Download Food Cost Management in Foodservice Operations and more Exams Nursing in PDF only on Docsity!

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Aesthetic factors in menu planning - ansflavor, texture, color, shape, method of preparation Management decisions - ans- Food cost is a major determinant of budget

• Production capabilities (employee skills, equipment)
• Type of service (holding of food, delivery system)
• Availability of food
• What do your clients want? Food cost - ans- 35-40% rule of thumb commercial operations
• Cost of food/selling price (sales) ($3/$10 = 30%) Business perspective - ans- Restaurants are for profit, providing customers with what they want (niche?)
• Education is not why they're eating out Onsite (hospitals) - ansFood service is not the primary purpose of the business! (for profit or not- for-profit)
• Providing a service Nutrition education/counseling - ansConsider what state of change client is in, and then move to educating/teaching Consumer trends - ansEating out not necessarily leisurely, essential for our daily lifestyle (fast food is trending up)
• Activity-rich (may spend more time)
• Time-poor (getting food on the table) National Restaurant Association Trends - ansExperiences, local culture, charcuterie boards, fried chicken sandwiches, sriracha, globally inspired salads, sustainability, Southeast Asian, different milks, alternative sweeteners, etc. Implications of food consumption - ans- Food is cultural (more than food, celebrate, entertain)
• Food is valuable (both function and value)
• Quality matters
• Real - fresh, simple & unadulterated (doesn't need to be healthy to be authentic)
• Personalization
• Food discovery/new flavor profiles
• Flexible solutions Flexible solutions - ans- 72% of millennials are eating more plant-based meats
• Flexitarian diets
• Eating less sugar + red meat
• Energy drinks, matcha Sustainability - ans- Food production is responsible for about ¼ of the world's greenhouse gas emissions
• Supply chain, crops, land use, livestock, processing/distribution
• Beef has highest emissions (also lamb, cheese, coffee, chocolate)

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• Half of the nation doesn't follow any nutrition rules, 18% low carb, also lactose free, gluten free, flexitarian, vegetarian, vegan, etc.
• Younger generations following vegetarian trends (Lower income, liberal) Plant Forward - ansFocus on plant foods, no rules (impacts on menu planning)
• Focus on meal as a whole, showcasing plants rather than meat Current issues - ansGlobal hunger/malnutrition, unequal economic access to nutritious foods, equity for food system workers, water shortages Shape & Delivery Dietary Guidelines - ans- Population level (Food based dietary guidelines)
• Institution level (Food procurement, Menu planning)
• Individual level (Nutrition education, MNT) Menu planning process - ans- Team Approach
• Done in advance for purchasing & printing
• Look at past production sheets for planning and forecasting
• Standardized recipes with portion sizes Menu planning steps - ans1. Dinner entrees 1st for entire cycle
• balance between low & high cost items

2. Plan lunch entrees

• don't duplicate

3. Decide on starch for each item
4. Select salads, accompaniments, & appetizers
5. Plan desserts
6. Add breakfast after lunch & dinner are complete
7. Review completed menu for duplication and flow of menu Purchasing - ansAcquiring goods or services to accomplish the goal of its enterprise

• Number of different people may do
• Number of things buyer needs to be aware of Challenges with food - ansSeasonality, volume, quantity, specification & packaging consistency, competitive cost What kind of food product selection? - ansFresh, frozen, canned, convenience Fresh - ans- Good quality if in season (taste, nutrition)
• Good price if in season
• More storage, more labor
• Increased spoilage Frozen - ansConvenient (available), low labor cost, less storage, less spoilage, lower food cost, good nutritive value Canned - ansQuality (nutrient, taste, higher sodium levels in veggies), lower food cost, lower labor cost, no spoilage, easy storage Convenience - ansHigher food cost, lower labor cost, look at facility, decreased storage, uniform product, questionable quality/nutritive value, variety

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Value Analysis - ansMethodical analysis of all components of an existing product/service with the goal and discovering & eliminating unnecessary costs without interfering with the effectiveness of the product/service

• Looking for best buy
• Make or Buy decisions (quality, quantity, service, and cost) Forecasting - ans- Estimate future needs; menu tell you what you need and forecast tell you how much you need
• Historical records base
• Need production records (including leftover amounts, totals served, day of week, time of day, weather) Forecasting Model - ansCost of model, accuracy, relevance of past data, lead time (short, medium, long), pattern of behavior Overproduction - ansIncreases cost of food, labor, waste; decreases quality of food Underproduction - ansIncreases food cost bc substitute convenience foods; decreased employee morale and customer satisfaction Effectiveness of forecasting - ansBest if cycle or restaurant style menu, using historical data, consider detail/menu items to focus on, better if stable census (how many people actually partake in meal?) Qualitative vs. Quantitative Models - ans- Qualitative models: looking at psychological factors, no real data
• Quantitative models: mathematical model, assuming patterns repeat over time (considering past data, but current numbers given more weight) Time-Series Model (short term forecasts) - ans- Quantitative
• Easily programmable
• Relatively inexpensive
• Types: moving average, exponential smoothing (more recent data is weighted more) Casual Model - ans- qualitative
• regression analysis
• much more complex and expensive
• look at several variable and the relationship between variables (selling price, packaging, # of items, temperature)
• food processing plants Subjective Model - ans- Naïve model (qualitative)
• Use when relevant data is scarce or when relationships between data do not tend to persist over time
• Relies on opinions
• Delphi technique Delphi technique - ans- Give to experts individually to complete questionnaires on a topic
• Summarized

