6th Sem | Food & Beverage Management | Solved Papers| 2013-14

Q.1. Define “Cost”. What are the different types of cost in Food & Beverage Business? (10)

From a seller’s point of view, the cost is the amount of money that is spent to produce a good or product. If a producer were to sell his products at the production price, his costs and income would break even, meaning that he would not lose money on the sales. However, he would not make a profit.

From a buyer’s point of view, the cost of a product is also known as the price. This is the amount that the seller charges for a product, and it includes both the production cost and the markup, which is added by the seller in order to make a profit.

It is necessary to examine costs not only by their nature (material, labor, overheads) but also by their behavior in relation to changes in the volume of sales. Using this criterion, costs may be identified as being of four kinds:

1. Fixed costs: These are costs that remain fixed irrespective of the volume of sales, for example, rent, rates, insurance, the management element of labor costs.
2. Semi-fixed costs: These are costs that move in sympathy with, but not in direct proportion to the volume of sales, for example, fuel costs, telephone, and laundry. Semi-fixed costs contain a fixed and variable cost element, for example, the charge for the telephone service in the UK contains a fixed cost for the quarterly charge for the rental of each phone and a variable cost depending on the number of phone calls made.
3. Variable costs: These are costs that vary in proportion to the volume of sales, for example, food and beverage.
4. Total costs: This is the sum of the fixed costs, semi-fixed costs and variable costs involved.

Q.2. What is Break-even analysis? Draw a Break-even chart using a suitable example. (5+5=10)

An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point.

Break-even analysis is useful in the determination of the level of production or in a targeted desired sales mix. The analysis is for management’s use only as the metric and calculations are often not required to be disclosed to external sources such as investors, regulators or financial institutions. Break-even analysis looks at the level of fixed costs relative to the profit earned by each additional unit produced and sold.

1. Fixed costs: These are costs which remain fixed irrespective of the volume of sales, for example, rent, rates, insurance, the management element of labor costs.
2. Variable costs: These are costs that vary in proportion to the volume of sales, for example, food and beverage ingredients.
3. Total costs: This is the sum of the fixed costs & variable costs involved.

For Example, (considering the same break-even chart.)
Let’s say there is a restaurant ABC, which plans to introduce a new product XYZ and which to do break-even analysis to the new product to know how many units of XYZ the restaurant needs to sell to break even the cost and to know at how many sales how much profit it will be making.

ABC observes that it has a fixed cost of 10$ on XYZ product, and for each unit of XYZ an additional variable cost of 3.33$ occurs. ABC decides to sell XYZ at a price of 6.66$/unit.

Now after plotting the break-even chart, it seems that it need to sell a minimum of 3 units to prevent loss & more than that to make profit. A lot of other conclusions also can be derived from the Break-even chart.

Q.3. Define Menu Engineering. Explain how it helps in deciding the suitability of a menu item on the menu card.

Menu engineering is the study of the profitability and popularity of menu items and how these two factors influence the placement of these items on a menu. The goal is simple: to increase profitability per guest.

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.

OR
Why is it necessary for the receiving clerk to have a complete set of the establishment’s standard purchase specification? (10)

The purchase specifications contain:

a) Definition of each item.
b) Grade or brand name of each item
c) Weight, size, or count.
d) Unit against which price should be quoted.
e) Special note for commodity.

Aims of Receiving:

• The quantity of goods delivered matches the quantity which has been ordered. This means that all goods will have to be weighed or control.
• The prices stated on the delivery note are in accordance with the price on the purchase order form.
• When the quantity and quality of food ordered are not in accordance with the purchase order or an item is omitted from the order a request for credit note is raised by the receiving clerk.
• An accurate record is maintained in the goods received book recording details of the delivery.

Quantity Inspection of Food items

The receiving clerk checks the delivery of goods against the delivery note and against the purchase order. Items are counted and weighed and checked against the delivery notes.

Quality inspection requires the experience of all types of food items. A copy of the purchase specification manual should be handy for this purpose. Some of the receiving department display photographs or line drawings on the walls for quick and easy reference purpose for quality inspection.

