6th Sem | Food & Beverage Management | Solved Papers| 2016-17

Q.1. Define cost and explain elements of cost. (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:

1. 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
2. Labor costs – wages and salaries paid to all employees, plus any employer contribution to government taxes, bonuses, staff meals, pension funds, etc.
3. 3. 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. Explain in detail various pricing methods.

Following are the Seven most popular pricing methods:

1. Actual Purchase Price: This may be applied to items, which are infrequent purchase, and of which only a small stock is held and also for slow-moving items e.g. items costing Rs. 5/- each is issued at Rs. 5/- each.
2. Simple Average Price: This may be applied to items, which have a fluctuating market price. When a new purchase is made a new average price should be calculated e.g. 10 times are purchased in a week at Rs. 5/- each and a similar 12 items are purchased in week 2 at Rs. 4/- each. If any of the 22 items in stock were to issue they would be at Rs. 4.5/- each.
3. Weighted Average Price: This is a more accurate method which is sometimes used, the quantities are taken into account as well as the price, thus giving a more accurate average price.
   E.g. 10kg at Rs. 15/- = Rs. 150/-
   20kg at Rs. 20/- = Rs. 400/-
   Total 30kg = Rs. 550/-
   WAP 550kg/30 = Rs. 18.3/-
4. Inflated Price: Here the goods are issued at cost plus, say 10 or 15 % to recover the cost of handling and storage charged.
5. Standard Price: A Standard Price is to decide on for a given period, usually 3-6 months and the positive and negative variances recorded when purchases vary in price from the standard. This method of pricing will assist in measuring the performance of the kitchen accurately by means of the kitchen gross profit, as the typical excuse for a poor kitchen performance, a loss gross profit because of high prices for commodities is no.1.
6. Last In First Out (LIFO): This may be applied to items that have a fluctuating market price. This assumes that issues will be made with the normal rotation of stock, but priced out at the latest purchase price for the items.
7. First In First Out (FIFO): This may also apply to items that do not have a fluctuating price. This assumes that issues will be from the earliest purchases and priced accordingly.

OR
How the restaurant sales summary sheet helps in controlling and evaluating restaurant sales? Explain. (10)

The sales summary sheet is an analysis of all the transactions/cash taken during the particular period of service. It is prepared to know the revenue generated through the sales of food, beverages, the modes of bill settlement- cash, cheque, credit card, the amount charged to room accounts, tax amount, discounts are given, etc.
The basic information required in a sales summary sheet includes the following:

• Date
• Bill number
• Table number
• Number of cover per table
• Bill amount
• Modes of payment- cash, credit card, cheque, posted  to the room
• Analysis of food, beverages, and other sales items.
• The sales summary sheet helps in cross verification of data from the different sources and so acts as a control method by preventing potential frauds.
• The sales summary sheet also gives an overview of the restaurant which can help one to know and evaluate restaurant sales.

Q.3. List and explain major frauds in a bar and how they are controlled? (10)

List of common bar frauds:

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

Some Common Bard Frauds and their Control

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

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

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

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

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

Q.4. What are the different inventory tools? Explain in detail the minimax method. (10)

Some of the most important techniques/tools of the inventory control system are:

1. Setting up of various stock levels.
2. Preparations of inventory budgets.
3. Maintaining a perpetual inventory system.
4. Establishing proper purchase procedures.
5. Inventory turnover ratios.
6. ABC analysis.

Setting up of various stock levels:

To avoid over-stocking and under-stocking of materials, the management has to decide about the maximum level, minimum level, re-order level, danger level and average level of materials to be kept in the store.

Preparation of Inventory Budgets:

Organizations having huge material requirements normally prepare purchase budgets. The purchase budget should be prepared well in advance. The budget for production and consumable material and for capital and maintenance material should be separately prepared.

Maintaining a Perpetual Inventory System:

This is another technique to exercise control over inventory. It is also known as an automatic inventory system. The basic objective of this system is to make available details about the quantity and value of the stock of each item at all times. Thus, this system provides a rigid control overstock of materials as physical stock can be regularly verified with the stock records kept in the stores and the cost office.

Establishing Proper Purchase Procedures:

A proper purchase procedure has to be established and adopted to ensure necessary inventory control.

Inventory Turnover Ratio:

The ratio indicates how quickly the inventory is used for production. Higher the ratio, the shorter will be the duration of inventory at the factory. It is the index of the efficiency of material management.

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.