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• Revised for consensus
• Time consuming & expensive Qualitative (Continued)... - ans- Market research
• Panel consensus (free communication between panel)
• Visionary forecast (Subjective guesswork & imagination)
• Historical analogy (Comparing and analyzing the intro and growth of new items with similar new product history) Product Yield Model - ans- Portion Factor (PF) = (16 0z./#)/Portion Size
• Portion Divider (PD) = PF X Yield %
• As Purchased Wt = (# of servings)/PD EP - ansedible portion AP - ansas purchased Book of yields - ans- Collection of accurate food measurements, including weight-to-volume
• Equivalents, trim yields and cooking yields for over 900 practical foods
• Also USDA Food Buying Guide* Informal Purchasing - ans- Purchasing small amount, item only available by a few sources, need is immediate
• Market is uncertain (price fluctuating a lot)
• Size of operation is small Open market buying - ans- Cherry picking (line item bidding; choose cheapest items from each vendor, but causes issues because you have so many vendors)
• Bottom line (all or nothing bidding; choose 1 vendor based on total price) Other aspects of informal purchasing? - ans- Blank Check Buying (risky, item in short supply; passing cost on to customer)
• Cost Plus Buying (tying to the market; Buyer purchases at cost + % markup or $ markup)
• Negotiated Bid Formal Purchasing - ans- Competitive bids, large facilities or government
• Fixed for large # of items for a long period of time
• Buyer draws up: specification, method of delivery, and payment details
• Line-item bidding (time consuming, usually costs more for buyer and seller)
• All-or-nothing bidding (bottom-line approach) Competitive Bids - ans- Seller submits sealed bids by certain date, opened at one time, award contract
• Binding contract is agreement between 2 or more parties (offer, acceptance, consideration) Pros/Cons of Competitive Bids - ansWhat if price increases or decreases? (seller can put clause about price increases), legally tied to seller, usually very good prices Law of contract - ansOffer → Acceptance → Consideration → Competent Parties & Legality Legal Considerations - ansLaw of Agency, Law of Contract, Law of Warranty

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Law of Agency - ansAll purchasing transactions governed by at least this law, agent is an individual who is authorized on behalf of another party (principal) to have power to commit principle

• up to a certain amount of $ Law of Warranty - ans- Express warranty: Promises, specifications, samples, and descriptions of goods that are under negotiation. For a certain period of time promises are made
• Implied warranty of merchantability: Suppliers "puff " the virtues of their products for the purpose of making a sale (must reasonably conform to an ordinary buyer's expectations)
• Implied warranty of fitness for a particular purpose: Buyer relies on the supplier's skill or judgment to select or furnish suitable goods. when a buyer relies upon the seller to select the goods to fit a specific request Independent Purchasing - ans- Profit center (both revenue and expenses; like a cafeteria)
• Cost centers have no revenue, just expenses Central Purchasing - ans- Cost center (just expenses)
• Personnel in 1 office does all the purchasing for all the units in that organization Group Purchasing - ans- Cooperative purchasing
• Union of separate units (hospitals) not related to a single management
• Large volume purchasing → economical Other Types of Purchasing - ans- Warehouse Club Purchasing
• Just-in-Time Purchasing: JIT JIT Purchasing - ans- Usually larger companies
• Purchase products as needed for production and immediate consumption
• $ not tied up in inventory
• Goals: steady flow of materials, reduce cost, lead time, etc. Vendor Selection - ansNeed to inquire about the vendor, often small # to choose from, how are the vendors finances/performance Can cutting - ansrequest samples from vendors, open cans and compare qualities (texture, aroma, taste) Requisition - ansForm used by foodservice manager to request items from purchasing manager or department Purchase Order (PO) - ans- made by buyer
• written record of items ordered
• item, quantity, specifications, prices, delivery date Invoice - ans- made by vendor
• delivery slip list items & prices
• extension
• check against items received & PO
• check extensions & total Issuing Products - ans- Direct Issue (direct purchases)

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•items directly from receiving to production

• Storeroom Issue •written record when food is removed from storerooms Receiving - ans- Best if one individual
• Should verify quantity, size, quality
• Need checks & balances - one person should not be ordering and receiving
• Secured area Ways to get food in (receiving) - ans• Standing orders: (vendor brings up to par level; dairy, bread, coffee, eggs)
• Invoice receiving (check item against invoice)
• Blind receiving (have clerk put in amount next to each item) *REJECT if not to specifications!
• Electronic receiving Storage - ans- Holding of goods under proper conditions to ensure quality until time of use.
• Dry and low-temperature storage facilities should be accessible to both receiving & food production areas to reduce transport time and labor costs.
• Competent employees are essential for storage positions. Storage Considerations - ans- Prevention of theft
• Good flow from receiving to production
• Dry goods
• Perishable
• Fast moving near entrance- slower moving further back
• Rotate inventory- first in first out (fifo)- flow of goods Dry Storage - ans- Good ventilation in the dry stores area is essential to assist in controlling temperature & humidity
• Dry storage temperature should range 50 - 70°F.
• Relative humidity of 50 to 60% is considered satisfactory Shelving/Containers - ans- Metal shelving (Adjustable shelves)
• Off floor (Food Code 6 inches, many Health Depts want 12 inches)
• Metal or plastic containers with tight-fitting covers; cereal products, flour, sugar, dried foods, and broken lots of bulk foods
• These containers should either be placed on dollies or have built-in wheels for ease of movement from one place to another Low-Temperature Storage - ans- Amount and type varies with menu and purchasing
• Low-temperature storage units are designed as walk-in or reach-in refrigerators or freezers
• Ideal storage temperatures vary among foods
• The more precise the temperature, the better the quality of the products Refrigerators - ansbelow 41 degrees