Q.4. Distinguish between (any two): (2×5=10)

(a) Menu planning and Menu merchandising

Menu planning means to compose a series of dishes for a meal. Composing a menu is an art and needs careful selection of dishes for the different courses so that each dish harmonies with others. The planning meals in commercial catering establishments are based on economic considerations and reputation than on the desire to provide nutritionally ‘balanced diets’.

Menu merchandising refers to the application of the menu as a powerful in-house marketing tool for promoting optimizing sales in foodservice operations.

(b) Perpetual inventory and physical 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 that is recorded on the basis of regular checks which can be fortnightly, weekly or monthly, depending on the organization’s 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 a 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.

(c) Actual purchase price method and latest purchase price method

Both are the method of pricing for the commodity issued to the various departments from the store.

Actual Purchase Price may be applied to items, which are infrequent purchase, and of which only a small stock is held and also for slow-moving items e.g. items costing Rs. 5/- each is issued at Rs. 5/- each.

Latest Purchase Price Method aka Last In First Out (LIFO) may be applied to items that have a fluctuating market price. This assumes that issues will be made with the normal rotation of stock, but priced out at the latest purchase price for the items.

(d) Call brands and pouring brands

“Pouring brands” are the generic or lower-cost brands of alcohol served in a bar.
The opposite is “call brands”, the term used when the customer specifies a particular (and usually more expensive) brand of alcohol.
So: if a customer asks for Scotch and soda, the bartender will use a pouring brand. If the customer asks for Glenfiddich and soda, that would be a call drink.

Q.5. Explain briefly (any five): (5×2=10)

(a) Variable cost

Variable costs vary in total with volume but are constant per unit within the relevant range. Total variable costs for a given situation are equal to the number of units multiplied by the variable cost per unit. Variable costs include things like labor and materials. Some overhead [indirect costs] such as indirect labor, supplies and some utilities are also variable.

(b) Portion control

Portion control is an essential element of food cost and quality control. It reduces food waste, ensures a consistent and quality product, expedites food preparation and service, and has a big impact on food cost. Any extra food added to the customer’s plate is money coming out of your bottom line.

(c) Contribution

Amount left over after direct (variable) costs are deducted from the sales revenue. Also called gross income, this sum pays for indirect (fixed) costs and contributes to net income.

(d) Fixed cost

These are costs that remain fixed irrespective of the volume of sales, for example, rent, rates, insurance, the management element of labor costs.

(e) Standard costing

An estimated or predetermined cost of performing an operation or producing a good or service, under normal conditions.

Standard costs are used as target costs (or basis for comparison with the actual costs) and are developed from historical data analysis or from standard recipes. They almost always vary from actual costs, because every situation has its share of unpredictable factors. Also called normal cost.

(f) Bin card

A bin card is a common element in a perpetual inventory system. “Perpetual” simply means the inventory is always in flux. A bin card is particularly common in a retail stockroom. The card includes a number of data points about a particular product, but its most important function is to show how many units of a particular product are in stock.

(g) Cyclic menu

A Cyclic menu is a menu comprised of a fixed number of meal types that rotate during a given period of time. For example, say that there are seven primary meal types served at the school. These meals would be offered one through seven at the end of which time the cycle would begin again with meal number one.

(h) Contribution margin

The contribution margin is a cost accounting concept that allows a company to determine the profitability of individual products.
The contribution margin is a product’s price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. The total contribution margin generated by an entity represents the total earnings available to pay for fixed expenses and to generate a profit.

Here is a nice 2-minute video explaining Contribution Margin and its application.

Q.6. List any ten bar frauds. Explain two with the suggestion to control it.

List of common bar frauds:

• A customer walking without paying
• Customer making unnecessary complaints
• Using a false credit card
• Counterfeit currency
• Reusing of checks
• Overcharging
• Substitution
• Under Pouring
• Over Pouring
• Dilution
• Cashier theft or error

Some Common Bard Frauds and their Control

Under pouring -In this type of fraud, the pouring of the drink is intentionally done less than the required quantity. The balance excess alcohol may be sold later. This type of fraud is particularly dangerous as this may lead to quality and quantity variation for the guest as well. It can be prevented by constant and surprise monitoring by the manager. Daily opening and closing inventory of the liquor stock and tallying the sales.

