Table of Contents
Q.1. Define the elements of cost and distinguish between fixed, variable and semivariable cost with examples.
The elements of cost are the components of the total cost of a product or service. There are three elements of cost: material cost, labor cost, and overhead cost.
- Material cost: This includes the cost of all the raw materials used to produce a product. It includes the cost of purchasing, transporting, and storing the raw materials.
- Labor cost: This includes the cost of all the labor required to produce a product or service. It includes the wages, salaries, and benefits paid to employees, as well as the cost of training and supervision.
- Overhead cost: This includes all the indirect costs associated with producing a product or service. It includes the cost of rent, utilities, insurance, maintenance, and other expenses that are not directly related to the production process.
Fixed cost, variable cost, and semi-variable cost are the three types of cost that a business incurs. The main differences between them are as follows:
- Fixed cost: This is a cost that remains constant regardless of the level of production or sales. It includes expenses such as rent, insurance, and salaries of management. Fixed costs do not change with the increase or decrease in the volume of production or sales.
Example: Rent for a manufacturing unit, insurance premium, property tax.
- Variable cost: This is a cost that changes directly with the level of production or sales. It includes expenses such as raw materials, direct labor, and commission to sales personnel. Variable costs increase with the increase in the volume of production or sales and decrease with the decrease in the volume of production or sales.
Example: The cost of raw materials like flour, sugar, vegetables, or fruits used to produce cakes or cookies.
- Semi-variable cost: This is a cost that has both fixed and variable components. It includes expenses such as telephone bills, electricity bills, and maintenance costs. These costs have a fixed component that remains constant regardless of the level of production or sales, and a variable component that changes with the level of production or sales.
Example: Salary of salesperson that includes a fixed component (basic salary) and a variable component (commission based on sales).
In conclusion, understanding the three types of cost is essential for businesses to make informed decisions regarding pricing, production, and profitability. By analyzing the fixed, variable, and semi-variable costs, businesses can manage their expenses, optimize their production process and make better financial decisions.
OR What do you mean by pricing of issues? Explain the various methods used for pricing of issues in hotels.
Pricing of issues refers to the process of determining the cost of the goods or services used or consumed by an establishment. In the hospitality industry, pricing of issues is used to determine the cost of the raw materials, supplies, and services used in the production of food and beverage items.
The various methods used for pricing of issues in hotels are as follows:
- FIFO (First-In-First-Out) Method: This method assumes that the first items purchased are the first items used. It involves calculating the cost of the goods or services consumed based on the price of the oldest inventory in stock.
- LIFO (Last-In-First-Out) Method: This method assumes that the last items purchased are the first items used. It involves calculating the cost of the goods or services consumed based on the price of the most recent inventory in stock.
- Average Cost Method: This method involves calculating the average cost of the goods or services consumed based on the total cost of all items purchased divided by the total number of items purchased.
- Standard Cost Method: This method involves calculating the cost of the goods or services consumed based on predetermined standard costs. Standard costs are established based on historical data and industry standards, and they are adjusted periodically to reflect changes in market conditions.
- Actual Cost Method: This method involves calculating the cost of the goods or services consumed based on the actual cost of the items purchased. It is the most accurate method of pricing of issues, but it requires detailed record-keeping and may be time-consuming.
In conclusion, pricing of issues is an important aspect of inventory management in the hospitality industry. By using one of the above methods for pricing of issues, establishments can accurately determine the cost of the goods or services consumed and make informed decisions regarding pricing, production, and profitability.
Q.2. Inventory control plays an important role in cost reduction. Justify the statement and discuss the various inventory control techniques used in catering industry.
Inventory control is a critical aspect of cost management in the catering industry. Proper inventory control helps to reduce costs by ensuring that the right amount of inventory is available at the right time, reducing waste, and preventing overstocking and understocking. Effective inventory control techniques can help establishments to optimize their inventory levels, reduce costs, and increase profitability.
Some of the inventory control techniques used in the catering industry are:
- ABC Analysis: This technique involves classifying inventory items into three categories based on their value and usage. Category A items are high-value and high-usage items, Category B items are moderate-value and moderate-usage items, and Category C items are low-value and low-usage items. This technique helps to prioritize inventory control efforts and ensure that resources are focused on the most important items.
