F & B Management Notes 6th Semester IHM

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VI SEMESTER
FOOD & BEVERAGE MANAGEMENT
1. COST DYNAMICS
a. A. Elements of Cost
b. B. Classification of Cost
2. SALES CONCEPTS
a. A. Various Sales Concept
b. B. Uses of Sales Concept
3. INVENTORY CONTROL
a. A. Importance
b. B. Objective
c. C. Method
d. D. Levels and Technique
e. E. Perpetual Inventory
f. F. Monthly Inventory
g. G. Pricing of Commodities
h. H. Comparison of Physical and Perpetual Inventory
4. BEVERAGE CONTROL
a. A. Purchasing
b. B. Receiving
c. C. Storing
d. D. Issuing
e. E. Production Control
f. F. Standard Recipe
g. G. Standard Portion Size
h. H. Bar Frauds
i. I. Books maintained
j. J. Beverage Control
5. SALES CONTROL
a. A. Procedure of Cash Control
b. B. Machine System
c. C. ECR
d. D. NCR
e. E. Preset Machines
f. F. POS
g. G. Reports
h. H. Thefts
i. I. Cash Handling
6. BUDGETARY CONTROL
a. A. Define Budget
b. B. Define Budgetary Control
c. C. Objectives
d. D. Frame Work
e. E. Key Factors
B. Sc in H & HA Page 1
FOOD AND BEVERAGE MANAGEMENT SEM- VI D. ELANGOVAN
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f. F. Types of Budget
g. G. Budgetary Control
7. VARIANCE ANALYSIS
a. A. Standard Cost
b. B. Standard Costing
c. C. Cost Variances
d. D. Material Variances
e. E. Labour Variances
f. F. Overhead Variance
g. G. Fixed Overhead Variance
h. H. Sales Variance
i. I. Profit Variance
8. BREAKEVEN ANALYSIS
a. A. Breakeven Chart
b. B. P V Ratio
c. C. Contribution
d. D. Marginal Cost
e. E. Graphs
9. MENU MERCHANDISING
a. A. Menu Control
b. B. Menu Structure
c. C. Planning
d. D. Pricing of Menus
e. E. Types of Menus
f. F. Menu as Marketing Tool
g. G. Layout
h. H. Constraints of Menu Planning
10. MENU ENGINEERING

a. A. Definition and Objectives
b. B. Methods
c. C. Advantages
11. MIS
a. A. Reports
b. B. Calculation of actual cost
c. C. Daily Food Cost
d. D. Monthly Food Cost
e. E. Statistical Revenue Reports
f. F. Cumulative and non-cumulative
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Unit - 1 - Cost Dynamics

A. Elements of Cost
B. Classification of Cost
Cost is defined as the expense incurred for goods or services when the goods are
consumed or the services rendered.
Explanation: In the context of F&B operations, the cost of foods and beverages is
incurred when they are consumed, whether sold or thrown away (contamination) or
stolen; the cost of labour is incurred when services are rendered, whether the person
rendering the services is paid at that point or at a later stage.
U.1.A. Elements of Cost:

The cost of operating a catering establishment may be analyzed under three
headings as follows
The elements of cost Approximate % of cost in a business

Material 30
Labor 30
Overhead 20
If sales are Rs 100 and then profit will be 20%
Material costs This refers to three principal costs: food costs, beverage costs, and
the cost of sundry sales such as cigarettes and tobaccos.
Material means the substance from which product is made is known as

material. it may be raw or a manufactured state. It can be direct as well as
indirect.
All materials which becomes an integral part of the finished good is termed as Direct
Material while all material which is used for purposes ancillary to the business is
termed as Indirect Material.
Food cost consists of the cost of food consumed, less the cost of staff meals. The
formula for the calculation of food cost is therefore:
OS + (P SM) CS = FOOD COST
Where: OS = opening stock of materials; P = cost of purchases; SM = cost of staff

meals; CS = closing stock of materials.
Note: The calculation of beverage cost follows similar lines. We take the opening
stock of beverages, add the purchases during the period concerned, and deduct the
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closing stock of beverages. Whilst in the case of food cost we have to deduct the
cost of staff meals, in the case of beverage cost, deduction from the cost of
beverages consumed would have to be made in respect of authorized official
entertaining and any transfers of beverages to other departments, e.g. the kitchen.
Labor costs for conversion of materials into finished goods, human efforts are
required such human effort is called labor. It includes all the remuneration of the
employees, both in the form of cash and kind. Thus, in addition to wages, salaries,
bonuses, commissions and similar cash payments, labor costs include staff meals,
staff accommodation and similar non-cash benefits. Labor can be direct as well as
indirect. For example in preparation of Tandoori chicken: salary and wages of
kitchen staff will be direct labor cost while salaries of purchase manager, store
keeper will be indirect labor cost.
Overhead costs or expenses include indirect material, indirect labor and indirect
expenses. Thus all indirect expenses are overheads. These are also of two types:
direct and indirect, overhead costs are all costs other than materials and labor costs.
Direct overhead expenses or cost may include operating and maintenance cost of
machine while rent, rates, taxes, insurance, will come under the indirect overhead
costs.
U.1.B. Classification of Costs:

By Nature By Behavior
Material costs Fixed costs

Labor costs Semi-fixed costs
Overhead costs Variable costs
Fixed costs: These are costs which remain fixed irrespective of the volume of sales,
for example, rent, rates, insurance, depreciation, and managerial and supervisory
salaries.
Semi-fixed costs: These are costs which move in sympathy with, but not in direct
proportion to the volume of sales. For example, fuel costs, electricity, telephone,
laundry.
Variable costs: These are costs which vary in direct proportion to the sales/output
of the establishment. They increase or decrease in the same proportions in which
the output increase or decreases. For example, cost of food, beverages and
cigarettes and tobaccos.
Activity: Classify each of the following as direct or indirect cost ( D or I) and as Fixed
or variable cost (F or V). You will have two answers , D or I and F or V, for each of
the following statements:
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Statement D/ I F/ V
Fuel for preparation of Tea
Raw material used in food preparation for
staff cafeteria
Expenses incurred in training of Kitchen
staff
Salary of storekeeper
Oil used in preparation of kadhai chicken
Milk used for making of soup
Labor compensation in the kitchen
Basic Concepts of Profit Three main concepts of profit are normally used in
catering establishments: gross profit, net profit, and after-wage profit.
Gross profit Gross profit may be defined as the excess of sales over the materials.
Gross profit is also referred to as kitchen profit or bar profit, depending on whether it
is the gross profit on food operations or beverage operations.
Gross profit = Total sales Cost of materials
Factors affecting gross or kitchen profit and remedial measures:
Causes Remedial measures

Purchasing Re-check specifications
Poor or incorrect Change to more suitable supplier
specifications Monitoring of prices from all reliable sources
Poor and verbal Regular conducting of yield tests
ordering Plan menus according to availability of raw
Inefficiency of material or season
supplier Written order and must be placed by
Poor menu planning authorized person.
and yield analysis
Improper control on
receiving
Receiving Establishing the standard operating
Short receipts on procedures
delivery Spot and security checks on time of receiving
No one is authorized Comparing weekly issuing sheet with
to received requisition sheet
Unskilled, untrained Questioning to staff about their adequate
and inexperienced knowledge
staff Documentation of short supplies and ensure
Dishonesty specification of the commodities
Credit notes not
received
Storage Establishing the standard operating
Poor labeling procedures for storing.
Poor hygiene of Monitoring of stock levels and equipments
storage facilities Questioning to staff about their adequate
Poor maintenance knowledge
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and monitoring of Inspection and observation of storage area,

refrigerator, deep equipment and documentation.
freezer and cold Providing labels for marking stock properly
storage Review storage facilities
Poor layout and Ensure security of storage facilities
storage facilities
Lack of knowledge of
storage procedures
Unlocked store room
Preparations Establishing the standard operating
Over or under procedures of preparations.
ordering, Inspection and observation of preparation
preparations, area, equipment and documentation.
portioning Training of staff
Incorrect standard Provision of portion control equipments
recipe Checking of staff bags and checking stock
Poor use of leftovers between meals or overnight.
Accidents Cross examination of KOTs with Bills and
other documents.
Service Establishing the standard operating

Frauds and mistakes procedures and methods of detection.
Spot check
General vigilance
All alterations must be signed by supervisor.
Clerical errors Proper documentations
Poor communication Vigilance on careless employees
Arithmetical errors Training
Ensure clear communication
Other factors Establishing the standard operating
Poor stocktaking procedures and methods of detection.
Change in sales mix Spot check.
Net profit Net profit may be defined as the excess of sales over total costs.
Net profit = Total sales Total costs (materials + labor + overheads)
After-wage profit (net margin) After-wage profit may be defined as the excess of
sales over the cost of materials and labour costs.
After-wage profit = Total sales (material + labour costs)
Unit - 2 - SALES CONCEPTS
A. Various Sales Concept
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B. Uses of Sales Concept
Sales concepts
Sales: The term sale is defined as revenue resulting from the exchange of products
and services and value. In our industry Food & Beverage sales are exchange of the
products and services of a restaurant, bar or related for value.
Ways of Expressing Sales

There are two basic groups of terms normally used in F&B operations to express
sales concept:
1. Monetary Terms
2. Non-Monetary Terms
Monetary Terms
Total volume of sales expressed in Rupee terms.
Total sales by category expressed in rupee terms, e.g. Food Sales, Beverage
Sales.
Total sales per cover.
Total sales per server.
Total sales per meal period.
Sales Price.
Average sale.
Non-Monetary Terms
Total numbers sold, e.g. soups, steaks, and cocktails.
Total covers.
Covers-per hour, per day, per server.
Seat turnover.
Sales Mix.
Analytical problem
The following information is based on a 100 covers specialty restaurant:
Facts file:
Name of the restaurant: Trinca Location: Gomti Nagar, Lucknow
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Operating Hours: Lunch service: 1130 to 1530 Hrs and Dinner: 1930 t0 2330
Hrs
Restaurant operates 350 days in a year.
Average seats occupied: Lunch: 50 and Dinner: 175
Sales contribution: Food: 40% and Beverage 60%
Average check: Lunch: Rs.650.00 and Dinner: Rs.900.00
Costs: food cost 35%, beverage cost 35% , labor cost 15% and overhead cost
25%
Using the information, calculate all of the following:
Annual Food Revenue, Annual Beverage Revenue, Annual Lunch Revenue,
Annual Dinner Revenue, Total Annual Revenue, Seat Turn Over during lunch
and dinner, total annual labor cost, total annual overhead cost, The average
daily percentage seat occupancy during the year,
Annual food Gross profit, Annual Beverage Gross profit, Annual total gross
profit, Annual net margin, Annual net profit, Breakeven sales in covers and in
rupees.
Unit - 3 - INVENTORY CONTROL

A. Importance
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B. Objective
C. Method
D. Levels and Technique
E. Perpetual Inventory
F. Monthly Inventory
G. Pricing of Commodities
H. Comparison of Physical and Perpetual Inventory
U.3.A. Importance of inventory control:

Inventory control protects a company from fluctuations in demand of its
products.
It enables a company to provide better services to its customers.
It keeps a smooth flow of raw-materials and aids in continuing production
operations.
It checks and maintains the right stock and reduces the risk of loss.
It helps to minimise administrative workload, manpower requirement and even
labour cost.
It tries to protect fluctuation in output.
It makes effective use of working capital by avoiding over-stocking.
It helps to maintain a check on loss of materials due to carelessness or
pilferage (stealing).
It facilitates cost accounting activities.
It avoids duplication in ordering of stock.
U.3.B. Objectives of Inventory Management:

1. To maintain an adequate supply of materials to meet the requirements of the
business.
2. To achieve maximum efficiency in production & sales with minimum investment in
the inventory.
3. To facilitate purchasing.
4. To establish stock levels.
5. To determine rate of stock turnover.
6. To identify flow of items.
7. To avoid the problem of over and under stocking as well as running out of stock.
8. To prevent wastage, pilferage and spoilage.
9. To prevent fraud.
10. To provide data for management reporting.
U.3.C. Methods of inventory control:
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There are two methods to control the inventory of stores:
1. Physical inventory system

2. Perpetual inventory system
1.Physical inventory system:
A physical inventory system is a periodic actual counting of all the products in the
storage areas. Usually store items are counted once in a month and usually the
physical counting is done either before the normal opening timings of stores or after
the normal closing hours as otherwise it may disturb the normal issuing schedules to
various departments. In large organizations, a complete inventory may not be taken
at one time. Instead, inventories can be taken in parts on weekly basis. The
inventory process should involve at least two people out of which one is from control
department and is not directly involved with the store room operations. And the other
should be from the accounts department. One person counts the food which is
arranged systematically in the store room. The stores items are either stored in the
form of groups; like all pulses are stored at one place and all bottled and canned
items are stored at one place; or they are stored alphabetically. Usually the items
which are issued more frequently are stored near the delivery window and others
can be stored at different place. The other person records the data on a physical
inventory from which is designed according to the physical arrangement of foods on
shelves. This helps in taking the physical inventory of all the items in the shortest
possible time. The expensive items should be physically counted / weighed more
frequently.
PHYSICAL INVENTORY FORM
Date
s. no Quantity Unit size Food item Description Unit cost Total

on hand inventory
value
Taken by .. carry forward

inventory
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2. Perpetual Inventory:
The process of maintaining a continuous record of all purchases and items being
issued is called perpetual inventory system. This process provides a continuous
record of goods available at hand at any given time as well as the value of supplies
at hand. Generally a perpetual record is used to restrict the products in dry stores
and frozen stores. Perpetual inventory requires a considerable amount of labour to
maintain and is maintained only for selected items, usually, very expensive ones. A
perpetual inventory record is not sufficient for accurate accounting and control of
food and supplies. Therefore, it becomes necessary that a perpetual inventory is
tallies with the physical inventory.
PERPETUAL INVENTORY FORM
( For store room)
Item.
Store room
unit
Date Order no. Quantity in Quantity Quantity in hand

out
PERPETUAL INVENTORY FORM
( For bar )
Item Date B/F Quantity Quantity Balance Remarks

in out C/F
Taken by.
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U.3.D. Levels and technique:

Some of the most important techniques of inventory control system are:
1. Setting up of various stock levels.
2. Preparations of inventory budgets.
3. Maintaining perpetual inventory system.
4. Establishing proper purchase procedures.
5. Inventory turnover ratios.
6. ABC analysis.
1. Setting up of various stock levels:

To avoid over-stocking and under stocking of materials, the management has to
decide about the maximum level, minimum level, re-order level, danger level and
average level of materials to be kept in the store.
These terms are explained below:

(a) Re-ordering level:
It is also known as ordering level or ordering point or ordering limit. It is a point at
which order for supply of material should be made.
This level is fixed somewhere between the maximum level and the minimum level in
such a way that the quantity of materials represented by the difference between the
re-ordering level and the minimum level will be sufficient to meet the demands of
production till such time as the materials are replenished. Reorder level depends
mainly on the maximum rate of consumption and order lead time. When this level is
reached, the store keeper will initiate the purchase requisition.
Reordering level is calculated with the following formula:

Re-order level =Maximum Rate of consumption x maximum lead time
(b) Maximum Level:

Maximum level is the level above which stock should never reach. It is also known
as maximum limit or maximum stock. The function of maximum level is essential to
avoid unnecessary blocking up of capital in inventories, losses on account of
deterioration and obsolescence of materials, extra overheads and temptation to
thefts etc. This level can be determined with the following formula. Maximum Stock
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level = Reordering level + Reordering quantity (Minimum Consumption x Minimum

re-ordering period)
(c) Minimum Level:

It represents the lowest quantity of a particular material below which stock should not
be allowed to fall. This level must be maintained at every time so that production is
not held up due to shortage of any material.
It is that level of inventories of which a fresh order must be placed to replenish the
stock. This level is usually determined through the following formula:
Minimum Level = Re-ordering level (Normal rate of consumption x Normal

delivery period)
(d) Average Stock Level:

Average stock level is determined by averaging the minimum and maximum level of
stock.
The formula for determination of the level is as follows:

Average level =1/2 (Minimum stock level + Maximum stock level)
This may also be expressed by minimum level + 1/2 of Re-ordering Quantity.
(e) Danger Level:

Danger level is that level below which the stock should under no circumstances be
allowed to fall. Danger level is slightly below the minimum level and therefore the
purchases manager should make special efforts to acquire required materials and
stores.
This level can be calculated with the help of following formula:

Danger Level =Average rate of consumption x Emergency supply time.
(f) Economic Order Quantity (E.O.Q.):

One of the most important problems faced by the purchasing department is how
much to order at a time. Purchasing in large quantities involve lesser purchasing
cost. But cost of carrying them tends to be higher. Likewise if purchases are made in
smaller quantities, holding costs are lower while purchasing costs tend to be higher.
Hence, the most economic buying quantity or the optimum quantity should be
determined by the purchase department by considering the factors such as cost of
ordering, holding or carrying.
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This can be calculated by the following formula:

Q = 2AS/I
where Q stands for quantity per order ;
A stands for annual requirements of an item in terms of rupees;
S stands for cost of placement of an order in rupees; and
I stand for inventory carrying cost per unit per year in rupees.
2. Preparation of Inventory Budgets:

Organisations having huge material requirement normally prepare purchase
budgets. The purchase budget should be prepared well in advance. The budget for
production and consumable material and for capital and maintenance material
should be separately prepared.
Sales budget generally provide the basis for preparation of production plans.
Therefore, the first step in the preparation of a purchase budget is the establishment
of sales budget.
As per the production plan, material schedule is prepared depending upon the
amount and return contained in the plan. To determine the net quantities to be
procured, necessary adjustments for the stock already held is to be made.
They are valued as standard rate or current market. In this way, material
procurement budget is prepared. The budget so prepared should be communicated
to all departments concerned so that the actual purchase commitments can be
regulated as per budgets.
At periodical intervals actuals are compared with the budgeted figures and reported
to management which provide a suitable basis for controlling the purchase of
materials,
3. Maintaining Perpetual Inventory System:

This is another technique to exercise control over inventory. It is also known as
automatic inventory system. The basic objective of this system is to make available
details about the quantity and value of stock of each item at all times. Thus, this
system provides a rigid control over stock of materials as physical stock can be
regularly verified with the stock records kept in the stores and the cost office.
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4. Establishing Proper Purchase Procedures:

A proper purchase procedure has to be established and adopted to ensure
necessary inventory control. The following steps are involved.
(a) Purchase Requisition:

It is the requisition made by the various departmental heads or storekeeper for their
various material requirements. The initiation of purchase begins with the receipts of a
purchase requisition by the purchase department.
(b) Inviting Quotations:

The purchase department will invite quotations for supply of goods on the receipt of
purchase requisition.
(c) Schedule of Quotations:

The schedule of quotations will be prepared by the purchase department on the
basis of quotations received.
(d) Approving the supplier:

The schedule of quotations is put before the purchase committee who selects the
supplier by considering factors like price, quality of materials, terms of payment,
delivery schedule etc.
(e) Purchase Order:

It is the last step and the purchase order is prepared by the purchase department. It
is a written authorisation to the supplier to supply a specified quality and quantity of
material at the specified time and place mentioned at the stipulated terms.
5. Inventory Turnover Ratio:

These are calculated to minimise the inventory by the use of the following
formula:
Inventory Turnover Ratio
= Cost of goods consumed/sold during the period/Average inventory held during the
period
The ratio indicates how quickly the inventory is used for production. Higher the ratio,
shorter will be the duration of inventory at the factory. It is the index of efficiency of
material management.
The comparison of various inventory turnover ratios at different items with

those of previous years may reveal the following four types of inventories:
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(a) Slow moving Inventories:

These inventories have a very low turnover ratio. Management should take all
possible steps to keep such inventories at the lowest levels.
(b) Dormant Inventories:

These inventories have no demand. The finance manager has to take a decision
whether such inventories should be retained or scrapped based upon the current
market price, conditions etc.
(c) Obsolete Inventories:

These inventories are no longer in demand due to their becoming out of demand.
Such inventories should be immediately scrapped.
(d) Fast moving inventories:

These inventories are in hot demand. Proper and special care should be taken in
respect of these inventories so that the manufacturing process does not suffer due to
shortage of such inventories.
6. ABC analysis:
In order to exercise effective control over materials, A.B.C. (Always Better Control)
method is of immense use. Under this method materials are classified into three
categories in accordance with their respective values. Group A constitutes costly
items which may be only 10 to 20% of the total items but account for about 50% of
the total value of the stores.
A greater degree of control is exercised to preserve these items. Group B consists

of items which constitutes 20 to 30% of the store items and represent about 30% of
the total value of stores.
A reasonable degree of care may be taken in order to control these items. In the last
category i.e. group Q about 70 to 80% of the items is covered costing about 20% of
the total value. This can be referred to as residuary category. A routine type of care
may be taken in the case of third category.
This method is also known as stock control according to value method, selective
value approach and proportional parts value approach.
If this method is applied with care, it ensures considerable reduction in the storage
expenses and it is also greatly helpful in preserving costly items.
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U.3.E. Perpetual Inventory:

Perpetual inventory means the system of records, whereas continuous stocktaking
means the physical checking of those records with actual stocks. The perpetual
inventory method has the following advantages:
The stocktaking task, which is long and costly, is avoided under this method.
The management may be informed daily of the number of units and the value of
each kind of material at hand.
The investment in materials and supplies may be kept at the lowest point in
conformity with operating requirements.
A system of internal check is always in operation. This results in detailed and
reliable checks on the stores.
It is not necessary to stop production so as to carry out a complete physical
stocktaking.
Perpetual inventory records provide details about the cost of material for individual
products, jobs processes, production orders or departments.
Perpetual Inventory Card