Over pouring – In this kind of fraud, there is an intentional pouring of an extra measure of drink then the specified one as a matter of personal favoritism or ignorance resulting shortage. It can be prevented by correct SOP and strict control.

Substitution- Intentional replacement of a costlier variety with a cheaper one, with similar nature. This often results in serious guest complaints. It can be prevented by Guest feedback form analysis and quality check.

Dilution- Diluting liquor with water or any other substance after using part of liquor for some unauthorized interest. It can be prevented by Guest feedback form analysis and quality check. Surprise check.

Non-projected sale- Food and beverage sold under a fraud KOT and bill or an already paid KOT and bill. It can be prevented by strict vigilance and proper channel of F&B control.

OR
What are the primary purposes of establishing beverage purchasing control? (10)

The primary purposes of beverage purchasing controls are:

1. To maintain an appropriate supply of ingredients for producing beverage products
2. To ensure that the quality of ingredients purchased is appropriate for their intended use.
3. To ensure that ingredients are purchased at optimum prices

As always, the key to successful control is to establish suitable standards and standard procedures.

Q.7. Write short notes (any two): (2×5=10)

(a) Par stock

This term applies to the amount of inventory you need to adequately service one typical day’s business but may be influenced by the length of time it takes to replenish inventory from suppliers.

In a food and beverage context, the principle of “par stocks” may be practically applied in many areas like Bars, Restaurants, etc:

Bars: in this case a prescribed amount of each item to be offered to guests is identified, requisitioned and issued to each bar, using a par stock inventory form or card. At the end of each day, the bartender completes a requisition form for the next day’s business, with quantities ordered to make up to par level only, and accompanied by an equal number of empty bottles: a practical and simple control. Bar par stock on display is also a useful and discreet visual control over actual quantities in the bar. Bar par stock is at the center of beverage inventory-taking, simplifying and shortening the time it takes to undertake this on a daily basis.

(b) Reorder point

It is also known as ‘ordering level’ or ‘ordering point’ or ‘ordering limit’. It is a point at which order for the 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.

Reordering level is calculated with the following formula:

Re-order level = Maximum Rate of consumption x maximum lead time

(c) Budgetary control

Throughout the budget period, the use of budgets & budgetary reports for the purpose of coordinating, evaluating & controlling day-to-day operations according to the goals which are specified by the budget is involved by budgetary control. The mere presentation of the budget doesn’t have much value, its real value lies in the aspects of the planning & its utilization during the period for the purposes of control & coordination. Under budgetary control, actual results are constantly checked & evaluated & a comparison of the actual result is made with the budgeted goals & wherever indicated, corrective action should be undertaken.

(d) Menu as a marketing tool

The printed menu used by a foodservice operation affords management one of the best methods to communicate with the customer. The menu provide more than a mere listing of the food and beverage offerings. The menu influences the customer’s selection of food and beverage items.

(e) Standard cost

An estimated or predetermined cost of performing an operation or producing a good or service, under normal conditions.

Standard costs are used as target costs (or basis for comparison with the actual costs) and are developed from historical data analysis or from standard recipes. They almost always vary from actual costs, because every situation has its share of unpredictable factors. Also called normal cost.

Q.8. Explain Menu Merchandising in detail. (10)

Menu merchandising refers to any technique used to stimulate sales within the Food and Beverage facility. The efficient menu merchandised will affect the popularity of the food and beverage facilities. Some Menu merchandising tools that can be used
inside an F & B establishment are :

• Floor stands display used at the reception to display the menu of the day
• Tent cards – are placed on the tables to promote special events, attractions and encourage upsells.
• Posters are displayed in reception areas, lobby walls, elevators, cloakrooms, in the restaurant dining area itself.
• Wall Displays and clip on’s

Elements to Strengthen Menu Merchandising

Merchandising a menu includes certain elements that can yield more profit:

