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Food and BeverageAccounting
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Table of Contents
Basic Accounting Tools
Forecasting Sales
Analyzing Expenses
Department Budget
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Basic Accounting Tools
The Accounting Factors
The purpose of this classification:
To list the exact areas for auditingTo ensure the accuracy of record.
Importance of food cost analysis:
Inaccurate records - wasting of timeDamaging - if decisions are made on misleading
results.
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Any undetected error in the following areas is
considered a factor that will distort food cost
results and create unexplained variances.
Accordingly, every area should be audited,
making corrections if neededand confirming
that the records in each area are accurate.
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Mixing up billings between periods.
The cutoff date between accounting periods is
very important.
Processing a food invoice in January that wasactually purchased and delivered in February will
produce an inaccurate food cost percentage for
both January and February.
Types of records:
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Over-billing. i.e: i. Undetected errors on the suppliers
invoice, such as the wrong quantity, unit, price per
unit, or an arithmetic error would affect your foodcost analysis.
Others: receiving two jars of apple sauce and
processing an invoice for two cases of apple saucewill obviously inflate the cost of food if not caught
and corrected.
Types of records:
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Coding error.Any wrong posting to the food cost account will
affect your analysis. It is possible that the light
bulb invoice was coded by accident as food orthe beer bottle refund was credited to food cost,
etc.
Types of records:
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Inventory inaccuracy.
Inaccuracy of the closing or the opening
inventory will affect the food cost result for the
period.The inaccuracy could be in the inventory count,
the unit, the price per unit, and/or the extension.
Types of records:
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Transactions from and to food.
Inaccurate transactions between the food as a
profit center and other profit centers could affect
the food cost results
for example, transactions such as food to bar,
beverages for cooking, food for mix, officeusage, house promotion, etc.
Types of records:
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Accruals inaccuracy.Error in food accruals for current or last period,
defined as the cost of food that was ordered and
received but the invoice has not beenprocessed, will affect food cost results.
Types of records:
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Accounting treatment inconsistency. Inconsistency in the accounting treatment from
one period to another will have an effect on food
cost.For example, the accounting treatment for a food
delivery charge, the cost of staff meals, or the
method of pricing the inventory must beconsistent from one period to another or food
cost results will reflect such variances.
Types of records:
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House use unaccounted for.
There is always the possibility that ingredients or
prepared food was legitimately issued to or used
by the house but no record was made or kept as
a result of a weak internal control.
Such unaccounted for house use, regardless ofthe intention, will affect the food cost.
Types of records:
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Giveaways not recorded.Giveaways such as fruit baskets or any
complimentary food item issued to a guest or
potential guest which was not recorded oraccounted for will have an effect on the food cost
results if not caught and corrected during the
period.
Types of records:
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Inaccurate sales records.
Regardless of the intention, food sales
understated, and/or overstated will have animpact on the food cost percentage.
Types of records:
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Forecasting Sales
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Sales Forecast is a prediction of future sales,
based mainly on past sales performance.
Sales forecasting takes into account the
economic climate, current sales trends, company
capacity for production, company policy, andmarket research.
A sales forecast can be a good indicator of
future sales in stable market conditions, but maybe less reliable in times of rapid market change.
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A sales forecast enables an organization to
proactively prepare for actual salesmanagement.
Based on the forecast, the organization can
design and allocate sales territories, determinethe strength of the sales force and formulate
effective sales compensation strategies.
Market potential, sales potential and consumerbuying power index are the three factors which
determine the sales forecast.
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Analyzing Expenses
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How to Analyze Your Performance in
the Food Cost Area
The amount of time and effort required to do the
monthly food cost analysis will depend mainly on
the type of information (system and equipment)available and the experience of the people
involved.
The following are the steps to be taken toanalyze the performance in the food cost area.
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Ensure that the targeted food cost
percentage for the period is more than just
wishful thinking.
The target must be the calculated food cost
potential.
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Check the accuracy of your records.
It is quite possible that the alarming food cost
percentage is nothing more than a clerical errorin accounting factors such as the value of the
inventory or the accruals.
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3. Prepare a comprehensive and precise list of
all the factors (reasons) that can affect the food
cost percentage in your operation.
4. Determine which of these factors affected the
food cost percentage during the period.
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5. Quantify (measure) the effect of each factor
on the total food cost in dollar terms or
percentage.
6. List these factors in groups that can make
your analysis more meaningful, and easier to
read and prepare.
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7. Prepare your monthly report and write your
comments, including the type of corrective
actions to be taken to improve performance.
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Food cost analysis is more meaningful, productive,and useful, the main factors that affect the food
cost percentage must be identified.
Three important group factors:
Accounting factors,
Controllable factors, andUncontrollable factors
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How to Become Efficient in the Food
Cost Area
It is important to emphasize that efficient
performance in the food cost area does not
mean blindly cutting costs regardless of theeffect it might have on the quality and quantity of
the food served.