Item Code : Unit Size : Par Stock :
Item Name: Unit Cost : Reorder Point :
Date Order # Received Issued Balance
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U.3.F. Monthly Inventory:

A physical inventory system or monthly inventory is a periodic actual counting of all
the products in the storage areas. Usually store items are counted once in a month
and usually the physical counting is done either before the normal opening timings
of stores or after the normal closing hours as otherwise it may disturb the normal
issuing schedules to various departments. In large organizations, a complete
inventory may not be taken at one time. Instead, inventories can be taken in parts on
weekly basis. The inventory process should involve at least two people out of which
one is from control department and is not directly involved with the store room
operations. And the other should be from the accounts department. One person
counts the food which is arranged systematically in the store room. The stores items
are either stored in the form of groups; like all pulses are stored at one place and all
bottled and canned items are stored at one place; or they are stored alphabetically.
Usually the items which are issued more frequently are stored near the delivery
window and others can be stored at different place. The other person records the
data on a physical inventory from which is designed according to the physical
arrangement of foods on shelves. This helps in taking the physical inventory of all
the items in the shortest possible time. The expensive items should be physically
counted / weighed more frequently.
PHYSICAL INVENTORY FORM
Date
s. no Quantity Unit size Food item Description Unit cost Total

on hand inventory
value
Taken by .. carry forward

inventory
U.3.G. Pricing of Commodities:

The stores ledger considers not only the movement of material in terms of quantity
but also in terms of financial implications. As such, it is necessary that all possible
movements of material are valued properly and expressed in terms of money. We
will consider this problem under the following heads:
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Valuation of receipts,
Valuation of issues and
Valuation of returns from production department to stores department.
Valuation of receipts: Valuation of receipts is a relatively easy task, as the invoice

or bill received from the supplier of the material is available as a starting point.
Following propositions should be considered for this purpose.
a. The price is billed by supplier will be the valuation of the receipts. The trade
discount is deducted from the basic price and all other amounts as billed by
supplier are added e.g. excise duty, sales tax, octroi duty, transport/ insurance
charges etc. there are different opinions in respect of the treatment of cash
discount. One opinion says that cash discount should be ignored, being purely
of a financial nature, while valuing of receipts, while other opinion says that
should be considered while valuing the receipt of the material.
b. In some cases, more than one item of material is included in one single bill
and some costs are jointly incurred for all the items of material. Such joint
costs may be distributed on the basis of the basic price of the material.
c. In case of imported material, the cost of material consists of a basic price (
which may be stated in foreign currency and should be converted in Indian
rupees), customs duty, clearing charges, transport charges, octroi duty etc. in
some cases, the point of receipt of imported material and the making of
payment of the invoice amount may be different. As such, the rate of foreign
currency may be different at the time of payment of the customs duty and at
the time of payment of invoice amount. In such cases, the rate of exchange
existing at the time of making the payment of invoice amount should be
considered for valuing basic cost of material imported.
Valuation of issues: This is a more complex process than the valuation of receipts.
Because of this reason, the material may be issued out of various lots, which might
have been purchased at various prices. As such, a problem may arise as to which of
the receipt prices should be used to value the material requisition notes. Various
methods may be used for this purpose, main methods of which are discussed as
below.
a) First In First Out ( FIFO): Under this method, the price of the earliest
available lots is considered first and if that lot is exhausted, the price of the
next available lot is considered. It should be remembered that the physical
issue of material may not be made out of the said lots, though it is presumed
that it is made out of these lots as stated above.
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Merits of FIFO :
It is simple to operate.
It considers the valuation of closing stock at the current market prices.
It can be conveniently applied if transactions are not too many and the
prices of the material are fairly steady.
The objections raised against this method are as follows:
Calculations become complicated if the lots are received frequently and at

varying prices.
Costs may be wrongly presented if the prices of different lots of material with
different prices have been issued to batches of production.
In case of varying prices, the pricing of issues does not consider current
market prices.
b) Last in First Out ( LIFO)
Under this method, the price of the latest available lots is considered first and if
that lot is exhausted, the price of the lot prior to that is considered. Here also, It
should be remembered that the physical issue of material may not be made out
of the said lots, though it is presumed that it is made out of these lots as stated
above.
Merits of LIFO :
It is simple to operate.
The cost of materials issued considers fairly recent and current prices. The
prices quoted on this cost fairly represent the real cost.
It can be conveniently applied if transactions are not too many and the
prices of the material are fairly steady.
The objections raised against this method are as follows:
Calculations become complicated if the lots are received frequently and at

varying prices.
Costs may be wrongly presented if the prices of different lots of material are
used for pricing issues to various batches of production.
In case of falling prices in the market, this method give wrong results.
c) Average Price Method
Both the above methods i.e. FIFO and LIFO, consider the exact or actual cost
valuing the issue of material. However, these methods may prove to be
disadvantageous if the transactions are too many and are at varying prices. In such
IHM CHENNAI - 113
cases, instead of considering the exact or actual cost, average cost may be
considered to lessen the effect of variation in prices, either upward or downward.
Ways to consider average price: There are mainly two ways in which average
prices may be considered:
1. Simple Average Method: under this method, the simple average of the
prices of the lots available for making the issues is considered for pricing the
issues. After the receipt of new lot, a new average price is worked out. It
should be remembered in this connection that for deciding the possible lots
out of which the issues could have been made, the method of FIFO is
followed.
This method is suitable if the material is received in uniform quantity, if the

material quantity of each lot varies widely, this method lead to wrong results.
2. Weighted Average Method: This method considers not only the price of
each lot but also the quantity of the same. In simple average method, if the
quantity of each lot of material received varies widely, then the valuation of
issues may lead to wrong results. Weighted average method overcomes this
drawback of simple average method.
d) Highest In First Out: This method assumes that the stock should always be
shown at the minimum value and hence the issues should always be valued
at the highest value of receipts. For example, assume a situation as follows:
March 1 Purchased 100 Units @ 12
On March 20, 120 units are issued to production and they will be valued @ 18
per unit ( as Rs 18 is the highest value of receipts to value issue).
This method is not very popular. It always overvalues the issues and undervalues
the closing stock. This method may be useful in case of the organization dealing
with monopoly products, which is a rare possibility.
e) Market Price: Under this method, market price is considered to be the base
for the pricing the issues. In this case, market price may be treated as the
latest purchase price, realizable price or replacement price. This method is
used in mainly in respect of obsolete stock items or non-moving stock items.
The defect in respect of this method is that the price concessions obtained in
respect of bulk purchases are not reflected in the cost of material.
IHM CHENNAI - 113
f) Specific Price: if the material is purchased against a specific job or

production order, the issue of material is priced at actual purchase price. This
method can be adopted if the purchase prices are fairly stable.
g) Standard Price: This is the normal or ideal price which will be paid in the
normal circumstances, based on the basis of estimated market conditions,
transportation costs and normal quantity of purchases. Any issue of material
will be priced at standard prices irrespective of actual prices. This enables the
simplification of accounting system with reduced clerical work and also
enables to decide the efficiency of purchase manager.
Valuation of Returns: This indicates the material returned by the production

department to stores department. The way in which the returned material may be
valued can be as below:
1. At the same price at which issued: The original price of issue will be a base
for the returns for which original material requisition note will be the base.
2. At the current price of issues: The method that is followed for valuing the
issue on the same date is considered for valuing the returns.
This will avoid the clerical efforts, but at the same time the track of original
issue of material cannot be maintained.
U.3.H. Comparison of Physical and Perpetual Inventory:
A perpetual inventory is an inventory that is maintained on a regular basis by the

concerned departments, taking into consideration the issues and usage. On the
other hand, physical inventory is an inventory which is recorded on the basis of
regular checks which can be fortnightly, weekly or monthly, depending upon the
organizations policies. When we are talking about a comparison between the
perpetual and physical inventory; we mean that the perpetual inventory should be
equal to the physical inventory, i.e., the goods entered in the perpetual inventory
should match with the goods that result from the physical inventory. If there is large
discrepancy, i.e., any extra stock or stock not matching with that of a physical
inventory, desired actions need to be taken and any disciplinary action if it needs to
be taken, should be prompted.
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Unit - 4 - BEVERAGE CONTROL

U.4.A. Purchasing
U.4.B. Receiving
U.4.C. Storing
U.4.D. Issuing
U.4.E. Production Control
U.4.F. Standard Recipe
U.4.G. Standard Portion Size
U.4.H. Bar Frauds
U.4.I. Books maintained
U.4.J. Beverage Control
U.4.A. Purchasing
Purchasing may be defined as a procurement function concerned with search,
selection, purchase, receipt, storage and final use of commodity in accordance with
the catering policy of the establishment. According to John Stefanelli the food
service purchasing involves:
Developing purchase specifications.

Preparing an approved suppliers list.
Determining appropriate order size.
Establishing appropriate receiving and storage procedures.
Duties and responsibilities of Purchase manager
The Purchase Manager is responsible to the administration of the purchase

department.
Responsible to maintain and upkeep of all purchase documents.
For all purchases obtain proper requisition from with specification for item and
Budget Code duly authorized and inky then place written purchase orders.
Locate surveyors/vendors, find out there they are situated and extend of their
resources.
Maintain a choice of vendor and suppliers.
Establish Lead Time of delivery of various vendors.
Be familiar with Governmental procedures of import.
Maintain cordial relation with food production, control, accounts Government
agencies and vendors and marketing.
IHM CHENNAI - 113
Qualities to be adhered by a Purchase Manager

(a) Have knowledge of commodities.
(b) Know the basis cuts of meats and the differences between various goods.
(c) Be familiar with method of processing, grading, packing of the fresh / canned
.frozen and dehydrated fruits, vegetables groceries and staple.
(d) Have a general knowledge of crop condition in market.
(e) Carry outlines to establish quality of Purchase.
(f) Advise and guide the Food and Beverages Manager/Chief in planning their
menus,
(g) Visit the local fruits and vegetables markets to find out prices and seasonal
items and advise Management accordingly.
Knowledge of commodities to be purchased To implement effective purchase

arrangement the Purchase Manager shall be require to have thorough knowledge
of various merchandise to be bought with a view to acquire knowledge of the
following:-
1. Description of the items.
2. Sources of supply and availability the year.
3. Quality characteristic of various products.
4. Right markets price- both wholesale and retail.
5.
Purchasing control consists of developing Standards and Standard procedures

for purchasing and outlines the following:
1. Purchasing policy
a. Corporate
b. Centralized or Decentralized
2. Purchasing research
a. Markets and Materials
b. Marketing channels
c. Price trends
3. Product evaluation and assessment
a. Product testing
b. Yield testing
4. Purchase specifications
a. Food
b. Beverage
5. Purchasing methods
a. By contract
b. By quotation
c. By cash & carry etc.
6. Clerical procedures
a. Documentation
b. Information processing
IHM CHENNAI - 113
Purchasing Procedures
1. Initiation of Check authorization: Ex. Chef, F&B Manager,

Purchase Storekeeper
requisition Check purchase specification: Food or Beverage
2. Determination of Select and approve suppliers
Source of supply Negotiate price & delivery requirements
Invite quotations
3. Evaluation of Evaluate quotations
proposals and Select most favorable quotation
Placement of Place purchase order
purchase order Follow up purchase order
4. Receiving supplies Verification of invoice / delivery note against purchase
order
Transfer of commodities to user departments
5. Closure of purchase Forwarding details of purchase transaction to purchase
transaction office
Payment for materials
IHM CHENNAI - 113
Purchasing Transaction
Requisition from an authorized person
Check purchase specification

Purchasing
Office
Check previous purchases Records
of same/similar commodities
Enquiries to new
suppliers Select a supplier
Details & from a list of
Approve and select quotations from approved
supplier suppliers suppliers
Select supplier
Negotiate price and delivery
requirements
Delivery requirements
Purchase Order Place the Purchase Order
Delivery note
Invoice Transaction completed
Statement
IHM CHENNAI - 113
Fig: The Purchase Transaction - under the supervision of the Purchasing

Manager
Product evaluation and assessment: Manufacturers and suppliers offer wide

range of same products and they must be evaluated carefully. Product assessment
is carried out not only to identify the right product but also to indicate where current
practice can be adapted in order to achieve the best product at the least cost. Each
product has to be evaluated in relation to a given type of catering outlet and set of
production circumstances. The task of product evaluation and assessment is a
continual activity. The approach of evaluating a product will vary according to
complexity of the product. For example, the examination of cooking oil will require a
fairly simple set of tests and comparisons. A product which has a wide variety of
components will require a more intricate record of comparable details. Manufacturers
goods are concerned some evaluation and generally these products are assess on
the basis of manufacturers own specifications.
Stages of product evaluation:
Set up a range of products to be examined

Go through the specifications thoroughly given by the manufacturer/
suppliers.
Record all known facts of cost and yield and compare the information ( see
yield test summary format)
Carry out product test and record the result.
It is also advisable to gauge the customer acceptability by offering blind test to the
publics. A simple 1-10 grading system can be used. To public test, for example,
Malai Kofta , offer a different combination of items each day, await customers
comments and of course the amount of plate waste at the end of each day.
Methods of Purchasing: The modern caterer has a wide range of buying methods
to consider. The decision to buy a range of products from a supplier is based on
prices, quantity, delivery requirement and availability of storage premises.
Purchasing methods also affected by the menu and the type of operation being run
and finally the budget. Whatever method of purchasing is chosen to a particular
range of goods the purchase manager must determine the type, grade and quality of
goods required.
Following are the different methods of purchasing:
Purchasing by contract
Purchasing by daily market list
Purchasing by weekly/fortnightly quotation list
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Purchasing by cash & carry

Purchasing by Paid Reserve
Purchasing by contract
There are two common types of contracts used, namely:
The Specific Period Contract: This form of contract is concerned with purchasing
commodities at a fixed price for a stated period of time (3 or 6 months) from a
selected list of vendors. For e.g. perishable products such as milk, cream, bread,
biscuits etc. can be contracted in this way.
The advantages of this method are the safeguarding of continuity of supply of the
items for a known period, at a known and stable price, and thus saving unnecessary
time and labour by having weekly negotiations and additional paper work.
The Quantity Contract: This form of contract is concerned with purchasing a

specific quantity of commodities at an agreed price over a particular trading period
(e.g. summer season). For example, frozen fish, frozen fruits and vegetables for use
in a summer season can be contracted in this way.
The advantages of this method are the safeguarding of continuity of supply of the
items for a known period, at a known and stable price, and thus facilitating accurate
pricing of menus.
Purchasing by Daily Market List

This form of buying is particularly used for perishable foods, where to ensure
freshness they have to be purchased on a daily basis; also where the market price
for the commodity fluctuates daily.
HOTEL HM
Daily Market List
= Supplier / Price
Selected / Agreed Date:
____________
Supplier Price Quotations

Items Specificatio On Wante A B C D
ns hand d
Fruits
Apple
Cooking ----- 10 kg. . 20/- Rs.25/- Rs.30/-
Apple kg. per kg per kg
Dessert ----- 15 kg.
IHM CHENNAI - 113
Fig: Format of Daily Market List
Purchasing by Weekly / Fortnightly Quotation Lists

This form of buying is commonly used for grocery-type commodities where the
perishability of the items is not such an important factor and a delivery of once a
week or fortnight is adequate.
HOTEL HM
Master Grocery Quotation List
= Supplier / Price
Selected / Agreed Date:
____________
Supplier Price Quotations

Items Specifications On Wanted A B C D
hand
Canned Fruits
Apple
Kissan ----- 10 c/s . 40/- 45/- 50/-
c/s
Fruit cocktail c/s c/s
Dippys ----- 15 c/s
Fig: Format of Master Grocery Quotation List
Purchasing by Cash and Carry :This method is of particular interest of the

medium and small establishment whose orders are often not large enough to be
able to get regular deliveries from wholesalers and food manufacturers.
The particular advantages of buying by `cash and carry are:
1. Cash and carry establishments are situated near to most catering

establishments.
2. Small or large quantities may be purchased at competitive price.
3. Cash and carry establishments are useful in emergencies or when special offers
are being made.
4. Customers are able to see what they are buying, as against buying just from a
price list or catalogue.
There are two disadvantages of buying by `cash and carry:
1. Caterers have to provide their own staff and transport to collect the items from
the outlet.
2. Caterers have to pay cash for the items they purchase.
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Purchasing by Paid Reserve This method is used when it is necessary to

ensure the continuity of supply of an item for the menu which is of particular
importance to a restaurant. Caterers are buying in advance a large quantity of a
commodity to cover the needs for several months ahead, and requisitioning their
weekly requirements from suppliers, who would hold the stock. Examples of
products which are purchased by this method are frozen jumbo size pacific
prawns and frozen fillets of beef.
Hotel HM
Purchase Order
To, Purchase order No.: _________
Date: ___________________
Requisition No.: ___________
Department.:
___________________
Ship to: ________ F.O.B. Via _________
Item Description Quantity Unit Price/ unit Total cost
Total value of order:

Terms & Conditions:
1.
2.
3.
4.
Purchase
Manager
IHM CHENNAI - 113
Fig: Format of Purchase Order
Hotel HM
Purchase Requisition Form

To Purchasing office/Store Requisition No.: FB 1201
From: F&B Manager Purchase Order No.: 1542
Date: April 2, 2011 Date Required: April 5, 2011
Item # Description Quantity Unit Unit Total cost
Price/Unit
Requested by: __________ Approved by: __________ Date

Ordered ______
Fig: Format of Purchase Requisition Form
Points to be considered while selecting a supplier:
From previous supplier

Full details of firm & range of items
Copies of recent price lists
Details of trading term
Details of other customers
Sample of products
Physical observation: size of processing & storing facilities & transport fleet
Finally evaluate performance
Suppliers performance can be evaluated by awarding the marks on previous
performance records of the supplier.
U.4.B. Receiving:Aims of Receiving

The receiving process is concerned with the task of monitoring the receipt of all
incoming merchandise thoroughly and systematically to ensure that the quantity,
quality and price of each item delivered conforms exactly to the order placed.
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Organization structure of receiving department

Chief Accountant
Accounts Assistant
Receiving Assistant
Utility Workers
Field Workers
Importance of Receiving Department:
Not a revenue producing department.

Control of quality and quantity.
Receiving of items through purchase orders/ daily perishable items.
to keep a note regarding the agreement with the suppliers
Standard specifications are taken into the consideration.
Duties and Responsibilities of Receiving Officer:
Receiving of goods by quality and quality.
Compare with challans /bills/purchase orders.
Checks for quality, packing, specifications and quality.
In case of items for maintenance, housekeeping, stewarding, etc. it is checked
by quantity.
In case of perishables these are checked for quality by the Main Kitchen
Chef and by the Butchery Chef in case if butchery items only.
Selling of the scrap also.
Making daily Receiving report, shortage receipt, scrap report, Gate pass and
soft drinks book.
Location of Receiving Department

Ideally, receiving department should be located near the delivery door, purchase
department and stores to minimize the time and effort in movement of goods into
appropriate storage areas.
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Facilities
Motor able road up to the entrance, (8 feet to 10 feet).
Platform for unloading delivery trucks.
Ramp to facilitate unloading of other delivery vehicles.
Layout plan
Well lighted and adequately ventilated receiving area
Interior distribution:
Receiving clerks office
Weighing section
Washing section
Packaging section
Empties outward section
Receiving Equipment
Weighing scales: Platform, Counter, Hanging.
Hand/Fork lifts trucks, Movable shelves, Trollies and Carts for transporting
goods.
Bins, Baskets, Waste bins.
Tools such as Can opener, Crow bar, Claw hammer, Short bladed knife for
opening containers and packages.
Thermometer for checking temperature of frozen foods.
Marking & Tagging equipment
Office equipment: table, file cabinet, calculator, computer, stationery etc.
Receiving schedule: Receiving department of most of the hotels follow the

schedule and basic purpose to make a schedule to control the flow of goods and
assure the quality and convenience to suppliers as well as department.
Receiving documents
1. Documents from the supplier
Delivery Notes
Invoice/Bills
Statements
Credit Notes
2. Documents maintained in the Receiving department
Goods received book
Daily receiving report
Meat tags
Delivery Notes
IHM CHENNAI - 113
These are sent with goods supplied as a means of checking that everything ordered
has been delivered. The delivery note should also be checked against the duplicate
purchase order.
Invoices / Bills
These are bills from a vendor for goods supplied or services rendered. An invoice
should be sent on the day the goods are dispatched or the services are rendered or
as soon as possible afterwards. Invoices contain the following information:
The word Invoice
Name, address, phone and fax of the firm supplying the goods or services.
Name and address of the firm to whom the goods or services have been
supplied.
Date on which the goods or services were supplied.
Particular of goods or services supplied together with prices.
Particulars of discounts, if any and taxes as applicable.
Statements
These are summaries of all invoices and credit notes sent to clients during the
previous accounting period, usually one month. A statement is usually a copy of a
clients ledger account and does not contain more information than is necessary to
check invoices and credit notes.
Credit Notes:These are advices to clients, setting out allowances made for goods
returned or adjustments made through errors of overcharging on invoices.
Goods Received Book / Daily Receiving Report: This is used to record the details
of all the deliveries of goods made by the suppliers.
Goods Received Book
HOTEL HM
Goods Received Book Date:
Deliv Suppl Total Dry Meat Poultr Fish Kitch Carve Main VAT
ery ier Stor y en ry kitche
Note e staff n
1234 ABC 150. 50. 2000. 1000. 1500. 500.0 2000. 2000. 1000.
& Co. 00 00 00 00 00 0 00 00 00
IHM CHENNAI - 113
Fig: Format of Goods Received Book

Credit Memorandum
HOTEL HM
Credit Memorandum/ Form
To,
ABC Enterprises
Date:
Hazratganj, Lucknow
No. :
Please issue your credit memo for items listed below with cost:
Quantity Unit Item Price TOTAL Remarks

14 Kgm Frozen liver 250.00 3500.00
05 Kgm Top side of 200.00 1000.00

beef
Reason: 1. Liver not delivered but invoiced

2. Beef not as per specifications.
F& B Controller Acctt. Deptt Van driver Requested by
Fig: Format of Credit Memorandum
Receiving procedure
1. Quantity inspection
To ensure that the quantity of the goods delivered is in accordance with quantity
listed on the purchase order / invoice. This means that all goods will have to be
weighed (for example, fresh fruits, vegetables, meat, etc.) or counted (for
example, cases, crates, boxes, sacks, etc.)
IHM CHENNAI - 113
2. Quality inspection
To ensure that the quality of the goods delivered is in accordance with the quality
established in the standard purchase specifications of the establishment.
3. Price inspection
To ensure that prices stated on the invoice/delivery note are in accordance with
the prices on the purchase order / invoice.
4. Dispatch to stores/user departments
The goods, having been checked for quantity, quality, and price must be removed
from the receiving area to appropriate stores/user departments. For example,
perishable food items to the kitchen and all other food items to the stores.
5. Clerical procedures
Invoice stamping to acknowledge the receipt of supplies.
Recording invoices on goods received book.
Raising Request for Credit Note for shortages, breakages, sub-standard
items etc.
Filling out meat tags for expensive food items.
Forwarding completed paperwork to purchase office.
Suggested guidelines for receiving department:
Compare purchase order/ daily Perishables order with the delivery

challenges, for correct quality, price packing and items.
Preparing of Daily Food Receiving Report and tags fro perishables and meat
items.
Preparing of Beverage receiving Report for the liquor, smoker and Soft
Drinks.
Preparing of Miscellaneous Receiving Report (with subject to approval) from
the department concerned.
S. No. Items Circulation of copies
1. i) 1st copy F&B Control

Food receiving report ii) 2nd copy book copy.
2. i) 1st copy F&B Control
Beverage Receiving Report ii) 2nd copy book copy.
3. i) 1st copy attached to bill to the challan

Miscellaneous Receiving ii) 2nd copy book copy.
4. i) Security
Gate Pass Book ii) Purchase
iii) Book copy
IHM CHENNAI - 113
i) Accounts
5. Scrap Sales Book ii) Purchase
iii) Book copy
i) Chief accountant
6. Soft Drink Record Book ii) F&B Manager
iii) F&B Control Department
iv) Book copy
Note:
Gate pass book preparing for the scarp items.

