FOOD AND BEVERAGE CONTROL FOR DIPLOMA AND CERTIFICATE

COURSE OUTLINE
INTRODUCTION TO CONTROL
a) Meaning
b) Sector of food and beverage outlets
c) Objectives
d) problems
CONTOL PHASES
a) meaning
b) stages
PURCHASING
a) meaning
b) importance
c) purchasing personnel
d) standard purchase specifications
e) methods of purchasing
RECEIVING
a) objectives
b) procedures
c) Types of records and documentations
STORING AND ISSUING
a) types of stores
b) personnel
BUDGET AND BUDGETARY CONTROL
a) Definition of terms
b) objectives
c) Types of budgets
d) Formulation of budgets
FOOD AND BEVERAGE PRODUCTION, PLANNING AND CONTROL
a) Production planning
b) Objectives of production planning
c) Aids to forecasting and production planning
d) Aids to production process
COSTING AND PRICING
a) The elements of cost
b) Cost dynamics
c) Breakeven analysis
d) Methods of costing
e) Pricing methods
REVENUE CONTROL SYSTEMS
a) Types of systems
b) Application of systems
LABOUR COSTS
a) Labour turnover
b) Time keeping methods
c) Payment of wages
d) Idle time
e) Overtime
FOOD AND BEVERAGE REPORTS
a) Identification
b) Preparation
EMERGING TRENDS (ASSIGNMENT)
a) Identify emerging trends in F&B control
b) identify challenges in food and beverage control
c) Explain ways of handling challenges related to emerging trends
Acknowledgement
I thank the almighty God for giving me the grace and favour to compile this book.
My sincere gratitude goes to my sister Caroh Mbele and her Husband Gregory Muia, for their
tireless support May God always open doors for them.
Dedication
I dedicate this project to my beloved boy Evans Muuo and God given mother Florence Kalekye
for their support and encouragement.
Wise quotes
It is a mistake to think time is going. Time is not going. Time is here until the world ends. It is
you that that is going. You don’t waste time. Time is infinite. You waste yourself. You are finite.
It is you that grow and old and die. Time doesn’t. So make better use of yourself before you
expire. And one of the worst things to do with time is comparing you to others. A cow eats grass
and gets fat but if dog eats grass, it will die. Never compare yourself with others. Run your race.
What works for one person may be that which will kill you. Focus on the gifts and talents God
gave you don’t be envious of blessing of others.
Both lion and shark are professional hunters, but a lion cannot hunt in the ocean and a shark
cannot hunt in a jungle.
That a lion cannot hunt in the ocean doesn’t make him useless both have their own territory
where they can do well.
If a rose smells better than tomatoes, it does not mean the rose can make a better stew. Don’t try
to compare yourself to others. You can also have your own strength, look for it and build on it.
All animals that exist were in Noah’s ark. A snail is one of those animals. If god could wait long
enough for snails to enter Noah’s ark: his door of grace won’t close till you reach your expected
position in life. Never look down on yourself, keep looking up. Remember that broken crayons
still Colour. Keep on pushing, you never can tell how close you are to your goal…..
 FOOD AND BEVERAGE CONTROL
Introduction to control
a. Meaning
b. Sector of food and beverage outlets
c. Objectives
d. Problems
Meaning of terms
Control- it is an element of managerial task and involves measurements and correction of the
purpose of subordinate, to make sure that the objectives of the entire price and plan desired to
attain them are accomplished efficiently and economically.
Cost control- is the guidance and regulation of the cost of operating and undertaking
Food cost control- is simply cost as applied in undertaking applying and operating food
facilitate.
Food and beverage control- it is a process that monitors the movement of food and beverage
products from the time are purchased to the time they are consumed by the guest.
Food and beverage control- is the guidance and regulations of costs and revenue of operating
the catering activity in hotels, restaurants, hospitals, schools and other establishment.
Food and beverage control- it is the process of analyzing whether actions are being taken as
planned and taking corrective action to make them conform to planning.