Minmax Method:

The Min/Max inventory ordering method is a basic reordering mechanism that has been implemented in many ERPs (enterprise resource planning) and other types of inventory management software. The “Min” value represents a stock level that triggers a reorder and the “max” value represents a new targeted stock level following the reorder. The difference between Max and the Min is frequently interpreted as the EOQ (Economic Order Quantity). And while Min/Max inventory planning is quite a crude method for inventory order, Min/Max settings can be dynamically adjusted to offer better inventory performance.

Historical perspective

The Min/Max method was one of the earliest automated inventory replenishment methods to be used in enterprise software dedicated to inventory management. The primary benefit of this method is its extreme simplicity of implementation.

This method tracks the current total stock level, which is typically the sum of the stock-on-hand plus the stock-on-order for every single SKU (Stock Keeping Unit). When a total stock reaches the Min value, a reorder is triggered. The reorder quantity targets the Max value for the new total stock level, hence the reorder quantity is the difference between Max and Min (i.e. Max minus Min).

In its original form, Min/Max order was considered to be a fairly static method of inventory control where the Min/Max values were rarely changed, maybe a few times per year. The ABC Analysis was frequently used to guide practitioners to spend more time revising the “A” items that traditionally require more attention than “B” or “C” items.

OR
List the objectives of inventory control. Explain various levels of stocks. (10)

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.

Inventory control solves the following purpose:

1. 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)
2. To compare the value of goods actually in stores with the book value of the stock at a particular time.
3. To list slow-moving items.
4. To compare usage with sales to assess food percentage as a deterrent against loss of pilferage.
5. To determine the rate of stock turnover.
6. It provides variance between actual quantities and calculated quantities on hand.

Various levels of stocks

Re-ordering level:

It is also known as ‘ordering level’ or ‘ordering point’ or ‘ordering limit’. It is a point at which order for the supply of material should be made.

This level is fixed somewhere between the maximum level and the minimum level in such a way that the number of materials represented by the difference between the re-ordering level and the minimum level will be sufficient to meet the demands of production till such time as the materials are replenished.

Reordering level is calculated with the following formula:

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

Maximum Level:

The maximum level is the level above which stock should never reach. It is also known as ‘maximum limit’ or ‘maximum stock’. The function of the maximum level is essential to avoid unnecessary blocking up of capital in inventories, losses on account of deterioration and obsolescence of materials, extra overheads and the temptation to thefts, etc. This level can be determined with the following formula. Maximum Stock level = Reordering level + Reordering quantity — (Minimum Consumption x Minimum re-ordering period)

Minimum Level:

It represents the lowest quantity of a particular material below which stock should not be allowed to fall. This level must be maintained at every time so that production is not held up due to the shortage of any material.

It is the level of inventories of which a fresh order must be placed to replenish the stock. This level is usually determined by the following formula:

Minimum Level = Re-ordering level — (Normal rate of consumption x Normal delivery period)

Average Stock Level:

The average stock level is determined by averaging the minimum and maximum level of stock.

The formula for determination of the level is as follows:

Average level =1/2 (Minimum stock level + Maximum stock level)

This may also be expressed by minimum level + 1/2 of Re-ordering Quantity.

Danger Level:

The danger level is that level below which the stock should under no circumstances be allowed to fall. The danger level is slightly below the minimum level and therefore the purchase manager should make special efforts to acquire required materials and stores.

This level can be calculated with the help of following formula:

Danger Level =Average rate of consumption x Emergency supply time.

Economic Order Quantity (E.O.Q.):

One of the most important problems faced by the purchasing department is how much to order at a time. Purchasing in large quantities involve lesser purchasing cost. But the cost of carrying them tends to be higher. Likewise, if purchases are made in smaller quantities, holding costs are lower while purchasing costs tend to be higher.

Q.5. Elucidate the methods of beverage control and list the storage records. (10)

There are many different methods in use today to control costs, the various methods depending on the size of the operation, the volume of business, owner or managed operation, etc., and the level of sophistication and control required.
Whatever method is adopted, it would be of little value unless the previous steps of control had been efficiently implemented and enforced, that is –  control of purchasing, receiving, storing, issuing, production planning, the establishment of standard yields, standard recipes, standard portion sizes and inventory.

Few common methods of beverage control:

Bar Cost System

This system is similar to that for the basic food cost report. It may be produced for each bar separately or for all of the beverage operations.

