Controlling Food Costs in Storage and Issuing

1
Controlling Food Costs in Storage and Issuing
6

• Controlling Foodservice Costs

OH 6-1
2
Chapter 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).

3
Chapter Learning Objectives continued

• Calculate inventory turnover rate and inventory
  value.
• Compare physical inventory to perpetual
  inventory.
• Calculate a daily food cost.

4
Storage Practices Impact Profits

• Two Major Factors
• Spoilage of products
• Theft of products

5
Sales Needed to Replace the Value of Spoiled or
Stolen Items

• Assume 5 restaurant net profit
• Assume loss of two steaks _at_ 7.00 cost each

6
Controlling Spoilage

• Storage loss from spoilage is usually caused by
  carelessness.
• Spoilage loss can be controlled.
• Spoilage is caused by
• Improper product rotation
• Time abuse
• Temperature abuse

7
Determining Inventory Controls

• Storage Capacity
• Item Perishability
• Vendor Delivery Schedule
• Potential Savings from Increased Purchase Size
• Operating Calendar
• Relative Importance of Stock Outages
• Value of Inventory Dollars to the Operator

8
Storage Stock Rotation

• LIFO - last in, first out
• Old stock is used only if new stock is depleted.
• FIFO - first in, first out
• Old stock is used before new stock. Preferred.

9
First In First Out (FIFO)

• Use for refrigerated, frozen, and dry products
• Use oldest product first.
• Relies on
• The receiving clerk (to rotate stock properly)
• The person using the product (to choose properly)
• Must be continually monitored by management!

10
Time Temperature
11
Time Temperature
12
Time Temperature
13
Sanitation

• 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.

14
Sanitation

• 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.

15
Controlling Theft

• Keep storage areas locked whenever practical.
• Issue secondary sets of keys on an as-needed
  basis only.
• Establish a par stock per shift system for key
  ingredients.
• Issue food only with proper authorization.
• All food received should be signed by receiving
  clerk.
• Conduct physical inventories.

16
Inventory Control

• Always sell out, never run out!
• Standard overages tend to run 5 to 10 above
  normal forecasts (margin of error).
• Requisition - request inventory items from
  storeroom.
• Issues - items taken from storage and placed into
  the production process.

17
Sample Requisition Form

• Large foodservice operations may use a
  requisition system to help control theft-related
  losses.

18
Inventory Types

• Physical inventory
• An actual count of inventory items
• Usually taken to obtain information for
  theincome statement.
• Perpetual inventory
• A count based upon additions to
  (purchases/receiving) and subtractions from
  (requisitions/issues) storage
• If records are properly kept, it is always
  up-to-date.

19
Recording the Inventory
Common Inventory Breakdowns Method of
categorizing the operations food and supplies.

• Meats
• Dairy
• Bakery
• Produce

• Frozen foods
• Canned foods
• Dry goods

20
Common Inventory Breakdowns

• The type of restaurant you manage will help
  determine the specific inventory breakdowns best
  suited for your use.

21
Sample Inventory Sheet
Extending - multiplying the of units by the
items unit price.
22
Activity - page 101

• Corn, whole kernel
• Cranberry sauce
• Mushrooms, whole
• Peaches, halves
• Pineapple, crushed
• Tomato, puree
• Tomato, whole peeled
• TOTAL

26.75 32.60 20.50 14.25 29.10 21.00 17.25
161.45
23
Inventory Pricing

• FIFO
• First in, first out
• Inventory is valued at its most recent (latest)
  cost.
• Oldest product is used first.
• LIFO
• Last in, first out
• Inventory is valued at the cost of the oldest
  product.
• Newest product is used first.

24
Inventory Pricing continued

• Averaged price method
• Inventory is valued at a composite of all prices
  paid for the item.
• Actual price method
• Each inventory item is valued at its original
  purchase price.

