Presentation on theme: "Controlling Food Costs in Storage and Issuing"— Presentation transcript:
1Controlling Food Costs in Storage and Issuing 6Controlling Foodservice CostsOH 6-1
2Chapter Learning Objectives Describe food storage techniques used to control theft.Explain the first in, first out (FIFO) method of stock rotation.Describe the proper method of taking inventory.Describe the various methods of inventory pricing (valuation).Instructor’s NotesIndicate that these objectives (competencies) drive the information in the chapter and in this session.
3Chapter Learning Objectives continued Calculate inventory turnover rate and inventory value.Compare physical inventory to perpetual inventory.Calculate a daily food cost.Instructor’s NotesIndicate that these objectives (competencies) drive the information in the chapter and in this session.
4Storage Practices Impact Profits Spoilage of productsTheft of productsInstructor’s NotesAsk students about which of these two threats are usually the greatest in a restaurant.Explain that restaurant margins are small, and any food spoiled or stolen will require significant sales to generate the profits to replace the items. How much sales? Let’s see.
5Sales Needed to Replace the Value of Spoiled or Stolen Items Assume 5% restaurant net profitAssume loss of two $7.00 cost eachAmount lost÷Net profit percentage=Additional sales required to replace lost revenue$ ÷$280.00Instructor’s NotesIndicate that this means several customers (or many more customers) must be served just to make up for the losses caused by spoilage and theft.Remind students that when food items are lost, due to spoilage or theft, they are not available to sell to customers and, therefore, do not generate revenue. The cost of purchasing these items has already been incurred by the restaurant. The cost of these lost items must be covered by profit from the sales of other food items.
6Controlling SpoilageStorage loss from spoilage is usually caused by carelessness.Spoilage loss can be controlled.Spoilage is caused byImproper product rotationTime abuseTemperature abuseInstructor’s NotesExplain that inadequate sanitation practices are another leading cause of product loss due to spoilage.
7Controlling Spoilage continued Excellent sanitation practices help minimize spoilage loss.Instructor’s NotesAsk about specific threats to product quality that are posed by poor sanitation practices. Examples include: insect and rodent infestation, debris in food, and product loss (drying out) due to unsanitary storage procedures.
8First In First Out (FIFO) Use for refrigerated, frozen, and dry productsUse oldest product first.Relies onThe receiving clerk (to rotate stock properly)The person using the product (to choose properly)Must be continually monitored by management!Instructor’s NotesAsk students how they practice FIFO at home (i.e., when they buy products like milk or cheeses).Indicate that the LIFO (Last In First Out) storage method is rarely used in foodservice operations for product issuing.
9Dry Storage Instructor’s Notes Ask students to identify at least five items that are stored at this temperature. Examples include canned goods, flour, sugar, coffee, and most oils and spices.
10Fresh Fruits and Vegetables Instructor’s NotesAsk students to identify at least five items that are stored at this temperature. Examples include fresh parsley, spinach, mushrooms, strawberries, and cucumbers at refrigerator temperatures; onions, avocadoes, bananas, and some varieties of potatoes at dry storage temperatures of 50°F to 70°F (10°C to 21°C).
11Eggs and Dairy Instructor’s Notes Ask students to identify at least five items that are stored at this temperature. Examples include eggs and egg products, yogurt, cheeses, sour cream, and butter.
12Meat and Poultry Instructor’s Notes Ask students to identify at least five items that are stored at this temperature. Examples include ground beef, steaks, chicken breasts, ham and fresh pork ribs, and processed meats (cold cuts).
13Fish Instructor’s Notes Ask students to identify at least five items that are stored at this temperature. Examples include fresh fish fillets, shrimp, oysters, scallops, and crab.
14Proper Sanitation Is Key Store foods away from walls and at least six inches above the floor.Store dry goods in airtight containers.Walls and floors should be nonporous and easily cleaned.Instructor’s NotesMention that shelving in walk-ins and reach-ins should be slatted (not solid) to allow for proper air circulation.Indicate that shelving material should be easily cleaned (most preferably stainless steel).Indicate that walk-ins and reach-ins should be wiped down every day.Mention that management must continually monitor for insect or rodent infestation.