1. Design in Style
   The design of the menu is the first thing your guests will notice. Hence, your menu shouldn’t look like just another laminated take-out sheet. Design your menu with intention, employing visually consistent elements and easy-to-use materials.
2. Illustrative Images
   It’s a visual world we’re living in, so displaying your dishes with images may be an effective tactic. The images of your dishes will inspire visitors to buy them. Adding images of your best dishes and specialties to your menu will sell more than a clever turn of phrase. The words “smoked meat” will probably not evoke the same amount of drool as one image of delicious-looking red meat.
3. Provoking Content
   Content must be descriptive and to the point. There is no use going on about how delicious your dishes are. The words and phrases you use should make guests want to taste them. Tell your visitors what they get and employ prompting words like “free,” “special,” “best,” “chef’s choice,” etc. Your content should also be easily legible; you don’t want your guests to squint their eyes trying to read it.
4. Compatibility is a Must
   Design your menu to complement the interiors of your restaurant; it enhances the ambiance you’ve created. If chocolate items are a specialty of your restaurant, then consider interior design elements in shades of brown and a complementing menu with the same chocolate-brown colors with a cream edge.
5. Presentation is Important
   Cleanliness and elegance are the keywords. Your guests don’t want to look at tattered, worn-out pages. Torn, dirty menus will likely repel guests and prompt concerns about the overall cleanliness of your establishment. Imagine being handed a sticky menu encrusted with assorted food particles. Yuck! This means no sale, no return guests, and bad word of mouth. Make checking and wiping down the menus a daily side duty for servers or hostesses.

Q.9. Explain the Beverage Control cycle. Explain the importance of assigning responsibility for beverage purchasing. (10)

Food and beverage control is an important process that monitors the movement of food and beverage products from the time they are purchased to the time they are consumed by guests. It is the system by which the management reviews and evaluates the result of the entire activities of the food and beverage operation.

Food and Beverage Operation Control Cycle

Step 1: Purchasing

• Develop purchase specification
• Supplier selection
• Purchasing correct quantities
• No collusion between property and supplier
• Evaluation of the purchasing process

Step 2: Receiving

• Quality and quantity inspection clerical procedure
• Development of receiving procedures
• Completion of necessary receiving reports (e.g., addressing financial and security concerns)

Step 3: Storage

• Effective use of perpetual & physical inventory systems
• Control of product quality
• Securing products from theft
• Location of products within storage areas

Step 4: Issuing

• Product rotation concerns
• Matching issues (issue & usage)
• Purchasing as inventory is depleted

Step 5: Preparation and control

• Minimizing food waste / maximizing nutrient retention
• Pre-costing
• Portion control
• Standard portion size and amount
• Requirements for food and employee safety

Importance of assigning responsibility for beverage purchasing:

Efficiency

Q.10. What is MIS? Explain the various reports generated through MIS in the Food & Beverage business. (10)

Management Information System or ‘MIS’ is a planned system of collecting, storing and disseminating data in the form of information needed to carry out the functions of management.

To the managers, Management Information System is an implementation of the organizational systems and procedures. To a programmer, it is nothing but file structures and file processing. However, it involves much more complexity.

The management information system can thus be analyzed as follows:

Management

Management covers the planning, control, and administration of the operations of a concern. The top management handles planning; the middle management concentrates on controlling, and the lower management is concerned with actual administration.

Information

Information, in MIS, means the processed data that helps the management in planning, controlling and operations. Data means all the facts arising out of the operations of the concern. Data is processed i.e. recorded, summarized, compared and finally presented to the management in the form of the MIS report.

System

Data is processed into information with the help of a system. A system is made up of inputs, processing, output and feedback or control. Thus MIS means a system for processing data in order to give proper information to the management for performing its functions.

Reports generated:

• Audit report.
• Sales report department wise.
• Consolidated revenue analysis.
• Multiple reports.
• Stores, receiving, HR, Accounts, security, and all the major department can maintain reports
• and records through this system.
• Preparation of budget based on initial data retrieved from the system.
• Consumption report.
• Cashiers summary.
• Void /cancellation report.
• Cover analysis.
• Popularity by menu item.
• Settlement report.
• In-house guest directory.
• Spoilage report and etc.