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WHAT IS BUSINESS
‐ occupation or trade
FOOD COSTING ‐ purchase or sale
‐ product
‐ service
‐ to make a profit
What is profit
‐ different between amount earn and amount spent

How do we determine profit

‐ doing cost analysis

Food cost may be defined as the cost of material used in

producing the food sold
( it is the cost of food consumed less the cost of staff meals).

Ajith Wijekoon
SLITHM‐ Ratnapura

FOOD COST AND OPERATIONAL CONTROL

As food is expensive ADVANTAGE OF COSTING
‐ Efficient stock control level are essential to help 1. Disclosed net profit
profitability of business ‐ profit of each section
‐Minimize the wastage ‐ cost of each meal
2. Reveal possible sources of economy
WHY DIFFICULTIES IN CONTROLLING FOOD COST ‐ effective use of
‐ labour
1. Food price fluctuate frequently
‐ stores
‐ inflation and falls in the demand and supply
‐ material
‐ due to poor harvest, bad weather condition
‐ overhead
2. Transport cost rise due to
3. Provide information for formation of price policy.
‐ wage demand and cost of petrol
4. Help to speed quotation
3. Food cost raise
‐ special parties
‐ high cost of supplier and producer
‐ weddings
4. Changes occur in the amount demanded by the customer
5. Enable the organization to keep the budget
‐ increase advertizing increase demand
6. Enable top management to make decision
‐ changes in taste and fashion influence the demand
5. Media focus on certain product which healthy increase demand

ELEMENT OF COST

FACTORS THAT EFFECT A CONTROL SYSTEM Total cost

1. Regular changes in the menu Food & Over heads

material Labor
2. Menu with large number of dishes cost
3. Dishes with large number of ingredient
4. Problem in assessing demand Direct Indirect Rent
5. Difficulties in not adhering to operation standard recipes SR Heating
6. Incorrect purchasing of raw material Lighting
Equipment
Repair
Maintenance

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A. VARIABLE COST
• Food or material cost is variable
‐ vary according to the volume of business
‐ seasonal
‐ demand Labor cost
• part time or extra wages
‐ temporally Direct
‐ manpower Indirect /extra
‐ seasonal (Chef, h/keeper/F&B manager) (Part time staff)

Fixed variable
B. FIXED COST

• Salaries of permanent staff

C. SEMI VARIABLE COST

• Overheads which are regular and increase with the volume of the business
‐Rent
‐ Telephone
‐ T.v , electricity

Gross profit = sales ‐ food cost Net profit = Gross profit – ( labor cost + over head)
( kitchen)
Food cost = 6600
 Food cost = 6600 overhead = 1200
sales = 15500 labour = 3000
gross profit = (15500 – 6600) Gross profit = 8900
= 8900 Calculate net profit? =
Net profit = sales ‐ total cost
Sales = gross profit + food cost
 sales = 15500
food cost = 6600 = 8900 + 6600
= 15500
overhead = 1200
labour = 3000
Net profit = sale – (food cost + labour + overhead) • Profit is always expressed as a percentage of selling price
= 4700
Net profit x 100 = profit %
Sales

•If you know the number of client and total sale you can workout Cost% formulas
average spending power
Of each customer Food Cost % =
Cost per person
Selling price % X100

Total sale Cost price formulas

Average spending power No =of customer

Cost price =
Cost % x selling price
Selling price formulas 100

Cost per person

Selling price =
X100
Food cost %

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DISH COSTING Draw up the costing sheet and calculate the following
INGREDIENT REQUIRED FOR 50 PORTION OF ANNIVERSARY PARTY.
Ingredient Unit Unit price Quantity Qty price 1. Total cost for 50 portion?
quantity 2. Cost for per portion?
Flour 01 kg 220 04kg 3. Selling price per portion at 35% food cost
Butter 250g 245 03kg
Egg 01non 18 30 nos
Suduru samba 01kg 140 07kg
Chicken 1.400kg 450 06kg
Carrot 01kg 130 1.500 kg
Leeks 01kg 110 1.200 kg 200
Potato 01kg 80 2.750 kg
Cabbage 01kg 110 1.500 kg
Oil 01Can 975 4 lit