- Economic Order Quantity (EOQ): This technique involves determining the optimal order quantity of inventory items to minimize the total cost of inventory management. The EOQ takes into account the cost of ordering, holding, and shortage costs to calculate the optimal order quantity. The objective of the EOQ model is to ensure that the inventory level is sufficient to meet demand while minimizing the costs associated with inventory management.
- Just-In-Time (JIT) Inventory Management: This technique involves keeping inventory levels as low as possible by receiving inventory items just in time for production or sale. This helps to reduce inventory holding costs, minimize waste, and improve efficiency.
- First-In-First-Out (FIFO) Method: This technique involves using the oldest inventory items first to ensure that inventory levels are rotated and that inventory items do not expire or spoil.
- Physical Inventory Control: This technique involves physically counting and reconciling inventory levels to ensure that the inventory records are accurate and up-to-date. This helps to identify discrepancies, prevent theft or loss, and improve inventory accuracy.
In conclusion, effective inventory control techniques play an important role in reducing costs and increasing profitability in the catering industry. By implementing inventory control techniques such as ABC analysis, EOQ, JIT inventory management, FIFO method, and physical inventory control, establishments can optimize their inventory levels, reduce costs, and improve efficiency.
OR List and explain different documents used in the receiving department.
The receiving department is responsible for the proper receipt, inspection, and storage of all goods and materials purchased by an establishment. Various documents are used in the receiving department to ensure accurate record-keeping and efficient inventory management. Some of the documents used in the receiving department are:
- Purchase Order: This document is issued by the purchasing department and contains details such as the name of the supplier, the description and quantity of the goods ordered, the unit price, and the delivery date.
- Receiving Report: This document is prepared by the receiving department and contains details such as the name of the supplier, the date of receipt, the quantity of goods received, and the condition of the goods.
- Invoice: This document is prepared by the supplier and contains details such as the name of the establishment, the description and quantity of the goods delivered, the unit price, and the total cost.
- Bill of Lading: This document is issued by the shipping company and contains details such as the name of the supplier, the description and quantity of the goods shipped, and the delivery date.
- Credit Memo: This document is issued by the supplier and contains details such as the name of the establishment, the reason for the credit, and the amount of the credit.
- Inspection Report: This document is prepared by the receiving department and contains details such as the name of the supplier, the date of receipt, the condition of the goods, and any discrepancies or damages.
- Purchase Requisition: This document is prepared by the department that requires the goods or materials and contains details such as the description and quantity of the goods required, the unit price, and the delivery date.
These documents are used in the receiving department to ensure that the goods and materials received are accurate, of good quality, and properly accounted for. Accurate record-keeping and efficient inventory management help to prevent waste, theft, and overstocking, which can reduce costs and improve profitability for the establishment.
Q.3. What is production control? Discuss the various stages of production control.
Production control is the process of managing and optimizing the production process to ensure that goods or services are produced efficiently, on time, and to the required quality standards. Production control involves the planning, scheduling, monitoring, and control of all aspects of the production process.
The various stages of production control are:
- Planning: This stage involves determining the production requirements, such as the quantity and type of goods or services required, and developing a production plan to meet those requirements. This involves analyzing demand forecasts, determining the production capacity, and setting production targets.
- Scheduling: This stage involves determining the schedule for the production process, such as the start and end dates for each stage of production, and allocating resources such as labor, materials, and equipment to each stage.
- Monitoring: This stage involves tracking the progress of the production process and identifying any deviations from the production plan. This includes monitoring the quality of the goods or services produced, the efficiency of the production process, and the use of resources.
- Control: This stage involves taking corrective action to address any issues identified during the monitoring stage. This may involve adjusting the production plan, reallocating resources, or modifying the production process to improve efficiency and quality.
Effective production control requires close collaboration between different departments, such as production, purchasing, and inventory control, to ensure that the production process is properly planned, executed, and monitored. Production control helps to ensure that the production process is efficient, cost-effective, and meets the required quality standards. By optimizing the production process, establishments can improve productivity, reduce costs, and increase profitability.
OR Prepare a job description of a purchase manager of a four-star hotel.
