Beverage cost control system and analysis

Alcoholic Beverage Classifications
 Beers (lagers and ales)
 Wines (red, white, rose)
 Spirits
FB Department

Alcohol Production Processes
 Fermentation: Natural, chemical
process by means of which sugars in a
liquid are converted to ethyl alcohol and
carbon dioxide
 Distillation: Process by means of which
alcohol is evaporated from a fermented
liquid and then condensed and collected
as a liquid
FB Department

Purposes of
Beverage Purchasing Controls
 To maintain an appropriate supply of
ingredients for producing beverage
products
 To ensure that the quality of ingredients
purchased is appropriate to intended use
 To insure that ingredients are purchased at
optimum prices
FB Department

Factors Used to Establish Quantity
Standards for Beverage Purchasing
 Frequency with which management chooses to
place orders
 Storage space available
 Funds available for inventory purchases
 Delivery schedules set by purveyors
 Minimum order requirements set by purveyors
 Price discounts for volume orders
 Price specials available
 Limited availability of some items
FB Department

Two Types of States for Purposes of
Beverage Purchasing
 License states: States in which
beverage wholesalers (and sometimes
manufacturers and distributors) are
allowed to sell alcoholic beverages
directly to foodservice establishments
 Control states: States in which the
state government actually sells some or
all alcoholic beverages through its own
network of stores, thus exercising
complete control over prices
FB Department

Standards for Beverage
Receiving
 Quantity of an item delivered must equal
the quantity ordered
 Quality of an item delivered must be the
same as the quality ordered
 Price on the invoice for each item
delivered should be the same as the
price quoted or listed when the order
was placed
Transparency 14-1

Standard Procedure for Beverage
Receiving
1. Maintain an up-to-date file of all
beverage orders placed
2. Remove the record of an order from the
file when a delivery arrives and compare
it to the invoice presented by the
delivery driver
3. Before the driver leaves, check brands,
dates, or both, and count or weigh
delivered goods
4. Compare the invoice to the order
Transparency 14-2

Standard Procedure for Beverage
Receiving (continued)
5. Call to the attention of management and the
delivery driver any broken or leaking containers
and any bottles with broken seals or missing labels
6. Note all discrepancies between delivered goods
and the invoice on the invoice itself
7. Sign the original invoice and return it to the driver.
8. Record the invoice on the beverage receiving
report
9. Notify the person responsible for storing
beverages that a delivery has been received
Transparency 14-2 (cont’d)

Storing Control Objectives
 Prevent pilferage
 Ensure accessibility when products are
needed
 Preserve quality
FB Department

To Secure Storage Areas, You Have
Two Choices:
 Assign the responsibility for the stored
items to a single employee
 Keep the beverage-storage facility
locked at all times
FB Department

Beverage Issuing Objectives
 To ensure the timely release of
beverages from inventory in the needed
quantities
 To prevent the misuse of alcoholic
beverages between release from
inventory and delivery to the bar
Transparency 14-5

Beverage Issuing Standards and
Standard Procedures
Standards
 Carefully set issue quantities
 Issue beverages only to authorized
people
Standard Procedures
 Establish par stocks for bars
 Set up a requisition system
Transparency 14-6

Objectives of Beverage
Production Control
 To ensure that all drinks are prepared
according to management’s
specifications
 To guard against excessive costs that
can develop in the production process
Transparency 15-1

Devices for Measuring Standard
Quantities
 Shot glass (plain or lined)
 Jigger
 Pourer
 Automated dispenser
FB Department

To Calculate the Cost of Straight
Drinks:
Method I
1. Total number of ounces in bottle ÷ Standard
portion size (ounces) = Number of drinks per bottle
2. Cost of bottle ÷ Result from Step 1 = Standard
drink cost
Method II
1. Cost of bottle ÷ Total number of ounces in bottle =
Cost per ounce
2. Result from Step 1 × Standard portion size =
Standard drink cost
FB Department

Standard Recipe Detail and Cost
Cards
Each card should include:
 Name of drink
 Drink sales price
 Drink cost
 Cost percent
 Garnishes
 Quantity and cost of Individual Ingredients
 Total quantity and cost of mixed drink
 Type of glassware
 Recipe procedure
FB Department

Ways to Monitor Beverage
Production
 Management observes bar operations
 Designated employee observes others
working at the bar and reports back to
management
 Individuals unknown to the bartender
visit the bar, observe employees, and
report back to management
 Closed-circuit television systems permit
observation from some remote location
FB Department