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Tempering Boxes - ansSeparate units for thawing frozen foods, designed to maintain a steady temperature of 40°F regardless of room temperature or product load Storage Freezers - ansLow-temperature units for frozen foods at a constant temperature of -10° to 0°F Humidity - ans• Humidity control also is important -Dry storage humidity of 50-60% -Insufficient humidity causes evaporation deterioration. -Fruits and vegetables require the highest humidity 85-90% Thermometers - ans- Remote reading thermometer: To permit reading the temperature without opening the door

• Recording thermometer: Continuously records temperatures in the unit.
• Refrigerator/freezer thermometer: Mounted or hung on a shelf in the warmest area inside the unit.
• Temperatures in all units should be checked at least twice a day (alarm or buzzer) Physical Inventory - ans- actual count of goods on hand at the end of an accounting period
• usually do 1X/month
• put prices on products and extend to determine value Perpetual Inventory - ans- Running record of each item in the storeroom, add purchases, subtract issued items
• At any time can value inventory
• Still must do physical inventory
• Daily or Direct Issues + Storeroom Issues = Food Cost Inventory Turnover Ratio - ans- How many times the inventory turns over in a year (Total Cost of Food Sold/Average Food Inventory)
• High # - small inventory- $50,000 ÷ 500= 100 times/year
• Low # - large inventory - $50,000 ÷ $2,000 = 25 times/year (large inventory --> less turnover/lasts longer)
• 2-4 times per month is often desirable Par Stock Method - ansBring stock up to par level each time an order is placed regardless of the amount on hand
• Par is 10 cases and you have 8 cases, order 2 cases ABC Method - ans- Method of classifying items according to value
• A Class: only about 15-20% of inventory items account for 75-80% of the value of inventory (keep a minimum amount; protein foods/meat/fish)
• B Class: lesser value items 10-15% of items but value of 20-25% (Produce, frozen foods)
• C Class: $ value 5-10% but make up 60-65% of inventory item (Canned food items) High Value/A Products - ansRepresent only 15-20% of the inventory but typically account for large % of the value

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Medium Value/B Products - ansRepresent 10 to 15% of total inventory value and 20 to 25% of the products in inventory C Products - ansAccount for 5 to 10% of the inventory value, but make up 60 to 65% of the inventory Minimum-Maximum Method (Fixed Order Quantity) - ans- Goal is to have 0 of an item when shipment is received

• Maximum is the correct # to order
• Need to establish a safety factor
• Need to have adequate LEAD TIME interval between ordering & receiving
• Reorder point: lowest stock level that is safe Inventory - Minimum/maximum method - ans- Lead time: interval between requisition and product receipt.
• Usage rage: based on experience and forcasted usage.
• Reorder point: lead time and usage rate
• Time and usage: impact reorder point. Order difference between the safety stock and maximum inventory. Fixed order quantity inventory system - ans- Determine the order point
• (Average daily use) (lead time) + safety stock
• Lead time= # of days from placing the order until delivery
• Safety stock = small back up supply EX: On average 2 cases of oranges are used each day, if 2 cases are needed as a safety stock and it takes 10 days from placing the order to receive the order, what is the order point? - ans(2 x 10)

• 2 = 22 cases (Average daily use) (lead time) + safety stock

• When supply drops to 22 cases, it is time to reorder EOQ (Economic Order Quantity) - ans- Attempts to find the quantity that minimizes both purchasing and inventory costs
• Order size that is most economical EOQ Equation - ansSquare root of (2FS/CP)
• F= fixed costs of making an order
• S= sales or usage in units/ year
• C= carrying cost of inventory, expressed as a % of total inventory (holding cost)
• P= purchase price per unit Ordering and Holding Costs - ans- Ordering cost is a curve decreases when quantity ordered increase
• Holding cost varies directly with order quantity, & shows as a straight line
• The objective is to determine the relationship between ordering cost & holding cost yielding minimum total cost = sq root formula Inventory Valuation Methods - ans- Actual Purchase Price

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• Weighted Average (Average cost)
• FIFO or LIFO Actual Purchase Price - ans- specific identification
• price at actual cost of item
• detailed record keeping
• unrealistic Weighted Average (Average cost) - ans- average cost method
• items marked at purchase price FIFO - ansFirst in first out
• Use the most recent price paid for an item
• reflects flow of goods value of inv highest
• Cost of goods sold lowest
• Used most frequently in food service*
• Rotation is always first in, first out, BUT this is a method of inventory valuation* LIFO - ansLast in first out
• Use the oldest price paid for an item
• Feel that this keeps up with current production inv is lowest
• Cost of goods sold highest (used to reduce profit) Types of Ownership - ans- Proprietorship
• Partnership
• Corporation
• LLC or PC (Limited Liability Corporation or Professional Corporation) Aspects of accounting - ansAuditing, Cost Accounting, Financial Accounting, Managerial Accounting Partnership - ans- Increased sources of knowledge, ability, and capital
• Avoids double taxation
• Disadvantages: Unlimited liability, personality conflicts, Law of Agency bounds partners C Corporation - ans- Limited liability of owners, ease in transferring ownership
• Disadvantages: Costly, time consuming, double taxation (owner and business), limited control of person who starts company S Corporation - ans- Limited liability of owners, avoids double taxation
• Disadvantages: Can be at higher tax rate than C Corporation, limited to 75 or less stockholders (more expensive) LLC (Limited Liability Company) - ans- Limited liability, avoids double taxation, flexibility
• Can have multiple owners
• Disadvantages: Costly/time consuming, transferability of ownership requires approval of ALL owners Sole Proprietorship - ans- Owner has total decision making authority and retains all profits
• Least costly form of ownership, avoids double taxation