15Proper Sanitation Is Key continued Rotate stock to minimize spoilage.Organize products so they are easily found.Label shelves and sealed food containers.Include “use by” dates and name labels for all stored products.Instructor’s NotesAsk students to identify specific reasons why foods in their own refrigerators become spoiled. Answers will include poor wrapping or inadequate storage containers that allowed food to dry out, food “lost” in the refrigerator, food held too long, food spillage caused by other poorly stored foods, “use by” dates exceeded.Ask, “How might some of the suggestions on this slide prevent food spoilage?”
16Controlling Theft Keep storage areas locked whenever practical. Establish a par stock per shift system for key ingredients.Issue secondary sets of keys on an as-needed basis only.Instructor’s NotesExplain that key menu ingredients can be issued, under the supervision of a manager, at the beginning of each shift.Ask, “Why are secondary sets of keys that open only specific storage areas preferable to ‘master’ keys?” Answer—Improved accountability and security; for example, the bartender should not have access to food storerooms, nor should the head cook have access to the liquor storeroom.Ask about other problems that result from theft. Answers include inaccurate sales/buying records, excessive product “outages,” unhappy guests (because desired products are unavailable), cost of additional deliveries needed to replace items, and sense by employees that management is not in control.
17Sample Requisition Form Large foodservice operations may use a requisition system to help control theft-related losses.Instructor’s NotesAsk about the relationship between the size of an operation and the control systems used (i.e., do only large operations need controls?). The answer is “No.” All operations should utilize inventory controls appropriate for their size.
18Inventory Types Physical inventory Perpetual inventory An actual count of inventory itemsUsually taken to obtain information for the income statement.Perpetual inventoryA count based upon additions to (purchases) and subtractions from (requisitions) storageIf records are properly kept, it is always up-to-date.Instructor’s NotesExplain to students that records in a perpetual inventory may well be up-to-date, but they will also be inaccurate if theft has occurred. Unless a physical inventory is taken periodically, theft can go undetected for long periods of time when using a perpetual inventory.Ask students how often inventory is taken in the restaurants where they work and what type of inventory system is used.
19Common Inventory Breakdowns MeatsDairyBakeryProduceFrozen foodsCanned foodsDry goodsInstructor’s NotesExplain that inventory breakdowns (categories) allow managers to better control their food costs.Ask the following question, “What inventory categories would you recommend for each of the following:QSRSeafood restaurantSteakhouseCoffee shop and bakerySummarize that appropriate inventory breakdowns are based upon the specific key menu items served by the restaurant.
20Common Inventory Breakdowns continued The type of restaurant you manage will help determine the specific inventory breakdowns best suited for your use.Instructor’s NotesAsk, “What inventory breakdowns would be useful for this type of establishment?”
21Sample Inventory Sheet Instructor’s NotesExplain how managers use inventory sheets to value their inventories.Explain the concept of “extending” an inventory.Point out that spreadsheet programs make this task easy.
22Inventory Valuation Methods FIFOFirst in, first outInventory is valued at its most recent (latest) cost.Oldest product is used first.LIFOLast in, first outInventory is valued at the cost of the oldest product.Newest product is used first.Instructor’s NotesExplain to students that the FIFO method values inventory at its replacement cost.Ask, “Why do you think the FIFO inventory system is most used in foodservice operations?” Answer—the use of the oldest product first prevents loss of product due to spoilage.
23Inventory Valuation Methods continued Averaged price methodInventory is valued at a composite of all prices paid for the item.Actual price methodEach inventory item is valued at its original purchase price.Instructor’s NotesPoint out that the averaged price method is rarely used by foodservice operations.Point out that operations that use a POS system frequently use the actual price method. ASK, “What might be an advantage of using the actual price method of valuing inventory versus using one of the other methods?” Possible answers—the actual value of the inventory is calculated rather than an estimated value; if using a POS system, the inventory can be calculated without too much manual effort.
24Inventory and Cost of Food Sold Inventory value is a critical component of the cost of food sold formula.Opening inventory+PurchasesTotal food available–Closing inventoryCost of food soldInstructor’s NotesExplain that opening inventory is also known as “beginning inventory.”Explain that closing inventory is also known as “ending inventory.” The ending inventory of one period becomes the opening inventory of the next period.Point out that, when opening and closing inventories are equal, purchases equals cost of food sold.
