6th Sem | Food & Beverage Management | Solved Papers| 2015-16

Q.1. Define cost. Explain the elements of cost with examples. (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.

The cost of operating a catering unit or department is usually analyzed under the three headings of the elements of cost:

Material costs – the 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.

1. 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.

OR What is cost behavior? Explain the different types with suitable examples. (4+6=10)

When we talk about cost behavior, we aren’t referring to “good” or “bad” behavior. Cost behavior is nothing more than the sensitivity of costs to changes in production or sales volume. The range of output or sales over which cost behavior patterns remain unchanged is called the relevant range.

Fixed costs:
Fixed costs are constant in total over the relevant range. Fixed costs per unit often cause difficulties for students because of the inverse relationship between fixed costs and increases in production. As production increases, total fixed costs stay the same within the relevant range, but since we are dividing a constant numerator [total fixed costs] by a progressively larger denominator [total production or sales], the resulting costs per unit become smaller and smaller. Fixed costs include things like rent, insurance premiums, salaries, depreciation, and property taxes.

Variable costs:
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.

Note that the graph of a variable cost is a straight line with a positive slope, beginning at the origin. the slope of the variable cost line is the variable cost per unit.

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

Mixed costs:
A mixed cost contains both fixed and variable elements. There are a variety of procedures that can be employed to separate the fixed and variable components. The easiest is to use two points on the total cost line to derive the slope and intercept. This is rough and ready and may yield inaccurate results. Regression analysis is a more accurate procedure that also has the benefit of providing measures of goodness of fit; these tell us how well the derived equation fits the observed data. The Y-intercept of a mixed cost line is the total fixed costs. The slope is the variable cost per unit, and any point on the line represents the total cost at the indicated volume.

A diagram showing the relationship between all the costs.

Note: Behaviour of Cost :

Fixed costs remain fixed, irrespective of the level of sales (for example $3,000). Typical  Examples of fixed costs are rent, rates, insurance, etc. Semi-fixed costs do not increase proportionately to an increase in sales. Typical examples of semi-fixed costs are fuels, telephone, and laundry.

Q.2. Explain the procedure in stages for purchasing, receiving and storing beverages.

Purchasing

The purchasing of alcoholic and non-alcoholic beverages, like that of foodstuffs, has the aim to purchase the very best quality of items, at the lowest price for a specific purpose. The purchasing of beverages should be undertaken by the purchasing manager together with such experts as the food and beverage manager, the head cellar-man and the head wine waiter. As beverages will frequently contribute more to profits than foods, and as they require considerably fewer staff to process them into a finished product for the customer, it is essential that adequate attention is given to this area. What is important to bear in mind always when purchasing beverages is that expensive products or products with pretty labels do not necessarily indicate or guarantee superior quality. With beverage purchasing the following points are generally noticeable:

1. There are fewer and often restricted sources of supply.
2. The high value of beverage purchases.
3. The free advice and assistance with purchasing are given by the wine and spirit trade.
4. The quality factors are difficult to evaluate and require special training to identify them.
5. There are fewer standard purchasing units than for food.
6. There is an established standard of product. Many items like minerals, spirits, etc. will have standard that will not vary over the years and items such as a well-known wine from an established shipper will be of a standard for a specific year, whereas with food items there may be several grades and a wide range of ungraded items available. In addition, food items may be purchased in different forms such as fresh, chilled frozen, canned, etc.
7. The prices of alcoholic beverages do not fluctuate to the extent that food prices do. A beverage selected for a wine list would not only have to be on an acceptable quality to members of the selection team, but also to the type of customer served. It should complement the food menu and be available for purchase over a long enough period and at a price that is competitive. The continuity of supply of any wine should be established before it is added to a wine list. There are five main sources of supply that can be used for purchasing beverages and it is most likely that a purchasing manager would use at least two of them. The methods used for purchasing would vary between establishments because of such criteria as the type of customer; the type, size and location of the establishment; the storage facilities available; and the purchasing power of the buyer.