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• Disadvantages: Unlimited personal liability, management limited to skills of owner, getting cash/loans Auditers - ansAn audit involves examination of records supporting financial reports and formulation of an opinion regarding the fairness & reliability of these reports Cost Accounting - ansCost accounting is determination & control of cost
• Focused on assembling/interpreting cost data for controlling current operations & planning for the future
• In a foodservice organization, service costs also are of particular concern Financial Accounting - ansFinancial accounting is concerned with reporting of transactions for an organization and the periodic preparation of various reports from these records
• Income statements & balance sheets are examples Managerial Accounting - ansManagerial accounting uses historical and estimated financial data to assist management in daily operations and in planning future operations
• Identifying the cost of alternative courses of actions is one important function of managerial accounting
• Another is budgeting and the reports comparing performance to budget Assets =? - ans= Equities = Liability + Capital Assets - ansThings that a company owns which have value Equities - ansOwnership or claims against the assets; groups of individuals who have rights associated with the assets
• Equities are broken into Liabilities + Capital* Liabilities - ansClaims against the company; interest of the creditors Capital - ansInterest of the owners in the company Balanced Equation - ansAssets = Equities - Liabilities + Capital

Assets --> Current or Long-term + Retained Earnings (Revenues - Expenses) Debit - ansThe left side of an account

• Assets increase, liability decreases, equity decreased, revenue decreases, expenses increase Credit - ansThe right side of an account
• Assets decrease, liability increases, equity increases, revenue increases, expenses decrease Assets continued... - ans- Things a company own that have value
• You as a student have assets (things you own): Computer, Maybe car if you don't owe any money for it, Cash, Telephone, Clothes Current assets - ansAssets that will soon be realized as cash; expect to convert into cash within a normal operating period (1 year) Long-term or Noncurrent assets - ansLong-term investments which you str not expecting to cash within the next period

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Food service assets - ans- Current: Cash, Money in a saving account, Inventory, Accounts Receivable

• Long-term/Noncurrent Assets: Equipment, Stocks and bonds Examples of Liabilities - ans- What you owe
• Personal/Current: Telephone bill, Rent, Electricity
• Long-term: Car payment Current vs. Long-term Liabilities - ans- CURRENt: debts which are to be paid within the next operating period; pay these from current assets
• LONG-TERM: long term debt Food service liabilities - ans- Current: Utility Bills, Food companies, Payroll for your employees
• Long-term: Mortgage on your building for a number of years, Food truck payment Financial Statements - ans- Balance Sheet
• Income Statement (profit & loss statement)
• Operating Statement Balance Sheet - ansStatement which shows the financial condition of a business at a given time; 1 point in time
• Will change each day Income Statement - ansStatement which shows the results of operating a business over a period of time. Shows that your net profit consists of revenue and expenses over a period of time.
• Also called Profit & Loss statement
• Normally for ~ a year
• Gross is after cost of goods sold, and Net Income is your bottom-line! Operating Statements - ans- Often used interchangeably with Profit & Loss statement
• Frequently completed on a monthly basis and will have more specifics to better analyze how your business is doing
• Doesn't include depreciation or taxes Financial Statements Overview - ans- Balance Sheet: Assets, Liabilities, Owners Equity
• Income Statement (Profit & Loss Statement, Operating Statements): Revenue & Expenses Major Expenses - ans- Labor: salaries; typically most expensive
• Food: cost of goods sold
• Operating expenses Recording Transactions - ans(1) Cash: Record transaction at the time the cash actually goes in or out of the business (2) Accrual: Used most frequently; Record transactions when revenue is earned not necessarily received and when expenses are incurred regardless of when cash goes out Importance of cash handling - ans- Separation of duties
• Who has access to cash
• Security (background checks on employees handling)
• Reconciliation (Unannounced audits, Cash drawers, Surveillance cameras)

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Fixed Costs - ans- Do not vary with volume or service rendered; even if volume increases or decreases, these costs do not really vary

• Considered non-controllable
• May vary but does not because of volume
• property taxes, lease payment, depreciation, etc. Variable costs - ans- Costs which vary directly and proportionately with the volume of business
• Controllable
• Food (cost of goods sold), paper supplies, etc. Semivariable costs - ans- Vary in the same direction as, but less than proportionately with changes in volume
• Usually controllable
• If a restaurant is open for longer hours, they will have to pay more staff/lose money on utilities (average employee salaries) Full cost =? - ansDirect + Indirect costs
• Direct Costs: items of cost which are specifically traceable to an item
• Indirect Costs: elements of cost that are associated with an item but are not directly traceable to an item (supervisors salary) Sunk costs - ansAlready incurred and cannot be recouped by a new decision or alternative
• EX: investing in a company that fails = sunk cost, paying $30 for a concert ticket but you realize you can't attend = sunk cost Differential cost - ansAmount of increase or decrease in cost when you compare alternative choices
• EX: A work center can produce 10,000 widgets for $29,000 or 15,000 widgets for $40,000. The differential cost of the additional 5,000 widgets is $11,000 (once you get to a certain point, it's less expensive to produce). Depreciation - ansConversion of a fixed asset into an expense
• Encourages businesses to refresh/buy new equipment Straight-line depreciation - ans(cost - salvage value) / useful life
• If original cost = $10,000, salvage value = $2,000, and useful life is 10 years: 10,000-2,000 = 8,000/ = $800/year depreciation expense Accelerated depreciation - ansDouble declining balance Sum of the years digits Double Declining Balance Method - ansAn accelerated depreciation method that computes annual depreciation by multiplying the depreciable asset's decreasing book value by a constant percent that is two times the straight-line depreciation rate.
• If 20%: $10,000 x 20% = $2,000 in year 1, $1,600 in year 2, and $1,200 in year 3 Sum of the Years Digits - ansAdd #'s 1-n (estimated life) --> if 10 years sum = 55
• 1st year depreciation: 10/55 = $1818.

