Table of Contents
Q.1. How can a menu be used as a powerful tool to promote sales in F&B Operations? (10)
Use Descriptive Adjectives
There are many changes you can make to your menu, but this one is the most important: Use descriptive adjectives. A list of ingredients informs customers of what’s inside the dish, but a list doesn’t help them to know what to expect. Guests are wondering:
- How is the dish prepared?
- How does it look?
- How much of a certain ingredient is present in a dish?
Adjectives answer these questions with subtlety. They spark the diner’s imagination so he or she can envision the dish. When the description appeals to their cravings, they are more likely to order it. See the difference below.
Boring menu description: A ham and cheese omelet.
Sales-effective menu description: A fluffy, three-egg omelet with salty ham and sharp cheddar cheese.
Give Detailed Descriptions
Detailed descriptions are useful to add value to higher-priced food items. For instance, if there are two burritos on the menu with a $13 price difference, customers are going to want to know why. The menu description must explain why the more expensive burrito is worth the extra dollars.
Description of the $7 burrito: A traditional pulled-pork burrito served with black beans and rice, sour cream, and fresh salsa.
Description of the $20 burrito: Our house-specialty burrito is served with pulled pork, smoked in a special blend of spices, with black beans and rice on the side, and topped with a rich, homemade molé sauce.
Detailed descriptions on the menu add value to all items, but especially, higher-ticket dishes. It should also go without saying that all food descriptions should be accurate. The descriptions should not falsely advertise your dishes. Instead, they provide diners with a clear mental picture of what they will receive. The trick is to make the truth irresistible. The more exciting you make the truth, the more diners will want to order, and return for more.
Leave Out Dollar Signs
This is a subtle trick to make guests feel more comfortable with your menu prices: Remove the dollar symbol. The dollar sign reminds customers that they have to pay at the end of the meal, whereas a single-standing number (sans dollar symbol) is less dominating. Remove the dollar signs and you remove a layer of hesitation.
Induce Nostalgia
Nostalgia is a powerful tool of persuasion; reference a family name to evoke feelings of nostalgia and increase order numbers.
Nostalgic food names work best with comfort dishes. If you own an Italian restaurant, Tiramisu di Nonna would be one way of adding a hint of nostalgia to your menu. Other examples are Grandma Joan’s Blueberry Pie and Uncle David’s Chicken Salad Sandwich.
A well-named, nostalgic menu item should evoke happy memories of childhood or give one a feeling of security and comfort. That’s why family names aren’t the only way of inducing nostalgia, you can also use descriptions that recall cozy, pleasant moments, like Sit-by-the-Fire Hot Chocolate or Summer Camp S’Mores.
Create Product Associations
When appropriate, highlight visible business partners on your menu. A clear example of the product Association on a menu would be the TGI Friday’s Jack Daniel’s barbecue sauce. Fans of Jack Daniel’s or bourbon are drawn to the name and are therefore more likely to order that certain TGI Friday’s menu item.
You can do the same at your restaurant. Check out the list of ingredients used in your menu and pull out products with strong reputations and big followings. If one ingredient doesn’t stand out, you can start sourcing quality products to associate with. This is a great way to upsell products with high-profit margins.
Add Anchor Items
Anchor items are an eye-catching design element. In a big font or different color, feature an elaborate, high-priced dish. This is called the anchor item. The reader’s eyes will go directly to this item, but most likely, guests will be turned off by the price. Offer a similar high-end product at a lower price for guests to compare. Diners are more likely to order the more affordable option than the anchor dish.
Add Menu Items with High-Profit Margins Next to the Anchor Item
Since the anchor item has called their attention, keep your guests in this section. This is would be a good place to add items with the highest profit margins. That way, if customers don’t choose your big-ticket dishes, guests select items that will be good for sales.
Highlight Dishes You Want to Sell
Highlight crowd favorites, high-margin and big-ticket items in one shortlist in your menu. Call it the Chef’s Specials or something with similar distinction to attract attention. By giving it importance, your guests will feel more comfortable ordering something pricier or unusual.
The Top-Right to Bottom-Left Menu Layout Rule
The human eye scans information in a pattern, starting at the top-right of a page, followed by scanning the bottom-left. Because of this natural movement of the eyes, you have two sections on your menu to take advantage of. Organize your specials and entrees according to the top-right to bottom-left rule.
OR
(a) Classify costs based on behavioral dynamics. Explain briefly each type. (5)
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:
- 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.