Job Title: Purchase Manager
Reports to: General Manager
Job Purpose: The Purchase Manager is responsible for managing the purchasing process and inventory management for the hotel. This includes sourcing suppliers, negotiating contracts, ensuring timely delivery of goods and services, and maintaining accurate inventory records.
Duties and Responsibilities:
- Develop and implement a purchasing strategy to meet the hotel’s needs and objectives
- Identify and source new suppliers, negotiate contracts, and establish supplier relationships
- Ensure timely delivery of goods and services and resolve any delivery issues
- Develop and maintain accurate inventory records and manage inventory levels to optimize cost and efficiency
- Monitor market trends and supplier performance to identify opportunities for improvement
- Work with department heads to identify purchasing needs and ensure that procurement requests are fulfilled in a timely and cost-effective manner
- Manage and lead the purchasing team to ensure that all purchasing activities are carried out efficiently and effectively
- Develop and maintain purchasing policies and procedures to ensure compliance with legal and ethical standards
- Provide regular reports to senior management on purchasing activities, inventory levels, and cost optimization strategies
Qualifications and Experience:
- Bachelor’s degree in business administration or a related field
- Minimum of 5 years of experience in purchasing and inventory management, preferably in the hospitality industry
- Knowledge of procurement and supply chain management principles and practices
- Strong negotiation, communication, and interpersonal skills
- Excellent organizational and time-management skills
- Ability to analyze market trends and supplier performance to identify opportunities for improvement
- Proficiency in Microsoft Office and inventory management software
Working Conditions: The Purchase Manager will work in an office environment and may be required to travel occasionally to attend meetings with suppliers or to visit other hotel properties.
Note: The above job description is not intended to be an exhaustive list of all responsibilities, duties, and skills required of the Purchase Manager. The hotel management reserves the right to modify or revise the job description as necessary.
Q.4. (a) List the characteristic of an ideal dry storage area.
An ideal dry storage area should have the following characteristics:
- Adequate Space: The dry storage area should have enough space to store all inventory items without overcrowding or damaging the goods.
- Proper Lighting: The dry storage area should be well-lit to enable easy and safe movement of goods.
- Proper Ventilation: The dry storage area should have proper ventilation to prevent the accumulation of moisture, mold, and bacteria.
- Appropriate Temperature and Humidity: The dry storage area should maintain a constant temperature and humidity level to preserve the quality of the goods and prevent spoilage.
- Proper Shelving and Storage Units: The dry storage area should have adequate shelving and storage units to organize the inventory items and maximize space utilization.
- Cleanliness and Sanitation: The dry storage area should be kept clean and sanitized to prevent contamination of inventory items.
- Security: The dry storage area should have appropriate security measures to prevent theft or unauthorized access to the inventory items.
- Pest Control: The dry storage area should have appropriate pest control measures in place to prevent infestation and damage to inventory items.
By ensuring that the dry storage area has these characteristics, establishments can maintain the quality and safety of inventory items, prevent spoilage and waste, and reduce costs.
(b) Explain the objectives of a control system.
A control system is a set of procedures and tools used by establishments to manage and monitor their operations to ensure that they are meeting their objectives. The objectives of a control system are:
- Efficiency: The control system should help to improve the efficiency of operations by ensuring that resources are used effectively and waste is minimized.
- Compliance: The control system should ensure that the establishment is complying with all relevant laws, regulations, and industry standards.
- Quality: The control system should help to ensure that the establishment is producing goods or services of the required quality standard and that customer satisfaction is maximized.
- Cost Control: The control system should help to control costs by identifying inefficiencies and waste in the production process and implementing strategies to reduce them.
- Risk Management: The control system should help to identify and manage risks associated with the establishment’s operations and take appropriate measures to mitigate them.
- Decision Making: The control system should provide accurate and timely information to management to enable effective decision-making.
- Continuous Improvement: The control system should enable the establishment to identify areas for improvement and implement strategies to continuously improve operations.
By achieving these objectives, establishments can improve efficiency, reduce costs, and increase profitability. The control system helps to ensure that the establishment’s operations are optimized and aligned with its goals and objectives.