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• 2nd year depreciation: 9/55 = $1636. Food Cost % and Labor Cost % formulas: - ansFood cost % = cost of food/sales Labor cost% = cost of labor/sales Food cost vs. Labor cost - ans(1) Food Cost: Most readily controlled item and is subject to the greatest fluctuation (Consider: Menu planning, Type of service, Purchasing method, Receiving control) (2) Labor Cost: Less controllable than food costs Methods to determine food cost - ans- Purchases Method
• Purchases for period of time ÷ food sales
• Frequently look at: total purchases/# of meals served
• Approximation Purchases example: - ansTotal purchases for week of Oct 27 = $20,
• Sales for this week = $60,
• Fd Cost % = $20,000 ÷ $60,000 = 33.3%

Another option Total Purchases = $20,

• of meals served = 5,

• Average meal cost = $20,000 ÷ 5,000 meals = average meal cost =$
• Average sale is $10. $4 ÷ $10 = 40% food cost Inventory Method - ansMost frequently used

Beginning inventory (1st day of month) + Food purchases for that month

Total food available - closing inventory (last day of month)

Cost of food Inventory Method Example - ans- Beg Inventory Oct 1 $5,

• • Purchases for Oct $20,
• Total food available $25,
• • ending Inventory $6,
• Cost of Food $19,
• Food sales for Oct = $45, ($19,000 ÷ $45,000 = 42.22%) Selling Price - ans- Factor-Mark-up Method (conventional)
• Prime Cost method
• Actual Cost method
• Demand - Oriented Pricing
• Competitive Pricing

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• Dynamic Pricing Conventional/Factor Pricing Method - ansBased on raw food cost and a mark-up factor
• 100/mark-up = mark-up factor
• 2.5 x raw food cost = SP OR
• SP = (raw food cost/% fd cost) Prime cost method - ansRaw food cost + labor cost involved in making the item = prime cost
• 100%/Prime cost = mark-up factor
• Multiply (raw food cost + labor cost) by prime cost to get total selling price Restaurants - ansUsually 60-65% of food & beverage cost & labor cost to selling price
• For $1.00 of sales$0.65 of it is usually food, beverage & labor cost Actual Cost Method - ans- The menu price consists of: food cost + labor cost + variable costs + fixed cost + profit
• The actual cost method has the advantage of including all costs & desired profit in the selling price.
• The primary disadvantage is the time needed to collect the data needed for the calculations. Demand-Oriented Pricing - ansWhatever the market will bear
• EX: buying a cup of coffee at Starbucks vs. McDonalds or the gas station? (Starbucks can demand more $ because customers are willing to pay) Competitive Pricing - ansCompare to the competition, not a calculation
• EX: if Dunkin charges $1.50 for coffee, so will Starbucks Dynamic Pricing - ansAdjusting prices continually to meet the characteristics and needs of individual customers and situations
• EX: changing prices depending on time of day, location, etc. (Happy Hour, Early Bird Specials, Airline pricing)
• Buying a flight during the holiday season vs. off-season Pricing Psychology - ans(1) Odds-cents pricing: ends in odd number $5.75, in a number other than zero $5.93, just below zero $5.

(2) Pricing by the ounce (salad & sandwich bars)

(3) Two-tier food service: offering upscale items at a different price

(4) A la carte

(5) Table d'hote: fixed priced menus Menu Engineering - ans- Computerized menu analysis

• Focus on looking at which menu items make money
• CM contribution margin (menu item minus menu cost)

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• MM menu mix Popularity and Profitability of Menu Items - ans- Star: high demand, high profit
• Plow-horse: high demand, low profit
• Dog: low demand, low profit
• Puzzle: low demand, high profit Ratios - ans- Ratio analysis, or analysis of financial data in terms of relationships, helps interpretation & understanding
• A ratio is a mathematical expression of the relationship between two items expressed in several ways
• Ratio analysis is effective for evaluating financial stability & operating effectiveness
• Providing managers with information they need to make decisions & control operations Ratio Analysis - ansLooking at financial data in terms of relationships to other items
• common ratio
• percentage
• turnover
• per unit basis Liquidity Ratios - ans- Organizations ability to meet current obligations
• Current ratio = Current assets/Current liabilities
• Usually 2:1 hospitality 1: Acid Test Ratio - ans= (Cash + Accounts receivable + Marketable securities)/Current Liabilities
• More accurate because looking at actual ability to pay
• NOT inventory & prepaid expenses ($106,955 ÷ 61,175 = 1.75) Solvency Ratios - ans- Ability of a business to meet its long-term obligations
• Total assets/Total liabilities ($880,862 ÷ $427,222 = 2.06)
• Others look at liability and equity (debt to equity $427,222 ÷ $453,640 = .94)
• Solvency is the ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a company also needs liquidity to thrive. Activity Ratios - ansInventory turnover
• Cost of Goods Sold/Average Inventory Value
• High # = small inventory; turns over quickly
• Low # = large inventory = large amount of $ tied up Percentage of occupancy - ans(# of beds/rooms occupied)/(# of beds/rooms available)

185 ÷ 225 = 82% Net profit - ansProfit shown after ALL expenses have been deducted from sales Gross profit - ansProfit shown after subtracting raw food and beverages (cost of sales) from sales/ revenue

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Cost of sales - ansCost of the raw food and beverage sold Profit Margin - ansNet profit/sales

• most popular for financial efficiency Return on Equity - ansNet profit/equity
• investors return Return on Assets - ansNet profit/total assets
• ability of management to generate a return looking at the assets Operating Ratios - ansAnalysis of revenue mix
• look at food & beverage sales separately
• groups of menu items, i.e. desserts, appetizers