- 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, 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.
- Variable costs: These are costs that vary in proportion to the volume of sales, for example, food and beverage.
- Total costs: This is the sum of the fixed costs, semi-fixed costs and variable costs involved.
(b) Discuss the elements of cost. (5)
The cost of operating a catering unit or department is usually analyzed under the three headings of the elements of cost:
- Material costs: cost of food and beverage consumed and the cost of additional items such as tobacco. (Note: The cost of any food and beverage provided to staff in the form of meals is deducted from material costs and added to labor costs.) The food cost is then calculated by the formula:
opening stock + cost of purchases – closing stock – the cost of staff meals = material cost - Labor costs – wages and salaries paid to all employees, plus any employer contribution to government taxes, bonuses, staff meals, pension funds, etc.
- Overhead costs – all costs other than material and labor costs, for example, rent, rates, insurance, depreciation, repairs, printing and stationery, china and glassware, and capital equipment.
Q.2. Examine in detail the various fraudulent practices that occur in bar operations. (10)
Some Common fraudulent practices that occur in bar operations.
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.
Q.3. What is budgetary control? State the steps involved in preparing a budget. (5+5=10)
Budgetary control involves the use of budgets and budgetary reports throughout the period of budget to coordinate evaluate and control day to day operations in accordance with the goals specified by the budget.
Steps Of Budgetary Control
- To compel planning: This is the most important feature of budgetary control because management is forced to look ahead, set targets, anticipate problems and give the organization purpose and direction,
- To communicate Ideas and Plans to everyone affected by them. It is necessary to have a formal system to make sure that each person is aware of what he is supposed to be doing.
- To coordinate the activities of different departments or sub-units of the organization, this concept of coordination implies, for example, that the purchasing department should base its budget on production requirements, and that the production budget should, in turn, be based on sales expectations.
- To establish a system of control by having a plan against which actual results can be progressively compared.
- To motivate employees to improve their performance.
OR
Elaborate on the common methods of pricing of menus followed in the catering industry. (10)
The menu price fixed should be acceptable to the hotel/restaurant and guest. By reducing the price hotel tries to attract more guests and hence try to increase the sale. The large sale reduces the fixed cost per guest and hence the hotel makes a profit in spite of having a low price. Some hotels may prefer to keep high prices and look for high-income guests only who can sell more per cover, in spite of having low sale hotel may still make a profit. It is very difficult to fix the menu/dish price.
The following are the common pricing methods:
The Factor System:
This is also known as a multiplier or mark up the system. The raw food cost (RFC) is multiplied by the pricing factor(Pf) to provide a menu selling price( MSP). The pricing factor is determined by dividing the desired food cost percentage into 100. If a 40% food cost is desired, dividing 0.40 into 100 will give a pricing factor of 2.5.
The Prime Cost Factor:
The prime cost system considers not only raw food costs but also direct labor costs. Direct labor cost includes those costs involved in preparation. It does not include service, sanitation or administrative labor cost then it is multiplied with pricing factor
- Prime Cost ( Pc) = Raw Food Cost ( RFC) + Direct Labour Cost ( DLC)
- Prime Cost ( Pc) x Pricing Factor ( Pf) = Menu selling Price ( MSP)
The Actual Pricing Method:
This method includes all the costs plus the desired profit to determine the menu selling price.
Demand Oriented Perceived Value Pricing:
This method is based on the perception of the guest and that means what the guest feels after seeing the dish. The price of food matching is the perception of value for money. Eg The guest in a silver service restaurant is ready to pay than in a self-service cafeteria.
Price based on Competitor’s Price:
This is the simplest method of pricing. Here the caterer does not work on cost, profit, etc and on the contrary caterer takes pricing of competitor’s price as a guideline and fixes his price may be slightly higher or lower.
Marginal Pricing:
The cost can be divided into two categories fixed and variable cost. Usually caterer first aim at getting Break-Even Sale. After the BEP any cost which occurs is known as marginal cost and covers the marginal cost and profit is marginal pricing.
Gross Profit Method:
This method involves finding gross profit per person and adding the price of any extra item to the main meal cost and arriving at the selling price of each menu item.
- Selling Price = Cost main item + Accompanying dish + other items cost + GP
Food Cost Method:
In India, it is the most common method of fixing prices. The hotel decides to maintain a certain food cost. Before fixing the price, the portion size and the food cost of the dish are calculated. After knowing the food cost then the selling price is decided.