Wine shippers
Wholesalers
Beverage Manufacturers
Cash & Carry
Auctions

Receiving of beverages

The objectives for beverage receiving are similar in many ways to those of food receiving. However, as the value of beverage purchases and the ensuing profits from the sale of beverages are high, it is important that due attention is given to the receiving of beverages. The main objectives are to ensure that:

1. The quantity of beverage delivered matches that which has been ordered. This requires a methodical approach to checking the goods against the purchase order and the delivery note. Items would be in standard units of crates, cases, etc., with standard contents of a specific size. Crates and cases should be opened to check for such things as empty, missing or broken bottles.
2. The quality inspection is simple but again requires a thorough and methodical approach. It involves such things as checking the brand name and label on each item, the alcohol proof, the vintage, and shipper, against the delivery note and the purchase order.
3. The prices stated on the delivery note are in accordance with the negotiated prices shown on the purchase order form.
4. When the quantity or quality (or both) of the beverage delivered is not in accordance with the purchase order, or an item is omitted from the order, that a request for credit note is raised by the receiving clerk or cellarman.
5. An accurate record is made in the goods received book recording details of the delivery.
6. An accurate record is kept of all chargeable empties delivered and returned.
7. Deliveries of beverages are timetabled with the suppliers, often to and afternoon, when receiving and cellar staff are normally not so busy and the receiving area is free from other deliveries.

Storing

Once beverages are received they must be removed immediately to the cellar and a tight level of control maintained at all times. The storage of beverage is ideally separated into five areas as follows:

1. The main storage area for sprits and red wine held at a dry and draught-free temperature 30° C. This area is also used for the general collection and preparation of orders for the various bars and the storage of keg beers when there is a reasonable turnover.
2. A refrigerated area of 10-15° C for the storage of white and sparkling wines.
3. An area held at a temperature of 5° C for the storage of bottle beers and soft drinks.
4. A totally separate area, from those above, for the storage of empty bottles, kegs, and crates. This area needs to be as tightly controlled as the beverage storage area, not only because of the returnable value of the crates and bottles, etc. but to prevent free access by bar staff when an “empty of full” bottle method of issuing is in operation.

The merchandise is unpacked in the cellar and stored correctly (table wines with an alcohol content less than 16% by volume are stored on their sides, bottles of fortified wine, spirits, and vintage ports are stored upright) on shelves or racks in the same order as on the standard bottle code/bin list. The objective of preparing a standard bottle code/bin list is to eliminate the confusion of bottle sizes, the spelling of names and different brands, and to establish an appropriate starting point for the control of beverages. All requisitions, inventories, wine lists, etc., are related to the code/bin list.

An extract from a list could be as follows:

Bin number 100-149 English table wines
Bin numbers 150-199 Imported white wines
Bin numbers 200-299 Imported red wines
Bin numbers 300-399 Sparkling wines
Bin numbers 400-419 Scotch and Irish whiskey
Bin numbers 420-499 Gin

OR
List five bar frauds and suggest ways to check them. (10)

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.

Q.3. How can the menu be an effective tool for marketing? List the factors for designing a menu.

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.

Menus have a lot of sale value.

To make the best or most effective use of menus as a means of advertising and selling is a Menu Merchandising. It is the piece of advertising which is sure to be read for this reason. Every detail of the menu deserves the closest Scrutiny. The menu must fit the market, the facility, the ability of employees if the operation is to succeed. The menu should have the merchandising effect it should help you sell what you want to sell more, and it should also help the guest to choose from the menu what he wants without much loss of time and due consideration should be given to the paper on which it is printed, format and layout, etc.

In order to increase the merchandising value of Menus, the following points should be considered while Designing a Menu.

Clean

The presentation of the dirty, spotted, worn menu is the poorest way to start a meal. We all know that cleanliness is a must in our business. A soiled menu has a very poor merchandising value; it may raise doubt regarding the food being prepared hygienically.