OR What is Economic Order Quantity? Calculate the Economic Order Quantity from the following information: (i) Consumption of raw material per annum – 10000 kg. (ii) Ordering cost per order – Rs.50/- (iii) Cost per Kg of raw material – Rs. 2/- (iv) Storage cost – 8%
Economic Order Quantity (EOQ) is a mathematical formula used to determine the optimal order quantity of a raw material that minimizes the total cost of ordering and holding inventory.
The formula for EOQ is:
EOQ = √(2SD/O)
where: S = Annual consumption of raw material D = Ordering cost per order O = Cost per unit of raw material H = Storage cost as a percentage of the cost per unit
Using the given information: S = 10,000 kg D = Rs. 50 per order O = Rs. 2 per kg H = 8% of Rs. 2 per kg = Rs. 0.16 per kg
Substituting the values into the formula:
EOQ = √(2 x 10,000 x 50/2)/(0.16) EOQ = √(1,000,000/0.16) EOQ = √6,250,000 EOQ = 2,500 kg
Therefore, the Economic Order Quantity for the given raw material is 2,500 kg. This means that the optimal order quantity that will minimize the total cost of ordering and holding inventory is 2,500 kg per order.
Q.5. Explain the following (any four): (a) Overheads (b) Reorder level (c) Phases of control (d) Revenue control (e) Bin card
(a) Overheads
Overheads are indirect costs that are not directly attributable to a particular product or service, but are necessary for the operation of the business. Examples of overheads include rent, utilities, insurance, and salaries of support staff. Overheads are an important consideration in cost accounting as they can have a significant impact on the profitability of a business.
(b) Reorder level
The reorder level is the inventory level at which an order for additional inventory is placed to avoid stockouts. It is calculated by adding the lead time demand (the expected demand during the lead time) to the safety stock (the minimum inventory level needed to avoid a stockout). The reorder level ensures that the establishment always has enough inventory on hand to meet demand without overstocking.
(c) Phases of control
The phases of control refer to the various stages of the control process, including planning, implementation, and monitoring. The planning phase involves establishing control objectives, identifying performance measures, and developing control procedures. The implementation phase involves executing the control procedures and making adjustments as necessary. The monitoring phase involves measuring and evaluating performance against the established objectives and making further adjustments as necessary.
(d) Revenue control
Revenue control is the process of managing and optimizing revenue in the hospitality industry. It involves analyzing demand, setting prices, managing inventory levels, and implementing revenue management strategies to maximize revenue and profitability. Revenue control is an important aspect of hospitality management as it can have a significant impact on the financial performance of the establishment.
(e) Bin card
A bin card is a record-keeping tool used in inventory management to track the inventory levels of a particular item. It contains information such as the item description, unit of measure, quantity received, quantity issued, and the balance on hand. The bin card is updated every time a transaction occurs, such as receiving a shipment of inventory or issuing inventory to a department. The bin card provides an accurate and up-to-date record of the inventory levels for a particular item, enabling the establishment to manage inventory levels more efficiently.
Q.6. Draw the formats (any four): (a) Goods received book (b) Meat tag (c) Cashier’s sales summary sheet (d) Invoice (e) KOT
Q.7. Differentiate between any two:
(a) Ordering cost and carrying cost
Ordering cost is the cost incurred in placing an order for inventory, such as the cost of preparing the purchase order, transportation costs, and administrative costs. Carrying cost is the cost incurred in holding inventory, such as the cost of storage, insurance, and obsolescence. The main difference between ordering cost and carrying cost is that ordering cost is incurred when ordering inventory, while carrying cost is incurred while holding inventory.
(b) Purchase requisition and purchase order
A purchase requisition is a document used to request the procurement of goods or services. It is prepared by a department or user and submitted to the purchasing department for review and approval. A purchase order, on the other hand, is a legally binding document issued by the purchasing department to the supplier to order goods or services. The purchase order includes the quantity, description, price, and terms and conditions of the purchase.
(c) Blind receiving and routine receiving
Blind receiving is a receiving procedure where the receiver does not know the quantity or type of inventory being received. The receiver checks the received inventory against the packing list or purchase order and notes any discrepancies before opening the package or container. Blind receiving is used to prevent errors and fraud in the receiving process. Routine receiving, on the other hand, is a receiving procedure where the receiver checks the quantity and type of inventory being received against the purchase order or packing list before signing off on the receipt of the inventory. Routine receiving is used when the inventory being received is known and there is less risk of errors or fraud.