01kg=1000g
01lit=1000ml
01can=4.500 lit

Cost for 1.5 kg potatoes = 225 CALCULATION OF TAXES AND EXTRA ADDITIONS
Cost for 5 kg ?
If a selling price of the fish bun is = Rs. 50.00
When selling, taxes amount that hotel add to selling price = 10%

Cost for 1.5 kg Assume

x Cost for required amount (5 kg)
cost of 50.00 is equal to = 100%
Weight of potatoes (1.5 kg)
50
= 100
50
*110 = 55
Then calculate to 10 % taxes 100 =

55 *100 = 50
When removing the taxes = 110

QUESTION ?
1. Define what is food cost?
2. Explain the advantage of the food cost with point?
3. Write down 3 main elements of cost?
4. Why difficulties in control food cost?
5. What are factors that effect to the control of system?
6. Why food (material cost is vary?
7. Explain 3 element of cost in details?
8. Write down formulas for bellow
 Total cost
 Gross profit
 Net profit
 Sale
 Sale %
 Average spending power
 Selling price
 Food cost
 Food cost %
9. What is direct and indirect labour coat?
10. What are variable cost, fixed cost and semi variable cost?

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CYCLE OF OPERATION ORDERING

Ordering  Ordering is done by the chef
PROFIT
 Always refer past record
PR
‐Help in present planning
‐Ordering of goods for cost and control of food items
Purchasing PO
Selling/serving Order should be given in writing by chef with copies

NAME OF THE HOTEL : ABC

DEPARTMENT :

Receiving Ordering Date Receiving Quantity Average items

Cooking date price

storing
Issuing pricing

PURCHASING
Purchasing officer will raised the purchase order
Point to be considered when ordering IMPORTANT STEPS IN FOOD PURCHASING
1. Stock in hand 1. Know the market
2. Funds availability (capital in hand) 2. Determined the purchasing needs
3. Forecast / anticipation 3. Establish and use the purchase specification
4. Design the purchase procedure
4. According to the menu 5. Receiving goods
5. Arrival and departure 6. Evaluating purchase task
6. Time (weekend / holidays)
KNOWLEDGE OF ITEM PURCHASE
7. Availability of staff ( when less staff is available , advisable to 1. Where they are grown
purchase specific chicken part than purchase whole chicken cut and 2. Season of product
use) 3. Approx. cost
8. Availability of stores (storing facilities) 4. Condition of supply and demand
5. Low and legislation
9. Reliability and honesty of supplier
6. Marketing agent and their service
10.Seasons / functions and current market price 7. Processing
8. Storage requirement
9. Commodity and product class and grade

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FACTOR KEEP IN MIND WHEN PURCHASING

What is purchase requisition book
•Purchase requisition is made by chef 1. Purpose of requirement
•The required item mention in the book handover to store to 2. Proper quantity
raise purchase order 3. Proper quality (purchase specification )
•Following details contain to receive good quality food item ‐ purchase specification differ from hotel to hotel

1. Item PURCHASE SPECIFICATION

2. Quantity Prepare in two ways:
3. Supplier
4. Purchase specification ( quality ) 1. Product testing (testing by producing)
5. Required date 2. Yield chart
6. Average price
7. Remark Special note : hotel should give sound knowledge to supplier
about what we need

STANDARD PURCHASE SPECIFICATION (SPS)

 Document drawn up for every commodity describing what HOW TO SELECT SUPPLIER
is required for the establishment
 assist to formulation of standard recipes 1. Paper advertisement
 once approved it refer whenever item is delivered 2. See for sales promotion and special offer
It is a statement of various criteria 3. Check the market price
Name of the hotel :ABC
4. Check the commodities which are purchase spot check
Category :Meat and poultry 5. Availability and quality
Item :Broiler chicken 6. Time of delivery
Photo
Quality required:
1. Must be fresh , Well clean WHEN ORDERING ALWAYS CHECK FOR QQP
2. Must be bought bellow ‐18C (check at receiving point)
3. Weight range 1.2kg ( 1.5 – 1.25 kg) 1.2 the best
Always check for
4. Weight of the giblets should not exceed 10% of total weight Quality you except
should be bought separately
5. All birds to be carefully cleaned, free from skin damage, bruising Quantity you require
6. All the feet of birds to be trimmed off pack in polythene bag
7. Must be out of skin or without bone Price tally with (past research price or market price)
8. Must be cut in to parts with the skin