Legible

This means that menus should be easy to read. The type selected should be attractive and easy to decipher. It should be of sufficient size so that most people, including the elderly or those with glasses, can read it with ease.

Menu Structure / Format

The format of the menu should suit the contents of the menu. As far as possible different formats should be used for different meals. (Breakfast, Lunch, Dinner, etc). The format of the menu will also depend upon the type of establishment, its standards and nature e.g. hotels, cafeterias, clubs, etc.

Organized

A menu should be well organized. Similar items should be grouped together and attractive headings may be assigned to the groups. The purpose of a well-organized menu is that the customer should be able to find what he/she wants quickly without reading the entire menu.

Restricted Menus

The menu should be short as far as possible i.e. the number of dishes on the menu should be limited. Keeping long menus is a poor merchandising policy.

Fit the operation

To serve good food with prompt service, you must have a menu designed to fit the place. It must match the size and types of equipment, their capacity, and also the skill of the personnel.

Merchandising effect

Design your menu to sell the items you want to sell your specialty or an item that can be served fast and is profitable. Such items should be tactfully located different typefaces can be used to emphasize one item over another or attractive borders can be used to make something stand out.

Language

Many guests are embarrassed to ask what a foreign term means and will pass on to something that they understand where a menu is written in French, the English equivalents should be given. It is a good idea to describe the dishes in the language which is understood by the majority of guests.

Effective description and descriptive headings

Descriptive headings mean quoting such headings on the menu various groups of food which will attract the attention of the customer and will indicate the nature of the dish more clearly.

OR
What is the difference between advertising and merchandising? List five tools for merchandising. (5+5=10)

Advertising Basics

Advertising includes messages that are paid for, delivered through a mass medium and intended to persuade customers in some manner. Retailers deliver ad messages through media such as TV, radio, newspapers, magazines, billboards, direct mail and the web to reinforce the company’s brand, to create favorable impressions with customers, to draw traffic and to promote products. Effective ads target specific types of customers that have more interest in the company and the products promoted in the message.

Merchandising Basics

A primary objective of effective merchandising is the optimization of the customer experience. The visual appeal of product displays, ease of product interaction and a strong supply of products that customers want are all critical elements in merchandising. Some companies hire merchandising managers for stores or regions whose main job is to develop in-store or online merchandising strategies. Plan-o-grams are typically created that show store employee, how to property set displays and products in each department of the store.

Tools for merchandising:

(Explanation also is given as it might be an important question for the exam and to help you understand better)

Incorporate merchandising from the start

Most new restaurant and foodservice concepts consider and incorporate merchandising displays and areas right from the get-go. Smart owners have their restaurant interior designers work alongside a merchandising consultant when initial design plans are started, so there is no need to backtrack or redesign your restaurant when you decide to put a merchandising program in place.

Activate all senses at the door

As soon as customers walk onto your restaurant’s property, you have to stimulate all five senses to heighten the experience. Take into consideration not only what your restaurant looks like, but also the smell coming from the kitchen, the type of music and volume you choose to play, and the different textures to touch. By activating these senses, you help build enthusiasm for what your customers are about to taste.

Use your menu as a merchandising power tool

Your menu is your greatest marketing tool and should be used beyond simply listing the dishes you serve and their prices. The average customer will spend around three minutes looking at your menu, so it needs to entice them to not only order your most profitable items but want to order more than just one. Better, your menu should entice your customers to want to come back to try other dishes.

Provide demonstrations and food samples

Sure, food samples make sense in grocery stores or bakeries, but in a restaurant? Why not? Pass out small food samples of your signature dishes to customers waiting for tables, or to customers sitting at the bar. Demonstrations are one of the most cost-effective ways to show customers your food tastes great and they should order it.

Cross-merchandise menu items and products

Always try to pair relevant items together. Customers often enter a dining area with no idea of what they want to eat, so by selling incremental add-ons, you’re also increasing your average cheque, and enhancing your customer’s dining experience. For example, if you’re a dine-in restaurant, pair soups with half-sandwiches, salads or garlic bread. If you’re a self-serve restaurant, cross-merchandise fresh fruit with yogurt, granola, whipped cream or biscuits, or bags of potato chips with sandwiches. The possibilities are endless. Customers only need a bit of prompting before they start buying.