Sectors of food and beverage outlets

Food and beverage outlets

Commercial or primary
catering
Secondary or welfare catering

Primary/ commercial catering establishments

These are establishments where the main aim is to earn a profit by providing food and beverage
to guests as per their demands.
Secondary/ welfare catering establishments
These are establishments that provide that food and beverage as part of another business. Their
aim is not to earn money but instead to provide welfare services at affordable prices.
Objectives of food and beverage control
1. income and expenditure analysis
It covers
 sales of food and beverage
 average spending power per customer
 number of customer expected
 food and beverage portion cost
 departmental food and beverage costs
2. pricing and quotation
Food and beverage control provide a basis for menu pricing and quotations for banquets
and special functions. Cost consideration should borne in mind when carrying out pricing
of items and control should come in hand in minimizing these costs.
3. prevention of waste
In the prevention of waste, the management therefore eliminate, prevent all possible
forms of waste, (which is as a result of undercooking, burning, over cooking and
overproduction) in order to meet targets such as food and beverage sales and gross profit
margins.
The system of food and beverage control must therefore cover the whole field of
operations from the purchase of supplies to sale of supplies.
4. establishment and maintenance of standards
The basis for the operation of any food and beverage outlet is the establishment of a set
of standards which could be particular to an operation. For example four star hotel.
Unless standards are set the employees would not know details of the standards to be
achieved.
An efficient unit would have the set standards laid down in manuals known as SOPS
(standards operational procedures) which should be readily available to all staff for
reference.
Having set standards, a difficult problem always is to maintain these standards.
This can be aided by regularly checking on standards achieved by observation, analysis
and by comments made by customers and when necessary conducting training courses to
re-establish the standards.
5. prevention of fraud
It is necessary for a control system to prevent or at least restrict the possible areas of
fraud by customers and staff.
Typical areas of fraud by customers are such things as.
 deliberately walking out without paying
 Justifying claiming that the food or drink that they had partially or totally
consumed was unpleasant and indicating that they will not pay for it.
 disputing the number of drinks served
 making payments with stolen cheques or credit cards
Typical areas of fraud by staff are
 overcharging for items served
  undercharging for items served
 stealing food and drinks or cash
6. data for management report
Food and beverage control provides accurate up to date information for management
report
This information should be sufficient so as to provide a complete analysis of performance
for each outlet of an establishment for comparison with set standards previously laid
down.
This will enable the management to make decision and plans for future

Summary of the objective of control in any operations

 Safeguard assets
 Check the accuracy and reliability of accounting data
 Promote operational efficiency
 Encourage and adherences to prescribe managerial practices

Characteristics of effective control system

1. Accurate or accuracy
It should provide accurate data ie. The accuracy should not be camber some in terms
of time spent to produce report and time spend to collect the data
2. It should be one that gives timely report or data i.e. if daily report is required, it
should be ready soon after and not after eg 3 or 4 days
3. Objective: the system to be objective thus it should measure up to the standards
expected or intended
4. Priority: it should give preference to matters that pertain priority eg sales and food
cost
5. Consistence: it should be a system that will be used to set standards, achieve the same
the same standards or apply actual implementation
6. Cost effective: what you spend should be less and what you receive to be more i.e.
within the expectations
7. Realistic: every part of the organization should be able to participate to achieve the
objectives
8. Unit of command: every officer should be answerable to only one superior. E.g. in
control setup, system should follow a chain of command i.e. people in lower positions
should have the work of a more senior official eg clerk check financial records. It
should be the other way round for accountability
9. Appropriate: it should fit into the flow of work, should not hinder customer services
i.e. operational or having a system that is quick or fast to avoid delay of services
10. Flexibility: it should be able to adopt to operational changes as they happen eg
electronic control systems, use of computers eg point of sale systems
11. Specific: in the reporting, it should pick point exactly where the problem is so that the
problem can be worked out. If food cost is to be 35% of sales and it happens to be
40% therefore the report should be said to be food cost is 5% above the standard
(35%)
12. Acceptable: to the staff i.e. by people whom are going to use
Problems of food and beverage control
1. unpredictability of the volume of business
It is not possible to predict the volume of customer you are going to receive at a
particular time and this presents the problem sales instability.
It is not possible to adjust the quantity of food prepared to a fluctuating demand.
The only effective system of food and beverage control will include some method of
volume forecasting to prevent both over and under preparation of food in relation to
current demands.
2. perishability of supplies
Food is perishable both as raw material and in the form of prepared meals
It is not possible to over buy when supplies are adequate due to perishability of most food
stuffs
The quantity of food prepared for each service should be involved with the anticipated
demand. Any over prepared meals are usually disposed of in a manner which is
disadvantageous to the establishment.
3. daily variation of production
In order to satisfy a particular market, it is necessary to offer a wide choice of menu items
to the customer and it is therefore necessary to be able to predict what the customers’
selection will be from alternatives offered on a menu.
NB// the many items produced makes control difficult
4. the short cycle of catering operations
In many other industries the time taken by the production process (from the purchase of
raw material s to the sales of finished products) extend over weeks or months but in hotel
and catering industry the cycle of operation is short
It is possible that foods ordered for one day a received, processed and sold the same day
or the next day.
Because of the short cycle of operations most establishments give their reports weekly
and not daily.