THE PROCEDURE FOR ACCEPTING DELIVERIES IS TO ENSURE THAT

 Adequate storage space is available
 Access to the space is clear Done by the receiving staff of the hotel
 Temperature of the goods where the appropriate is checked
 Perishable goods are checked immediately  Should have a small and large scales, trolleys, sink, racks etc
 There is no delay in transporting items to cold room  Should check for QQP
 All other goods are checked for quality and quantity and store  Receiving bay located at the end Should have different times
 Any damage items are returned to receive different items
 Items past their ‘used by’or “best before”are not accepted  All items received should be entered to the GRN
 Receipts or amended delivery notes or records returned  There should be 4 copies of GRN
 One part of the delivery note is retained  One copy to stores, account, ordering department, and
 Other part is kept by the supplier supplies
 A credit note is provided for any goods not delivered  All items received should be physically weight or counted and
 If there is any discrepancies person making the delivery and the entered to the GRN
supplier are informed

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RECEIVING The original tag will be tag with food items. Once the food is completely issued
When receiving items must check against purchase specification the tag will be sent to the account department where they will tally with the
Expensive food items like caviar, lobster, prawn, lamb, beef fillet duplicate copy
must taken more attention TAGGING SYSTEM
 Must be physically check for proper quantity and quality Items ‐ caviar
TAGGING Date of received ‐ 12.05.1991
 It is done by store keeper Supplier ‐ D.S.B company
Total weight ‐ 25 grm
‐by the time items received
Cut ‐
 Original tag with the food items until it finish
Total value ‐ 250 x 10
 Duplicate tag to account department Unite price ‐ 250
 This can be done at receiving point
 Chef should be aware the quality of the food quality inspected by
 Quality is not match with purchase specification, chef have
authority to return food items. ……………………………….
 Specially tagging system is used where there is a part of the main signature
items issuing time to time Dates issued
Ex: whole leg of beef (if the butcher request for a piece of leg 1. 17.05.1991
then it could be entered to the tag. The second slip of the tag carries the 2. 20.05.1991
3. 26.05.1991
same details as other piece of tag is sent to the account department
4. 29.05.1991

POINT TO MAINTAIN WELL PLANED STORES

STORING 1. Should be cool
To ensure the continuous production in the kitchen with out delay 2. Good lightening both natural and artificial is nesessary.
3. Well ventilated, vermin proof, and free from dampness
and problem Should have a proper
3. Should be in convenient portion receive good and issue goods
‐ scale 4. Must be provide sanitized equipment and first aid
‐ storing point 5. A good standard of hygiene is essential
 storekeeper responsible for the goods in between ‐ walls and ceiling free from cracks
‐ receiving and issuing ‐ well painted or tilled so that easy cleaning.
1. Floor should be
DUTIES OF EFFICIENT STOREKEEPER ‐ Free from cracks and easy clean
‐ Junction between floor and walls should be round
1. Maintain the cleanliness of the store
to prevent dust accumulation
2. Maintain record of goods ‐ Cleaning roaster and check list should be maintain
3. Writing of G.R,N 3. Good lightening
4. Storing goods in proper manner 4. Shelve should be Easy cleaning
5. Adhere to proper storing theories (FIFO,LILO) 5. Proper space
6. Entering should be allowed to only authorized person to prevent risk of
6. Check for expiring dates
pilfering
7. Advice chef about stock in hand 7. Must have well planned storage area (deep freezer, cooling cabinet, cold
8. Maintain minimum stocks room,refregarater room, chilling room, vegetable room, dry stores …etc
8. Well planed cleaning machine should be provided