Preparing of scrap items sales book.
Preparing of soft drink record book.
Invoice Receiving: The method of receiving goods against the invoice

accompanying the goods being delivered by the supplier.
Blind Receiving: The method of receiving goods against purchase order with
quantity column blanked out. The main purpose of the system is to compel indifferent
receiving clerks to weigh and count all goods coming into the establishment. The
system works as follows:
The receiving clerk is sent a copy of the purchase order which lists the goods to be
purchased but does not show the quantities of such goods.
The receiving clerk is required to count and weigh all goods received and record the
quantities of all incoming goods.
Note: All invoices/delivery notes, in such circumstances, are sent direct to the
accounts office. The receiving clerk has, therefore, no access to these documents.
Assessing Performance and Efficiency of the Receiving Department

The purchasing officer must be responsible for the receiving department and for its
operating efficiency. In order to discharge his responsibility, he must consider the
following points:
1. Maintain a very close working relationship with the staff in receiving department.
2. Conduct spot-checking different suppliers deliveries each week for quantity,
quality and price.
3. Check if all the necessary paperwork is done properly and in time.
4. Ensure that the receipt of goods is done as quickly as possible and sent direct to
the stores, cellar or any other user department.
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Hygiene & Cleanliness of the Receiving area
The following points must be considered to ensure hygiene & cleanliness of the
receiving area:
1. Receiving area should be well lighted and adequately ventilated.
2. Receiving areas must be clean and free from litter.
3. Waste bins, empty return boxes, etc. should be kept tidy and safe.
4. Waste bins must be kept with lids on and emptied frequently and kept clean.
5. All receiving equipment should be kept clean and functional.
Yield : The number of portions produced by a given standard recipe.
HM HOTEL
Yield Test Summary Report
Item: Chicken Curry Total raw weight as purchased: 3 Kg
400 gm
Purchase specification: 437 Total cost: Rs.408.00
Standard recipe No.: 520 Cost per Kg.: Rs.120.00
Cooking and preparation Weight in Percentage original weight
details Kgm.
As purchased weight 3 .400 100%
(less) initial trimming .680 20%
Presentation weight 2.720 80%
(less) un-servable weight & .544 16%
skin
Total servable weight 2.176 64%
Ratio of servable weight to original weight
= servable weight = 2176/3400 = 64%
original weight
Cost per servable Kg
= as purchased price per Kg = 120/ 64 =187.50
% original weight
Cost Factor
= cost per servable Kg = 187.50/ 120 =1.5625
as purchased price per Kg
Portion cost (at 250 gm per portion size)
= cost per servable Kg = 187.50/4 = Rs.46.875
no. portions per servable Kg
IHM CHENNAI - 113
Analytical Problem: (complete the following table):
HM HOTEL
Yield Test Summary Report
Item: Lamb cutlet Total raw weight as purchased:
4.200 Kg
Purchase specification: 650 Total cost: ?
Standard recipe No.: 234 Cost per Kg: Rs.200.00
Cooking and preparation Weight in Percentage original weight
details Kgm.
As purchased weight 3.400 100%
(less) initial trimming 17.3%
Presentation weight
(less) un-servable weight & 21.2%
skin
Total servable weight 61.5%
Ratio of servable weight to original weight
= servable weight =
original weight
Cost per servable Kg
= as purchased price per Kg =
% original weight
Cost Factor
= cost per servable Kg =
as purchased price per Kg
Portion cost (at 120 Gm per portion size)
= cost per servable Kg =
no. portions per servable Kg
U.4.C. Storing:
After purchasing and receiving beverage products, managers most often must store
products until the products are issued to the bar area. Just as purchasing involves
more than calling in an order and receiving requires more than putting things in the
storeroom, so must the beverage manager be concerned about proper storage and
issuing practices. A beverage operations financial goals are directly affected by
storage practices. If products are stored correctly, all of the products that are
purchased will be used to generate revenue. However, if products are not properly
stored they can be broken, damaged, or stolen. Any of those outcomes will result in
increased costs. When products are purchased and paid for but then not used, more
products will have to be purchased at additional cost to generate the same amount
of revenue. Product quality and cost concerns must be addressed when managers
plan storage procedures. If this is not done, all of the efforts to maintain quality and
cost standards when products were purchased and received will have been wasted.
IHM CHENNAI - 113
Fortunately, the best storage procedures do not require excessive time or costs to
implement and maintain. Most beverage products are relatively nonperishable.
Unlike perishable food products such as dairy items and produce, most properly
stored beverages can be held for long periods of time without this concern.
Managers must, however, implement procedures to keep products secure, to
maintain quality, and to provide information necessary for accounting systems. Each
of these concerns is addressed separately.
Keeping Inventory Secure

Security at the time of beverage storage requires managers to address several
important questions:
How much product should be available?
How much product is available?
What procedures are needed to keep unauthorized personnel from gaining access
to storage areas?
Managers use a variety of procedures to help reduce the possibility of product theft
while it is in storage:
Access to storage areas should be limited to the fewest possible number of staff
members needing this access. Keep storage areas locked when possible. In some
operations, beverage storage areas are always locked except during times when
products are issued.
Use separate and locked refrigerated storage areas for beverage products. If
possible, separate wines that need to be chilled, for example, from other refrigerated
products. In some cases, one compartment of a reach-in refrigerator can be used for
this purpose. Or alternatively, a lockable shelving unit within a walk-in refrigerator
can be used.
Practice effective inventory control procedures. It is critical that the manager know
the amount of each product that isand should be available in storage areas.
If beverage products must be issued during the shift, a manager or supervisor
should be the one to do this, if possible. Not only does this practice encourage
effective issuing, but it also helps maintain control over door keys and access to
storage areas.
Storage areas must be effectively designed. Doors and walls must extend to the
ceiling; windows are unnecessary. Storage area alarm systems should be
considered.
Use other control practices, if needed. Some operations, for example, keep the
most expensive items locked in areas within lockable storage areas. Closed-circuit
television systems and motion detectors are also used in some operations.
Retaining Product Quality

Beverage products should remain in storage areas for the shortest reasonable
amount of time possible. However, it is still necessary to practice effective storage
strategies to retain product quality during storage. These are practices that help
maintain product quality when beverages are in storage:
Mark incoming products. Put the date of delivery on cases or bottles of beverage
products.
IHM CHENNAI - 113
Rotate beverage products. With the date of entry into storage areas clearly marked
on the bottle or case, it becomes possible to ensure that the products in inventory
the longest are issued first.
Keep storage areas clean. Routine cleaning is important; so are regular pest
control efforts. Maintain effective lighting so that the results of cleaning programs can
be easily inspected.
Maintain product-specific storage temperatures for beers, wines, and spirits.
Beer Storage
Beer has the shortest storage life of any alcoholic beverage. Canned and bottled
beer may generally be stored at temperatures between 40F and 70F (4.5C and
21C). However, all but the strongest beers should not be stored for longer than
three to four months. Beers with ABVs above 8 percent can be stored and aged for
longer time periods. Most beers kept in storage too long will lose their flavor and their
aroma. In addition, unpasteurized beer should be refrigerated at all times and all
beer should be kept out of direct sunlight. Beer bottles should be stored upright to
avoid leakage. Beer cans packaged in cases may be stacked. All bottles and cans
should be stored in a way that minimizes the chance for dirt and dust to come into
contact with the beer containers. Keg beers should be stored in a manner that allows
for easy keg movement and for ease in tapping. Beer storage areas should also
allow for easy product rotation and ease of taking inventory.
Wine Storage
The most important factor in wine storage is even temperature. Temperature
fluctuation in wine storage areas should be avoided. There is no single best
temperature for storing wines. Rather there are a range of acceptable temperatures
that vary based on the length of time the wine is expected to be held in storage.
Many wine experts agree that wines are best served at cellar temperature, generally
considered to be between 65F and 70F (18C and 21C). The best temperatures
for long-term storage of five or more years for red wines is lower, usually between
55F and 60F (13C and 16C) For shorter-term red wine storage of less than five
years, and for storing white wines, temperatures up to 70F (21C) are acceptable. It
is not advisable to store any wine in areas where temperatures exceed this level.
White wines may be stored under refrigeration temperatures of approximately 41o F
(5o C) for several months with no loss of quality. In addition to proper temperature
control, managers must ensure humidity control in wine storage areas. If the
humidity level is too high, meaning the air is too damp, molds may grow and damage
labels, foil wrappings, and corks. If humidity levels are too low, corks may dry out
and cause leakage. Humidity levels between 50 and 70 percent are best for most
wines. Air-conditioned storage areas generally can provide proper temperature and
humidity control. Sunlight is the enemy of proper wine storage. While most wines are
stored in colored glass to minimize the effects of light, care must still be taken to
keep wines out of direct sunlight. Bottles of still and sparkling wines should be stored
on their sides so that wine is always in full contact with the bottles cork. This contact
with the wine keeps the cork moist and expanded, and prevents it from drying out
and causing wine spoilage. Fortified wines and any spirits closed with cork should be
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stored upright as the higher alcohol content of these products can, over time,
damage the corks and cause leakage. Wines and spirits closed with plastic or metal
stoppers or screw caps may also be stored upright. Wine products in cases should
be stored off the floor to permit air circulation and prevent mold.
Spirits Storage
In general, spirits may be stored for several years at common dry storage
temperatures between 50o F and 70o F (10o C and 21o C). Bottles should be stored
upright with their labels facing out for ease of taking inventory. Spirits storage areas
should be kept clean and secure.
Other Product Storage

In addition to dry storage areas for bar supplies such as extra glassware,
carbonated beverages, napkins, straws and the like, bars most often will require
additional refrigerator and freezer storage areas. Storage for refrigerated items must
include adequate space for fruit and vegetables for garnishes, mixers, and dairy
products such as milk and cream. Freezer storage is needed for ice creams and
sherbets as well as some concentrated drink mixes.
U.4.D. Issuing
Issuing is the process of moving products from storage rooms to drink production
and service areas. The correct quantity of products must be issued to meet
estimated guest demand. This process must be carefully controlled to minimize
product misuse and so managers can match issues of items with the amount of
revenues they should produce.
Importance of Effective Issuing

Should there be some relationship between the quantity of drinks sold by the
operation and the quantity of products removed from storage areas? Of course there
should be, and effective issuing practices best ensure that this happens. Some
managers allow any employee who needs something from storage to retrieve what is
needed at any time. When this tactic is used, every employee is really in charge of
issuing. For example, bartenders obtain spirit products, dining-room servers may
retrieve wines, and other employees may be permitted to enter storage areas to
obtain additional glassware or other items. In each of these cases, the security of
products is put at risk. Beverage managers must do all that is practical to control
beverage products at the time of issue. Beverage costs are increased if there is a
lack of control in this process. Given the importance of security, it is difficult to justify
the open-door policies that exist in some operations. Beverage operations come in
all sizes. Large operations may have a full-time receiving and issuing staff member
whose duties involve only these two tasks. The vast majority of beverage operations,
however, do not employ staff members with only receiving or storing duties. As a
result, control at time of product issue in these organizations can become a
challenge. In most cases, beverages should be issued from product storage areas
on a regular schedule. For example, bars can be stocked at the beginning of the day,
end of the day, or between busy shifts. If regularly scheduled stocking of bars takes
place, the number of emergency issues during busy bar shifts should be minimized.
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Managers must ensure that their employees use basic procedures for issuing
beverage products:
Bottles should be issued on a bottle-for-bottle basis to reestablish production area
par levels.
The bartender readying the area for stocking can complete an issue requisition, but
the beverage manager should then sign it prior to any product issuing. Note that the
bartender would fill out the first three columns of the form. Either the storage area
personnel or the manager fills out the remaining two columns. Once completed,
beverage issue requisitions can be used for calculating daily beverage costs and for
completing perpetual inventory records.
Inventory Turnover Rate

One way to better manage the size of a beverage inventory is to calculate the
inventory turnover rate: the number of times each accounting period, typically a
month, that the quantity of beverages in inventory must be purchased to generate
the beverage revenue for that time period. Inventory turnover rates measure the
frequency with which beverages are ordered and sold. The formula for the inventory
turnover rate is:
Cost of goods sold (COGS) / Average amount in inventory = Inventory turnover rate
The cost of goods sold (COGS) is the cost to purchase the beverage products that
generated beverage revenue within a specific time period.
U.4.E. Production Control

Standards must be established for the quantities of ingredients used in drink
preparation, as well as for the proportions of ingredients in a drink. In addition,
drink sizes must be standardized. When standards are set for ingredients,
proportions, and drink sizes, customers can have some reasonable
assurance that a drink will meet expectations each time it is ordered. Once
these standards have been established and procedures have been developed
for training employees to follow them, they can be adhered to even in the
face of a high rate of employee turnover.
By establishing and maintaining these standards, managers also establish

a means for controlling costs. When drinks are prepared by formula and
served in standard portion sizes, one portion of any drink prepared (e.g., a
daiquiri) should cost the same as every other portion of that same drink. In
addition, because the sales prices for drinks are fixed, the cost - to - sales ratio
for one portion of any drink should be the same as the cost - to - sales ratio for
every other portion of that drink. If this is true, the cost - to - sales ratio for the
overall operation should be reasonably stable, provided that sales remain relatively
constant.
Simply stated, once standards and standard procedures for beverage
production have been established, it becomes possible to develop a standard
cost percent for operation with which the actual cost percent can be compared.
This subject is discussed in greater detail in the next article.
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Establishing Quantity Standards and Standard Procedures

As suggested earlier, one of the first steps in establishing control over beverage
production is to standardize the quantities of the most costly ingredients
used: the alcoholic beverages. The quantities used by the bartender must be
controlled. To do so, one must determine in advance the specific quantities
to be used for the production of drinks and then provide the bartender with
a means of measuring those quantities.
Most drinks prepared with spirits are a combination of one kind of

liquor and a mixer. Scotch and soda, gin and tonic, rye and ginger ale, and
rum and cola are all examples of this type of drink.
A manager must determine in advance the specific quantity of the expensive
ingredient the
liquor that a bartender should use to prepare any drink. The amount varies
from bar to bar, but most have identified quantities that fall between two
extremes as little as three - quarters of an ounce in some bars to as much
as 2 ? ounces in others, although the author s experiences suggest that most
bars serve 1? to 1? ounces in their drinks. This quantity standard is established
in advance by the manager and is the fixed quantity that will be given
to a customer in return for the fixed sales price of a drink. This is not to say that each
type of drink should contain the same amount of liquor as every other drink. Clearly,
this should not be the case.
For example, management may specify that 1? ounces is the standard measurement
for mixed drinks, but cocktails such as martinis follow a recipe that
calls for 2 ounces of gin or vodka. Once the quantity standard is established,
managers must provide bartenders with a means for measuring this quantity
each time a drink is prepared. One must keep in mind that wines, spirits, and
some mixers are purchased in metric units, but bartenders preparing drinks
measure the ingredients in ounces.
U.4.F. Standard Recipe:

It should be clear that to control costs, one must establish control over the
ingredients that go into each drink, as well as over the proportions of the ingredients
to one another. In other words, standard drink recipes must be established
so that bar personnel will know the exact quantity of each ingredient to
use in order to produce any given drink.
Generally speaking, bartenders prepare and serve two kinds of drinks
that require liquor: straight shots with mixers, such as the gin and tonic identified
earlier, and mixed drinks or cocktails , many of which involve several
ingredients that must be combined in a specific way for the drink to be right.
For straight shots with mixers, the standard drink is controlled by providing
the bartender with appropriate glassware of predetermined size, as
well as a jigger or other device for measuring the liquor. The standard quantity
of liquor for the drink is measured and poured over ice in the proper
glass, and the glass is then filled with the mixer. In effect, this constitutes
the standard recipe. Each time a customer orders a scotch and soda, the
bartender places a certain number of ice cubes in a glass of the proper size,
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adds one standard measure of the pouring brand of scotch, and fills the glass
nearly to the rim with soda. Every scotch and soda prepared this way will be
the same as every other. The customer s second drink will be the same as the
first, and, if he or she returns to the bar in two weeks and orders a scotch and
soda, that customer will be served the same drink for the same price, barring
changes in management policy. Preparing drinks that are consistently the
same is a major factor in establishing customer satisfaction and developing
repeat business.
With mixed drinks and cocktails, establishing control over ingredients,
proportions, and cost while providing drinks that are consistently the
same is somewhat more complex. There are normally two or more recipes
for making any given cocktail, and the resulting cocktails are often quite different
from one another. For example, the two recipes that follow for a cocktail
known as a Manhattan have been taken from two different drink mixing
guides.
Manhattan 1
2 1/2 oz. blended rye whiskey
3/4 oz. sweet vermouth
Dash of bitters
Manhattan 2
1 1/2 oz. blended rye whiskey
3/4 oz. sweet vermouth
Dash of bitters
Although mixing the listed ingredients in the prescribed manner will
produce a Manhattan cocktail in either case, there are substantial differences
between the two. In cocktail 1, the ratio of whiskey to vermouth is more than
3 to 1; in cocktail 2, it is 2 to 1. In addition, recipe 1 produces a drink that is
1 ounce larger than that produced by recipe 2. Finally, recipe 1 costs more to
make because it contains 1 additional ounce of blended rye whiskey.
It is apparent that management must identify which of several recipes
will be the standard recipe used to prepare the Manhattan. Similar decisions
must be made for all cocktails. Although the most common solution is to
adopt one of the standard bartender s recipe guides for use at the bar, it is
by no means uncommon, particularly in chain operations, to find a book of
standard recipes specifically prepared for companywide use. In every case,
the standard recipe includes not only the measures of alcoholic beverages to
be used in preparation, but also the quantities of all other ingredients, including
garnishes, as well as mixing and serving instructions. In some cases,
pictures of the drinks are provided to ensure uniformity, particularly in the
face of high rates of employee turnover. Adopting a book of standard recipes also
makes it possible for a bartender to prepare various unusual cocktails that are
requested only on rare
occasions. Although professional bartenders are able to mix virtually any
drink requested, many have few occasions to mix cocktails as unusual as
a Taco Fizz, an Opal, or an Earthquake. Thus, a standard recipe guide can
help ensure the satisfaction of the customer requesting the unusual drink.
Although standard bar recipes are a necessity for control purposes, many
bartenders and some managers dislike them. In some establishments, therefore,
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any discussion of standard recipes is likely to result in heated debate.