Q.8. Write short notes on any two:
(a) Obstacles of control
Obstacles of control: Control systems can face a number of obstacles that can impede their effectiveness. Some of the common obstacles of control include:
- Resistance to change: Employees may resist control systems if they perceive them as a threat to their autonomy or job security.
- Lack of information: Control systems rely on accurate and timely information. If information is incomplete, inaccurate, or unavailable, the control system may not function effectively.
- Inadequate resources: Control systems require resources such as personnel, technology, and funding. If these resources are inadequate, the control system may not be able to function effectively.
- Poor communication: Effective control systems rely on communication between different departments and levels of management. Poor communication can lead to misunderstandings and errors in the control process.
(b) Supplier rating
Supplier rating is a process of evaluating the performance of suppliers based on a set of predefined criteria. The criteria may include factors such as quality, delivery performance, pricing, and responsiveness. Supplier rating is used to identify the best suppliers for an establishment’s needs and to ensure that suppliers are meeting their contractual obligations. By rating suppliers, establishments can improve their supply chain management and reduce costs.
(c) Production planning
Production planning is the process of developing a plan to efficiently and effectively produce goods or services. The planning process involves analyzing demand, developing production schedules, and allocating resources. Production planning is important in ensuring that the right quantity of goods or services is produced at the right time and at the right cost. Effective production planning can improve efficiency, reduce costs, and improve customer satisfaction by ensuring that products are available when they are needed.
Q.9. Enumerate the reasons for preparing a standard purchase specification and prepare a standard purchase specification for grilled chicken.
Reasons for preparing a standard purchase specification:
- To ensure consistent quality: A standard purchase specification ensures that the quality of the purchased goods is consistent and meets the establishment’s requirements.
- To facilitate communication: A standard purchase specification helps to ensure that all parties involved in the purchasing process have a clear understanding of the required specifications.
- To streamline the purchasing process: A standard purchase specification can help to streamline the purchasing process by eliminating the need for extensive negotiations and ensuring that the desired product is ordered.
- To control costs: A standard purchase specification can help to control costs by ensuring that the establishment is getting the best value for its money and minimizing waste.
Standard Purchase Specification for Grilled Chicken:
Item: Grilled Chicken
Description: Boneless chicken breasts marinated in herbs and spices and grilled to perfection.
Quantity: 100 kg
Grade: A
Packaging: Frozen, vacuum-sealed in 5 kg packages
Country of Origin: India
Ingredients: Chicken, salt, pepper, garlic, onion powder, paprika, oregano, thyme, olive oil
Storage: Frozen at -18°C or below
Delivery: Delivery within 48 hours of order confirmation
Price: Rs. 200 per kg
Notes: The chicken must be free from antibiotics, hormones, and growth-promoting agents. The chicken must be Halal certified.
Q.10. A Match the following:
(i) Meat tag (a) Inventory control
(ii) Overheads (b) Should sink in water
(iii) Egg (c) Supplier
(iv) Invoice (d) Indirect labour cost
(v) ABC analysis (e) Costly perishable items
Answers
(i) Meat tag – (c) Supplier
(ii) Overheads – (d) Indirect labour cost
(iii) Egg – (b) Should sink in water
(iv) Invoice – (a) Inventory control
(v) ABC analysis – (e) Costly perishable items
B Fill in the blanks:
(i) __________ is a concise description of quality, size, weight etc. of a particular item.
(ii) __________ is the usable part of a product after initial trimming and preparation.
(iii) _________ shows the entire material received to an organisation on a particular day.
(iv) _________ is used to track the movement of costly perishable items.
(v) Food cost is a __________ type of cost.
(i) Specification is a concise description of quality, size, weight etc. of a particular item.
(ii) Yield is the usable part of a product after initial trimming and preparation.
(iii) Daily receiving report shows the entire material received to an organisation on a particular day.
(iv) Perpetual inventory system is used to track the movement of costly perishable items.
(v) Food cost is a variable type of cost.