Approaches for Monitoring Beverage
Operations
1. The Cost Approach
 Cost percent methods
 Monthly calculations
 Cost calculations by category
 Daily calculations
2. The Liquid Measure Approach
 Ounce-control method
3. The Sales Value Approach
 Actual sales record method
 Average sales value method
 Standard deviation method
FB Department

Cost Percent Formulas and
Equations
Opening beverage inventory
+ Beverage purchases this month
= Total available for sale this month
– Closing inventory this month
= Value of beverages issued to the bar
Bar inventory value at the beginning of the month
– Bar inventory value at the end of the month
= Bar inventory differential
Value of beverages issued to the bar
+/– Inventory differential
= Cost of beverages consumed
Beverage cost percentage = Beverage cost ÷ Beverage sales
FB Department

Adjustments to Beverage Cost
Added to beverage cost
 Food to bar (directs)
 Storeroom issues
 Mixers
Subtracted from beverage cost
 Managers’ drinks
 Special promotions
FB Department

To Calculate Bottle Sales Values:
1. Determine bottle size and drink size
2. Calculate drinks per bottle
3. Multiply drinks per bottle by drink price to get sales
value per bottle
Example
Bottle size: 1 liter;
drink size : 1 ounce = 30 ml
33.3 drinks per bottle
33.3 × 55,000 = 1,831,500
FB Department

Formulas To Calculate Beverage Cost
 Purchase Price (Cost in IDR)
 Selling Price
 Cost in %
Purchase Price X 100 = %
Selling Price
FB Department

To Calculate Beverage Cost
1. 1 Coke price is IDR 4,500
2. Selling Price 1 Coke is IDR is 21,000
 How much does the cost of 1 portion of Coke in
IDR?
IDR 4,500
 How much does the cost of 1 portion of Coke in
%?
4,500 X 100 =………..%
21,00
 21.42 %
FB Department

Mixed Drink Differential
FB Department
By comparing the price of the alcohol sold as straight drinks to the
price of the mixed drink, a more accurate picture of potential sales
values emerges

Mixed Drink Differential
(continued)
To find the differential:
 Sales value of bottle of alcohol ÷ Number of ounces in bottle =
sales value/ounce
 Sales value/ounce x Number of ounces in mixed drink = Sales
value of alcohol sold as straight drinks
 If sales value of alcohol sold as straight drinks > sales price of
mixed drink, then the difference between the two figures is the
negative mixed drink differential
 If sales value of alcohol sold at straight drinks < sales price of
mixed drink, then the difference between the two figures is the
positive mixed drink differential
 Finally, multiply the +/– differential by the number of mixed
drinks sold to determine the adjusted total bottle sales value for
spirits
FB Department

Inventory Turnover
Calculations
1. Average inventory = (Opening inventory +
Closing inventory) ÷ 2
2. Turnover rate = Cost of beverages sold for
a period ÷ Average inventory for the period
Generally accepted turnover rates
Spirits - 1.5
Beers - 2.0
FB Department

Objectives of Beverage Sales
Control
 Optimize the number of sales
 Maximize profit
 Control revenue
FB Department

Reasons That People Patronize
Beverage Establishments
 To socialize
 To conduct business
 To eat
 To enjoy entertainment
 To relax or kill time
FB Department

In Beverage Operations, Profit
Maximization Is Accomplished by:
 Establishing drink prices that will
maximize gross profit
 Influencing customers’ selections
FB Department

Alcoholic Consumption:
A Changing Landscape
 Dram shop laws are state statutes that hold
the serving establishment and the server
financially liable for damages to third
parties resulting from the serving of
alcoholic beverages to intoxicated
customers
 Given these laws and changing social
attitudes that encourage responsible
drinking, managers try to optimize sales
rather than maximize them
FB Department

Unacceptable Bartender Work
Habits
 Working with an open cash drawer
 Under-ringing sales
 Overcharging customers
 Undercharging customers
 Overpouring
 Underpouring
 Diluting bottle contents
 Bringing one’s own bottle into the bar
 Charging for drinks not served
 Drinking on the job
FB Department

Major Types of Compensation
 Current Compensation
- Direct: salaries, wages, tips, bonuses,
commissions
- Indirect: paid vacations, health benefits, life
insurance, free meals, free living
accommodations, use of employer-operated
recreational facilities, discounts on
accommodations at other properties within a
chain
 Deferred Compensation
- Pension benefits
- Social Security
FB Department