Educate your staff

A merchandising program isn’t going to run itself, nor are your products going to sell themselves. You need to educate and inspire your staff to get on board. Make sure staff keeps merchandising display areas (and the rest of the restaurant) clean, fresh and relevant. Make sure they up-sell and suggest new products and menu items. Make sure they are knowledgeable in all facets of your restaurant or foodservice operation and are able to answer any questions a customer might have.

Q.4. What is variance analysis? Explain the various variances in foodservice operations.

A variance occurs when expenses such as revenue or labor are either more or less than what the company anticipated and budgeted for. Hospitality businesses such as hotels and restaurants can experience variances due to occupancy rates, check sizes, supply costs or labor costs being different than expected.

Variances are analyzed to determine exactly how much these differences have impacted revenue and profits. Variance Analysis is simply study & analysis of such variances

Variances may be favorable (F) or unfavorable (U) in terms of their effect on the profitability of the business.

The various variances in foodservice operations:

1. Cost Variances
2. Material Variances
3. Labour Variances
4. (Variable) Overhead Variance
5. Fixed Overhead Variance
6. Sales Variance
7. Profit Variance

Cost variance is a difference between actual expenditure and the expected (or budgeted) expenditure. A cost variance can relate to virtually any kind of expense, ranging from elements of the cost of goods sold to selling or administrative expenses.

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.

Labor Variance arises when there is a difference between the actual cost associated with a labor activity from the standard cost.

Variable Overhead Variance arises when there is a difference between the actual variable overhead and the standard variable overhead based on budgets.

Fixed Overhead Variance: It arises when there is a difference between the standard fixed overhead for actual output and the actual fixed overhead.

Sales Variance is the difference between the actual sales and budgeted sales of an organization.

Profit variance is the difference between the actual profit experienced and the budgeted profit level. There are four types of profit variance, which are derived from different parts of the income statement.

OR
What is budgetary control? What are the different budgets prepared in F&B Operations? (10)

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.

Different types of budgets prepared in F & B Operations:

Sales budget – An estimate of future sales, often broken down into both units and currency. It is used to create company sales goals.

Production budget – An estimate of the number of units that must be manufactured to meet the sales goals. The production budget also estimates the various costs involved with manufacturing those units, including labor and material. Created by product-oriented companies.

Capital budget – Used to determine whether an organization’s long-term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing.

Cash flow/cash budget – A prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short-term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.

Marketing budget – An estimate of the funds needed for a promotion, advertising, and public relations in order to market the product or service.

Project budget – A prediction of the costs associated with a particular company project. These costs include labor, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each. A cost estimate is used to establish a project budget.

Revenue budget – Consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the government levies.

Expenditure budget – Includes spending data items.

Q.5. Discuss five sales concepts citing the advantages of each. (10)

Total Sales

The total sale is 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 rupee sales for a restaurant is Rs 10,00,000 for the year ending March 31, 2011.

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 check = Total rupee sales/ Total number of covers

The average sales are used by many food service organizations to compare the sales performance of one employee with that of another, to identify sales trends and to compare the effectiveness of various menus, menu listings or sales promotions.

Total Sales per Server

Total sales per server are the total rupee volume of sale for which a given server has been responsible for 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 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. For example, food service managers use the total number sold to identify unpopular menu items in order to elimi9nate such items from the menu. In addition, historical records of the total numbers of specific items sold are useful for forecasting sales. Such forecasts are helpful in making decisions about purchasing and production. The total number of specific items solids a figure used to make judgments about quantities in inventory and about sales records, The total number of dishes sold also helps the restaurant to forecasts correctly and not purchase too much raw material.

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.

You can read about all the sales concept here.

Q.6. What is break-even analysis? What are its uses? Draw an illustration using a suitable example. (2+4+4=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.