Average customer check

• (total sales/# of customer checks)
• food cost %
• labor cost % Meals per labor hour - ansTotal # of meals served/Total labor hours to produce meals Meals per Full-Time Equivalent (FTE) - ansTotal # of meals served/Total FTE's to produce meals Labor minutes per meal - ansTotal labor minutes to produce meals/Total number of meals served Employee turnover rate - ans- Employees leaving over a period of time and must be replaced
• Varies by industry (foodservice high turnover rate) Costs of turnover? - ans- Replacing skilled worked with unskilled one; may save money by hiring with less skills but depend on the available workforce
• $ to recruit, hire and train
• May need to pay overtime until replacement FTE (full time equivalent) - ans- Absolute FTE is the minimum number of employees needed to staff the facility, counts productive hours/ hours actually worked
• Adjusted FTE takes into account the benefit days and days off
• 1.55 relief workers are needed for every day coverage of full time positions. Full time only works 236 days (129 days off) --> 365 ÷ 236 = 1. Calculating Employee Turnover - ans- Total number of separations from previous year
• Average number of employees company has- not FTEs actual numbers; # at beginning and end of year then average
• 10% considered a healthy rate
• EX: Jan 1 had 150 and Dec 31 had 156 = 306 ÷ 2 = 153 20 employees separated 20 ÷ 153 = .13 X 100 = 13%

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How many employees do you need? - ansMultiply the number of full time positions by .55 (to factor in relief employees 129/236)

• 20 full time positions x .55 = 11 relief employees 20 +11 = 31 employees needed

OR

Multiply the number of employees by 1.

• 20 x 1.55= 31 total workers Layout & Design - ans• Decide on layout based on menu
• Type of delivery system (Conventional, Commissary, Ready Prepared, Assembly Serve)
• What equipment you need and where it will be placed
• Good flow of materials and labor Flow of food service - ansReceiving Storage Prep Cooking Serving Clean-up Conventional food service - ans- Conventional foodservice is dominant in the US, & has traditionally has been used in most operations.
• Foods are purchased in various stages of preparation for an individual operation, and production, distribution, and service are completed on the same premises
• Cook serve Ready prepared food service - ans- Menu items are produced and held chilled or frozen until heated for service later.
• Food items are stored & recorded in storage & withdrawn when needed for production.
• After production, items are stored in refrigerators or freezers, and entered in the distribution inventory.
• Used less today compared to the past (lower quality food) Ready prepared specifications - ans- Cook- chill (< 7 days)
• Cook-freeze (2 weeks to 3 months)
• Bulk- reheating- still need hot holding
• cook-chill methods & plate chilled food, reheating just prior to service
• HACCP (Hazard Analysis Critical Control Points) program & follow specific production, storage, and documentation practices. Commissary food service - ans• Centralized procurement & production facilities
• Distribution of prepared items to several remote areas for final preparation & service
• Central commissaries, commissariats, or food factories

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• Satellite service centers
• Very large-scale, specialized equipment used Assembly/serve food service - ans• Assembly/serve foodservice occurred primarily because of the market availability of foods that are ready to serve or require minimum cooking.
• Convenience-food foodservices, or minimal cooking concept
• Another factor has been chronic shortage of skilled personnel in food production & increasing labor cost
• Limited processing needs to occur Flow - ans• Movement of materials and people in an operation
• Product flow- food from receiving through trash removal
• Traffic flow- movement of employees as they complete their work
• Goal is to have a straight-line flow from receiving through warewashing, to minimize backtracking & cross-over movement of food & people Points to remember - ans• Store at point of first use
• Keep products close to where they will be used
• Allow for economy of motion
• Store based on usage; heavy use within normal reach
• Heavier products lower
• Use space economically by providing for specific sizes
• Minimize handling (storage close to receiving, have carts available)
• Systemize (organize, like products together) Planning committee - ans- Conceptual (broad estimate for costs, space, equipment)
• Actual Physical Plan (specific list of equipment, specifications & actual physical plan) Planning process - ans- Charrette (collaborative planning session for a design project)
• Bubble diagram (defining spaces so can see the flow) What to consider when planning kitchen layout? - ans• Quantity of food and supplies
• Amount and kind of production (to determine equipment)
• Type of delivery system
• How food served to the customers
• $$$$ to renovate or build
• Operating cost of the facility
• Any food safety issues of concern

• of employees

(Any future plans?) How would you go about starting? - ans- Network

• Visit facilities
• Seminars
• Tradeshows
• Equipment manufacturers

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Next steps for layout design - ans• Program (Goals for the project, Overview, Project timeline)

• Schematic design (Preliminary plans, space drawings, proposed mtl, electric & mechanical issues, costs)
• Blueprints (Specifics, Mechanicals, electrical, plumbing; Drawn to scale- usually ¼ inch = 1 foot)
• Construction drawings Kitchen design/layout & sustainability - ans- Sustainability is increasingly important in design of future space, including foodservice operations.
• The goal a "green building," efficiently using energy, water & materials while reducing impact on human health and the environment (see www.usgbc.org).
• LEED certification Waste management - ans- Buy in bulk
• Pulpers
• Garbage disposals
• Recycling program
• Composting programs Receiving area - ans- Scale, Table, Sink
• May want near manager's office! Conduction - ansTransfer of heat in direct contact with each other- burner; something cold and hot Convection - ansHot air circulating; fan; lower temp shorter time Radiation - ansEnergy transferred by waves of heat or light striking the food (microwave or broiler) Induction - ansCooking vessel made of specific magnetic metal; copper coil in induction surface; electric current flows between; low voltage; faster and energy efficient Clean up - ans- Garbage disposals
• Pulpers (works like a disposal but dehydrates the product into a slurry by shredding & pressing out the water; waste is semi-dry/decreases solid waste by 85%)
• Recycling Lowerator - ansPutting food on hot plates Lighting - ans- Lighting important to environment (May be 1/3 of energy cost)
• Direct lighting (lighting aimed at a certain place)
• Indirect lighting (lighting shining over a space rather than at a certain place (wall lights))
• Artificial lighting (incandescent, fluorescent)
• Food safe LED lighting Lumen (lm) - ans- Amt of light generated when 1 foot-candle of light shines from a source Foot-candle - ans- Measurement of illumination equal to 1 lumen of light to 1 square foot of space Food code requires lighting levels: - ans- 10 -foot candles in storage areas