Determinants of Total Labor Cost
 Labor turnover rate
 Training
 Labor legislation
 Labor contracts
 Use of part-time staff
 Outsourcing
 Sales volume
 Location
 Equipment
 Layout
 Preparation
 Service
 Menu
 Hours of operation
 Weather
 Competent
management
FB Department

Chapter Formulas
Labor turnover rate = Number of departing
employees ÷ Total number of
employees on staff
Break-even for staying open an additional
hour = Fixed costs ÷ (1 – Variable rate)
FB Department

Saving Money by Using Part-Time
Staff
FB Department
With all full-time staff:
Wages: 4 dishwashers × 35 hours × $7 per hour = $980
Benefits: $980 × 20% = $196
Total labor cost: $1,176

Saving Money by Using Part-Time
Staff (continued)
FB Department
With full-time and part-time staff:
Full-time
dishwashers
Wages: 2 dishwashers × 35 hours × $7 per
hour = $490
Benefits: $490 × 20% = $98
Part-time dishwashers
Wages: 10 shifts × 7 hours × $4.50
per hour = $315
Benefits: $315 × 10% = $31.50
Total labor cost: $934.50

Steps for Establishing Standards and
Standard Procedures for Employee
Performance
1. Organize the enterprise
2. Prepare job descriptions
3. Schedule employees
FB Department

Job Analysis
 Job objectives
 Specific tasks required to achieve
objectives
 Performance standards
 Knowledge and skills necessary
 Education and experience requiredTransparency 19-2
Interviews and observations are designed to
provide information about the following:

Job Descriptions:
Answer three questions
 What is to be done?
 When is it done?
 Where is it done?
Contain three parts
1. Heading that states the job title and the
department in which the job is located
2. Summary of the duties of the job (typically in
paragraph form)
3. List of the specific duties assigned to the job
Transparency 19-3

Calculating Standard Work Hours
1. Determine the number of employees needed to
serve a specified number of covers in a certain
time period
Example: 8 servers for 500 covers in a three-hour
lunch period
2. Standard work hours = Number of servers ×
Number of hours
8 servers × 3 hours = 24 work hours
FB Department

Calculating Standard Cost
Number of standard work hours × Hourly wage = Standard
cost
Example: 24 hours × $4.00 per hour = $96 standard cost
FB Department

Most Training Plans Should Include:
 Objectives
 Approaches to training
 Training methods
 Instructional timetables
 Location
 Lesson plans
 Trainer preparation
 Trainee preparation
 Training session(s)
 Evaluation
FB Department

Approaches to Training
 On-the-job versus off-the-job
 Structured versus unstructured
 Individual versus group
Transparency 20-2
In general, trainers first select a training
approach; then they employ a variety of
training methods that compliment the
approach

Training Methods
 By hearing information (oral)
 By seeing information (visual)
 By doing the skill (kinesthetic)
Transparency 20-3
Studies show that people tend to prefer
learning things in one of three ways:

Training Methods (continued)
 Lecture
 Demonstration
 Role playing
 Individual assignments
 Field trips
 Seminars
 Case studies
 Panels
 Programmed instruction Transparency 20-3 (cont’d)
Therefore, an effective training should use a variety of methods:

Are Trainees Ready to Learn?
 Objectives of the training
 Instructional method being used
 Skills trainees will learn
FB Department
Since people learn better when they
understand the need for learning, an
introduction to any training should always
include:

Training Manuals Typically
Include:
1. General background
2. Specific duties of a job
3. Specific procedures for carrying out the
duties
4. Summary
FB Department

Four Sources of Information for
Indirect Monitoring Performance
1. Customers
2. Employees
3. External agencies/organizations/groups
4. Managers
FB Department

External
Agencies/Organizations/Groups
 Government agencies
 Chain organizations
 Food critics
 Rating organizations
FB Department

The Five-Step Approach to Identifying
Causes and Solving Problems
1. Meet with appropriate staff to point out the
problem and to determine its cause
2. Identify all appropriate corrective measures that
might be adopted
3. Select the best corrective measure from among
the alternatives
4. Institute the selected measure
5. Monitor performance to be sure that the corrective
measure has the desired effect
FB Department

Possible Reasons for Performance
Discrepancies
 Inadequate performance
 Unsuitable standards
 Inappropriate organization
FB Department

Causes of Inadequate Performance
 Improper materials provided to workers
 Lack of required equipment or tools
 Need for additional training
 Inadequate management or supervision
 Poor union/management relations
 Personal problems away from the job
 Difficulties with interpersonal relations on the job
 Inadequate compensation
 Illness
 Poor working conditions
 Improper work schedules
FB Department

Beverage cost control system and analysis

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