Storage of perishable food

Meat or poultry Refrigeration ‐1 to 1 C
QUALITIES OF AN EFFICIENT STORE KEEPER Deep freezing at ‐20 C
1. Knowledge of the job Fish Refrigeration ‐1 to 1 C
2. Tidy mind and sense of details Deep freezing at ‐18 C
3. A like of job Vegetable Chill room 1‐6 C
4. Honesty Fruits Chill room 1‐6 C
5. Experience Peaches and avocado at 10 C
Banana not stores bellow 13 C(turn to black
6. Clear hand working color quickly)
7. Quick grasp of figures Eggs Store refrigeration 0‐4 C
Milk and cream Store refrigeration 0‐5 C
COMMON RECORD IN STORES Sandwich Bellow 8 C not more than 24 hours
1. G.R.N (good receiving note)
2. A.D.O (Advice of dispatch order) Storage of dry food
3. G.R.R (good receiving register) Storage must be well ventilated, cool, storage off the floor,FIFO,LILO
4. Stocks card Storage of ice cream and frozen food temperature at ‐20 C rotation
5. Bin card

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G.R.N (GOOD RECEIVING NOTE) ADVANTAGE OF GOOD RECEIVING NOTE

1. Goods Received Note is the record of goods received by the 1. Goods Received Note (GRN) is the concrete evidence of receiving goods.
store manager. 2. It ensures whether goods received are properly ordered by purchase
2. After receiving the goods, inventory ledger is updated manager.
mentioning the GRN number along with the date. 3. It reduces the chances of using the material for personal purpose
3. This document is used to confirm whether all goods mentioned
in the purchase order (PO) have been received
4. Contain 3 copies STOCK CARD AND BIN CARD
‐ Original copy in G.R.N book A BIN CARD
‐ 2nd copy with bill or invoice or A.D.O ‐ is a table that records the status of a good held in stock.
‐ 3rd copy good receiving register ‐ Bin card with food stuff or with bin
‐ A typical retailing business with a large stock warehouse
A.D.O Items description Unit Rate Value
will use a BIN card to record a running balance of stock
on hand
‐ In addition to information about stock received and
notes about problems associated with that stock item
Total

ADVANTAGES OF BIN CARDS

1. Records the status of a good held in a stock room
2. Control over the stock can be more effective
( due to continuous update and the balance of store ledger can be
known at any time)
3. in addition to information about stock received
(notes about problems associated with that stock item)
3. Running balance of stock on hand,
2. Bin Cards reduces the counting errors.
3. Facilitate different items identification use a bin card to record

SIMPLE AVERAGE PRICING METHOD

Pricing and Costing for Physical Inventory Price differ from supplier to supplier
Some food item are not available or rare in some time period.
After receiving and storing the next step is pricing food item – Beef
Pricing need to be done due to price fluctuation supplier ‐ A,B,C
(some times supplier not eligible to provide required amount) A B C
50 kg 60/= 5 kg 55/= 56 kg 57/=
METHOD OF PRICING – (Pricing and Costing for Physical Inventory)  Simple average price would be [(60+55+57)/3]=57.33
 Simple average cost is taken as pricing
1. Average pricing system
1. Simple average pricing system  If we need 35 kg of beef what is the price?
2. Weight average pricing system
2. Actual Pricing system ‐ FIFO per kg price = (60 + 55 + 57)
X 35
3. Inflated pricing system 3
4. Standard pricing system = 57.33 x 35
5. Current market price for 35 kg = 57.33 x 35
= 2006.67
Simple average pricing system is suitable for perishable items

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WEIGHT AVERAGE PRICING METHOD

Price differ from supplier to supplier

Actual Pricing system ‐ FIFO
Supplier are not eligible to provide required amount
food item – Beef
supplier ‐ A,B,C Another method for costing assumes the stock has
Total average price per kg is taken as the price
rotated properly and is known as the FIFO (first‐in
A 50 kg 60 =3000
B 55 =275 6467 first‐out) system.
05 kg = = 58.26 /=
C 56 kg 57 =3192 111 Then, if records have been kept up‐to‐date, it is
111kg =6467 possible to more accurately determine the value of
the stock on hand.
58.26 x 35 = 2039.10

Here is an example showing how the FIFO system works.