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• 20-foot candles in hand and warewashing areas
• 50 in working with food Layout & Design Books: - ans- 70 to 100 in food prep areas
• Dining areas 5-100 foot-candles (depends on mood)
• Guards to prevent glass from falling HVAC Equipment - ans• Furnaces or boilers- hot air
• Air conditioners or chillers- cold air
• Fans- circulate air
• Duct work - moves air
• Filters - clean air HVAC Terminology - ans• Supply air - air coming to the system through the HVAC system
• Return air - air returning to the HVAC from the workplace
• Exhaust air - air that is removed from the workplace & bldg
• Makeup air - air being brought in to replace exhaust air Air pressure - ans• Negative air pressure -More air removed than brought into space -Slightly negative good in kitchen- will prevent kitchen smells & odors going into dining room
• Positive air pressure -More air brought in than removed Ventilation - ans• Circulation of fresh air measured in cubic feet per minute (cfm)
• 35 cfm per person in kitchen
• 15-20 cfm per person in DR
• 15-25 cfm per person in offices
• Hoods cleaned to avoid grease fires!
• Automatic fire suppression systems Floors - ans- Concrete- used in storerooms, receiving areas
• Terrazzo- use in dining room. Noisy
• Unglazed red clay tiles, quarry tiles- kitchen and heavily traffic areas
• Asphalt- light traffic, dining room Stainless Steel - ans- alloy of many metals
• usually we use 18-8 stainless steel (18% chromium, 8% nickel)
• 20 gauge
• higher # = thinner
• #4 finish common (bright satin stain) Aisle space - ans- Lane with 1 person 36-42"
• Lane with more than one person or where mobile equipment passes 48-52"
• Main traffic lane 60" Counter height - ans- Heavy work (36")
• Lightwork (37-41")

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Work centers - ans- Smallest area planned in the facility

• Area where related tasks are performed (cold food prep, hot food prep)

• of employees (each ee takes up so much space)

• Kind and amount of equipment Work design - ans• Program of continuing effort to increase the effectiveness of the work system
• Industrial engineers
• Material Handling (movement of materials & products as they go through the system, good flow leads to efficiency) Frederick Taylor - ans- Father of scientific management
• Belief if design is good, work situation will be better and employee conflict will decrease Gilbreths - ans- Principles of Motion Economy
• Aimed at reducing the effort & energy required to do a job
• Items easy to pick up, right height, better design of tools & equipment Work measurement - ans• Method of establishing equitable relationship between amt. of work performed & human input needed to accomplish the task
• What do you expect of production
• Activity analysis or Work sampling Quality Circles - ans• Began in Japan in '60's
• Small group of employees (3-25) 10 works best, have meetings during work hours to look at project as a whole (input from all)
• Productivity, ee morale, product quality, better work distribution
• Less absenteeism When determining space, think about... - ansHeaviest customer load, and how fast we need service to be
• Length of serving period (longer = fewer seats required)
• Building codes
• Turnover rate in hospitals is a 2 (30 min) Human Resource Management - ans- Labor
• Selection, training, development & compensation of employees were considered basic functions of personnel management for many decades
• Human resources management (HRM) emerged from this view & involves an integrative process
• Involves Recruiting; Selecting, Training, Developing, Compensating, Supervising
• Maintaining the workforce needed to achieve an organization's goals HRM began in the 1920s - ansWhen the human element was added to management functions
• With it came an increase in legislation, starting with the National Labor Relations Act in 1935 HRM now - ans- HR managers are responsible for compliance with state & local laws that govern work organizations (Including foodservice operations)

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• Moving from a traditional organization to a total quality management culture demands much from the human resources function
• Much more team oriented! HR Planning - ans- Objective is to use people as effectively as possible
• Strategic plan must be developed
• Supply and demand analysis Environmental trends - ans- In boom economy, fewer job candidates may be available
• In a depressed economy, orgs. may have to cut back on operations & employees
• Changes in technology 3 Aspects of HR Planning? - ansNumber, type & qualifications of individuals needed at a certain time
• Consider internal and external supply of labor Several strategies exist to assist in solving workforce supply issues: - ans1. Managers can try to recruit more candidates through marketing and use of incentives

2. They can set the pay structure high enough to out pay the competition
3. They can redesign the work to better match existing candidate skills to the work needing to be done

• Demand is based on the forecast, and supply is based on finding employees who have therequired qualifications to fill vacancies Job analysis - ansJob analysis is concerned with objective/verifiable information about the actual requirement of a job Job specifications - ans- statement of the essential components of a job
• the minimum qualifications in terms of knowledge, skills and abilities to perform the and requirements necessary to perform the job satisfactorily Performance - ans- Performance is the attainment of a desired result & standard
• Performance standards differ but typically include safety & sanitation components in addition to specific job-related components Job enlargement - ansMeans increasing the total number of tasks that employees perform
• The rationale is that employees become bored if they do the same limited number of tasks each day Job enrichment - ansAssumes increasing the numberof tasks is not enough to improve motivation.
• Enrichment attempts to redesign the job to increase opportunities for employees to experience feelings of responsibility, achievement, growth, and recognition 5 factors for enriching jobs? - ansachievement, recognition, growth, responsibility, performance 5 dimensions of job satisfaction? - ansskill variety, task identity, task significance, autonomy, feedback
• if present to a high degree, this could indicate high job satisfaction