Q.4. Write short notes (any two): (2×5=10)
(a) MIS
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 three components of MIS provide a more complete and focused definition, where System suggests integration and holistic view, Information stands for processed data, and Management is the ultimate user, the decision-makers.
The goals of an MIS are to implement the organizational structure and dynamics of the enterprise for the purpose of managing the organization in a better way and capturing the potential of the information system for competitive advantage.
(b) Material variance
The difference between the standard cost of direct materials and the actual cost of direct materials that an organization uses for production is known as Material Variance.
Material Cost Variance Formula:
Standard Cost – Actual Cost
In other words, (Standard Quantity x Standard Price) – (Actual Quantity x Actual Price)
Material Variance is further sub-divided into two heads:
- Material Price Variance:
MPV = (Standard Price – Actual Price) x Actual Quantity
- Material Usage Variance:
MUV = (Standard Quantity – Actual Quantity) x Standard Price
(c) POS
Point of sale (POS) (also sometimes referred to as Point of purchase (POP) ) or checkout is the location where a transaction occurs. A “checkout” refers to a POS terminal or more generally to the hardware and software used for checkouts, the equivalent of an electronic cash register.
A POS terminal manages the selling process through a salesperson accessible interface. The same system allows the creation and printing of the receipt.
The hospitality point of sales systems is computerized systems incorporating registers, computers and peripheral equipment, usually on a computer network. As another point of sale systems, these systems keep track of sales, labor, and payroll, and can generate records used in accounting and bookkeeping. They may be accessed remotely by restaurant corporate offices, troubleshooters and other authorized parties.
(d) Sales summary sheet
On this summary, the sheet cashier maintains the complete record of restaurant sales.
When he issues a check to pick up waiter, he gets his signature and when he (waiter) returns the check to the cashier then the lower perforated portion of the check along with cashier signature and stamp is returned to the waiter and this is his proof that he has returned the check to the cashier.
The Restaurant Sales Summary Sheet is prepared in duplicate and a copy each is sent to the accounts department and control department.
Q.5. Sales can be expressed in various measures to improve efficiency. Explain in detail the various sales concepts. (10)
There are two basic groups of terms normally used in food and beverage operations to express sales concepts: monetary and non-monetary.
Monetary sales concept
Total Sales
Total sales are a term that refers to the total volume of sales expressed in rupees terms. This may be for any given time period, such as a week, a month, or a year. For example, total rupees sale for a Restaurant is Rs 10,00,000 for the year ending March 31, 2011.
Total Sales by Category
Examples of total rupee sales by category are total food sales or total beverage sales, referring to the total rupee volume of sales for all items in one category By extension, we may see such terms As total steak sales or total seafood sales, referring to the total rupee volume of sales for all items in those particular categories.
Total Sales per Server
Total sales per server are the total rupee volume of sale for which a given server has been Responsible in a given time period, such as a meal period, a day, or a week. Management Sometimes uses these figures to make judgments about the comparative performance of two or more employees. It may be helpful, for example, two identify those servers responsible for the Greatest and least rupee sales in a given period.
Total Sales per Seat
Total sales per seat are the total rupee sales for a given time period divided by the number of seats in the restaurant. The normal time period used is one year. This figure is most frequently used by Chain operations as a means for comparing sales results of one unit with those of another. In addition, the National Restaurant Association in the US determines this average nationally so that the individual operators may compare their results with those of other similar restaurants.
Sales Price
Sales price refers to the amount charged to each customer purchasing one unit of a particular item. The unit may be as in a single item (e.g., an appetizer or an entrée) or an entire meal, depending on the manner in which a restaurant prices its product. The sum of all the sales prices charged for all items sold in a given time period will be total rupees for that time period.
Average Sales
Average sales in business are determined by adding individual sales to determine a total and then dividing that total by the number of individual sales. There are two such averages commonly Calculated in food and beverage operations: average check and average sales per server.
Average check
The average check is the result of dividing total rupee sales by the number of sales or customers. In the foodservice industry, this is also known as covers.
Average sales per server
Average sales per server are total rupee sales for an individual server divided by the number of customers served by that individual. This too is a figure used for comparative purposes, and it is usually considered a better indicator of the sales ability of a particular individual because unlike. Total sales per server it eliminates differences caused by variations in the number of persons served.
Non-monetary sales concept
Total number of dishes sold
Total numbers sold refers to the total number of steaks, shrimp cocktails, or any other menu items sold in a given time period. This figure is useful in several ways.