It is theoretically possible to establish a standard recipe for every drink
served by any bar, indicating the size of the drink and the specific quantity
of each ingredient the drink should contain. As a practical matter, it is not
possible to enforce the use of standard recipes in all instances at all bars. One
illustration of the problem should suffice. Most people are familiar with the martini, a
cocktail made with gin and dry vermouth, stirred with ice, strained into a cocktail
glass, and served
garnished with an olive. For some, the best mixture for a 3 - ounce martini is
2 ounces of gin to 1 ounce of vermouth; for others, it is 3 ounces of gin to one
drop of vermouth. And there are an infinite number of variations. Because
much of the success of a bar depends on satisfying customer tastes, it is very
difficult many would say impossible for a bar manager to establish an
inflexible standard recipe for a martini. A single standard recipe may satisfy
some customers but displease others. Many bar managers think that bartenders
must be permitted a certain amount of freedom to alter standard
recipes to suit the tastes and requests of customers. Some believe that the
standard recipe should be a kind of average of all the martinis mixed in a particular
bar over a period of time.
With standards and standard procedures established in the form
of standard recipes and standard portion sizes, it is possible to calculate
the standard cost of any drink.
U.4.G. Standard Portion Size

There are four measuring devices commonly used by bartenders: shot glasses,
jiggers, pourers, and automated dispensers.
The Shot Glass. In some establishments, bartenders are provided with
small glasses, called shot glasses , that are used for measuring. There are two
kinds of shot glasses: plain and lined.
A plain shot glass holds a predetermined quantity when filled to the
rim. Plain shot glasses are available in a number of sizes, from fractions of
an ounce to several ounces. In any given bar, all such glasses should be the
same size. In many of the establishments that use shot glasses, bartenders
are told to fill the shot glass and pour the exact measure into the drink. In
others, bartenders are provided with shot glasses that hold slightly less than
management is willing to give (? ounce, for example, if 1 ounce is the standard
measure). Bartenders are instructed to fill the shot glass, pour it into
the drink, and then, in full view of the customer, pour an additional small
amount directly from the bottle into the glass. Some believe there is positive
psychological impact to this practice: Customers think they are getting more
than they are entitled to.
A lined shot glass is similar to a plain one, but a line is etched around
the glass below and parallel to the rim. In some bars, the standard of fill is
to the line, which is in full view of both the customer and the bartender. Some
bars use shot glasses with deceptive lines, so that when the bartender fills to
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the line on the inside of the glass, it appears to the customer to go above the
line on the outside. This is an optical illusion, but it can give the customer a
sense of getting something for nothing. Another variation on the lined - glass
approach is to use glasses that hold the standard measure when filled to the
rim, but have lines etched in the glass at some level below the rim. These are
used for the same psychological reasons.
The Jigger. A jigger is a double - ended stainless steel measuring device,
each end of which resembles a shot glass. The two measuring devices that
make up the jigger are of different sizes one may hold 1 ounce and the other
1 ? ounces. Many believe the jigger is necessary for the accurate measuring
that ensures perfect cocktails. It can be used for measuring straight shots as
well, but is more useful for preparing cocktails that call for varying quantities
of ingredients. For measuring the ingredients required for these complex
drinks, shot glasses are inappropriate. Some cocktails call for such varied
measures as 1 ounce of one ingredient and 1? ounces of a second. To measure
exact quantities of each ingredient, it is necessary to use the jigger. The
Grandview Bistro uses a jigger for preparing all cocktails. It has 1? ounces on
one side and 1 ounce on the other. The Pourer. A pourer is a device, fitted on top of
a bottle, that measures
the quantity poured from the bottle, limiting that quantity to a predetermined
amount. This is another way to control the quantity of liquor used in
preparing drinks. Several different types of pourers are available, but all operate
on the principle of controlling the quantity poured each time a bottle is
used. In an establishment where 1 ounce is the standard measure, all bottles
can be fitted with devices that dispense just 1 ounce. Each time the bartender
tips the bottle to pour, exactly 1 ounce is dispensed. The psychological
effect, if any, of these pouring devices is widely disputed. Some think that the
customer is given the illusion of the bartender pouring freely; others argue
that customers may feel a certain resentment toward an establishment that
neither trusts the bartender nor permits an extra drop to be dispensed to
a customer. Still others believe that pourers are useful at service bars, which
customers never see, but should not be used at front bars, where customers
watch bartenders mixing drinks. Most bartenders do not like these devices,
because it takes slightly more time to pour a shot than other means. There
are many pourers and other devices associated with computer software,
some of which are attached to liquor bottles. The following section discusses
several of them.
Automatic Pouring Systems. All automatic pouring systems are designed
to regulate the amount of liquor transferred from the bottle to the glassware.
How that is achieved is probably the biggest difference between each system.
The most common method has a special pourer that fits on each bottle; this
is then used in conjunction with a ring or collar that slides over the pourer
and activates it. Most of these rings or collars are attached to the cash register
or to a piece of hardware that is designed to take the place of the cash
register.
The wireless free pour is another system that is commonly in use in
foodservice operations dispensing liquor. This system has a radio transmitter,
which transfers the data from the bottle to the software program and stores
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the information there in order to generate reports when the manager dictates.
The benefit of this type of program is that there are no wires to interfere
with the bartender s activities, and the data is stored and available to the
manager to assist in important decisions. The downside to this system is that
it does not control the portions; therefore, this system is intended for use in
an operation that is confident that the bartenders are following standard recipes
and are skilled enough to do so without the use of measuring devices.
Alcohol Controls sells a product called the Liquor Clicker. It is a liquor
pour spout that fits on each bottle at the bar. It portions every shot to the
amount determined by management and tracks the number of shots dispensed
on an odometer - style counter. The software used with these pourers
allows management to print a report that shows the number of shots poured
from each bottle, the potential revenue, and the actual revenue.
Alcohol Controls also has a liquor control system called the Spirit.
Bottles are capped with a Brand ID Control Pour that will portion every shot
of liquor or glass of wine dispensed. Liquor cannot be poured until the bartender
inserts the control spout into the dispensing station s activator ring
Where the bartender mixes drinks. It is tied into a point - of - sale (POS) system
that records the sale. Three different sales price levels can be programmed
into the system, one for regular prices, one for happy hour, and another for
Special prices. Liquor Control Solutions uses its AZ 200 controller with
preprogrammed
spouted bottles. The bottle needed for a particular drink is secured to an activator
ring when a drink is prepared. The system identifies the brand, pours the
exact quantity specified, and rings up the sale. If a wrong bottle is selected for
a preprogrammed drink, the spout will not operate.
For draft beer, Liquor Control Solutions sells its Electronic Beer Head.
It features both an automatic mode and a manual mode. A flow meter keeps
track of the amount of beer poured. The automatic mode pours the exact
quantity from one of four preprogrammed portion sizes. This feature works
in conjunction with its AZ 200 controller.
The Automated Dispenser:
Many companies have developed and successfully

marketed various automated devices for dispensing predetermined
measures of liquor. These range from comparatively simple systems for controlling
only the pouring brands to elaborate electronic control systems that
not only control ounces but also mix drinks at the push of a button. These
systems, costing many thousands of dollars, are usually linked to cash registers
in such a way that each sale is recorded on a guest check as the drink
is prepared. In addition, meters record the quantities used, and this makes
accurate inventory control possible. Many believe that these systems are best
used in settings where bartenders have little or no direct supervision. Others
think that such systems should be used in service bars but never at front
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bars, except in cases where repeat customers are rare, as in an airport bar.
Liquor Control Solutions has a system it calls the Cocktail Tower. It
uses the AZ 200 controller, which is programmed with recipes of various
drinks. Bartenders simply place a glass under the tower and press a labeled
key for the desired drink. The system automatically makes and pours the
drink into the glass. It is combined with a POS terminal that keeps track of
all drink sales. At the end of the day, the system provides various reports,
including inventory balances, sales, and cost of sales.
Free Pour. Another means of measuring quantity is to allow bartenders
to free pour. This is a method by which bartenders pour without using
any device to measure quantity other than their own judgment or eyesight.
In some cases, bartenders are taught to count silently to measure the duration
of the act of pouring, which is clearly related to the quantity dispensed.
More often than not, however, managers are relying on the experienced
bartender to use that experience to gauge the quantities poured. Free pouring
is perhaps the most common method of pouring liquor today. It is usually
defended on the grounds that bartenders can prepare drinks faster by free
pouring than they can with any of the measuring devices available.
Although many experienced bartenders can free pour with considerable
accuracy, the procedure clearly reduces a manager s control over bar
operations. In the authors view, free pouring negates any semblance of control
in bar operations except where all bartenders are skilled at this method
of pouring, completely honest, and dedicated. In addition, in bars that suffer
from high rates of employee turnover, managers may find that they have no
control at all over bar operations. Free pouring makes it possible for dishonest
bartenders to operate more for their own advantage than for the general
good of the business. However, many owners who permit free pouring seek to
offset its costs by raising sales prices to ensure the desired level of profit.
Glassware
In addition to controlling the quantity of liquor used in preparing each drink, it is
desirable to control the overall size of the drinks. Standardizing the glassware used
for service makes this comparatively simple. It is the manager s responsibility to
establish the standard portion size for each type of drink and to provide bartenders
with appropriate glassware. Beverage glassware is available in a wide variety of
shapes and sizes. Therefore, it is very easy to furnish the bar with specified
glassware for particular drinks. In the Middletown Inn, for example, stemmed cocktail
glasses holding 4 ounces have been identified as the standard glassware for all
cocktails. Because bartenders cannot fill glasses above the rim, it is impossible for
them to serve a portion size greater than 4 ounces unless they use the wrong
glassware or give the customer an extra measure known as a dividend. By furnishing
the bar with 4 - ounce cocktail glassware, directing that all cocktails be served in
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these glasses, and declaring that no dividends may be given to customers,

managers can effectively control portion sizes. Many fine hotels and restaurants,
including the Grandview Bistro, consider the 4 - ounce cocktail glass too small. In
these establishments, management is willing to give more generous portions in
return for the higher sales prices charged. Thus, bartenders are instructed to use
lined cocktail glasses holding 5 ounces, with lines etched around the glass,
indicating a 4? Ounce measure.
To establish effective portion control, then, it is important to purchase glassware in
appropriate sizes. Managers must determine the kinds of glassware that will be
needed, based on present or anticipated customers and their preferences, and then
determine portion sizes. The glassware purchased should be matched to the portion
sizes established by the manager, and bartenders must be instructed as to which
glasses to use for serving specific drinks.
Although neighborhood bars may be able to get by with just four or five types of
glasses of as many sizes, fine restaurants and hotels cannot do so. Beverage
service in these establishments may require as many as 10 to 15 different types of
glassware in as many sizes.
Example of Standard Glassware in a Fine Hotel
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Standard Glassware for Bars
Thus, managers standardize portion sizes by purchasing specific glassware to be

used for the service of specific types of drinks and then training bar personnel to
serve drinks in the proper glasses. Although standardization of portion sizes helps
control beverage costs, that alone is insufficient. It is useful to stipulate that gin and
tonic is to be served over ice in an 8 ounce glass, yet this alone does not tell bar
personnel what part of the standard portion should be gin and what part mixer. This
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consideration is particularly important in cost control because, after all, the cost of
gin is greater per ounce than the cost of tonic water, and the relative amount of each
used in making the drink will affect the cost and the taste.
U.4.H. Bar Frauds

Types of BAR Frauds
Frauds by customer
Customer walking without paying

The primary kind of customer fraud is customers walking out without paying their
checks. However, customers may also cheat an establishment by a number of other
methods. They may claim that the food was unsatisfactory and thus indicate (usually
the manager or host will make the suggestion) that they will not pay for it.
Bringing foreign article

Another possibility, which has occurred frequently, is for customers to indicate that
their food contained some foreign matter, such as glass or china, or even an insect
(perhaps even brought in by the complaining customers).
Customer making unnecessary complaints

Complaints are generally made to the waiter or waitress, who should in turn call the
manager or host to solve the problem. Since there is always the possibility that the
events did in truth occur, the normal policy is to grant free drinks or dinners to the
guests to avoid embarrassment, to prevent possible lawsuits, and, of course, to
encourage the customers to return. In most cases of fraud, the guests will not return
to perform the same type of fraud nor will they return merely to buy a dinner.
In the case of falsified complaints, the establishment has no recourse except to treat
the affair as a normal business expense. In cases of walkouts, the house may have
legal recourse, and of course it can set up a control system that minimizes the
chances of this type of theft.
Customers normally cannot perpetrate any other type of theft, since they do not have
access food or beverages. Disputes may arise, however, as to the exact number of
drinks that were served. In cases of parties where payment is based on head counts,
lower figures may be presented by the guests. However, verification can readily be
made by staff members.
Only one or two systems of cash collection can eliminate the walkout fraud. Cash
prepaid (for fast food) or collected either by a cashier stationed at the beginning of
food service (single-price dinners or buffets) or a cashier at the end of the line in
cafeteria eliminates customer fraud of this nature. A COD system comparable to
those used for beverages is occasionally used in food service
In every other system there remains a possibility that the customer will walk out
despite precautions by management and by employees. It is impossible for a waiter
or waitress to watch a table continually. Even with team systems in which two
servers work together-one remaining in the dining room and the other placing
orders and relaying food from the kitchenthe team cannot watch every customer
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continually. A team system, however, certainly is an. improvement over the individual
server system. Likewise, a cashier cannot be expected to stop every customer to
determine if the check was paid, particularly during busy meal hours.
Using false credit card-

Customers may also use credit cards that are worthless or attempt to pay with
checks that are not honored by banks. Unless customers are known, it is best to
avoid cashing checks if possible. If a check must be cashed, adequate identification
should be provided, and no check should be honored for more than the value of the
dinner.
Counterfeit currency-
Occasionally customers will attempt, either intentionally or unintentionally, to give to
cahier counterfeit currency. In most cases, this currency will be easy to detect if
proper cash handling procedure are followed. All bills should quickly examined on
both sides and placed on the ledge of the register. It is hoped that this cursory
examination will detect most of the counterfeit money, although in some cases help
of the expert can be take.
Thefts by waiter and waitress-
Intentional omission of items are omitted from the bill in order to establish a rapport
with customers, to increase tips, or perhaps to give free merchandise to friends or
fellow employees. This type of fraud occurs when inadequate dupe system or
validating systems are utilized. A full control system in organizations having full
services is impractical, since accounting for items with a retail sales value of less
than $1 is too costly. Bookkeeping costs would be excessive in relation to income.
In some cases, the items that are to be sold are already under the control of the
service staff, as in the case of milk in individual containers or a 6-gallon refrigerated
carton in the service area. No records are maintained when a waitress or waiter pour
a glass of milk. Should this charge be omitted from the check, it would be impossible
to track down the guilty party, since a number of personnel may have access to the
milk supply.
Reusing of checks-
This type of theft may occur in any kind of establishment. For high volume
operations, it is possible that a large number of sales may be of the small dollar
amount. Thus customers presented with a particular check would have no way of
verifying whether it was their own or not, since the dollar amount were correct and
the items were the same. With the abbreviation normally used on checks it may be
impossible for the guest to read a check without an interpreter. So long as the dollar
amount is correct, they are satisfied. Unless the dollar amount is higher, most
customers do not care if they receive their own check.
Pocketing checks or using unauthorized checks-
it is often possible to reproduce the checks that are used by an establishment.
Certainly if stock checks (not specially imprinted ones) are being used, they may be
readily be purchased by anyone form dealers. It is also possible when checks are
not numbered or recorded (and in those cases where the numbers are recorded but
not audited) for a waiter or waitress simply to pocket the check and the cash
received, if other control systems are not utilized.
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Checks can be counted automatically by the utilization of a check numbering system

similar to UPC(universal product code) or those system s being used by banks. Each
check is imprinted with a number that can be read by a machine. If a number is
omitted or the check not closed out, the machine will report this omission. These
systems are readily available that have been made in electronic technology.
Over charging-
This practice may occur when staff members are allowed to make corrections on the
checks without supervision. The customers may be charged for merchandise not
received. Or higher prices may be entered on the check. After the customer has paid
the staff member, the correct prices and amounts are entered, the check is rotated,
and the difference is pocketed by the server.
Incorrect addition- intentionally adding a dollar to each check and pocketing the
money when check is properly totalled can readily be performed, particularly if
amounts are handwritten on the checks. Should the error be discovered by the
customer it is normally excused, since an error is over adding can be quickly
explained away as poor arithmetic.
Substitution-
In some establishments with fairly tight system of control, it may be impossible for a
waitress or waiter to supply friends with free merchandise. However, substitution
can be made by ordering higher priced items from the kitchen and charging for lower
priced ones. The server orders a higher priced item but records a lower priced item
on the check. The friend is presented with a check for the smaller amount.
Falsification of tips or other charges- in some areas of the country, where many food
and beverage sales are complimentary, other incidents occur where a dinner is
being paid for by someone other than the guest. Extra amount of beverages or food
may be placed on the checks to increase the value of the sale. This extra food can
be sold to other guests and the cash received pocketed by the waiter or waitress.
This padding of the bill may also be done whenever the tip may be a fixed proportion
of the total bill. If the sales are increased by 1000rs the tip may go up to 100rs or
more. When given a free dinner the guest does not closely inspect the items on the
bill. Instead, he or she merely gives a brief inspection, signs for the full amount, and
leaves a tip based on the total value listed on the check.
Incorrect change- short changing of customer is possible no matter what system is
used. It cannot be prevented without s shopper system, which may or may not be
able to detect the fraud. Certainly, if repeated complaints by customers occur,
immediate action must be taken.
A shopper system is one in which a person unknown to the regular employees is
hired to come into the store and posing as a customer, checks on the efficiency of
the operation and various segments of the system.
Split rings-
When waiter or waitress also handles the cash registers, split rings may occur this
situation arises when for example, a check for 1000rs is rung up 500rs and 400rs.
The owner has lost 100rs which the waiter or waitress pockets.
By ringing the second time, the waiter or waitress prevents the customer from seeing
the actual amount of the first ring-up. The customer usually presumes there was a
simple error. Should anyone question the two rings for one check, the waiter or
waitress merely states that he or she made a error on the first ring and rang 900rs by
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mistake. Using ca cash register with a tape and giving guests receipt will help to
alleviate this type of fraud.
Bar tenders fraud or errors

A bar tender who handles cash (using a register) has the same opportunity of theft
as a waiter or a waitress- and the same chance of error.
Cashier theft or error
The possibility of theft for cashier is more restricted than with either bartender,
waiters, or waitress, since they normally do not handle the products sold. If the
cashier is responsible solely for cash collection, errors or theft may occur under any
of the following categories;
1. Cashier keeps the money and pockets or destroys a check.
2. Cashier changes the total of check after collection.
3. Cashier bunches sales, split-rings, or under rings.
4. Cashier gives incorrect change.
5. Cashier performs incorrect addition.
6. Cashier falsifies payout or adds items to complimentary checks and removes
them from other checks.
U.4.I. Books maintained:

The books maintained for beverage control are:
Cellar inward book
Bin card
Cellar control book
Beverage perpetual inventory ledger
Breakage book
Empty return book
Hospitality book
Interdepartmental transfer
U.4.J. Beverage Control:

The term beverages are used to describe both alcoholic and non-alcoholic drinks.
The term beverage for the purpose of beverage control will refer to those products
which are consumed as a beverage, and contain a significant amount of ethyl
alcohol.
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Unit 5 - SALES CONTROL

U.A. Procedure of Cash Control
U.B. Machine System
U.C. ECR
U.D. NCR
U.E. Preset Machines
U.F. POS
U.G. Reports
U.H. Thefts
U.I. Cash Handling
Definition:
Sales control is one of the functions of sales management which ensures the sales
achievement and profit objectives of the company by coordinating effectively and
efficiently the different sales functions.
SALES CONTROL SYSTEM
Every Hotel needs proper and effective control system in order to run its operations
smoothly and effectively, without any fraudulent activities.
This control is required at each and every stage of the Food and Beverage Cycle,
i.e.:-
Taking the customers food or beverage order