Par stock or bottle control system

This is a simple yet effective method of beverage control and is particularly useful for the smaller type of operation where there is full-time control staff.
The following points should be noticed:

1. The level of par stock is established for each bar, that is, to establish for each beverage the number of bottles required for a busy day plus a small safety factor. This number is determined to be the stock level to be held in the bar at the beginning of the service each day. To simplify the system only full bottles are not counted.
2. The number and type of empty bottles are noted each day, this being the amount and type to be requisitioned for the day.
3. The potential sales are based on the quantities issued at the selling price and are compared to the actual revenue received.
4. Adjustment to be made to the initial selling price if many mixed drinks are sold. This may only be necessary if the difference between the potential and actual sales figures gives cause for investigation.
5. The particular advantages of this system are its simplicity and ease of operation.

Potential (or standard) sales value system

This system is designed to control beverage sales and therefore beverage costs by setting a sales value on each bottle item carried in stock. The revenue value of each bottle is based on the standard size of the drink. The sales value of each drink is called the potential (or standard) sale value. The system requires as a basis for its operation, established standards for a bottle code number system, drink, recipes, drink sizes, glassware and par stocks. Whenever the bottle sizes, drink size or recipe change a new calculation must be made and recorded, as this can affect the price of a drink and should require the price to be reviewed.

The inventory or ounce system

This method is recognized as the most accurate (non-automatic) method of determining the amount of beverage sold. It is used at times when investigating the cause of an unacceptable difference recorded between the actual and potential results in a beverage report. It is, however, a complicated and difficult system to operate for large units with a full range of beverage services unless aided by a mini-computer. The system requires:

1. An accurate and detailed analysis of all sales by type and brand of drink sold, for each selling outlet.
2. The calculation of the actual consumption of each type and brand of drink based on the daily physical stock-take, giving opening and closing stock levels of bars, plus any issues, and minus any transfers out to other bars. All drinks sold are converted back to the number of ounces of each type and brand of drink sold using the standard beverage recipes. The total consumption of each kind of drink per sales bill has then to be compared with the actual consumption determined from the physical inventory and any adjustments.

Banqueting and function bar system

The banquet department should have its own storage and bar areas it can operate and be controlled in the same way as any other bar. If, however, a bar has to be set up for each separate banquet or function, it will be necessary fir an authorized person to requisition for each event from the main cellar and then immediately at the close of the event to return all unsold beverages. Bottles issued would be the quantity issued from the cellar for that function. Bottles returned are the bottles and part bottles (calculated in tenths of a bottle) unused and returned to the cellar. The number of bottles issued minus bottles returned should be equal to the number of bottles and part bottles used. The actual cost is the purchase price paid per bottle, or half or split. The potential sales per bottle would be the selling price per drink multiplied by the standard number of drinks per bottle.

Storage Records in Beverage Control

1. A cellar inwards book
2. Bin cards
3. Cellar control book
4. Beverages perpetual inventory ledger
5. Ullages and breakages
6. Empties return book
7. Hospitality Book
8. Cellar Inventory control ledger

Read in detail about these records

Q.6. Write short notes on any two: (2×5=10)

(a) Variance analysis

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.

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

Variance analysis makes it possible for owners and managers in the hospitality industry to make the correct strategic decisions needed to overcome problems before they cut into profits too much. If you don’t conduct a variance analysis when a significant variance occurs, you have nothing other than guesswork to guide you. You cannot know whether to address the variance by charging higher rates, finding a more affordable supplier, controlling labor costs or improving occupancy rates unless you do a variance analysis to find out exactly what happened and why.

(b) Menu Engineering

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.

(c) Par stock

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

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

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

(d) Constraints of menu planning

• The skill of the staff.
• Facility Layout/Design
• Availability of ingredients.
• Availability of Equipment
• Type of target market
• Seasonality of business
• Quality Levels and Costs

Q.7. Explain the importance of break-even analysis for a catering establishment. (10)

Break-even Point: The Breakeven point is that point at which the organization makes no profit and no loss. At this point, revenue is just sufficient to cover all costs without resulting in either a profit or a loss. If the volume of production exceeds this level (B.E.P. Level), there will be profitable and if the volume of production falls below this level, there will be a loss. The BEP is the indicator of the production level and so it is considered as an important tool in the hands of the management.

Advantages of Breakeven Analysis:

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

A contribution is not the profit. It is called the total margin in excess of sales over variable costs. Contribution = Total Sales – Total Variable cost Contribution Margin Ratio= Sales – Variable Cost/ Sales x 100.

Q.8. Write short notes on any five: (5×2=10)

(a) Medium-term budget

A medium-term budget commonly known as the mini-budget sets out the hotel’s quarterly revenue and expenditure plans.