25
Inventory Pricing continued

• Opening Inventory
• 3 boxes at 22.00 66.00
• Purchases
• 3 boxes at 24.00 72.00
• 3 boxes at 26.00 78.00
• 216.00 Cost of food available
• 216.00 9 boxes 24.00 per unit

26
Activity - page 99

• 1. 48 100 168 316
• 316 12 cases 26.33
• 2. 90 63 88 241
• 241 12 cases 20.08
• 3. 33 70 103
• 103 8 cases 12.88

27
Inventory and Cost of Food Sold

• Inventory value is a critical component of the
  cost of food sold formula.

28
Inventory the Cost of Food Sold

• Padding Inventory - add dollars to closing
  inventory to bring down the cost of food sold.
• When closing inventory goes up, cost of fold sold
  goes down.
• When closing inventory goes down, cost of food
  sold goes up.

29
Inventory the Cost of Food Sold

• Company Standard is 750.00
• Opening Purchases Closing Cost of food sold
• 800 1,200 2,000 1,100 900
• Add value to closing inventory
• 800 1,200 2,000 1,250 750

30
Inventory Turnover

• A measure of how quickly an item in storage is
  used.
• The number of times the total value of inventory
  has been purchased and replaced in an accounting
  period.
• It is an average that can be calculated for any
  period weekly, monthly, or annually.

31
Inventory Turnover Calculation

• Step 1 Calculate average inventory.
• Step 2 Calculate the inventory turnover.

32
Opening inventory 898 Purchases 4,782 Closin
g inventory 1,403

• 898 4,782 5,680 total food available
• 5,680 1,403 4,277 cost of food sold
• 898 1,403 2,301 2 1,150.50 average
  inventory
• 4,277 cost of food sold .
• 1,150.50 average inventory 3.72
• inventory turned over 4 times during this
  accounting pd.

This means on average the inventory was
purchased, sold, and replaced every ___ days (in
a 7 day week).
7 days 3.72 1.88 2 days
33
Activity - page 104

• 20,150 opening 18,950 closing 39,100
• 39,100 2 19,550 average inventory
• 24,300 cost of food sold 19,550 1.242 or
  1.24
• 12,750 opening 10,500 closing 23,250
• 23,250 2 11,625 average inventory
• 14,050 cost of food sold 11,625 1.208 or
  1.21
• 27,850 opening 24,350 closing 52,200
• 52,200 2 26,100 average inventory
• 32,100 cost of food sold 26,100 1.229 or
  1.23

34
Tonys Tavern had a opening inventory of 39,190,
closing inventory of 32,221, and purchases of
55,785. What was the operations food inventory
turnover?

• 39,190 55,785 94,975
• 94,975 32,221 62,754 cost of food sold
• 39,190 32,221 71,411 2 35,705.50 avg.
  inventory
• 62,754 cost of food sold .
• 35,705.50 average inventory 1.76 inventory
  turnover

This means on average the inventory was
purchased, sold, and replaced every ___ days (in
a 7 day week).
7 days 1.76 3.97 4 days
35
Daily Food Cost Percent Calculation Using
Perpetual Inventory

• Step 1 Compute daily food cost.
• Step 2 Compute food cost percentage.

36
Activity - page 107

• 2,454 (opening inventory for July equals closing
  for June)
• 3,105
• 2,454 11,775 14,229
• 14,229 3,105 11,124
• 11,124 35,890 30.9
• 2,454 3,105 5,559
• 5,559 2 2,779.50
• 11,775 2,779.50 4.0

37
How 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 a
• Breakdown inventory
• Requisition inventory
• Physical inventory
• Perpetual inventory
• Daily food cost divided by (unit sales/transfers
  out of inventory) equals daily food cost
  percentage.

38
Key Term Review

• Actual price method
• Averaged price method
• Daily food cost
• Extending
• FIFO method

• Inventory
• Inventory breakdown
• Inventory turnover
• Issuing

39
Key Term Review continued

• Latest price method
• LIFO method
• Padding
• Perpetual Inventory

• Physical inventory
• Requisitions
• Time and temperature control
• Transfer

40
Chapter 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).

41
Chapter 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.