Announcing these orders to kitchen or bar as the case may be
Getting the order correct and ready on time
Serving the correct order, on time with correct serving temperature to the guest
Making the correct bill
Setting the bill
Closing of the restaurant
Food sale is such a business if allowed unchecked can make an establishment

bankrupt overnight. Therefore, it is not the workers or masters should work to control
but system should work efficiently to prevent a disaster.
Functions of A Control System..
The control system monitors the area where food and beverage sales take
place.
It reduces the pilferage, fraud, and wastage to minimum.
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It provides required information to the management for costing purposes, so

that they forecast the statistics accurately for the next financial period.
It ensures that cashiers make bills correctly so that the customer is neither
overcharged nor under charged.
U.5.A. Procedure for cash control
The food and beverage order taken from the guests should be documented for
effective control. There are different checking methods followed for either of the two
menu styles namely:
i. Triplicate checking methods
ii. Duplicate checking methods
iii. Single order sheet
iv. Quick service menu and customer bill OR Service

with order
v. Computerized order taking
MANUAL CHECKING SYSTEM OR CONTROLLING SYSTEM
TRIPLICATE CHECKING METHOD:;
This system is traditional and time tested and very efficient and still is vogue. As the
name implies, the food check has 3 copies. Each copy has same serial number on
them, and be off different color for easy identification and demarcation. Once the
order is recorded on the KOT, the first copy goes to the kitchen or the dispense bar
on the basis of which the order is prepared. Once the waiter picks up the order, the
KOT copy is dropped in to the control box, which is always kept locked. Control box
is maintained by the food and beverage control department to prevent any kind of
fraud and malpractice.
The second copy is given to the cashier, and based on that the bill is prepared,
which has 2 copies. The first copy of the bill goes to guest and another copy is
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retained by the cashier the cashier attached the 2nd copy of KOT to the 2nd copy of
the bill and submits it along with sales summary to the food and beverage controls at
the end of the day.
The 3rd copy of KOT remains with the waiter in the KOT book for reference and
checking up the order during service. It may be called for auditing at any time b the
control department.
DUPLICATE CHECKING METHOD
This kind of checking method is used in small hotels, Cafs, and popular restaurants.
As the name implies the KOT book has 2 copies. The first copy is sent to the kitchen
on the basis of which the order is prepared. When the waiter picks up the order, the
first copy is dropped in to the control box for auditing by the control department.
The waiter retains the second copy as a means of reference during the service.
When guest requests for the billing, the waiter or cashier sum up all the rates on the
2nd copy of KOT and presents the same to the guest as the bill.
In a few organizations, the copy has four to five perforated slips. The waiter writes
down the food order course wise on different perforated slips. As and when each
course is required that particular slip is torn off and given at the hot plate. Every slip
has a waiter number, table number, serial number and date. When the food is ready,
the Aboyer keeps the particular slip along with the food to avoid confusion.
Difference Between Duplicate And Triplicate Method
SINGLE ORDER SHEET:
This system is used in cafs, quick turn over restaurants, departmental stores, and
taken away establishments; usually the menu is very limited with little or no choice.
Many organizations following this system may have order sheet printed with the
menu, after taking the order from the guests, the waiter writes it on KOT and calls for
the order verbally over the hot plate. When the guest requests for the bill the waiter
prices the order sheet and hand over to them as a bill. While leaving the restaurants,
the guest submits the bill to the cashier and pays the amount. The cashier retains
the bill for control purpose.
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SERVICE WITH ORDER:
This system of ordering is used in fast food joints, taken away, cafeterias, etc. Here
the menu offered in the establishment is displayed in wall mounted boards. The
guests choose what they want to eat and then order that. The person at the cash
counter make the bill collects the cash, stamp the bill received and hand it over to
the guest. The guest goes to respective food counter and collects the dishes against
the bill. After delivering the order the person at the food counter stamps the bill
delivered and hand it over to the guest.
Whatever may be the checking system used, it should ensure good control over the
food service operation staff who deals with two important things------FOOD and
CASH..
MODES OF PAYMENTS:
There are various methods of making payments for the consumed food and
beverage services. Some of the most popular methods are;
v CASH
The payment received in cash should always be checked in front of the guest and at
the same time when change is given then it should be counted back to customer. In
this method complete payment is made in cash and therefore the currency notes
should be checked for their authenticity and proper shape.
v CREDIT CARDS
If the payment is made by credit card, the first step is to check its validity. Then a
voucher is made out and filled in with the required details. The customer is then
requested to sign the voucher after which the operator should check and match the
signature with that on the credit card. The customer copy should be given to the
guest.
The validity of the credit card is checked by passing it through the electronic machine
after which the details of the credit card are printed on the form of itemized bill which
the customer then signs. (One copy of this itemized bill is given to the customer for
his record)
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v DEBIT CARDS
The use is similar to the above, but the amount used is immediately deducted from
the customers account.
v CHEQUES
When accepted cheques, the cashier should check the following information;
Correct date
Filled amount (correct/incorrect)
Signed by the person indicates on the cheque
Match the signature of cheque card.
NOTE: cheque should always be accompanied by the cheque card.
TRAVELLERS CHEQUE
These may be issued by the travel agent (if travel agencies and hotels have tie up or
any type of contract). The travelers cheque must be signed once when issued and
again when to pay.
KITCHEN ORDER TICKET/TOKEN
KOT is prepared by food service personnel to intimate the food order of the guest to
the kitchen staff. It helps in serving the right order to the right person. The KOT
consists of details such as table number, covers, name of the waiter, date, time,
items ordered, and its quantity. Usually, all the KOTs are serially numbered for
control purpose. The food check may be duplicate or triplicate depending on the size
and style of the organization.
A KOT is written as follows;
The order is written along the lines and not up or down.
Indication is given between the courses.
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If a few lines are left in KOT, that space is struck off.
Quantity of each dish is written in words rather than the numbers.
Different types of KOTs such as Suivant, Supplement, Retour/En place, and

Accident are used in certain instances. There explanations are as.
SUIVANT
This KOT is used where it is necessary to write more than one KOT for a meal order.
When a separate KOT is required to be written to order dessert for the same table
after the main course is served, at the top of the KOT suivant is written, which
means the following check of the previous one.
SUPPLEMENT
When an extra portion of food is required because sufficient amount has not been
sent (or extra portion of accompaniments are required) from the kitchen, a special
KOT must be written out headed supplement. This means to supplement what has
already been sent. It should be signed by the senior caption and normally it is not
charged.
ACCIDENT
A waiter may drop a dish by accident. In this situation, a separate KOT, called
accident, is raised, indicating the dish name and the number of portions required.
This has to be signed by the senior caption and it is not charged.
RETOUR/EN PLACE
When a wrong dish has been ordered and has to be sent back to the kitchen and
replaced, a special KOT must be made mentioning retour(return) and en place (in
place). If the dishes are from an ala carte menu, then the price should also be
mentioned along with the order.
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BILLING
BILL FORMAT
In the restaurants, when the guest request for the bill, the waiter collects it from the
cashier and checks it whether all items are entered and priced correctly. It is always
advisable for the waiter to double check the addition. Then the bill is presented to the
guest in a bill folder.
Many types of billing methods are used in foods service operations. The type of
method used depends on style and volume of business. They are explained as
follows;
v Bill as check: in a duplicate checking system, the second copy of the food check is
used as a bill .When the guest requests for the bill, the waiter or cashier sums up all
the rates on the second copy of the KOT and presents the same to the guest. This
method is used in small hotels, caf, and popular restaurants.
v Separate bills: The bill is made for the second copy of the food check. The second
is given to the cashier. Based on that, the cashier prepares a bill that has two copies.
The top copy of the bill is presented to the guest. On receiving payment to the guest,
the bill is stamped paid and is returned to the guest. The second copy is retained to
the cashier and attached to the second copy of KOT to submit it along with sale
summery to the food and beverage controls department.
v Pre-paid: The customer purchases tickets or coupons in advance, either for

specific meal or specific value. For example food service operations organizing
theme food festivals, fashion shows, and New Years Eve program sell admission
tickets in advance at fixed price. Admission in to the venue and service of food and
beverages is based on tickets or coupons.
v No-Charge: in this system, the guest is not charged for receiving the goods or
services. The guest is asked only to sign the bill as acceptance of service received,
and the particular amount is posted to the house.
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v Deferred: This type of system is used in catering function. In this, a service has
been requested by an individual, firm, or company, which has been confirmed and
taken place. Upon the conclusion of event, the bill is prepared or the services
rendered and are sent to the company or organization person.
U.5.B. Machine system
Point of sale
In some jurisdictions the law also requires customers to collect the receipt and keep
it at least for a short while after leaving the shop,[10][11] again to check that the shop
records sales, so that it cannot evade sales taxes.
Often cash registers are attached to scales, barcode scanners, checkstands, and
debit card or credit card terminals. Increasingly, dedicated cash registers are being
replaced with general purpose computers with POS software. Cash registers use
bitmap characters for printing.
Today, point of sale systems scan the barcode (usually EAN or UPC) for each item,
retrieve the price from a database, calculate deductions for items on sale (or, in
British retail terminology, "special offer", "multibuy" or "buy one, get one free"),
calculate the sales tax or VAT, calculate differential rates for preferred customers,
actualize inventory, time and date stamp the transaction, record the transaction in
detail including each item purchased, record the method of payment, keep totals for
each product or type of product sold as well as total sales for specified periods, and
do other tasks as well. These POS terminals will often also identify the cashier on
the receipt, and carry additional information or offers.
Currently, many cash registers are individual computers. They may be running
traditionally in-house software or general purpose software such as DOS. Many of
the newer ones have touch screens. They may be connected to computerized Point
of sale networks using any type of protocol. Such systems may be accessed
remotely for the purpose of obtaining records or troubleshooting. Many businesses
also use tablet computers as cash registers, utilizing the sale system as
downloadable app-software.
Cash registers include a key labeled "No Sale", abbreviated "NS" on many modern
electronic cash registers. Its function is to open the drawer, printing a receipt stating
"No Sale" and recording in the register log that the register was opened. Some cash
registers require a numeric password or physical key to be used when attempting to
open the till.
A cash register's drawer can only be opened by an instruction from the cash register
except when using special keys, generally held by the owner and some employees
(e.g. manager). This reduces the amount of contact most employees have with cash
and other valuables. It also reduces risks of an employee taking money from the
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drawer without a record and the owner's consent, such as when a customer does not
expressly ask for a receipt but still has to be given change (cash is more easily
checked against recorded sales than inventory).
A cash drawer is usually a compartment underneath a cash register in which the

cash from transactions is kept. The drawer typically contains a removable till. The till
is usually a plastic or wooden tray divided into compartments used to store each
denomination of bank notes and coins separately in order to make counting easier.
The removable till allows money to be removed from the sales floor to a more secure
location for counting and creating bank deposits. Some modern cash drawers are
individual units separate from the rest of the cash register.
A cash drawer is usually of strong construction and may be integral with the register
or a separate piece that the register sits atop. It slides in and out of its lockable box
and is secured by a spring-loaded catch. When a transaction that involves cash is
completed, the register sends an electrical impulse to a solenoid to release the catch
and open the drawer. Cash drawers that are integral to a stand-alone register often
have a manual release catch underneath to open the drawer in the event of a power
failure. More advanced cash drawers have eliminated the manual release in favor of
a cylinder lock, requiring a key to manually open the drawer. The cylinder lock
usually has several positions: locked, unlocked, online (will open if an impulse is
given), and release. The release position is an intermittent position with a spring to
push the cylinder back to the unlocked position. In the "locked" position, the drawer
will remain latched even when an electric impulse is sent to the solenoid.
Due to the increasing amount of notes and varieties of notes, many cash drawers
have opted to store notes in a vertical side facing position instead of the traditional
horizontal upward facing position. This enables faster access to each note and
allows more varieties of notes to be stored. Sometimes the cashier will even divide
the notes without any physical divider at all. Some cash drawers are also flip top in
design, where they flip open instead of sliding out like an ordinary drawer,
resembling a cashbox instead.
Registers will typically feature a numerical pad, QWERTY or custom keyboard, touch
screen interface, or a combination of these input methods for the cashier to enter
products and fees by hand and access information necessary to complete the sale.
For older registers as well as at restaurants and other establishments that do not sell
barcoded items, the manual input may be the only method of interacting with the
register. While customization was previously limited to larger chains that could afford
to have physical keyboards custom-built for their needs, the customization of register
inputs is now more widespread with the use of touch screens that can display a
variety of point of sale software.
Scanner
Modern cash registers may be connected to a handheld or stationary barcode reader
so that a customer's purchases can be more rapidly scanned than would be possible
by keying numbers into the register by hand. The use of scanners should also help
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prevent errors that result from manually entering the product's barcode or pricing. At
grocers, the register's scanner may be combined with a scale for measuring product
that is sold by weight.
Receipt printer
Cashiers are often required to provide a receipt to the customer after a purchase has
been made. Registers typically use thermal printers to print receipts, although older
dot matrix printers are still in use at some retailers. Alternatively, retailers can forgo
issuing paper receipts in some jurisdictions by instead asking the customer for an
email to which their receipt can be sent. The receipts of larger retailers tend to
include unique barcodes or other information identifying the transaction so that the
receipt can be scanned to facilitate returns or other customer services.
Security deactivation
In stores that use electronic article surveillance, a pad or other surface will be
attached to the register that deactivates security devices embedded or attached to
the items being purchased. This will prevent a customer's purchase from setting off
security alarms at the store's exit.
Self checkout
Some corporations and supermarkets have introduced self-checkout machines,

where the customer is trusted to scan the barcodes (or manually identify uncoded
items like fruit), and place the items into a bagging area.[15] The bag is weighed,
and the machine halts the checkout when the weight of something in the bag does
not match the weight in the inventory database. Normally, an employee is watching
over several such checkouts to prevent theft or exploitation of the machines'
weaknesses (for example, intentional misidentification of expensive produce or dry
goods). Payment on these machines is accepted by debit card/credit card, or cash
via coin slot and bank note scanner. Store employees are also needed to authorize
"age-restricted" purchases, such as alcohol, solvents or knives, which can either be
done remotely by the employee observing the self-checkout, or by means of a "store
login" which the operator has to enter.
COMPUTERIZED CHECKING SYSTEMS OR CONTROLLING SYSTEM.
In todays food service operations, computer has become an integral part and is
used in every sphere of operations. Computerized pre-check systems are
extensively used in food and beverage control.
The advantages of using modern technology in food service operations are as

follows;
It ensures good control over the operations.
It increases productivity and reduce labor costs.
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It eliminates revenue leakages by ensuring that all the orders are billed.
It reduces clerical errors to minimum.
It avoids duplication of work.
It saves time.
It generates bills quickly without any mistake.
FORMATS
Sales Summary Sheet
The sales summary sheet is an analysis of all the transactions/cash taken during the
particular period of service. It is prepared to know the revenue generated through the
sales of food, beverages, the modes of bill settlement- cash, cheque, credit card,
amount charged to room accounts, tax amount, discounts given etc. the basic
information required in a sales summary sheet includes the following:
Date
Bill number
Table number
Number of cover per table
Bill amount
Modes of payment- cash, credit card, cheque, posted to room
Analysis of food, beverages, and other sales items.
U.5.C. ELECTRONIC CASH REGISTER

An electronic cash register is a mechanical device used to calculating and recording
sales transactions. It usually prints a receipt for the customer. It has an attached
drawer for storing cash. The cash drawer can be opened after a sale, except when
special keys, which only senior employees have. This reduces the risk of cash
pilferage.
Its following advantages are;
Print checks, including the printing of previously entered items.
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Provide an analysis of sales by waiter per hour shift period.
Provide an analysis of sales made by type of product.
Analysis of sales by method of payment (cash, cheque, credit card, etc)
Complete automatic tax calculations and cover service charges.

U.5.D. NCR
The NCR Corporation (abbrev. National Cash Register) is an American computer
hardware, software and electronics company that makes self-service kiosks, point-
of-sale terminals, automated teller machines, check processing systems, barcode
scanners, and business consumables. They also provide IT maintenance support
services
U.5.E. Preset machines
Preset may mean (1) set in advance, or, (2) set as a default.
1. set in advance
Presets, (possibly multiple) setting assigned to electric/electronic devices in factories
Pre-programmed setting on electronic musical instruments, including preset-
synthesizer patch, preset keys on Hammond organ, and preset rhythm on drum
machines, etc. See also Combination action on pipe organ.
One of a locations where radio frequency was stored on a radio tuner
Preset or pre-set, adjustment of cutting tools off line or out of a machine
2. set as a default
Default (computer science), a setting or value automatically assigned to a software
application, computer program, etc.
U.5.F. Point Of-Sale( POS)Terminal.

Point-of sale systems are computerized system incorporating registers, computers
and peripheral equipments, usually on a computer network. These systems keep
track of sale & can generate records used in accounting and book keeping.
POS registers are connected to touch screen monitors, magnetic strip readers, bar
code terminals, etc. the data is fed to various terminals and it can be accessed in
various output units. This system integrates the data and reduces the manual work.
For example- if a bill is made in the restaurant, it will be automatically posted in the
guest bill, if a KOT is made it can be displayed in the kitchen or can be printed in the
kitchen.
These systems can also generate reports required by various departments at any
given point of time, can control reservations, guest history, guest registration ,sale
summary sheet etc.
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U.5.G. Control of possible loses (thefts/frauds)

Pilferage
Stock waste control, overflowing of drinks, poor storage conditions, lack of
waste reduction techniques
Bar owner requisitions
Cash register control, understatements, misuse of the cash register, cash
register not properly programmed.
Few drinks discounts or allowance for goods need to be properly recorded

Accounting errors
Departmental requisitions mistakes
Overbuying
U.5.H. Major types of frauds
1. Failure to make kot

2. Failure to make check
3. Failure to record sales in sales summary sheet
4. Under recording of sale
5. Pickup of food without proper check
6. Charging incorrect room rent
7. Selling room without registration
8. Payment of bill twice
9. Collecting payment from guests without bill
10. Receiving bills twice for one supply
11. Ghost payrolls
12. Receiving a bill without goods
13. Full payment made for standard goods received
U.5.I. Cash handling

Best Practices for Cash Control
The procedures listed below are a list of best practices to accept, store, reconcile
and deposit, document, and transport deposits, for cash, checks and payment cards.
There are several steps to ensure that all cash is handled securely.
Handling and Safeguarding Cash:
All cash, checks, and payment cards, should be kept in a locked/combination vault
or safe, or, in a locked room in a locked drawer or file cabinet, during non-business
hours. Access to areas where cash is stored should be limited to only those
employees who need access, and have been designated to have access. During
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business hours, all forms of cash should be stored in locking drawers, cash registers,
and cash boxes. o Only the cashier collecting these monies should control over this
cash, and make sure that the cash is securely locked when they take lunch, or a
break. o The cashier should have complete control and responsibility for the cash
they collect during business hours. o To reduce the risk of error, all cash should
be separated according to the denomination, and should face the same direction.
o Checks should be kept together separately, and credit card receipts and any other
documentation, should also be kept together separately. Credit card machines and
the receipts should not be left unattended. o They should be kept in an inaccessible
area. When possible, areas that store cash should be alarmed during non-business
hours. All types of cash should be deposited within 3 business days.
Accepting Payments:
All types of payments should be input into an electronic device, such as a cash
register or computer terminal, or tracked manually with pre-numbered receipts, to
ensure that all payments are documented. Payments for goods or services can be
accepted in the form of cash and coin, checks, and payment cards. Payments can
be received in-person, by mail, or armored car delivery.
o In-Person Cash and Coin, and Check Payments Accepted Manually: Payments
accepted by departments without an electronic device should be tracked by pre-
numbered receipts. When cash and coin payments are accepted as payment,
they should always be recounted in front of the customer to confirm the amount
received from the customer. A receipt should always be given to the customer for
cash payments. If change is given back to the customer, the change should be
counted back to customer, to confirm that the correct amount is given back.
Checks should be endorsed immediately. A completed receipt must be retained by
the department. o In-Person Cash and Coin Payments: When cash and coin
payments are accepted as payment, they should always be recounted in front
of the customer to confirm the amount received from the customer. A receipt
should always be given to the customer for cash payments. If change is given
back to the customer, the change should be counted back to customer, to confirm
that the correct amount is given back. Payments should be input, or rung in, on the
cash register or computer terminal at the same time they are received. o In-Person
Check Payments: Payments should be input, or rung in, on the cash register or
computer terminal, as they are received. Checks should be endorsed immediately.
A receipt should be given to customer. o Mail Check Payments: All check
payments should be logged daily. Payments should be input, or rung in, on the
cash register or computer terminal, daily when they are received. Checks should
be endorsed immediately. o Armored Card Delivered Cash and Check Deposits: A
log should be kept of all daily deposits received. All deposits should be counted
daily and input into the cash register or computer terminal, daily when they are
received. Checks should be endorsed immediately, if they have not been
endorsed. o Payment Cards: Payment cards can be accepted in-person, or by
phone.
When accepting an in-person payment the cashier should look at the card to
confirm that the card is signed, and belongs to the customer. The customer
should always sign the payment card receipt, and the payment should be input,
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or rung in, on the cash register or computer terminal, when received. Phone
payment card payments should be input, or rung in, on the cash register or computer
terminal, daily when received. Office receipts and any accompanying
documentation should be kept secure. The receipts and accompanying
documentation should never be thrown in the trash. They should be destroyed
within 18 months. A receipt should be given to the customer.
Petty Cash:
Departments needing to provide change, or reimbursements should request a petty

cash fund from General Accounting. This cash should be counted daily and logged.
When cash becomes depleted, a refund check should be requested by the petty
cash custodian to Accounts Payable. This check can be cashed at the main
Cashiers window in the Student Services Building, room 165.
Reconciliation:
In-Person and Mail Payments Input Into an Electronic Device: o The Cashier
should balance their money to their daily receipts, per the totals on their electronic
devices. o The device should be closed out daily, and a grand total tally should be
printed. o Checks should be totaled with a calculator tape attached. Ensure that all
checks are endorsed. o Cash and coin should be totaled. o The payment card
machine should be closed out and settled, if applicable. o Any petty cash should be
deducted from the cash, if applicable. o The remaining cash, the checks, and
payment cards should balance to the amount of the daily receipt grand total. In-
Person and Mail Payments Accepted Manually: o The Cashier should balance their
money to their daily receipts. o All pre-numbered receipts should be added to
determine the daily grand total. o Checks should be totaled with a calculator tape
attached. Ensure that all checks are endorsed. o Cash and coin should be totaled.
o The payment card machine should be closed out and settled, if applicable. o Any
petty cash should be deducted from the cash, if applicable.
o The remaining cash, the checks, and payment cards should balance to the amount
of the daily receipt grand total. Daily receipts and money should be reconciled by a
second employee.
Preparing and Booking Deposits to General Ledger:
Once a deposit has been reconciled, a departmental deposit is created, by

another employee, not the Cashier. Employees must complete the on-line training,
and the security form, to be granted access to the Departmental Deposit Forms.
This deposit form is completed according to the type of money being deposited.
The appropriate chart fields and amounts are input on this form. The form is
printed, and must be signed and verified by either the preparers cognizant authority,
or another co-worker. A copy of the form and money are then delivered to the main
Cashiers office, using the methods listed in Transporting Cash below.
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Separation of Duties:
The cashier accepting the daily payments balances these payments daily. This
deposit goes to another employee to have the monies confirmed, and a
departmental deposit prepared with the appropriate chart fields. Another employee
must confirm and approve the monies in the departmental deposit. Two Cashiers in
the Cashiers Office count the departmental deposit, or it is counted by a bank teller,
if the deposit goes directly to the bank. The departments accountant confirms that
the deposit is booked to the correct chart fields, and balances to the departments
system.
Dual Controls:
Dual controls should be established by departments to ensure that two

employees count the cash, together, and deliver deposits to the Cashiers Office, or
the bank.
Transporting Cash:
Completed deposits should be sent to the bank, or to the main Cashiers Office in
the Student Services Building within 3 days. If delivered in-person to either the
bank or the Cashiers Office, 2 people should make the delivery. o Deposit should be
delivered to the Cashiers Office in an inconspicuous manner, such as University
campus envelope, or in a backpack or large bag.
o If you walk on-campus to deliver your deposits, change you route and delivery time
regularly. Delivery to the bank or the Cashiers Office may also be done by armored
car service.
Overages and Shortages:
When an overage or shortage is identified, a supervisor should recount the

deposit. If it is a valid overage or shortage, an accounting entry should be made
immediately to document the difference in the general ledger.
Counterfeit Money:
Counterfeit bills can be any denomination. They can be detected by the way the
bill feels, or by a print discrepancy. Once identified, the Secret Service should be
notified. o The Secret Service will ask to have the bill surrendered to them. Your
immediate supervisor should be notified, and the shortage will need to be booked.
The main Cashiers Office in the Student Services Building should also be notified.
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Unit - 6 - BUDGETARY CONTROL