Uses of Break-Even Analysis:

• It helps the management to decide on the exact volume of goods to be manufactured.
• It helps the management to decide on the make or buy policies.
• It helps the management to decide on the exact selling price of goods manufactured.
• It helps the management to take decisions regarding current as well as new production systems (Technology).

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 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.

Q.7. Define menu engineering. Explain how the dishes are categorized on the basis of menu engineering. (3+7=10)

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 highlights 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.

Menu engineering classifies dishes based on profit and popularity levels in the following four categories:

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. List any five reports generated in the foodservice operations and explain the use of each. (10)

Five reports used in the foodservice operations are:

1. Restaurant Sales Report: It is an overview of all transactions completed during a selected time period. It provides a scannable view of the overall restaurant metrics.
2. Sales Exceptions report: It allows to quickly overview all the discounts and refunds. It allows to identify the specific servers and managers who are giving & approving sales exceptions.
3. Labour Report: It provides a detailed insight into how labor is translating into sales.
4. Payouts Report: It is used to determine the productivity of each employee and the payouts made to them by the administrator.
5. Product mix & menu reports: Product mix and menu reports track menu sales and use that data to show exactly how menu items affect sales.

Q.9. Write short notes (any two): (2×5=10)

ABC Analysis

In order to exercise effective control over materials, A.B.C. (Always Better Control) method is of immense use. Under this method, materials are classified into three categories in accordance with their respective values. Group ‘A’ constitutes costly items which maybe only 10 to 20% of the total items but account for about 50% of the total value of the stores.

A greater degree of control is exercised to preserve these items. Group ‘B’ consists of items that constitute 20 to 30% of the store items and represent about 30% of the total value of stores.

A reasonable degree of care may be taken in order to control these items. In the last category i.e. group ‘C’ about 70 to 80% of the items are covered costing about 20% of the total value. This can be referred to as a residuary category. A routine type of care may be taken in the case of the third category.

This method is also known as ‘stock control according to value method’, ‘selective value approach’ and ‘proportional parts value approach’.

If this method is applied with care, it ensures a considerable reduction in the storage expenses and it is also greatly helpful in preserving costly items.

Standard Recipe

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 a standard recipe in a hotel where there are a number of chefs cooking the food.

The main advantages of using a standard recipe are:

• A well-tried recipe ensures a consistently good finished product.
• It controls portion size which is very important in costing a dish.
• It is easy to determine the food cost of a particular dish.
• It simplifies the pricing of a particular dish.
• It reduces the possibility of error.

Objectives of Standard Recipe

1. To determine the quantity and quality of the ingredient to be used.
2. To obtain the yield obtainable from a recipe.
3. To determine the cost per portion.
4. To determine the nutritional value.
5. To facilitate portion control.
6. It helps in costing of dishes, pricing menus for the banquet.
7. It helps in uniform quality and taste.
8. Require less supervision.
9. Less training is required for a newly appointed employee.
10. Establish food cost control.

Methods of pricing a menu

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 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 include 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 in 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 is calculated. After knowing the food cost then the selling price is decided.

Q.10. Briefly explain the following terms (any five): (5×2=10)

Lead time

Lead time is the time it takes the supplier or the manufacturing process to provide the ordered units.   [su_user field=”user_email”]

Re-ordering level

Reorder level (or reorder point) is the inventory level at which a hotel would place a new order or start a new manufacturing run. Reorder Level = Lead Time in Days × Daily Average Usage.

Cumulative reports

The word cumulative means, increasing by successive addition over time. Similar things are with cumulative reports, these shows cumulative figures. For example, a sales report of a restaurant will have daily sales figures whereas a cumulative sales report will (also) have cumulative sales figures of each day, A new form is started each month & apart from daily sales figures, cumulative figures is also shown, which is total of all figures till that date.

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.

Standard portion

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.

Stars

High Profitability and High Popularity. These items on the menu are highly profitable and at the same time, they are high in demand. They are the stars of the menu.

Puzzlers

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.