1. Chapter 8 Monthly Inventory and Monthly Food Cost Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition

2. Learning Objectives 8.1 Explain the importance of monitoring a foodservice operation to assess monthly performance. 8.2 Describe the procedure for taking physical inventory at the end of the month. 8.2a Distinguish between opening (beginning) inventory and closing (ending) inventory. 8.3 List and describe five ways to assign unit costs to a food inventory and explain the effect on cost of each method. 8.3a Calculate cost of food consumed. 8.3b Calculate cost of food sold. 8.4 Prepare a simple monthly food cost report and calculate monthly food cost percent. 8.5 Explain the possible shortcomings of a system in which judgments about operations are made exclusively based on monthly food cost and food cost percent. 8.6 Define inventory turnover and explain how it is determined. Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 2

3. Important Chapter Terms Closing inventory: Physical inventory at the end of a period, expressed in terms of units, value, or both Intraunit transfer: Food or beverage transfer between departments in a single hotel, restaurant, or similar establishment Interunit transfer: Food or beverage transfer between units in a chain Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 3

4. Monthly Inventory Taking Physical Inventory count the actual number of units of each item on hand record that number on appropriate form determine the value of the goods extend and record the value Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 4

5. Valuing Physical Inventory There are at least five ways of assigning values to units of product in a physical inventory: 1.Actual purchase price 2.First-in, first-out (latest prices) 3.Weighted average purchase price 4.Latest purchase price (most recent prices) 5.Last-in, first-out (earliest prices) Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 5

6. Latest purchase price Most recent purchase price method for valuing the closing inventory Most widely accepted Justification: replacement at the present moment would likely be the price last items were purchased Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 6

7. Monthly Food Cost Determination The cost of food issued for any month is determined by means of the following formula: Opening inventory + Purchase = Total available - Closing inventory = Cost of food issued Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 7

8. Adjustments to Food Issued Transfers Intraunit transfers from bar to kitchen from kitchen to bar Interunit transfers Steward Sales Gratis to Bars Promotion Expense Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 8

9. Cost of Employee Meals 1.Cost of separate issues 2.Prescribed amount per meal per employee 3.Prescribed amount per period 4.Sales value multiplied by cost percent These or other alternative techniques, used for the cost of employee meals. Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 9

10. Determining Cost of Food Sold Opening inventory +Purchases =Total available for sale –Closing inventory =Cost of food issued +Cooking liquor +Transfers from other units =Subtotal –Food to bar (directs) –Transfers to other units –Steward sales –Gratis to bar(s) –Promotion expense =Cost of food consumed –Cost of employees’ meals =Cost of food sold Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 10

11. Monthly Food Cost Once the cost of food sold is known, food cost percent can be determined: Food Cost %= Cost of food sold Food Sales Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 11

12. Inventory Turnover Excessive food costs due to the spoilage of food stored too long Excessive amounts of cash tied up in inventory Excessive labour costs to receive and store foods Excessive space required for storage Unwarranted opportunities for misuse/theft Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 12

13. Rate of Inventory Turnover To measure how often a food inventory has been consumed and replenished during an accounting period: Average inventory = Opening inventory + Closing inventory 2 Inventory turnover= Cost of food sold Average inventory Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 13

14. Key Terms Actual purchase price method, p. 220 Average inventory, p. 233 Closing inventory, p. 218 Cost of employee meals, p. 227 Cost of food consumed, p. 224 Cost of food issued, p. 222 Cost of food sold, p. 228 First-in, first-out method, p. 220 Gratis to bar, p. 225 Interunit transfer, p. 225 Intraunit transfer, p. 225 Inventory turnover, p. 232 Last-in, first-out method, p. 221 Latest purchase price method, p. 221 Monthly food cost, p. 222 Opening inventory, p. 218 Physical inventory, p. 217 Steward sales, p. 225 Weighted-average purchase price method, p. 220 Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 14

15. Chapter Web Links Restaurant Inventory System: http://www.ncr.com/products/restaurant/management- software/inventory-management Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 15

16. Copyright Principles of Food, Beverage, and Labour Cost Controls, Second Canadian Edition 16