U.A. Define Budget
U.B. Define Budgetary Control
U.C. Objectives
U.D. Frame Work
U.E. Key Factors
U.F. Types of Budget
U.G. Budgetary Control
U.6. A. Define Budget

A budget is a statement expressed in monetary &/or quantitative terms, reflecting the
policy of a business and determining business operations in respect of a particular
trading period. In a business organization budget represents an estimate of future
costs and revenues. There are two types of budget: capital budgets and operating
budgets.
The following stages would be useful while preparing a budget for the restaurant/
catering unit:
1. Establishing financial objectives
2. Forecasting revenue
3. Estimating expenses
4. Determining net income
5. Reviewing and approving the budget
Once the budget is approved, operational budgetary control methods needs to be
followed for proper financial management by the food and beverage department.
Different types of budgets are prepared for different purposes e.g. sales budget,
production budget, raw material budget, administrative budget etc. all these sectional
budgets integrated into a master budget which represents an overall plan of the
organization.
Budgeting: Budgeting is the process by means of which budgets are evolved for a
business as well as the various departments/sections of a business.
U.6.B. Budgetary control

is a method of control whereby responsibility for budgeted results is assigned to the
managers concerned and a continuous comparison of budgeted and actual results is
made to ascertain the variances. The process of budgetary control includes :
1. Preparation of various budgets.

2. Comparison of actual performance with budgetary performance
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3. Revision of budget
Key elements
Assignment of responsibility sales targets, profit margins, cost ceilings,
etc.
Comparison of actual and budgeted results
Ascertainment of variances (difference between budgeted and actual
results)
U.6.C. Objectives of Budgetary Control

To provide practical expression to the aims and policies of the business.
To provide a detailed plan of action to guide and regulate the business activities
in respect of a particular trading period.
To set standard (targets) of performance against which it is possible to measure
the managerial performance.
To provide control by comparing budgeted and actual results and to take
corrective actions, where necessary.
To provide estimates of future revenues and expenses.
To ensure better coordination of the various departments (functions) of the
business.
To ensure an economical use of the resources of the business.
U.6.D. BUDGETARY CONTROL FRAMEWORK

1 INTRODUCTION & BACKGROUND
In the current economic climate it is even more important than ever to ensure that
there are robust budgetary control procedures in place to make best use of the
available resources.
The Prime Financial Policies (previously called Standing Financial Instructions) detail
the financial responsibilities, policies and procedures to be adopted by the CCG.
Together with the Standing Orders, Scheme of Reservation & Delegation, financial
procedure notes and other locally generated policies, they cover all aspects of
financial management and control.
Budget holders are required to review procedures for financial management to
ensure that they meet the standards laid down and must comply with the directions &
guidance in this document. Financial performance is a key objective for senior
managers within the CCG and, as such, failure to comply with budgetary control
procedures may be treated as a breach of conduct.
The budgetary control framework is a key element of the CCGs internal control
environment. It is designed to assist budget holders and managers in the discharge
of their responsibilities. It describes the ground-rules within which budgets are to be
operated in the financial year, it clarifies roles and responsibilities in respect of
budgetary control and it ensures that the budgetary processes of the CCG form part
of the overall assurance framework.
The aims of the framework are:
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To develop management understanding and capacity in relation to financial

matters. This should be to enable managers to get the best possible value from the
budgets at their disposal.
To provide the CCG with the necessary controls to ensure that expenditure is
incurred in accordance with the CCGs approved budget.
A number of underlying key themes will be maintained in the framework:
Budgets will be set within the CCGs expected resource.
Budgets will be set so that they are achievable and realistic with all budget setting
methodologies and assumptions being made clear.
Expenditure will not be permitted to exceed budgets without the approval of the
CCG Chief Finance Officer.
There will be no automatic right to receive a budget at the same level as previous
years. Budget holders will need to demonstrate how resources within their control
are being spent and identify the resultant value for money benefits derived
therefrom. Budgets will also reflect the CCGs policy on management and
operational cost reduction schemes and targets.
Actual staff posts will not be permitted to exceed funded establishments.
Budget reports will be issued on a regular basis for appropriate review and action.
Where practicable, expenditure and income budgets will be linked but identified
separately in order that trends and performance can be monitored.
Clear ownership / accountability of budgets by budget holder / managers will be
required and evidenced through formal sign-off of budgets.
Any proposal requiring additional funds must have appropriate finance input and
sign-off, including identification of the source of funding, prior to submission to the
Governing body or delegated committee for approval.
U.6.E. Key Factors:

A key factor (limiting factor, principal budget factor, or governing factor) is the most
important factor in the context of budgetary control which limits or governs the whole
process of preparation of budgets. The examples of key factor, which can be one or
even more than one in catering establishments, are indicated below:
1. Sales volume: This key factor may limit the volume of sales and makes further
expansion of sales because of the restricted demand in the market or limited
efforts for sales promotion.
2. Seating capacity: This is the most potent limiting factor operating in restaurants
and similar catering establishments.
3. Management policy: This might be a key factor because of deficiency of capable
managers or limited funds at the disposal of executives.
4. Materials: This may be the limiting factor on account of inadequate availability of
supply.
5. Labor: This may be the key factor because there might be dearth of workers in
general or in certain grades. It is therefore, necessary to consider what possible
key factors may influence the business operation before preparing the budgets.
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Zero Base Budgeting: An operating planning and budgeting process which required
each manager to justify his entire budget in detail from scratch. Zero base budgeting
technique was used by the U.S. Department of Agriculture in 1962. Texas
Instruments, a multinational company, pioneered its use in private sector. Today a
number of major companies such as Zerox, Easter Airlines and some departments of
Government of India are using zero base budgeting technique.
The technique of zero base budgeting suggests that an organization should not only
make decisions about the proposed new programmes, but should also review the
appropriateness of existing programmes from time to time. Such a review should
particularly be done of such responsibility centers where there is a relatively high
proportion of discretionary costs. Costs of this type depend on the discretion on
policies of responsibility centre of top managers. These costs have no direct relation
to volume of activity. Hence, management discretion typically determines the amount
budgeted. Some examples are: expenditure on research and development,
personnel administration, legal advisory services etc.
Zero base budgeting, as the term suggests, examines or reviews a program or
function or responsibility from scratch. The reviewer proceeds on the assumption
that nothing is to be allowed. The manager proposing the activity has, therefore, to
justify the activity is essential and various amounts asked for one reasonable taking
into account the outputs or results or volume of activity envisaged. No activity or
expense is allowed simply because it was being allowed or done in the past. Thus,
according to this technique each program, whether or new existing, must be justified
in its entirely each time a new budget is formulated. It involves:
Dealing with particularly all elements of managers budget requests.
Critical examination of ongoing activities along with newly proposed activities.
Providing each manager a range of choice in setting priorities in respect of
different activities and in allocating resources.
Process of Zero Base Budgeting:
The following steps are involved in Zero Base Budgeting:
Determining the objective of budgeting: the objective may be to effect cost
reduction in staff overheads or it may be to drop, after careful analysis,
projects which do not fit into achievement of the organizations objectives etc.
Deciding on scope of application: the extent to which zero base budgeting is to
be introduced has to be decided, i.e. whether it will be introduced in all areas
of the organizations activities or only in a few selected areas of trial basis.
Developing decision units: decision units for which cost-benefit analysis is
proposed have to be developed so as to arrive at decisions whether they
should be allowed to continue or to be dropped. Each decision unit, as far as
possible should be independent of other units so that it can be dropped if the
cost analysis proves to be unfavorable for it.
Developing decision packages: a decision package for each unit should be
developed. While developing a decision package, answers to the following
questions would be desirable:
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1. It is necessary to perform a particular activity at all? If answer is in the

negative, there is no need to proceed further.
2. How much has been the actual cost of the activity and what has been the
actual benefit both in tangible as well as intangible forma?
3. What should be the estimated cost of the level of activity and the estimated
benefit from such activity?
4. Should the activity be performed in the way in which it is being performed and
what should be the cost?
5. If the project or activity is dropped, can the unit be replaced by an outside
agency?
After completing decision packages for each unit, the units are ranked according to
the findings of cost-benefit analysis. Essential projects are identified and given the
highest ranks. The last stage is that of implementing the decision taken in the light of
of the study made. It involves the selection and acceptance of these objectives which
have a positive cost-benefit analysis or which are capable of meeting the objectives
of the organization.
The above analysis shows that zero base budgeting is in a way an extension of the
method of cost-benefit analysis to the area of the corporate budgeting.
Advantages of Zero Base Budgeting:
It provides the organization with systematic way to evaluate different
operations and programmes undertaken. It enables management to
allocate resources according to priority of the programmes.
It ensures that each and every programme undertaken by managers is
really essential for the organization, and is being performed in the best
possible way.
It enables the management to approve departmental budgets on the basis
of cost-benefit analysis. No arbitrary cuts or increase in budget estimates
are made.
It links budgets with the corporate objectives. Nothing will be allowed
simply because it was being done in the past. An activity may be shelved if
it does not help in achieving the goals of the enterprises.
It helps in identifying areas of wasteful expenditure and if desired, it can
also be used for suggesting alternative course of actions.
It facilitates the introduction and implementation of the system of
management by objectives. Thus it can be used not only for fulfillment
of the objectives of traditional budgeting, but also for a variety of other
purposes.
Summary This chapter has aimed to deal with the practices of purchasing,
receiving, and issuing and storage control as these are the main functions of
operational phase of a catering cycle. It has focused on the knowledge required by a
manager to operate and manage a food and beverage outlet successfully. As a
manager you will be responsible for determining standard cost, gross profit, net profit
and cost control so topic comprises of analytical problems based on them and most
important task of the manager is utilization of available resources perfectly so
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application of inventory management, breakeven point, sales concepts, budgetary

control and variance analysis is given with suitable case studies.
U.6.F. TYPES OF BUDGET

Sales budget an estimate of future sales, often broken down into both units and
currency. It is used to create company sales goals.
Production budget - an estimate of the number of units that must be manufactured to
meet the sales goals. The production budget also estimates the various costs
involved with manufacturing those units, including labor and material. Created by
product oriented companies.
Capital budget - used to determine whether an organization's long-term investments
such as new machinery, replacement machinery, new plants, new products, and
research development projects are worth pursuing.
Cash flow/cash budget a prediction of future cash receipts and expenditures for a
particular time period. It usually covers a period in the short-term future. The cash
flow budget helps the business determine when income will be sufficient to cover
expenses and when the company will need to seek outside financing.
Marketing budget an estimate of the funds needed for promotion, advertising, and
public relations in order to market the product or service.
Project budget a prediction of the costs associated with a particular company
project. These costs include labor, materials, and other related expenses. The
project budget is often broken down into specific tasks, with task budgets assigned
to each. A cost estimate is used to establish a project budget.
Revenue budget consists of revenue receipts of government and the expenditure
met from these revenues. Tax revenues are made up of taxes and other duties that
the government levies.
Expenditure budget includes spending data items.
U.6.G. Budgetary control

Essentials of Budgetary Control:
There are certain steps which are necessary for the successful implementation
budgetary control system.
These are as follows:
1. Organization for Budgetary Control
2. Budget Centers
3. Budget Mammal
4. Budget Officer
5. Budget Committee
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6. Budget Period
7. Determination of Key Factor.
1. Organization for Budgetary Control:
The proper organization is essential for the successful preparation, maintenance and
administration of budgets. A Budgetary Committee is formed, which comprises the
departmental heads of various departments. All the functional heads are entrusted
with the responsibility of ensuring proper implementation of their respective
departmental budgets.
The Chief Executive is the overall in-charge of budgetary system. He constitutes a

budget committee for preparing realistic budgets A budget officer is the convener of
the budget committee who co-ordinates the budgets of different departments. The
managers of different departments are made responsible for their departmental
budgets.
2. Budget Centers:
A budget centre is that part of the organization for which the budget is prepared. A
budget centre may be a department, section of a department or any other part of the
department. The establishment of budget centers is essential for covering all parts of
the organization. The budget centers are also necessary for cost control purposes.
The appraisal performance of different parts of the organization becomes easy when
different centers are established.
3. Budget Manual:
A budget manual is a document which spells out the duties and also the
responsibilities of various executives concerned with the budgets. It specifies the
relations amongst various functionaries.
4. Budget Officer:
The Chief Executive, who is at the top of the organization, appoints some person as
Budget Officer. The budget officer is empowered to scrutinize the budgets prepared
by different functional heads and to make changes in them, if the situations so
demand. The actual performance of different departments is communicated to the
Budget Officer. He determines the deviations in the budgets and the actual
performance and takes necessary steps to rectify the deficiencies, if any.
He works as a coordinator among different departments and monitors the relevant

information. He also informs the top management about the performance of different
departments. The budget officer will be able to carry out his work fully well only if he
is conversant with the working of all the departments.
Essentials of Budgetary Control
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5. Budget Committee:
In small-scale concerns the accountant is made responsible for preparation and

implementation of budgets. In large-scale concerns a committee known as Budget
Committee is formed. The heads of all the important departments are made
members of this committee. The Committee is responsible for preparation and
execution of budgets. The members of this committee put up the case of their
respective departments and help the committee to take collective decisions if
necessary. The Budget Officer acts as convener of this committee.
6. Budget Period:
A budget period is the length of time for which a budget is prepared and employed.
The budget period depends upon a number of factors. It may be different for different
industries or even it may be different in the same industry or business.
The budget period depends upon the following considerations:
(a) The type of budget i.e., sales budget, production budget, raw materials purchase
budget, capital expenditure budget. A capital expenditure budget may be for a longer
period i.e. 3 to 5 years purchase, sale budgets may be for one year.
(b) The nature of demand for the products.
(c) The timings for the availability of the finances.
(d) The economic situation of the country.
(e) The length of trade cycles.
All the above-mentioned factors are taken into account while fixing period of budgets
7. Determination of Key Factor:
The budgets are prepared for all functional areas. These budgets are
inter-dependent and inter-related. A proper co-ordination among different budgets is
necessary for making the budgetary control a success. The constraints on some
budgets may have an effect on other budgets too. A factor which influences all other
budgets is known as Key Factor or Principal Factor.
There may be a limitation on the quantity of goods a concern may sell. In this case,
sales will be a key factor and all other budgets will be prepared by keeping in view
the amount of goods the concern will be able to sell. The raw material supply may be
limited, so production, sales and cash budgets will be decided according to raw
materials budget. Similarly, plant capacity may be a key factor if the supply of other
factors is easily available.
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The key factor may not necessarily remain the same. The raw materials supply may
be limited at one time but it may be easily available at another time. The sales may
be increased by adding more sales staff, etc. Similarly, other factors may also
improve at different times. The key factor also highlights the limitations of the
enterprise. This will enable the management to improve the working of those
departments where scope for improvement exists.
Steps in budgetary control
STEPS IN BUDGETARY CONTROL:
Organization for budgeting
Budget manual + Theory
"A document which sets out, inter alias, the responsibilities of the persons engaged
in, the routine of and forms and records required for budgetary control."
The budget manual is a written document or booklet that specifies the objectives of
budgeting organization and procedures. Following are some of the important matters
covered in a budget manual:
A statement regarding the objectives of the organization and how they can be
achieved through budgetary control.
A statement regarding the functions and responsibilities of each Executive by

designation both regarding preparation and execution of budgets.
Procedures to be followed for obtaining the necessary approval of budgets.
The authority of granting approval should be stated in explicit terms.
Whether one, two or more signatures are to be required on each document
should also be clearly stated.
Timetable for all stages of budgeting.

Reports, statements, forms and other records to be maintained.
The accounts classification to be employed. It is necessary that the framework within
which the costs, revenues and other financial amount are classified must be identical
both in accounts and the budget departments.
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Advantages of Budgetary Control:
The budgetary control system help in fixing the goals for the organization as whole
and concerted efforts are made for its achievements. It enables economies in the
enterprise.
Some of the advantages of budgetary control are:
1. Maximization of Profits:
The budgetary control aims at the maximization of profits of the enterprise. To

achieve this aim, a proper planning and co ordination of different functions is
undertaken. There is a proper control over various capital and revenue expenditures.
The resources are put to the best possible use.
2. Co-ordination:
The working of different departments and sectors is properly coordinated. The

budgets of different departments have a bearing on one another. The co-ordination
of various executives and subordinates is necessary for achieving budgeted targets.
3. Specific Aims:
The plans, policies and goals are decided by the top management. All efforts are put
together to reach the common goal, of the organization. Every department is given a
target to be achieved. The efforts are directed towards achieving some specific aims.
If there is no definite aim then the efforts will be wasted in pursuing different aims.
4. Tool for Measuring Performance:
By providing targets to various departments, budgetary control provides a tool for

measuring managerial performance. The budgeted targets are compared to actual
results and deviations are determined. The performance of each department is
reported to the top management. This system enables the introduction of
management by exception.
5. Economy:
The planning of expenditure will be systematic and there will be economy in

spending. The finances will be put to optimum use. The benefits derived for the
concern will ultimately extend to industry and then to national economy. The national
resources will be used economically and wastage will be eliminated.
6. Determining Weaknesses:
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The deviations in budgeted and actual performance will enable the determination of
weak spots. Efforts are concentrated on those aspects where performance is less
than the stipulated.
7. Corrective Action:
The management will be able to take corrective measures whenever there is a

discrepancy in performance. The deviations will be regularly reported so that
necessary action is taken at the earliest. In the absence of a budgetary control
system the deviations can be determined only at the end of the financial period.
8. Consciousness:
It creates budget consciousness among the employees. By fixing targets for the
employees, they are made conscious of their responsibility. Everybody knows what
he is expected to do and he continues with his work uninterrupted.
9. Reduces Costs:
In the present day competitive world budgetary control has a significant role to play.
Every businessman tries to reduce the cost of production for increasing sales. He
tries to have those combinations of products where profitability is more.
10. Introduction of Incentive Schemes:
Budgetary control system also enables the introduction of incentive schemes of

remuneration. The comparison of budgeted and actual performance will enable the
use of such schemes.
Budgetary Control
Limitations of Budgetary Control:
Despite of many good points of budgetary control there are some limitations of this
system.
Some of the limitations are discussed as follows:
1. Uncertain Future:
The budgets are prepared for the future period. Despite best estimates made for the
future, the predictions may not always come true. The future is always uncertain and
the situation which is presumed to prevail in future may change. The change in
future conditions upsets the budgets which have to be prepared on the basis of
certain assumptions. The future uncertainties reduce the utility of budgetary control
system.
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2. Budgetary Revision Required:
Budgets arc prepared on the assumptions that certain conditions will prevail.
Because of future uncertainties, assumed conditions may not prevail necessitating
the revision of budgetary targets. The frequent revision of targets will reduce the
value of budgets and revisions involve huge expenditures too.
3. Discourage Efficient Persons:
Under budgetary control system the targets are given to every person in the
organization. The common tendency of people is to achieve the targets only. There
may be some efficient persons who can exceed the targets but they will also feel
contented by reaching the targets. So budgets may serve as constraints on
managerial initiatives.
4. Problem of Co-ordination:
The success of budgetary control depends upon the co-ordination among different
departments. The performance of one department affects the results of other
departments. To overcome the problem of co-ordination a Budgetary Officer is
needed. Every concern cannot afford to appoint a Budgetary Officer. The lack of co-
ordination among different departments results in poor performance.
5. Conflict Among Different Departments:
Budgetary control may lead to conflicts among functional departments. Every

departmental head worries for his department goals without thinking of business
goal. Every department tries to get maximum allocation of funds and this raises a
conflict among different departments.
6. Depends Upon Support of Top Management:
Budgetary control system depends upon the support of top management. The
management should be enthusiastic for the success of this system and should give
full support for it. If at any time there is a lack of support from top management then
this system will collapse.
Key words and Concepts
Break even point: it refers to the level of activity where the income exactly
equals its expenditure.
Budget: a statement in financial terms, prepared prior to a defined period of
time, showing the strategy to be pursued during that period for the purpose of
achieving a given objective.
Budgeting: art of making budget.
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Budgetary control: the establishment of budgets relating to the

responsibilities of executives to the requirement of a policy.
Cost: the amount of expenditure incurred on or attributable to a given thing.
Contribution: it refers to the excess of selling price over variable cost.
Fixed cost: the cost which remains fix irrespective of quantum of output over
a certain capacity of the organization.
Variable cost: the cost which tends to vary in direct proportion to changes in
the volume of output or turnover.
Marginal cost: the variable cost of one more unit of a product or service.
Marginal costing: a technique whereby marginal cost of a product is
ascertained.
Master budget: summary of all functional budget.
Fixed budget: a budget designed to remain unchanged irrespective of the
level of activity actually attained.
Flexible budget: a budget designed to remain changed in accordance with
the level of activity actually attained.
Performance budget: it specifies the output or results to be achieved along
with inputs or expenditure to be incurred during the budget period.
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Unit 7 - VARIANCE ANALYSIS
A. Standard Cost
B. Standard Costing
C. Cost Variances
D. Material Variances
E. Labour Variances
F. Overhead Variance
G. Fixed Overhead Variance
H. Sales Variance
I. Profit Variance
Introduction
Variance refers to the difference between the standard (or budgeted performance)
and actual performance. Variance analysis is mainly concerned with ascertaining the
quantum of variances together with the analysis of the causes responsible for such
variances.
Variances may be favorable (F) or unfavourable (U) in terms of their effect on the
profitability of the business.
IMPORTANCE OF VARIANCE ANALYSIS:
Variance analysis is an important exercise for a catering business because it helps:
To compare standard and actual performance

