Controlling Food Costs in Storage and Issuing

1. Controlling Food Costs in Storage and Issuing • Controlling Foodservice Costs 6 OH 6-1

2. Chapter Learning Objectives • Describe food storage techniques used to control theft. • Explain the first in, first out (FIFO) method of stock rotation. • Describe the proper method of taking inventory. • Describe the various methods of inventory pricing (valuation).

3. Chapter Learning Objectives continued • Calculate inventory turnover rate and inventory value. • Compare physical inventory to perpetual inventory. • Calculate a daily food cost.

4. Storage Practices Impact Profits • Spoilage of products • Theft of products

5. Sales Needed to Replace the Value of Spoiled or Stolen Items • Assume 5% restaurant net profit • Assume loss of two steaks @ $7.00 cost each

6. Controlling Spoilage • Storage loss from spoilage is usually caused by carelessness. • Spoilage loss can be controlled. • Spoilage is caused by • Improper product rotation • Time abuse • Temperature abuse

7. Controlling Spoilage continued Excellent sanitation practices help minimize spoilage loss.

8. First In First Out (FIFO) • Use for refrigerated, frozen, and dry products • Use oldest product first. • Relies on • The receiving clerk (to rotate stock properly) • The person using the product (to choose properly) • Must be continually monitored by management!

9. Dry Storage

10. Fresh Fruits and Vegetables

11. Eggs and Dairy

12. Meat and Poultry

13. Fish

14. Store foods away from walls and at least six inches above the floor. Store dry goods in airtight containers. Walls and floors should be nonporous and easily cleaned. Proper Sanitation Is Key

15. Rotate stock to minimize spoilage. Organize products so they are easily found. Label shelves and sealed food containers. Include “use by” dates and name labels for all stored products. Proper Sanitation Is Key continued

16. Controlling Theft • Keep storage areas locked whenever practical. • Establish a par stock per shift system for key ingredients. • Issue secondary sets of keys on an as-needed basis only.

17. Sample Requisition Form Large foodservice operations may use a requisition system to help control theft-related losses.

18. Inventory Types • Physical inventory • An actual count of inventory items • Usually taken to obtain information for theincome statement. • Perpetual inventory • A count based upon additions to (purchases) and subtractions from (requisitions) storage • If records are properly kept, it is always up-to-date.

19. Meats Dairy Bakery Produce Frozen foods Canned foods Dry goods Common Inventory Breakdowns

20. Common Inventory Breakdowns continued The type of restaurant you manage will help determine the specific inventory breakdowns best suited for your use.

21. Sample Inventory Sheet

22. Inventory Valuation Methods • FIFO • First in, first out • Inventory is valued at its most recent (latest) cost. • Oldest product is used first. • LIFO • Last in, first out • Inventory is valued at the cost of the oldest product. • Newest product is used first.

23. Inventory Valuation Methods continued • Averaged price method • Inventory is valued at a composite of all prices paid for the item. • Actual price method • Each inventory item is valued at its original purchase price.

24. Inventory and Cost of Food Sold • Inventory value is a critical component of the cost of food sold formula.

25. Inventory Turnover Calculation Step 1 – Calculate average inventory. Step 2 – Calculate the inventory turnover.

26. Daily Food Cost Percent Calculation Using Perpetual Inventory Step 1 – Compute daily food cost. Step 2 – Compute food cost percentage.

27. How Would You Answer the Following Questions? • The greatest cause of inventory loss is (theft/poor buying practices). • The most common product storage method used in foodservice is (FIFO/LIFO). • The type of inventory that is based upon a theoretical count is called a • Breakdown inventory • Requisition inventory • Physical inventory • Perpetual inventory • Daily food cost divided by (unit sales/transfers out of inventory) equals daily food cost percentage.

28. Actual price method Averaged price method Daily food cost Extending FIFO method Inventory Inventory breakdown Inventory turnover Issuing Key Term Review

29. Latest price method LIFO method Padding Perpetual Inventory Physical inventory Requisitions Time and temperature control Transfer Key Term Review continued

30. Chapter Learning Objectives—What Did You Learn? • Describe food storage techniques used to control theft. • Explain the FIFO method of stock rotation. • Describe the proper method of taking inventory. • Describe the various methods of inventory pricing (valuation).

31. Chapter Learning Objectives—What Did You Learn? continued • Calculate inventory turnover rate and inventory value. • Compare physical inventory to perpetual inventory. • Calculate a daily food cost.