Covers
The cover is a term used in the industry to describe one diner regardless of the quantity of food he or she consumes. An individual consuming a continental breakfast is counted as one cover. So is another individual in the same coffee shop who orders a full breakfast consisting of juice, eggs, bacon, toast, and coffee. These diners are counted as two covers.
Total cover
Total covers refer to the total number of customers served in a given period, an hour, a shift, a day, a week or some other period. Foodservice managers are usually particularly interested in these figures, which are compared with figures of a similar period in the past so that judgments can be made about business trends.
Average covers
An average number of covers is determined by dividing the total number of covers for a given Time period by some other number. That number may be the number of hours in a meal period, The number of days the establishment is open per week, or the number of servers on duty during the time period, among many other possibilities.
Seat Turnover
Seat turn over, most often called simply turnover or turns, refers to the number of seats occupied during a given period (or the number of customers served during that period) divided by the Number of seats available.
OR What are the methods adopted for purchasing beverages? (10)
Methods of purchasing beverages
1. Cash and carry
This method is followed by the purchase of non-alcoholic beverages. Cash n carry businesses offer either a whole range of non-alcoholic brands or limited brands. However, this method is followed in case of an emergency.
2. Wine Shippers
These are the firms that purchase buying from the country of origin and shipped to the destination. Usually, wine shippers are concerned with the sale of wine in a particular region only which means the range of purchases is limited.in certain cases wine shippers only deal with high profile hotels.
3.Wholesalers
These are generally subsiding companies of wine and spirits, large breweries, etc. in which they sell their own labeled products and first preference. Wholesalers offer sometimes a wide range of all beverages and at times they assist the hotel people with promotional literature for bar and restaurant sales.
4.Auctions
Alcoholic Beverages also purchased from auctions that are carried out by an auction house however generally auctions do not authorize the sale of alcohol in the alcohol beverage business. Beverages purchased by auction are meant for celebration purposes only.
5.Wine and beer fairs
Alcoholic beverages are also purchased at an annually held wine and beer fares sponsored by manufacturing companies and wine shippers. the advantage of the fair he can acquire alcoholic beverages at a lesser price than those sold normally but requires licensed permission from the country of origin.
Q.6. Discuss break-even analysis with the help of a neat chart and suitable examples. (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.
- 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. - Variable costs:
These are costs that vary in proportion to the volume of sales, for example, food and beverage ingredients. - 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 needs to sell a minimum of 3 units to prevent loss & more than that to make a profit. A lot of other conclusions also can be derived from the Break-even chart.
OR
With the help of a flow chart, explain the process of beverage control in a star classified hotel. (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
Q.7. (a) Define menu engineering. (5)
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.
(b) Illustrate the classification of dishes based on menu engineering. (5)
Menu engineering classifies dishes based on profit and popularity levels.
Stars: High Profitability and High Popularity
These are the dishes which gives high profits and are highly popular. As such, your menu design should highlight them. Rather than experiment with these menu items, keep them consistent, and promote them in any way you can.
Plowhorses: Low Profitability and High Popularity
Plowhorses are popular staples that you’re actually losing money on. The goal is to create more profitable versions of these items without decreasing volume. For example, you may have a signature sandwich special in this category. You might try experimenting with less expensive meats in the sandwich to create a more profitable version. If there’s a larger menu item in this category, see if the portion size is killing profit; are customers leaving these menu items on their plates? You may want to decrease the portion size slightly while improving the appearance of the product. Here are some more ideas to combat rising food costs without raising menu prices.
Puzzles: High Profitability and Low Popularity
Puzzles are the items on your menu that are highly profitable, but difficult to sell. Investigate whether customers like the taste of these items. You may need to reinvent these items, but sometimes simply lowering prices will increase popularity enough to produce higher overall profits. You may also want to feature these items on your menu, make them specials, or position them in a different way.
Dogs: Low profitability and low popularity
Dogs are your menu items that just aren’t contributing to profit enough. Consider omitting your dogs. However, be careful. You may have a menu item that is a staple among some customers but not others (your kid’s mac and cheese, for instance). Instead of deleting these dogs, you can de-emphasize them by hiding them on your menu.
Q.8. Explain briefly (any five): (5×2=10)
(a) Standard portion size
It defines a specific amount of a particular food that represents the recommended portion for one sitting. The serving size creates a standard reference used on food labels. Every item on your menu should have a controlled portion size in order to keep food costs in check.