To ascertain the quantum of variances
To analyze the causes responsible for such variance.
To facilitate measurement of performance.
Classification of Variances: The various types of variances which usually arise in

F&B operations may broadly be classified as follows:
Cost variances Sales variances

Materials variances Sales price variance
Labor variances Sales volume variance
Overhead variances
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Reasons for variance
1. Variation in price of materials used

2. Variation in quantity of materials used
3. Use of faulty weighing & measuring equipment
4. Use of sub-standard or defective materials
5. Pilferage of materials by staff
6. Wastage, spoilage due to inefficient production methods
Computation of Variances
1. Material Cost Variance = Standard Cost - Actual Cost

a) Standard cost = Standard quantity x Standard price
b) Actual Cost = Actual quantity x Actual price
2. Material Price Variance = Actual quantity (Std. price - Actual price)
3. Material Usage (quantity) Variance = Std. price (Standard quantity - Actual
quantity )
Illustration: The standard and actual figures of product Z are as under:
Standard Actual
Material quantity 50 units 45 units

Material price per unit Rs. 1.00 Rs. 0.80
Calculate:
a) Material cost variance

b) Material price variance
c) Material usage variance
Solution: The variances may be calculated as under:
a) Standard Cost = Standard Quantity. X Standard Price

= 50 units x 1.00 = Rs.50/-
b) Actual Cost = Actual Quantity. X Actual Price
= 45 units x 0.80 = Rs. 36/-
Variances:
a) Material Price Variance = Actual Quantity (Standard. Price - Actual Price)

= 45 units (1.00 - 0.80) = Rs. 9/- (F)
b) Material Usage Variance =Standard Price (Standard Quantity. - Actual Quantity.)

= Rs. 1.00 (50 units - 45 units) = Rs. 5/- (F)
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c) Material Cost Variance = Standard Cost - Actual Cost

Rs. 50 - Rs. 36 = Rs. 14/- (F)
Proof: Material cost variance =Material price variance + Material usage variance
= Rs. 9+5= 14
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Unit - 8 - BREAK-EVEN ANALYSIS:
U.A. Breakeven Chart

U.B. P V Ratio
U.C. Contribution
U.D. Marginal Cost
U.E. Graphs
INTRODUCTION:
Break-Even Analysis represents the relationship between Cost, Volume, and Profit
and is an important exercise in the business because it depicts the following:
1. Financial state of the business.

2. The profitability of the business at different levels of output.
3. The break-even point i.e. point at which neither profit is made nor loss is incurred.
4. The relationship between fixed, semi-fixed and variable costs and the
contribution.
5. The margin of safety and the profit/volume ratio.
Cost-volume-profit analysis is an important medium through which one can

have an insight into effects on profit due to variations in costs ( both fixed and
variable) and sales ( both volume and value). This enables us to take
appropriate decisions.
Break-Even Point is the point or state of a business at which there is neither a profit
nor a loss. In other words it is the point at which total costs are exactly covered by
the revenue. At the breakeven point profit is zero.
Break-even point (Sales value) = Fixed Cost
P/V Ratio
Break-even point (Units) = Fixed Cost
Contribution per unit
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U.8.A. Break-Even Chart: is a graphical representation of cost-volume-

profit relationship
Fig. Breakeven Chart
8.C. Contribution or gross margin is the difference between selling price and
the variable cost (i.e. marginal cost).in other word; contribution is the sum of fixed
costs and the amount of profit. It can be expressed by the following formula:
Contribution = Selling price Variable cost
[OR]
Contribution = Sales X Profit Volume Ratio
[OR]
Contribution = Fixed cost + Profit
Illustration:
Variable cost Rs. 12,000

Fixed cost Rs. 6,000
Sales Rs. 25,000
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Contribution = Selling price Variable cost

= 25,000-12,000
= 13,000
Profit = contribution fixed cost
o 13,000 6,000
o = 7,000
U.8.B. Profit Volume Ratio (P/V Ratio)

Profit/Volume (P/V) ratio is the percentage of contribution to sales.
P/V Ratio = 1 (Variable cost Sales value)
Margin of Safety represents the excess of sales, budgeted or actual, over the break-
even sales.
Margin of Safety = Total sales Break-even sales

[OR]
Profit / Profit Volume Ratio
Illustration: A high end restaurant has the capacity to produce 250 meals per day.
The variable cost of a meal is 50% that is Rs. 200 which is sold for Rs. 400.fixed
overheads per day Rs. 20000. Let us calculate BEP for output and sales and show
what profit will result if output is 225 meals per day?
Contribution per meal is Rs 400 Rs.200 = Rs. 200
Break-even point (Units) = Fixed Cost
Contribution per unit
= 20000 / 200
= 100 meals
Breakeven sales = 100 x 400 = Rs. 40000
OR
B.E.P = Total fixed cost x selling price per unit / contribution per unit
20000 x 400 / 200
= 8,00,00,00 / 200
= 40000
Profit at 90% of the capacity will be calculated as follows:
Capacity: 250 meals
Output at 90% capacity: 225
Break even point of output: 100 meals
Since fixed costs will be recovered in full at the breakeven point, the entire
contribution beyond the break even point will be the profit. The profit on 225 meals,
therefore, will be:
= Rs. 200 x ( 225 -100)
= Rs. 200 x ( 125)
= Rs. 25,000
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Angle of Incidence: This is the angle at which the total sales line cuts the total cost
line. If angle is a large, the firm is said to make profits at a high rate and vise versa.
A high angle of incidence and large margin of safety indicate sound business
conditions.
U.8.D. Marginal Cost: The amount at any given volume of output by which
aggregate costs are changed if the volume of output is increased or decreased by
one unit.
Utility of marginal costing:
Helps in determining the volume of production

Helps in selection production lines
Helps in deciding whether to continue or shutdown.
Formulas:
Pv = C BE = F/PV MS = P/C S=V

SP 1- Pv
Pv = SP V P = S-F-V MS = S - BE F = ( S-V-P)
SP S
Pv = 1- V P = (S-BE) Pv S= F+ V+ P F = ( S X Pv) - P
S
Pv = P+F P = (S X Pv) - S S = P+F V = S-F-P or
S Pv V = S ( 1-Pv)
( Pv= Profit Volume Ratio or Contribution Ratio, C = Contribution, SP = Selling
Price, V = Variable Cost, S = Sales, BE = Break Even, F = Fixed Expenses, P =
Profit , MS = Margin of Safety)
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Cost Volume Profit Analysis
Variable increases How they are affected other things remaining

Which decreases changes constant
Pv Ratio Profit B.E.P.
Contribution Margin of safety
Increase Increase Increase Comes

Selling price down
Decreases Decreases Decreases Goes up
Variable cost/ Increase Decreases Decreases Goes up
Marginal cost Decreases Increase Increase Comes
down
Fixed cost Increase No change Decreases Goes up
Decreases No change Increase Comes
down
Analytical problems
Question #1: Vindeez Restaurant averages 900 covers per month. The average
spending power is Rs. 80/- Variable costs equal 45% of revenue. The fixed costs are
Rs. 22,000/-. Calculate : CM per unit, P/V ratio, BEP (sales), BEP (covers), Margin
of safety.
Question #2: A restaurant sells 350 portions of an item in a week at the rate of Rs.
20/- per portion. The food cost is 40 % of the selling price. Total fixed cost per week
amounts to Rs. 4,400/-. How many more portions does the restaurant have to sell in
order to break-even?
Question #3: From the following data, find the BEP (units):
Fixed cost = Rs. 24000/-

Variable cost = Rs. 40/- per unit
Sales = Rs. 100/- per unit
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Unit 9 - Menu merchandising
U.9..A. Menu Control

U.9.B. Menu Structure
U.9.C. Planning
U.9.D. Pricing of Menus
U.9.E. Types of Menus
U.9.F. Menu as Marketing Tool
U.9.G. Layout
U.9.H. Constraints of Menu Planning
Definition
For a lay man menu is a book containing the list of dishes available for a price. But
infect menu reflects the management policy and thinking. A good menu should be
acceptable to guests and must ensure profits for the management. If menu is priced
high then guests will not come to your restaurant and the sale will be less and hence
low profit and on the contrary if menus are priced very low and it does not cover the
fixed and variable cost then also it will not ensure profit for the management. The
pricing of menu is a technical job and is to be fixed after considering various aspects
like fixed cost, operational cost, attire, management policy, competitors menu
pricing, investment etc.
Menus set the pattern for so many factors which are important for the operation. In
other words, the catering and management policies are determined by the menus.
Menus have a lot of sale value to make the best or most effective use of menus s a
mean of advertising and selling is menu merchandising. It is the piece of advertising
which is sure to be read. For this reason, every detail of the menu deserves strict
scrutiny. It must fit the market, facilities, ability of employees (both production and
services), infrastructure, etc. If the management wants to make profit, the menu
should have merchandising effect and it should help management to sell what it
wants to. It should also help the guest to chose from the list of dishes offered on the
menu. The service is expected to be fast if ordered from the list of dishes offered.
Due consideration should e given to the paper on which it is printed. The format and
layout, the paper, format etc. Chosen must co-relate with the name of the restaurant,
attire, history, etc.
U.9.A. Menu Control

1Pointers for menu merchandising: There are a number of basic factors you have
to be considered to ensure the efficacy of menu as an in house effective sales tool
for optimizing sales
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Menu presentation is very important as it identifies the image and personality of

that particular unit or department whether it is a steak-House, or a cocktail bar. The
following points should be taken into consideration:
1) Attractive The menu should be attractive;' The first' impression of the menu
should be that it looks interesting and inviting and that the customers will
really want to read it.
2) Cleanliness It should be clean. Although this appears to be obvious it is
something that is frequently ignored by hoteliers and caterers. If it is intended
that a particular menu is to be offered frequently it is well worth considering
having them either' plastic coated so that they can be regularly wiped clean;
or printed on inexpensive paper or card and regularly replaced or contained
within a presentable and durable cover.
3) Legible It should be easy to read. It is usual to use different sizes of typeface
for such things as headings and the items appearing under them. How
typeface styles are used can help customers to make their choice of food and
beverage items more easily. The use of attractive graphics, color and blank
space can also help with aiding customers to make their selection by directing
and attracting their eye. What is not required is that a menu should resemble
a page from a railway or bus timetable with its mass of information produced
in an unattractive style which besides failing in so many other ways would
also be annoying to the customer.
4) It should complement the occasion. It is necessary that the general
presentation of the menu is not only in keeping with the decor of the room but
also suitable and complementary to the occasion. Obvious examples are a
restaurant within a holiday camp, a kosher wedding, a state banquet and
bistro, where a different style and presentation are necessary for each.
5) It should reflect current awareness. The menu should take into consideration
the current trends in eating habits, so as to be fully aware of customer
requirements.
U.9.B. Menu Structure

The importance of this cannot be stressed too strongly if budgeted sales or costs are
to be achieved. The content can be examined under the following headings:
1) Language: language should be clear and easy to under stand and it is
essential to provide accurate translation in English language if menu is written
in any foreign language.
2) Accuracy. A very basic requirement for all menus is that when seen by
customers they are accurate as far as pricing and availability are concerned,
with the correct spelling and description of dishes and drinks. It is all too
common to be presented with a menu or wine list to which untidy alterations
have been made in handwriting.
3) Pricing. The correct pricing of all food menus and restaurant lists is very
important to the success of an operation. It is essential that in total all
necessary costs are covered; that the prices are attractive to the particular
segment of the market that the operation is in; and that the prices are
competitive in relation to the level, of quality of food and drink and service
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offered. Pricing strategy should be based on type of establishment, operation,

competitors and desired profit.
4) Methods of printing menu:
Small establishments and menu for special occasions may have
handwritten menu. Make it sure that hand written should be clear to
read as a printed menu and in good style.
Menu can be duplicated by using stencils or duplicating machine.
Printed menu are most popular and be careful of the letter press or
offset litho. In letter press image of printing is transferred to the paper
and advantages of this printing is to make alterations to the type are
easy and quick. Offset litho is fast and convenient but alteration is not
possible in this type of printing.
Desktop publishing is the use of an in-house microcomputer using a
desktop software package and banquet menus, promotional and event
are mostly printed. By using desk top publishing you are free to re-
design the menu and quality of output can achieve by laser printer.
Type and color of the paper is also one of the important aspects;
ensure th thickness of the paper which varies from 120 g/m2 to 500
g/m2 and color of the menu card should meet with the color scheme of
the restaurant and should not be subdued in the light. There are three
types of paper finishes used in printing of the menu: absorbent, non
absorbent and glossy finished papers.
Always ensure varnishing after completion of all printing followed by
lamination and then plastic zing to make it menu stronger.
Use different type faces for headings, subheadings and for
descriptions. Dont be in antique style or too elegant, it may create lot
of confusion to the guests.
Ensure logo of the company and quantity of the menu cards to be
printed should be workout carefully and dont print menu card required
in more than for a year. Printing all menus with the basic design
features only with no price printed.
Key steps of Menu Merchandising:
Menu presentation Menu design Menu content

Attractiveness Shape, size, weight Balance
Durability Pages, panels and Language
Compatibility folds Accuracy
Legibility Graphics and layout Printing
Cleanliness Eye movement and Pricing
positioning of menu Type and color of
items papers
U.9.C. Planning
In order to increase the merchandising value of menus, following points should be
considered:
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1) Presentable menu:
The menu should be attractive and guest would like to take in his hand
and read it. The presentation of dirty, spotted, work, frayed, etc. Menu
is about the poorest way to start the meal.
2) Legible:
This means that the printing of the menu should be easily legible.
Cutting, addition of dishes in ink, change in price by cutting, etc, should
be avoided. The types selected should be attractive and easy to read.
It should be of sufficient size so that most guest like old , with low
vision, read it with ease. Hand written menus should be avoided. The
spelling of dishes should be correct and the classical dishes should be
written in original and not translated, for example: dal makhni sould be
written like this only and not like pulse butter, even if the menu is
written in English, the space between two lines must be double so it is
easier to read it. The single space menu look like a telephone directory
or a dictionary. The lighting in the restaurant should e enough to at
least read the menu properly.
3) Format:
The format of the menu should suit the contents of the menu. As far as
possible, different formats should be used for various like snacks,
breakfast, lunch or dinner, etc. The different format can also be made
for soups, vegetarian, non-vegetarian, fresh from Indian clay oven,
desserts, etc. The format of the menu will also depend upon the type of
establishment, its standard and nature, it may be a hotel, cafeteria,
hostel , and club. The menu should not run into many pages as it looks
like reading a book which no guest likes. There should be a food wine
list prepared separately.
4) Description of dishes:
The dishes listed on the menus must have a brief description so that
the guest may understand what he is ordering. Sometimes guest do
not find it convenient to ask the waiter to explain the dish and more
over it will take a lot of time of hotel staff to explain the guest about the
dishes he orders. There is a joke, guest who could not understand the
menu ordered while outing a finger on the dish, the waiter server plain
consomm, a guest who was very hungry and wanted to eat a dish of
chicken very reluctantly ate hot dirty water (consomm), then ordered
chocolate sorbet and he angrily ate/drank dirty cold water (sorbet if left
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for sometime turns into water), finally he ordered the last dish
mentioned on the menu and this dish was not priced, he thought
maybe this dish is very expensive and that is why it has not been
priced. After sometime manager came with the folding hands and
enquired about the assistance, the guest said I have ordered for this
dish, then the manager replied it is writer that for complaint or
suggestion contact manager.
5) Headings:
It should be well organised. Similar item should be grouped together
and attractive heading may be assigned to the groups. The motive of a
well organized menu is that the guest should be able to find what he
wants to order without reading the menu.
6) Restrictive menu:
The menu should be short as far as possible. Keeping a long menu is a
poor merchandising policy.
7) Easy to change:
Even the most carefully planned menus must be changed from time to
time. The change may be there due change in price, need to add or
cancel some items for a variety of reasons like non availability of crtain
raw material, dishes not popular among guests, non availability of staff,
equipments, etc.
8) Fit for operation:
To serve good food with well and prompt service, management may
have a menu designed to fit the place. It must match the size and kind
of equipment, their capacity and also the skill of the kitchen and service
staff.
9) Merchandising effect:
Design the menu to sell the items which management wants to sell
keeping in view the fast turnover, profitability, availability of extra stock,
specialty, etc. Such item should be tactfully located; different type of
phrases can be used to emphasise one item over another; while listing
the items on menu. The item management wants to sell fast can be
placed at or near the top , since many people choose an item that
appeals to them first rather than study the whole menu.
10) Language:
The menu should fit the language and vice versa. The language
chosen should be most acceptable by the guest visiting your
restaurant. The classical dishes cannot be translated.
U.9.D. Pricing of Menus

Menu Pricing : Pricing is an important element of marketing mix and used as a
strategic marketing variable to meet competition. Excellent pricing strategies
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contribute direct revenue to the catering unit and reverse of it can give negative
result. Pricing is major cause of failure of most of the catering units in our country.
Price should not be so high as to frighten the diners as it effects their decisions to
buy a particular menu item. Price also has a relation with the quantity to be sold.
My policy is to reduce the price, extend the operation and improve the article.
You will note that the reduction of price comes first. I have never considered any
costs as fixed. Therefore, I first reduce the price to a point where I believe more
sales will result. The new price forces the costs down---- (by forcing) everybody
in the plant to the highest point of efficiency. Henry Ford quoted in Phillip
and Dunican, Marketing 3rd Edition, 1956, p. 696.
Determinants of Pricing:
Demand
Competition
Cost
According to Principles of Economics higher the price, lower the demand accepted
universally and it has been observed that desserts contribute less sales in
comparison to starters and main course and one of the major cause is price. So be
careful while deciding price of the menu items. Lets assume the sales mix of a
restaurant:
Total sales Rs. 90,000.00 per day

Total numbers of cover sold: 225
Average sale per cover Rs. 400.00
Contribution of food sales: 80% = 320.00
Contribution of beverage sales: 20% = 80.00
Sales mix of food: starter 20%, main course: 70% and dessert: 10%
By above observation we can find that dessert items are not contributing significantly
and look into the price of dessert items. There are some items which are purchased
mainly for their snob appeal, when prices of such goods rise, their snob appeal
increases and purchased in larger quantities. On the other hand, as the price of such
goods falls, their snob appeal and therefore, demand falls. Elasticity of demand are
the nature of commodity, whether it is necessity or luxury, extent of use, range of
substitutes, urgency of demand and frequency of purchase of the product.
Competition: Perfect competition exists where there are large number of buyers
and sellers, the products sold by sellers are homogeneous in nature. Prices under
perfect competition are determined by the forces of supply and demand. Prices will
be fixed at a point where supply and demand are at equilibrium.
Under monopoly, a single producer has complete control of the entire supply of a
certain product for example Mcburger. The main features of monopoly are: there is
only one seller of a particular good and competition from the producers of substitutes
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is so remote that is also significant. Monopolies are constantly tending the break
down due to the following reasons:
Shifts in consumer demand

Continuous process of innovations and technological developments leading to
development of substitutes.
Lack of stimulus to efficiency provided by competition
Entry of new competition
Intervention by governments.
Oligopoly is a market situation characterized by few sellers, each having an

appreciate share in the total output of the commodity. Menu items of First class
restaurants are example of oligopoly market, a slight change in price and marketing
strategies affect competitors to change their strategies. They are the price leaders
and have strongest position in the market may often increase their price with the
hope that competitors will do the same. Price followers may delay raising their prices
in the hope of snatching a part of the market share away from the leader.
Role of costs in pricing: There is a popular belief that costs determine price.
Relevance of cost in pricing decisions must neither be underestimated nor
exaggerated. If costs were to determine the prices, why do so many are in the
losses, so always remember that price decision cannot be based merely on cost,
costs are effected by volume and volume is affected by price and that is why cost
play a less important role in case of new products as compared to existing products.
It is not possible to determine costs without having an idea of what volumes or
numbers can be sold. But since there is no experience of volumes, costs and prices,
one tarts with the going market price for similar products.
Pricing methods: There are various alternative pricing methods used by catering
organizations. These pricing methods are based on cost oriented pricing and
competition oriented pricing:
Cost oriented pricing
Cost plus or full- cost pricing

Pricing for a rate of return or target pricing
Marginal cost pricing
Cost percentage method of pricing
Competition oriented pricing
Customary pricing
Going rate pricing
Promotional pricing
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Cost plus or full cost pricing: This is most common method used in pricing, under
this method, the price is set to cover all costs (raw material, labor and overhead) and
a predetermined percentage for profit. Profit % vary from organization to organization
due to various reasons such as difference in cost for example labor cost in a metro
city will be higher than the class C city, in the similar way cost of raw material may
vary place to place etc. cost plus pricing is useful in welfare sector as well as small
catering units and fast food sectors and monopoly catering units.
Formula: P = C + f (C)
Where P= Menu price, C= Portion cost; F = % mark up
Case study: Determine price for a cup of tea if portion cost is Rs. 40/- and desired
% of mark up profit is 150%
Solution: P = C + f (C)
P = 40 + 150% (40)
Therefore; P = 40 + 150 % of 40 = 40 + 60 = Rs. 100.00
Rate of Return Pricing or Target Pricing: This method is applicable and useful in
such commercial catering units those faces the problems due to frequent changes in
costs. For this purpose the popular policies that are often followed are as under:
1. Revise prices to maintain a constant % mark up costs.