The daily inventory shows the following:

• As you can see, the choice of costing method

can have a marked effect on the value of stock
At the moment you have 25 cans remaining in your stock and asked to
on hand. It is always advisable to use the
calculate the cost of cans in hand. method that best reflects the actual cost of
If the stock has rotated according to FIFO, you should have used all of the
opening inventory, all of the product received on the 8th, and some of the the products. Once a method is adopted, the
product received on the 15th. The 25 remaining cans must consist of the 12
cans received on the 23rd and 13 of the cans received on the 15th.
same method must be used consistently or
The value of these cans is then the statistical data generated will be invalid.
12 cans @ $2.60 = $31.20
13 cans @ $2.15 = $27.95
Total = $59.15

INFLATED PRICING METHOD STANDARD PRICING METHOD

 Most of the chain hotel use this method  Price are called from supplier for a particular period like
 Purchase is done by the central purchasing unit for all the hotels 3 month or one year
 Common price + 10% extra cost ( transportation etc..)  At that time of agreed time period there is no changing of price
 Easy performance for management and Acc department  Ex: Beans per kg = 15 /=
 Benefit: one month late = 16 /=
‐ Having discount when they buying bulk after 2 month = 14 /=
‐ Seasonal offer Whether the price in the market goes up or down the supplier has to
supply at the agreed rate
CURRENT MARKET PRICE Use FIFO method for non perishable food
Present market price is used
This method is known as FIFO system
Use current market price for pricing
Directly we can apply purchase price for issuing
Ex: Tomato Market price =Rs 30
issuing =Rs 30
 Suitable for non perishable items

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WHAT IS STOCK TAKING THE RATE OF STOCK TURN OVER

Usually done in once a month
Taking the stock of what is available on the particular day is Through out the stock taking we can find out the rate of stock
known as stock taking turn over for a particular period like 1 month or 3 month.
They take physical count of all item available on the day
Rate of stock turn over = Cost of food consumed
ADVANTAGE AND REASON OF STOCK TAKING Average stock value

1. We get aware of actual value of the hand Average stock value = Balance of opening stock and closing stock/ 2
2. Balance of the actual value and clerical value ( opening inventory + closing inventory)
3. Knowledge of the slow moving items 2
4. Minimum of the money spend for the stuff The rate of stock turn over in perishable is high – 15%
5. Stocking taking record will help to keep accounting record and non perishable is lower‐ 45%
balance 1. Cost of food sold = 600000
6. The rate of stock turn over opening stock = 110000 closing stock = 130000
what is stock of turn over

ISSUING COOKING
 At the point of receiving and issuing there should be scale, RESPONSIBILITIES OF CHEF
containers, labors to help weighting and counting  Controlling waste
Never allow to take without weighing and untill producing issuing  Maximize profit
order  Portion control
 Follow strict rules help to keep correct stock.  Yield testing
 Always follow FIFO system for better rotation  suitable ways of cooking
Requisition book consist of 3 copies  Follow standard recipes
‐ store keeper Kitchen administration and management etc.
‐ account department
FACTORS TO BE CONSIDER BEFORE COOKING
‐ kitchen or restaurant
 Organized proper work
 Planning order
Considering past record
Sales history
Information and food popularity chart

SERVING / SELLING
 Selling by someone on behalf of the production staff
FACTORS TO BE CONSIDER IN COOKING  Follow the strict control rules and keep touch on your eyes
Use best method of cooking, standard recipes, menu planning Strict control rules to be followed
Well trained staff 1. Without KOT never issue any food items
 If not should trained them 2. Chef or sous chef should be at the counter when serving time
Close supervision 3. Serve proper and correct portion it should be standard and
Follow basic hygiene and safety rules reasonable for value of money
4. Portion control(not make too much food stuff)
5. Proper service utensils keeping at right place at right time
6. Check the KOT and original bill compare with them

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WHAT IS KOT
STANDARD RECIPE
1. The KOT is an application
2. primarily contains details related to the A standard recipe is a recipe that yields the same resulting product
‐ table number, using specific ingredients and preparation methods.
‐ items ordered and its
‐ quantity.
ADVANTAGE
3. Having a restaurant KOT which is automated
1. Predetermine quantity and quality of ingredient
ADVANTAGE OF KOT SYSTEM 2. Control portion cost
3. Facilitate purchasing and internal requisitioning
1. To maintain proper system 4. Facilitate food preparation
2. Reduces the manual mistakes, saves time. 5. Maintain food quality standard
3. Helps you to have real‐time reporting of all the orders at your 6. Enhance the market orientation of hotel and restaurant
restaurant
4. Reduce money misconduct by staff
3. Proof document among kitchen and F&B

