


Other operators buy sequentially numbered checks unpadded. These checks are assigned to servers one at a time, so that a server is held accountable only for the specific check assigned to him or her. Unpadded checks are more common in restaurants where the style of service is more formal, where seat turnover tends to be lower, and a server will tend to use fewer checks during a shift.

Whether padded or unpadded, numbered checks make it possible to assign responsibility for specific checks to particular employees.

There are a number of benefits to using sequentially numbered checks. For example, with the use of numbered checks, it is possible at the end of any meal period to reassemble the checks in numerical order to see whether any are missing. If a check is missing, it is easy to look at the signature book to determine which server signed for it and then to question the server.

Assigning responsibility for specific individual checks or pads of checks makes it possible to monitor other elements of servers’ work as well. Essentially, foodservice managers are concerned with two additional aspects of hand-prepared checks:

1. Legibility. If guest checks provide the raw date that must be summarized before being added to a sales history, then it is obviously important that management be able to read the guest checks. For this purpose, illegibility is likely to mean inaccuracy. Although legibility is important for sales history purposes, it is equally important for purposes of determining whether employees are accurately recording the menu items ordered by customers.

2. Accuracy. Busy servers make errors. Incorrect prices may be charged for menu selections, and incorrect selections can be written on checks. Errors of this nature are accidental; sometimes they are purposeful.

Checking and Verifying Food Sales

Years ago, in order to eliminate some of the many possibilities for problems to develop in the area of sales control, many restaurants (especially hotel) employ personnel who were known are food checkers or expediter.

The nature of their job is to match and verify the order that comes into the kitchen against the food that goes out to the dining room. This is to prevent wastage as well as conflict that may arise in the events of confusion between kitchen and service personnel. Food checkers are normally stationed to work in the kitchen, near doors leading to dining rooms.

In some establishments, menu prices were recorded on a guest check by food checkers, not by servers, and the entries on the guest checks were made mechanically with a register similar to a cashier’s register. This approach provided an extra measure of control, because at the end of any serving period, the total of the readings in the checker’s register would equal the total of cash and charge sales recoded by the cashier.

An advantage of this system was that the independent recording of menu prices by the food checker provided some measure of protection against servers giving away food or undercharging for menu items purposely in a misguided effort to obtain larger tips.

The disadvantages of this system was that lines tended to form at the food checker’s station during busy periods, service to customers slowed, turnover decreased, customers were served cold food, and high labor cost with food checkers. Most establishments have scrapped this practice in favor of control-oriented computer systems.

To retain the desirable qualities of the food checker system while eliminating the problems, many restaurants follow a standard procedure that is usually referred to as the dupe system. “Dupe” is an abbreviation of the word “duplicate”. A standard requirement of this system is that duplicate copy be made of each order. There are several means of doing this. One is to provide servers with pads of guest checks, each of which produces a second copy, usually on a paper of a different color and texture. Whenever a server records an order on a guest check, a duplicate copy of the order is made on the second copy. This is not the only way of producing a duplicate; there are several others.

The important point is that the duplicate copy, the dupe, must be given to personnel in the kitchen before any food will be prepared or issued.

Recording Revenue

Traditionally, most restaurants employed cashiers who were assigned responsibility for taking payments from customers and recording sales as the customers left the restaurants. They were usually stationed near restaurant exits, although some worked in other locations. These cashiers are still very much in evidence in the restaurant business today. For proper revenue control, sales were always recorded in a register, and each guest check was endorsed in the register as the sale was recorded. This meant that each check had to be inserted in the register as the sale was being recorded so that the amount recorded was printed on the check. Thus, all guest checks were endorsed regardless of how they were settled. The printed endorsement helped differentiate between guest checks that had been settled and those that had not. In some establishments, management required that any guest checks be stamped with the mark “Paid”.

Cite this page

Organizational Culture by Charles Handy. (2016, Mar 15). Retrieved from

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