2. Revise prices to maintain profits as a constant & of total sales.
3. Revise prices to maintain a constant return on invested capital.
Case Study: Soup vendor sells 1, 000, 00 soups per year at a price of Rs. 12.00 per
cup. The various costs are given below:
Raw material cost Rs. 3,60,000.00

Labor cost Rs. 4,20,000.00
Overhead cost Rs. 1,20,000.00
Selling and administrative cost Rs. 1,80,000.00

Total investment in cash, inventory and equipment Rs. 8,00,000.00
Suppose the labor and materials cost increases by 10%. How you will revise price
according to the three policies discussed above.
Solution
The above data reveal that total costs are ( 3,60,000 + 4,20,000 + 1,20,000 +
1,80,000 = 10,80,000).

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The profits as % of costs, sales and capital employed (according to three policies
are):
1. % Over costs 1,20,000/ 10,80,000 = 11.1
2. % on sales 1,20,000/ 12,00,000 = 10.0
3. % on capital employed 1,20,000/ 8,00,000 = 15.0
The revised costs will be (10, 80,000 + 36,000 + 42,000) = Rs. 11, 58,000
According to the first formula, we have to earn a profit of 11.1% on costs and our
revised profit should be Rs. 1,28,667 and sales volume would be Rs. 12,86,667.00
and therefore selling should be 12.87 per cup.
According to the second formula, the profit should be 10% on sales. If sales are S,
the profit would be S/10 and cost would be 9S/ 10. The cost is known to us and we
have to find out the sales:
If 9S/ 10 = Rs. 11, 58,000 than S = Rs. 12, 86,667.00 and therefore selling should
be 12.87 per cup.
Under the third formula, we assume that the capital investment is the same,
therefore, the required profit is Rs. 1,20,000 ( 15 % on Rs. 8,00,000). The sales
value would then be Rs. 12,78,000.00 and selling price would be Rs. 12.78.
Marginal Cost Pricing: As we have seen that earlier both the methods of pricings
are based on total costs comprising fixed and variable costs. Under marginal cost
pricing, fixed costs are ignored and prices are based on marginal cost. This method
involves adding average contribution margin ( CM ) to portion costs of menu items to
determine their menu prices.
Case study: Total sales of a restaurant is Rs. 3,00,000 and cost of food sold is Rs.
1,00,000 and restaurant serves 5000 meals. Find out contribution margin per
customer.
Solution:
Food sales: Rs. 3, 00,000

Cost of food sold: Rs.1, 00,000
Contribution margin (CM): RS. 2, 00,000
Number of customers served: 5000

Therefore Average Contribution margin per customer = 2, 00,000/ 5000 = Rs. 40.00
This method suggests that each menu item should be priced at Rs. 40/- above
portion costs other than food and providing profit.
Cost Percentage Method of Pricing: This method involves dividing the portion cost
of any menu item by the desired food cost % to determine the price of menu item.

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Menu price = Portion cost / Food cost %
Case study: determine the price of vegetable sandwich if portion cost is Rs.10 and
food cost 40%.
Solution: 10 / 40 % = 10 x100 / 40 = 1000 / 40 = therefore menu price for sandwich

will be Rs.25.00.
Competition oriented pricing In this method competitors prices are follows rather
than company cost or demand.
Customary pricing: prices of certain goods become more or less fixed for example
price of tea at railway platform / small retail outlets, not by deliberate action on the
sellers part but as a result of their prevailed for a considerable period of time. For
such items, changes in costs are usually reflected in changes in quality or quantity.
Only when the costs change significantly the customary prices of these goods are
changed.
Going Rate Pricing: In this method, the firm adjusts it own price policy to the
general pricing structure in the industry and may seem to be the first logical step in a
rational pricing policy.
Promotional Pricing: this method involves pricing menu item below the list price
and sometimes even below cost, to increase short term sales. For example: loss
leaders, cash rebates, special event pricing, happy hours.
Analytical problem: Consider the following data for plate of vegetable sandwich:
Raw materials per plate Rs. 9.50
Advertise and sales force costs Rs. 4,00,000
Other relevant fixed costs Rs. 1,00,000
Current Going rate market price/ plate Rs.22.00
Qu. 1. Find out the contribution / unit.

Qu. 2. No. of units to be sold for break even point
Hints: Break Even point = fixed cost/ contribution
Qu. 3. If profit target is Rs. 60,000. How many units should be sold?
Qu.4. if currently 50,000 units are being sold. What is the profit?
Qu.5. if owners investment in the plant is Rs. 1,000,000 and they desire 20% rate on
return before tax after covering all expenses, how many units should be sold?
Qu. 6. Let us assume that consumer behavior in terms of units bought to this caterer
is as follows:
Price No. of units sold
22 50,000
21 60,000
20 70,000
23 40,000
24 30,000

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25 20,000
What is the price at which caterer should sell the product?
Hints for Solution:

Contribution per unit : 22-9.50 = 12.50
B.E.P. = 5,00,000/ 12.50= 40,000
Profit target is Rs.60,000 will be achieved after selling of 44,800 units
Profit will be of Rs. 1,25,000 sales will be Rs. 22 x50,000 = 11,00,000
Variable cost will be Rs. 9.50 x 50,000 =4,75,000
Fixed cost is Rs. 5,00,000
Total cost 9,75,000
Profit = 11,00,000 9,75,000 = 1,25,000
No. of units to be sold 56,000 to achieve desired profit of 20% before tax.
Desired Profit of Rs. 2,00,000 sales will be Rs. 22 x56,000 = 12,32,000
Variable cost will be Rs. 9.50 x 56,000 = 5,32,000
Fixed cost is Rs. 5,00,000
Total cost 10,32,000
Profit = 12,32,000 10,32,000 = Rs. 2,00,000
Caterer should sell the product @ Rs.20.00
Self assessment question

Complete the following table:
Menu item Portion cost Contribution Menu price
margin
Boiled rice 40.00 ? 100.00
Tomato soup 30.00 50.00 ?
Muter paneer ? 40.00 60.00
U.9.E. Types of Menus

1. Table d hote menu
This is a French word which means food from the hosts table. A table d hote menu
offers a complete meal at a affixed price for the guest no matter how much food has
been consumed. This menu can include appetizer.
1.1. Banquets
1.2. Buffets
1.3. Coffeehouses
1.4. Cyclical menu
2. Ala carte menu
2.1. Breakfast menu

2.2. Luncheon menu
2.3. Dinner menu
2.4. California menu

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2.5. Ethnic menu

2.6. Speciality menu
2.7. Room service menu
2.8. Lounge menu
3. Other types of menu
3.1. Static menu
3.2. Du jour menu
3.3. Wine menu
3.4. Dessert menu
U.9.F. Menu as Marketing Tool
U.9.G. Layout
Pointers for Shape, size, weight ,material and color:

Use graphics, topography and color so menu attract to the guests.
Easy to under stand and should not create confusions.
Must work on photographs and special menu can be designed as mementoes
for the guests in function catering and banquet operations.
For special occasion and for sales promotion menus work on single sheet,
central vertical fold, two parallel vertical folds, three parallel vertical folds to
special cut shapes .
Menu cards in India is generally printed on A series and size of the menu card
should be standard and use the following table to determine the size of menu
card:
Series Standard sizes
A0 841 mm x 1189 mm
A1 841 mm x 594 mm
A2 420 mm x 594 mm
A3 420 mm x 297mm
A4 210 mm x 297 mm
A5 210 mm x 148 mm
A6 105 mm x 148 mm
A7 105 mm x 74 mm
Long size 1/8 A 4 210 mm x 99 mm
A4 210 mm x 74 mm
As it can be clearly seen from the above, the range of the A series is obtained from
the largest size, A0, and halving it in size for each subsequent size.
Menu requires artwork and if possible hire the graphics designer as

background knowledge of printing process is very essential.
Too large menu take lot of time in reading by the guests and too short menu
cant satisfied the need of a diner, so menu should be moderate. Wine menu
can be in detail as it helps to diners to make their selection.
Always think about eye movement and positioning of menu items.

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U.9.H. Constraints of Menu Planning

Most common mistakes in the menu of Indian restaurants and catering units
Font sizes are very small and most of the time diners are unable to read it
properly.
Menu cards are overcrowded and lack of description and most of the time
servers are not well versed with the items especially in mid scale restaurants
and banquets.
Very less choice of cold items.
Item of the menu card and visuals (graphics) are not in symmetrical. For
example menu has burger and photo of Indian thali is against of the menu
items.
Color combinations of base paper, menu items, and narrations are not very
effective.
Pricing strategies are not very effective for example tandoori chicken half is
quoted Rs. 450.00 and full tandoori chicken is of Rs. 850.00, plain naan of Rs.
75.00 and buttered naan of Rs.110.00, plain curd of Rs. 120.00 and Boondi
raita of Rs. 180.00. Most of the time breads are carrying high price in
comparison to main course items.
Nutritive value and portion size of food items are not seen in menu.
Number of times menu items are confusing and there is no national / regional
policy on standard practices. You can find more than thousands of taste of dal
makhani and even ingredients varies from place to place.
Name of the restaurant, type of cuisine and ambience is not carrying a sense or
misleading such as name of the restaurant: The Grand Princess serving mughlai
food in French ambience/ atmosphere.

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Unit 10 - MENU ENGINEERING
U.10.A. Definition and Objectives

The marketing oriented approach to the evaluation of a menu with regards to its
present and future content, design and pricing is termed as menu engineering. Its
origin is based on the famous boston consulting group portfolio technique. The
concept of menu engineering requires f&b managers to adapt themselves to the
contribution that menu items make to the total profitability of a menu. The menu
engineering high lights the good and the poor performer in a menu, and provides
vital information for making the next menu more acceptable and appealing to the
customer and also more profitable for the management.
Why Menu Engineering:

Helps to food service operator when to keep menu items and when to
take off items from the menu..
Helps to determine which menu items are over or under priced.
Helps in designing profitable menu.
Helps to select the menu items to be repositioned to gain popularity.
Helps to revise recipe and portion size of the menu item.
Helps in monitoring menu performance.
U.10.B. Methods
Menu engineering focuses on the three main elements:
1) Demand: the number of customers who visited the restaurant and had meals
in the restaurant. The feedback form is filled up by them and their remarks
regarding the menu are taken into account.
2) Menu Mix : the dishes which are more ordered by the guests are analysed to
know that which set of dishes are more popular and how management can
improved its profitability by having menu mix.
3) Contribution : the gross profit earned by selling a particular menu is analysed
and compared with the other menus gross profit (Gross profit = Sales food
cost/variable cost).
The following pre-requisites are must for using this technique:
1) Standard recipes: all recipes prepared by the kitchen must be of a standard

including its portion size, presentation of dish, accompaniments served, etc.
This will ensure the accurate food cost.
2) Uniform rate: the rates of all the raw material must be standard and uniform
so that there is no variation in food cost for the menus.

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3) Sales analysis: the sales analysis of each menu and meal must be done
carefully and it must be accurate so that the different menus sales can be
analysed. This can be done by making analytical sales summary sheet.
4) Computers: for the purpose of calculating sale, food cost, gross profit, etc. It is
recommended that the computer should be used so that all calculation are
done accurately and with speed.
Using this simple mix , menu items can be grouped depending upon the popularity
among guests, gross profit contribution etc. The four squares of the matrix commonly
plotted depending upon the performance of items in a particular square.
1) Star: Menu items high in menu mix and also high in gross profit margin. It lists
those menu items which are more frequently ordered by the guests and
management also makes a better gross profit on selling them.
2) Plow horses: menu items high in menu mix but low in gross profit margin. It
lists those menu items (in combination ) which are usually ordered by the
guests but by selling this menu mix management does not make a large gross
profit. But these dishes can not be avoided or rate changed as they are more
price sensitive.
3) Puzzles: menu items low in menu mix and high in gross profit margin. It lists
those menu items which are not more often ordered by the guests, but
management makes a better gross profit on selling them.
4) Dogs: menu items low in menu mix and low in progress profit margin. It lists
those menu items which are not more often ordered by the guests and
management also does not make a large gross profit.

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Menu matrix
High MM % Average CM Line
Low MM %

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Plow horses: Stars:
Customer perception: overpriced, standard

Customer perception:
Type items. Restaurant prestige items
Management Action: Price unimportant to purchase decision.
Ensure rigid specification for purchasing , recipe

Management action:
And presentation are strictly maintained. Ensure rigid specification for purchasing,
recipe and presentation are strictly
Located items to a low profit position on menu.
maintained.
To increase contribution margin by packaging
Featured prominently on menu
With a high contribution item. Regularly promote
test small price increase. Test price increases in high season.
Dogs: Puzzles:
Customer perception: Customer perception:
Tempting but overpriced.

Low priced, but items dull and uninteresting.
Management action: Management action:
If a new menu item, spend time to check if Reposition

it can and feature more prominently
on menu.
Be improved.
Increase merchandising.
Review alternative menu items.
Change the name of the dish and
Increase the price and raise status to puzzle.
presentation.
Remove from menu. Give the special status to the dish.
U.10.C. Advantages
To be a successful food and beverage service personnel, you have to have perfect
knowledge of menu, menu planning considerations, menu pricing and engineering.
Either you work as an employee for en establishment or want to operate your own
business, this is a fundamental requirement. Assume as a banquet manager of a
large hotel having 5 banquets and operate 5-7 different five to seven activated in a
day and will required to plan 5 menus per day x 365 that is approximate 1825 menu
per year in the similar way as a social caterer you require to plan thousands of
menu. In a busy commercial restaurant, as a chef de rang you may be responsible to

IHM CHENNAI - 113
take the minimum order from 4-6 tables (station) in one shift and approximate you
have to assist 3650 hosts in selection of the menu in a year. Catering Industry is
growing at very fast rate and every day new entrepreneurs are looking for menu
Analysts, Designers, and Engineers. After doing a lot of practice at your place that is
institute/ industry, you can develop potential and skills require getting success. A
good food and beverage service personnel may earn lucrative amount through the
menu.

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UNIT -11- MANAGEMENT INFORMATION SYSTEM
U.11.A- REPORT
U.11.B-CALCULATION OF ACTUAL COST
U.11.C-DAILY FOOD COST
U.11.D-MONTHLY FOOD COST
U.11.E-STATISTICAL REVENUE REPORTS
CUMULATIVE
DEFINITION;
The management information system concept has been understood and described in
a number of ways in last two decades. It is commonly known as the information
system, the information and decision system, the computer based information
system.
U.11.A-Management information system/report:

Formerly the role of management information system was to process data from the
organization and presents it in the form of reports at regular intervals. And the
system was largely capable of handling the data from collection to processing. These
days MIS is a necessity of all the organizations. The individuals could pick and
choose the processed data and use it for their requirements. This concept was
modified when a distinction was made between data and information. The
information is a product of an analysis of data. This concept is similar to a raw
material and the finished dish and ready to be served. The data can be analysed in a
number of ways, producing different shades and specifications of the information as
a product. This called for keeping all data together in such a form that it can be
accessed by one and all and can be processed to suit their need. This gave rise to
the concept of DATABASE and the MIS based on the DATABASE proved much
more effective.
An MIS report is a planned system of collecting, processing, storing and

disseminating data in the form of information needed to carry out the functions of
management.

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Reports are documents which present focused, salient content to a specific

audience. Reports are often used to display the result of an experiment,
investigation, or inquiry. The audience may be public or private, an individual or the
public in general. Reports are used in government, business, education, science,
and other fields.eg- financial analysis report, budget report, accounting report.
U.11.B- Calculation of actual cost:

One method of calculating product costs for a business is called the actual
costs/actual output method. Using this technique, you take your actual costs:
-which may have been higher or lower than the budgeted costs for the year
-and divide the actual output for the year. (this calculation is used for the business
example )
U.11.C-Daily food cost:
All food cost 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 directs are charged to food cost and received. Therefore to determine
food cost for any given day, one must know the total of directs received on that day.
Determining daily food cost:
Stores purchases are added to inventory and charged to the food cost when issued.
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. One merely prices and extends each requisition for foods issued on that day
and then adds the total for all requisition to obtain the total cost of stores issued.
U.11.D-Monthly food cost:

Monthly food cost determination
Opening inventory+ purchases= total available-closing inventory=cost of food.

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The major problem of monthly food cost alone in the length of the time between
reports.
It can reveal any problems promptly and corrective actions can be taken promptly
This will help the management to identify any situation promptly and can act with the
situation immediately without needing to wait until the end of the year. This may be
too late already.
Monthly food cost report shows food costs, food sales, an food cost percentage for
any specific month.
Compares the figures to those for similar period
It provides means for monitoring the effectiveness of efforts to maximize gross

revenue.
U.11.E-Statistical revenue report cumulative:

This Statistical Report contains detailed information (in the form of text, tables and
notes) on all the taxes and duties for which the Office of the Revenue
Commissioners is responsible. Example for things mentioned in the statistical report.
Total Revenue
Excise
Stamp Duties
Capital Acquisitions Tax
Residential Property Tax
Income Tax
Income Distribution Statistics
Corporation Tax
Corporation Tax Distribution Statistics
Capital Gains Tax
Value Added Tax
This is the revenue report made which include all taxes on statistical basis.


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IHM CHENNAI - 113

FOOD & BEVERAGE MANAGEMENT

10. MENU ENGINEERING

Unit - 1 - Cost Dynamics

U.1.A. Elements of Cost:

The elements of cost Approximate % of cost in a business

Material means the substance from which product is made is known as

OS + (P SM) CS = FOOD COST

Where: OS = opening stock of materials; P = cost of purchases; SM = cost of staff

U.1.B. Classification of Costs:

Material costs Fixed costs

Factors affecting gross or kitchen profit and remedial measures:

Causes Remedial measures

and monitoring of Inspection and observation of storage area,

Service Establishing the standard operating

Unit - 2 - SALES CONCEPTS

A. Various Sales Concept

B. Uses of Sales Concept

Ways of Expressing Sales

Unit - 3 - INVENTORY CONTROL

U.3.A. Importance of inventory control:

U.3.B. Objectives of Inventory Management:

U.3.C. Methods of inventory control:

There are two methods to control the inventory of stores:

1. Physical inventory system

1.Physical inventory system:

PHYSICAL INVENTORY FORM

s. no Quantity Unit size Food item Description Unit cost Total

Taken by .. carry forward

PERPETUAL INVENTORY FORM

( For store room)

Date Order no. Quantity in Quantity Quantity in hand

PERPETUAL INVENTORY FORM

Item Date B/F Quantity Quantity Balance Remarks

U.3.D. Levels and technique:

1. Setting up of various stock levels.

2. Preparations of inventory budgets.

3. Maintaining perpetual inventory system.

4. Establishing proper purchase procedures.

5. Inventory turnover ratios.

1. Setting up of various stock levels:

These terms are explained below:

Reordering level is calculated with the following formula:

(b) Maximum Level:

level = Reordering level + Reordering quantity (Minimum Consumption x Minimum

(c) Minimum Level:

Minimum Level = Re-ordering level (Normal rate of consumption x Normal

(d) Average Stock Level:

The formula for determination of the level is as follows:

This may also be expressed by minimum level + 1/2 of Re-ordering Quantity.

(e) Danger Level:

This level can be calculated with the help of following formula:

(f) Economic Order Quantity (E.O.Q.):

This can be calculated by the following formula:

where Q stands for quantity per order ;

A stands for annual requirements of an item in terms of rupees;

S stands for cost of placement of an order in rupees; and

2. Preparation of Inventory Budgets:

3. Maintaining Perpetual Inventory System:

Requested by: Approved by: Date