(b) Operating budget

The operating budget of the business involves costs related to operational activities. The costs include production cost, overhead cost, manufacturing cost, labor cost, administrative cost, working capital, etc. The income flow includes the sales of the business. Operating budgets are prepared considering all the above factors. This budget can be on a weekly, monthly, quarterly or even yearly basis. The operating budget ensures that the managers know their scope of work in proportion to the number of funds allocated to the department. On this basis, the evaluation of the manager’s performance is possible.

(c) Financial budget

A business is always in need of short term and long-term funds. The financial budget ensures that the right types of funds are available whenever they are required. The aim of this budget is to manage the outflows with the inflows. The outflow is in the form of expenses and inflow is in the form of sales. Decisions like mergers and acquisitions depend on the financial budgets of the organizations. If the business has the desire to take over any company, its financial budget shall determine the value up to which the business can quote for acquiring another organization. In simple words, the financial budget describes the financial health of the business.

(d) Master budget

The master budget is the sum total of the company’s budget that includes the allocation of funds to different activities of the business. It evaluates the cost centers within the organization and allocates funds by including different factors. The master budget is developed by including different factors like sales, working capital, operating expenses, income sources, etc. This budget ensures that the managers are working in line with the goals and objectives of the business.

(e) Current budget

A budget is a financial plan for a defined period of time, usually a year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows.

(f) Program budget

Program budgeting attempts to apply cost-benefit analysis to the allocation decision, allocate expenditures by program, and assess results of programs in relation to objectives. Context: “Programs” are groupings of government activities in relation to specific government objectives.

(g) Zero budget

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting starts from a “zero base,” and every function within an organization is analyzed for its needs and costs.

Q.9. With the help of the flow chart, how menu items are grouped upon the popularity amongst guests. (10)

Grouping of menu items based upon popularity among guests and profitability to the hotel.

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.

OR
Discuss the increase in the merchandising value of the menu card. (10)

The success of catering operations depends to a large extent on the way the menus are planned and designed.

Menus are the backbone of any catering operation. A good menu should ensure profits. To make the best or most effective use of menus in advertising and selling is called Menu Merchandising. In order to increase the merchandising value of menus the following points should be considered:

1. Clean: The presentation of dirty, spotted, worn out and the old menu is the poorest way to start a meal. Cleanliness is a must in a hotel business. A soiled menu has a very poor merchandising value; it may raise doubts regarding whether the food is being prepared hygienically.
2. Legible: This means that menus should be easy to read. The font selected should be attractive and easy to decipher. It should be of a good size so that most people, including the elderly or those with glasses, can read with ease.
3. Format: The format of the menu should suit the contents of the menu. As far as possible, different pages should be used for different meals. A separate wine list is more advisable.
4. Organization: A menu should be well organized. Similar items should be placed grouped together and attractive headings may be assigned to the groups.
5. Restricted Menus: The menus should be as short as possible. The number of dishes on the menu should be limited. Having a long menu is a poor merchandising policy.
6. Easy to change: Even the most carefully planned menus must be changed from time to time. The change may be necessitated because of the change in prices, need to add or drop some items for a variety of reasons.
7. Type of operation: To serve good food well and promptly one must have a designed operation to fit the place. It must match the size and kind of equipment, their capacity and also the skill of the personnel.
8. Merchandising effect: The menu is designed to sell the items that are the specialties of the hotel, or an item can be served fast and is profitable
9. Language: The language on the menu should be easy for the customer and the staff. Many guests are embarrassed to ask what some terms mean and will pass on to something that they understand.
10. Effective Descriptions with descriptive headings: Descriptive headings are inserted in the menu for various groups of food which attract the attention of the customer and indicate the nature of the dishes more clearly.

Q.10. Define MIS and explain its role for a restaurant. (10)

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

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

Management information system can thus be analyzed as follows:

Management

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

Information

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

 System

Data is processed into information with the help of a system. A system is made up of inputs, processing, output and feedback or control.

Thus MIS means a system for processing data in order to give proper information to the management for performing its functions.

Planning and control activities using MIS in Hotels/Restaurant:

	Strategic Planning	Management Control	Operational Control
Production	Location of a new factory	Determine product mix	Scheduling specific jobs
Marketing	Entering new markets	Media planning	Sales planning
Finance	Raising capital	Determine credit level	Determine action
Personal	Changes in organization structure	Determine promotions and transfers	Determine for preparing duty roster