OH 6-1

Controlling Food Costs in Storage and Issuing

Controlling Foodservice Costs

6OH 6-1

OH 6-2

Chapter Learning Objectives

Describe food storage techniques used to control theft.

Explain the first in, first out (FIFO) method of stock rotation.

Describe the proper method of taking inventory.

Describe the various methods of inventory pricing (valuation).

OH 6-3

Chapter Learning Objectives continued

Calculate inventory turnover rate and inventory value.

Compare physical inventory to perpetual inventory.

Calculate a daily food cost.

OH 6-4

Storage Practices Impact Profits

Spoilage of products

Theft of products

OH 6-5

Sales Needed to Replace the Value of Spoiled or Stolen Items

Assume 5% restaurant net profit

Assume loss of two steaks @ $7.00 cost each

Amount lost ÷ Net profit

percentage = Additional sales required to replace lost revenue

$14.00 ÷ 0.05 = $280.00

OH 6-6

Controlling Spoilage

Storage loss from spoilage is usually caused by carelessness.

Spoilage loss can be controlled.

Spoilage is caused by Improper product rotation

Time abuse

Temperature abuse

OH 6-7

Controlling Spoilage continued

Excellent sanitation practices help minimize spoilage loss.

OH 6-8

First In First Out (FIFO)

Use for refrigerated, frozen, and dry products

Use oldest product first.

Relies on The receiving clerk (to rotate stock properly)

The person using the product (to choose properly)

Must be continually monitored by management!

OH 6-9

Dry Storage

OH 6-10

Fresh Fruits and Vegetables

OH 6-11

Eggs and Dairy

OH 6-12

Meat and Poultry

OH 6-13

Fish

OH 6-14

Proper Sanitation Is Key

Store foods away from walls and at least six inches above the floor.

Store dry goods in airtight containers.

Walls and floors should be nonporous and easily cleaned.

OH 6-15

Proper Sanitation Is Key continued

Rotate stock to minimize spoilage.

Organize products so they are easily found.

Label shelves and sealed food containers.

Include “use by” dates and name labels for all stored products.

OH 6-16

Controlling Theft

Keep storage areas locked whenever practical.

Establish a par stock per shift system for key ingredients.

Issue secondary sets of keys on an as-needed basis only.

OH 6-17

Sample Requisition Form

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

OH 6-18

Inventory Types

Physical inventory An actual count of inventory items

Usually taken to obtain information for theincome statement.

Perpetual inventory A count based upon additions to (purchases) and

subtractions from (requisitions) storage

If records are properly kept, it is always up-to-date.

OH 6-19

Common Inventory Breakdowns

Meats

Dairy

Bakery

Produce

Frozen foods

Canned foods

Dry goods

OH 6-20

Common Inventory Breakdowns continued

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

OH 6-21

Sample Inventory Sheet

OH 6-22

Inventory Valuation Methods

FIFO First in, first out

Inventory is valued at its most recent (latest) cost.

Oldest product is used first.

LIFO Last in, first out

Inventory is valued at the cost of the oldest product.

Newest product is used first.

OH 6-23

Inventory Valuation Methods continued

Averaged price method Inventory is valued at a composite of all prices paid

for the item.

Actual price method Each inventory item is valued at its original purchase

price.

OH 6-24

Inventory and Cost of Food Sold

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

Opening inventory

+ Purchases

Total food available

– Closing inventory

Cost of food sold

OH 6-25

Inventory Turnover Calculation

Step 1 – Calculate average inventory.

Step 2 – Calculate the inventory turnover.

( Opening inventory + Closing

inventory ) ÷ 2 = Average inventory

Cost of food sold ÷ Average

inventory = Inventory turnover

OH 6-26

Daily Food Cost Percent Calculation Using Perpetual Inventory

Step 1 – Compute daily food cost.

Step 2 – Compute food cost percentage.

Requisitions

+ Transfers in

– Transfers out

Daily food cost

Daily food cost

÷

Daily unit sales = Daily food cost

percentage

OH 6-27

How Would You Answer the Following Questions?

1. The greatest cause of inventory loss is (theft/poor buying practices).

2. The most common product storage method used in foodservice is (FIFO/LIFO).

3. The type of inventory that is based upon a theoretical count is called a

A. Breakdown inventoryB. Requisition inventoryC. Physical inventoryD. Perpetual inventory

4. Daily food cost divided by (unit sales/transfers out of inventory) equals daily food cost percentage.

OH 6-28

Key Term Review

Actual price method

Averaged price method

Daily food cost

Extending

FIFO method

Inventory

Inventory breakdown

Inventory turnover

Issuing

OH 6-29

Key Term Review continued

Latest price method

LIFO method

Padding

Perpetual Inventory

Physical inventory

Requisitions

Time and temperature control

Transfer

OH 6-30

Chapter Learning Objectives— What Did You Learn?

Describe food storage techniques used to control theft.

Explain the FIFO method of stock rotation.

Describe the proper method of taking inventory.

Describe the various methods of inventory pricing (valuation).

OH 6-31

Chapter Learning Objectives— What Did You Learn? continued

Calculate inventory turnover rate and inventory value.

Compare physical inventory to perpetual inventory.

Calculate a daily food cost.