PORTION CONTROL EQUIPMENT IN KITCHEN

STANDARD RECIPE
1. scoop‐ ‐ ice cream, mashed potato
NAME OF ITEM : Coleslaw 2. Ladles – Soup and sauces
INGREDIENT QUN UNI UNIT COST OF METHOD OF PREPARATION 3. Measuring jug
T COST INGREDIENT 4. Soup bowl
Cabbage 1500 G .16 240 Shredded cabbage, carrot cut in to 5. Milk dispenser
julienne
Carrot 750 G .25 187 Mixed with mayonnaise 6. Butter machine
Mayonnaise 100 Ml .9 90 Finally add salt and pepper CHEF RESPONSIBLE AREA IN COSTING CYCLE
Salt 10 G .1 1
1. ORDERING
Pepper 5 G 1.6 8
2. RECEIVING
3. COOKING
Total Cost 526 Other information
4. STORING
Number of portion 30 Keep in cool storage
Mixed and add salt at last moment 5. SERVING
Cost per portion 17.55
Cooking time :10 minute
PORTION SIZE (COOKED) 50 g

MEAT TAG MEAT TAG NO.22928

Tagging food serves many purposes: Item Beef

1. It aids the control of expensive food. Cut Rib
Total cut 22 lb
2. It requires the receiving clerk to weigh percentage record each item Total value $ 39.60
and to check against the specific purchase specification weight range. Cost/lb $ 1.80
Supplier Tambard Meat Co.
3. It assists in obtaining a more accurate daily food cost percentage Date Recd. 5.2.8
figure. Date issued 12.2.8
4. It assists in controlling the stock levels of these items. FOOD CONTROL COPY
MEAT TAG NO.22928

Item Beef
Cut Rib
Total cut 22 lb
Total value $ 39.60
Cost/lb $ 1.80
Supplier Tambard Meat Co.
Date Recd. 5.2.8
Date issued 12.2.8

Food store copy

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The operation of tagging of expensive items is as follows.

1. On receiving the items, they are checked against the purchase ADVANTAGES OF MEAT TAG
specification as to be acceptable or not. 1. Facilitation and supplementation of inventory records and the
2. If suitable, a tag is made out for each item received, the main checking process.
information is taken from the invoice or note. The weight recorded on 2. Shortage and discrepancy Check
the tag being obtained actually weighing each item individually. 3. Assurance of checking procedures.
3. The tag is then separated along the perforation with the control office 4. Assists the FIFO procedures.
copies of the invoice or delivery note and the kitchen copy being 5. Reweighing is eliminated.
attached with string or wire to the food item. 6. It helps in the calculation of meat costs per day.
4. When the item is issued, at a later date, to the kitchen for use, the tag 7. It helps in comparative evaluation of meat.
attached to the item is removed and send to control with the date of 8. It helps for reordering of stock.
issue filled in. 9. It aids in tracing the origin of meat in case of a problem.
5. The control office will usually operate a reconciliation of meat tags form, 10.It helps to keep a strict control in general.
recording the tags received from the receiving department and from the 11.Items are sent to respective storage areas.
kitchen. Thus the total value of tags of each specific expensive item
would be known for.

END
EXTRA NOTE

THE ADVANTAGES TO THE FIFO METHOD ARE AS FOLLOWS:

1. The method is easy to understand,
ACTUAL PRICING SYSTEM METHOD (FIFO) 2. universally accepted and trusted.
• Commonly used to estimate the value of inventory on hand 3. FIFO follows the natural flow of inventory (oldest products are sold first,
at the end of the accounting period and the cost of the goods with accounting going by those costs first).
sold during the period 4. This makes book keeping easier with less chance of mistakes.
• Method assume that inventory purchase first is sold first and 5. Less waste (a company truly following the FIFO method will always be
newer inventory remain unsold moving out the oldest inventory first).
• Cost of older inventory is assign to cost of goods sold 6. Remaining products in inventory will be a better reflection of market value
• newer inventory assign to ending inventory (this is because products not sold have been built more recently).
7. Higher profit.
8. Financial statements are harder to control.
9. The FIFO method gives a very accurate picture of a company’s finances.
This information helps a company plan for its future.

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