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Legal environment - ansUnion contracts influence human resources planning if clauses on regulating transfers, promotions, and discharges are included

• Government legislation also has a vital role
• Significant pieces of legislation that affect human resources management are explained in Table 12-3 Immigration Reform and Control Act (IRCA) of 1986 - ansTo control unauthorized immigration by making it unlawful for a person or organization to recruit or hire persons not legally eligible for employment in the United States
• Employers must comply with the law by verifying and maintaining records on the legal rights of applicants to work in the United States
• The law also prohibits employers of four or more persons from discriminating against employees or job applicants based on their national origin or citizenship status Illegal Immigration Reform and Immigrant Responsibility Act of 1996 - ansThis Act placed stricter penalties on those who remain in the US longer than permitted by their visa or who violate their nonimmigrant status
• It also placed added restrictions on benefits for aliens Developing/maintaining the workforce - ans- Appraisal Systems (Rating scales, Appraisal interview)
• Discipline Employee compensation - ans- Good working conditions, sound employment practices & appropriate compensation are essential for recruitment & retention
• Compensation is the financial remuneration given by the organization to its employees in exchange for their work Wage Mix - ansA combination of both external and internal factors that can influence rates at which employees are paid
• Internal (job's worth, employee's worth)
• External (government, cost of living, etc.) Benefits - ansBenefits are non-cash compensation given to employees as part of their employment
• Cost of employee benefits has increased dramatically
• Some of these benefits, such as Social Security and workers' compensation, are mandated by law
• Others, such as health insurance and paid leave, are at the discretion of the company Employment Process - ansInvolves recruitment, selection, orientation, training, performance management, compensation, and benefits Staffing - ansConcerns determination of the appropriate number of employees needed by the operation Scheduling - ansMeans having the correct number of workers on duty, as determined by staffing needs

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• The challenge of scheduling is having sufficient staff for busy meal periods without having excess staff during slack periods between meals Temporary employees (Temps) - ans- They justify the extra cost by citing savings in recruitment and employee benefits
• Hourly rates range from 50 to 150% above wages a company would pay a permanent employee Approximately _____ employees are necessary for everyday coverage of full-time positions? - ans1.55 employees
• To determine actual number of employees needed, the number of full-time positions is multiplied by 0.55 to find the number of relief employees needed 3 types of schedules? - ansMaster, shift, and production schedules Staggered schedule - ansWork schedule in which employee work hours begin at varying times to meet the needs of the foodservice operation Uncontrolled overtime - ansA factor on rising labor costs
• Overtime should ideally only be used in emergencies! Staffing/Scheduling Trends? - ans- Compressed work week
• Part-time employment
• Discretionary working time/flex time Trend Analysis - ans• Comparison of results several periods of time
• Usually as an absolute number or a %
• Oftentimes as a graph to show trends
• Sales, food, labor, operating expenses Common-Size Statements - ans• Financial statements expressed as percentages or dollars
• Might have assets as 100% and then look at categories as a percent of the whole Break-Even Analysis - ans• Point at which a company is just breaking even
• No profit & No loss
• Must divide all costs into fixed costs (FC) and variable costs (VC)
• Semivariable costs must be either determined as FC or VC Break-Even Point - ansThe point at which the costs of producing a product equal the revenue made from selling the product

(Fixed Costs/1 - Variable Costs/Sales) Meal count factor - ans• All patients in hospitals don't eat

• Need to determine how many meals are served to determine food cost
• Need to know the census
• What is the meal factor
• If factor 2.7 and census 225 --> Meals/day = 607.5 meals Budget - ans- Plan for operating a business in terms of finances
• Plan to control expenses and profit in relationship to sales

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• Means to plan, coordinate, and control operations when looking at the overall goal of the company
• Budget is a basis for control Sales/revenue portion of the budget - ans- look at both internal & external influences
• review past performance & budgets
• changes in prices/rates
• seasonal variations Expenditures - ans- food what are anticipated changes?
• labor what is happening with employee salaries, cost of living, changes in taxes?
• operating expenses Incremental budgeting - ansuses an existing budget as a base & projects changes for the ensuing year Zero based budgeting - ansstart from scratch
• not used often, can be very time consuming
• good if developing a new segment of business Fixed vs. Flexible budget - ans- A fixed budget is prepared at one level of sales or revenues
• A flexible budget is adjusted to various levels of operation or sales (looking at sales and expenses throughout the year; can vary for seasonal businesses like a restaurant on the Cape or a ski resort) Expense Budget - ans• Personnel costs
• Fringe benefits
• Overhead (Heating, light, telephone)
• Depreciation (Converting an asset to an expense)
• Cost of goods
• Rent expense
• Insurance
• Taxes Cost of Goods Sold - ansCost of raw materials used to produce a product to sell to customers. COGS is the direct costs of producing a product for sale. It could be:
  • Cost of items purchased for resale
  • Cost of raw materials used to produce a product, or
  • Cost of parts used to construct a product
  • In many medical businesses you are selling service; therefore no COGS (used for restaurants) Cash Budget - ans• cash flow
• cash receipts and disbursements
• cash inflow and outflow
• seasonal changes
• large cash outlays Capital Expenditure Budget - ans• Improvements, expansions, & replacements