(b) Standard recipe
The standard recipe is the method of standardizing recipes in such a way so that there is tight control on cost and quantity. Standardization should not be allowed to stifle the individual chef’s flair. A hotel can control quantities, quality and cost more easily. It is most useful to use standard recipes in a hotel where there are a number of chefs cooking the food.
(c) 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.
(d) Zero budget
Zero-based budgeting is a method of budgeting in which all expenses must be justified for each new period. Zero-base budgeting starts from a “zero base” and every function within an organization is analyzed for its needs and costs.
(e) Sales mix
Sales Mix is an evaluation of your Theoretical Food Cost based upon total items sold for a given period. In other words, based upon what you sold this should be your food cost…assuming no waste, no comps, no mistakes, etc. Sales Mix calculations will also often then compare the theoretical food cost with the margin generated from the items sold. The goal is to measure and compare three vital pieces of information: your theoretical food cost % based upon items sold, the margin (net profit as compared against the cost of goods), and your actual food cost after inventory is taken for the given period.
(f) E.C.R.
An electronic cash register typically processes goods by reading the information contained on a product label (usually using a scanner) Checking the price database for the price matching the label information Adding that price to the running total of all products being purchased by the customer Sending data to sales and inventory software after the sale is complete The sales system is incomplete without other software applications that turn ECR data into operational signals, such as an order to ship more or less of a certain product to a location-based on sales.
(g) Contribution
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.
Q.9. (a) List the objectives of inventory control. (5)
The main objective of stocktaking is to ascertain the actual value of goods in hand as distinct from the book value of the stock. It is the process of physical counting of all stock items in the storerooms and kitchen. It is carried out by the F& B control department of the hotel. In the case of food stores, it is done once in a month, for housekeeping items once in two months and for alcoholic beverage and Bar once in 24 hours.
It solves the following purpose
- To determine the value of goods held in stock (to check the total value of stock held is in accordance with the financial policy the establishments)
- To compare the value of goods actually in stores with the book value of the stock at a particular time.
- To list slow-moving items.
- To compare usage with sales to assess food percentage as a deterrent against loss of pilferage.
- To determine the rate of stock turnover.
- It provides variance between actual quantities and calculated quantities on hand.
(b) Compare and contrast the two commonly used methods of inventory control. (5)
Perpetual Inventory
In this system, goods received or issued are immediately recorded on the stocktaking sheet & compiled at the end of the day. In this system, at any given time you know the value of stock in hand. An individual card is required for each item. All figures are recorded, the balance figure on the card should agree with the actual count of the item in the storeroom. The following are the advantage of perpetual inventory
- 1. It indicates the reordering point.
- 2. It controls the overbuying and under buying.
- 3. It provides a constant inventory figure at glance.
- 4. Immediate comparison between actual and the book value of items.
- 5. It indicates the slow-moving items
Physical Inventory
In most business establishment physical inventories are taken. This is done at the close of accounting period or after the close of the business day or monthly. The process of taking a physical inventory requires that one physically count the actual number of units of each item in stock and record that number at the appropriate place in the inventory book. Once the quantities are determined for each item, total value also can be calculated for each. One of the principal difficulties with above procedure is determining the unit cost of each item since all purchases are not made at the same time.
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 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.
Q.10. Match the following:
a |
Dented can of olives |
1 |
Breakeven |
b |
Sizzlers |
2 |
Pour brands |
c |
Semi variable costs |
3 |
Budgetary control |
d |
Low profit, high popularity |
4 |
Sales promotion |
e |
Lead time |
5 |
Puzzles |
f |
High profit, low popularity |
6 |
Standard purchase specification |
g |
Happy hour |
7 |
Cash cows |
h |
Cumulative food cost report |
8 |
Step costs |
i |
Cocktails |
9 |
Snowball effect |
j |
Angle of incidence |
10 |
Credit memo |
a) Dented Can of Olives – Credit Memo
b) Sizzlers – Standard Purchase Specification
c) Semi Variable Cost – Breakeven
d) Low-Profit high Popularity – Cash cows / Plow horses
e) Lead Time – Step Costs
f) High-Profit Low Popularity – Puzzles
g) Happy Hour – Sales Promotion
h) Cumulative Food Cost Report – Budgetary Control
i) Cocktails – Pour Brand
j) Angle of Incidence – Snowball Effect