In fact, this will most likely end up having anegative impact on the food cost, especially in
the long run.
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The only way to actually achieve an efficient
operation in the food cost area is by
implementing the following cycle:
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Planning.
In this stage, the decision makers will choose
after studying the market, the clientele, the type
of skills, and equipment available what type ofmenu will be served.
Target goals are then set in each of the four
variables, namely menu prices, calculating thefood cost potential, the dollars to be spent on
labor, and all the other expenses.
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How to plan food cost target?
a recipe sheet is prepared to identify and calculate
the type and amount of ingredients required to
produce every item on the menu.
Management will cost and price these items,
then calculate the food cost potential.
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=
The food cost potential
(prices, expenses, people skills,
equipment, etc.)
END PRODUCTS
(purchasing, receiving, storing,
issuing, producing, and serving)desired return on investment
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In other words, a plannedfood cost percentage is that
which will produce, with the
other factors, the desired
results for the operation.
Staff training and several
other issues are covered in
this stage.
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Control.
Once the operation starts, management needscontinuous feedback about the performance, not
only in the food cost area, but also in all other
activities.only possible with good internal controls which
can be defined as "all the measures taken by
the operation such as policies, procedures,and systems, etc. to safeguard the resources
against error, fraud, and inefficiency.
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Example:-
Policies and procedures such as the use of
daily quotations and order forms are a must,
all food suppliers must be approved in advance,
buying should be within the approved
specifications,
the executive chef must sign all food purchase
orders or requisitions,
items received should be checked, counted, and
weighed, etc.
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The system should produce steady, timely, and
accurate data about performance as well.
Amount and type of controls will depend on:
size of the establishment,
the experience of the people involved,
type of system and
equipment in use.
i.e: small operation: - owner or the manager can
rely on visual supervision (there is no need forcostly and complicated controls).
Larger operation: - more sophisticated controls
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Analysis.
Sometimes the type of information produced by
the system is either not enough or needs to be
broken down further.
Sometimes the data needs to be measured in
relation to other data.
During this stage, management will be able to
identify the problem, its size, what caused it, and
ultimately how to rectify it.
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Corrective Actions.
Management must act as soon as the feedback
reveals any inefficiency.
It must take the necessary steps to tightencontrol over the operation and improve efficiency
by reinforcing desirable performances and
eliminating the unacceptable ones.
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Department Budget
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What is department budget?
is aprofit plan and a control toolfor a foodservice business that addresses all revenue and
expense items appearing on the business s
income statement.
Annual department budget are commonly
divided into monthly plans.
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These monthly plans become standards against
which management can evaluate the actual
results of operations each month.
Department budget enables management to
accomplish two of its most important functions:planning and control.
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Who is responsible for budgeting?
Heads of Department or
a budget committee that will
review each departments income and expense
plans a property wide budget is approved.
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As a Profit PlanThe department budget is developed by :
projecting revenue,
determining profit requirements andestimating expenses for each month of the
upcoming fiscal year.
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These monthly plans are then combined to formthe operations budget for the year.
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Revision of operations budgets is done through
the budget year.
This re-forecasting is necessary only when
actual results begin to vary significantly from the
operations budget due to changes that occur
after the budget has been prepared.
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Projecting RevenueRevenue is projected by forecasting food and
beverage sales for the budget period.
Sales histories and past monthly income
statements are the basic sources of information
that managers use to project revenue.
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Other factors for consideration:
New competition and other activities over which
the operation has little or no conditionsPredicted increases in inflation or
Changing lifestyles within the community
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Estimating Expense LevelsMany expenses are directly related to sales
volume and will vary as sales volume changes.
For example, food costs and beverage costs
increase as sales increase because more food
and beverage products must be purchased.
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Expenses can be estimated by:
comparing past expenses with projected sales
level.
Other types of expenses do not fluctuate with
sales volume and therefore are much easier to
estimate.
These expenses often referred to as fixed costs
include rent, depreciation, insurance, license
fees etc.
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*As Control ToolDeveloping a thorough operations budget
reminds managers of the extent to which they
are responsible for meeting revenue, profit and
expense goals.
The department budget helps to identify
responsibility and encourages managers to use
the budget as a control tool.
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The process of budgetary control identifies andanalyzes significant variances between
budgeted figures and actual results of
operations.
Variance analysis may include that additional
investigation by management is required todetermine the exact causes of significant
variances.
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Once these causes have been identified ,management is able to take whatever actions
are necessary.
In order for budgets to be used effectively forcontrol purposes, reports are generally prepared
on a monthly basis.
These reports are useful only when they aretimely and relevant.
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Exercises
Define Cost Control?
What is the main purpose of having a good cost
control?
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