25Inventory Turnover Calculation Step 1 – Calculate average inventory.Step 2 – Calculate the inventory turnover.(Opening inventory+Closing inventory)÷2=Average inventoryInstructor’s NotesExplain that inventory turnover shows how quickly an inventory is being used. Inventory turnover is the number of times (in a specific accounting period) that the average dollar value (average inventory) has been “turned over.” Too low a number may mean the inventory is too large, while too high a number may mean there is not enough product in inventory, resulting is product shortages.Explain that this does not mean each “item” in the inventory has been replaced.Point out to students that foodservice inventories normally turn over one to two times per week.Cost of food sold÷Average inventory=Inventory turnover
26Daily Food Cost Percent Calculation Using Perpetual Inventory Step 1 – Compute daily food cost.Step 2 – Compute food cost percentage.Requisitions+Transfers in–Transfers outDaily food costInstructor’s NotesExplain that this is an estimate that is as accurate as the perpetual inventory system users make it.Ask for reasons why there can be variation between a physical count inventory and the value of the perpetual inventory. Possible answers may include theft, spoilage, or faulty record-keeping.Daily food cost÷Daily unit sales=Daily food cost percentage
27How Would You Answer the Following Questions? The greatest cause of inventory loss is (theft/poor buying practices).The most common product storage method used in foodservice is (FIFO/LIFO).The type of inventory that is based upon a theoretical count is called aBreakdown inventoryRequisition inventoryPhysical inventoryPerpetual inventoryDaily food cost divided by (unit sales/transfers out of inventory) equals daily food cost percentage.Instructor’s NotesAnswersTheftFIFO (first in, first out)DUnit salesNote: indicate that the last part of this discussion will provide a review of definitions for the key terms used in the chapter.
28Key Term Review Actual price method Averaged price method Daily food costExtendingFIFO methodInventoryInventory breakdownInventory turnoverIssuingInstructor’s NotesActual price method—inventory valuation method that uses the actual price paid for the product to compute closing inventory valuesAveraged price method—inventory valuation method that uses a composite of all prices paid for an item during the inventory period to value the closing inventoryDaily food cost—estimate of food cost based upon requisitions, transfers, and salesExtending—multiplying the number of units of a stored item by that item’s unit priceFIFO method—first in, first out; inventory valuation method that uses the latest price paid for an item to value inventory and that requires older products be utilized before newer productsInventory—itemized list of goods and products, their on-hand quantity, and their total dollar valueInventory breakdown—method of categorizing an operation’s food and suppliesInventory turnover—measure of how frequently the total value of stored items has been turned (replaced) during a specific accounting periodIssuing—removing food or beverage products from storage
29Key Term Review continued Latest price methodLIFO methodPaddingPerpetual InventoryPhysical inventoryRequisitionsTime and temperature controlTransferInstructor’s NotesLatest price method—also known as FIFO; inventory valuation method that uses the latest price paid for a product to value inventoryLIFO method—last in, first out; inventory valuation method that uses the price paid for the oldest product to value inventory and that requires the newest products to be utilized before older productsPadding—inappropriate activity of adding a dollar value for nonexistent inventory items to the dollar value of total inventoryPerpetual inventory—theoretical inventory count based on products received and issuedPhysical inventory—actual physical count and valuation of all items on handRequisitions—forms that contain specifics about items to be issued from storage areasTime and temperature control—policies and procedures that monitor the time and temperatures of food that is held before service to guestsTransfer—process of moving products and their cost from one foodservice unit or department to another
30Chapter Learning Objectives— What Did You Learn? Describe food storage techniques used to control theft.Explain the FIFO method of stock rotation.Describe the proper method of taking inventory.Describe the various methods of inventory pricing (valuation).Instructor’s NotesAsk students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.
31Chapter Learning Objectives— What Did You Learn? continued Calculate inventory turnover rate and inventory value.Compare physical inventory to perpetual inventory.Calculate a daily food cost.Instructor’s NotesAsk students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.