5. high degree of departmentalization

Many catering establishment have several production and service departments offering
different produce and operating under different policies for example bars, restaurants,
kiosks and shops.
It is clear that the larger the number of selling outlets the more the problem of control,
difficulties is faced when calculating the total cost of food consumed and the revenue.
Where there are several selling outlets, it is necessary to prepare separate trading results
for each of the production and selling activity.
Control phase
Steps involved in establishing control processes
1. establish standards – define expected results in all areas of operations
2. measure actual results of operation
3. compare actual results with the expected results
4. take corrective actions
 5. Preview effects of corrective action after a certain period.
Fundamentals of controls
Effective control systems and procedures consist of three broad phases
a. planning
b. operational
c. management control after the operation has taken place

A. Planning phase
It is difficult to run an effective catering operation without having firstly defined the basic
policies.
Policies are pre-determined guidelines laid down by the senior management of an organization,
which outline such matters as the marketing segment of the market that is being aimed at , how it
is to be catered for and the level of profitability to be achieved.
Basic policies of planning to be considered
1. the financial policy
The financial policy will determine the level of profitability or cost limits to be expected from
the business as whole and the contribution to the total profit to be expected from each unit and
the departments within them. The financial policy for a large hotel will set profit targets for hotel
and departmental profit targets for the accommodation and catering as well as other departments.
The financial policy for the catering department will set the overall target for the department
itself, which will further be divided into targets for various restaurants, bars and functional
facilities.
2. the marketing policy
The marketing policy will identify the market the operation is intended to serve.
It should also identify the present and future customer requirements on a continuous basis in
order to maintain and improve its business performance. . It is obvious from the above that the
broad market intended to be served by a large city hotel could be broken down into the specific
segments of the various types of users of, for example, the coffee shop, the carvery, the cocktail
bar, the banqueting rooms, etc. each having specific and different consumer requirements.
The interpretation of the marketing policy for a national commercial catering organization
into a marketing plan for the next year may include some or all of the following objectives:
 National identity – to achieve a better national identity for all units by corporate design
and by meeting consumer expectations of what a ‘popular restaurant’ concept should be.
 Customer– the customer profile being the business person, shopper, tourist of either sex,
aged twenty-five years or more, commonly using the high street of any major town,
requiring food and beverage of good general standard, waitress served, for a typical price of
£ n per meal.
  Market share– to achieve, maintain or increase the percentage of ‘our’ market.
 Turnover – sales volume to be increased by x % on previous year.
 Profitability– profit to be increased by each unit by y % on previous year.
 ASP per customer to be increased by z % – to achieve a new ASP of not less than £ n.
 Product – the product to be maintained at a consistently high standard.
 Customer satisfaction– the net result must be the satisfaction of every customer.

3. the catering policy

The catering policy will define the main objectives of operating the food and beverage facilities
and describe the methods by which such objectives are to be achieved.
 The type of customer – for example high spending customers or low spending
customers.
 the type of menu – ala carte menu and table dhote menu
 beverage provision necessary for the operation – alcoholic, non-alcoholic or both
 The methods of buying – by contract, by cash and carry etc.
 type and quality of service – cafeteria, counter
 Hours of operation – twenty four hours, seven days a week etc.
 Degree of comfort and décor, for example square footage per customer, type and style
of décor, of chairs, tables, etc.
 The food quality standards, for example fresh, frozen, canned, etc. and the grade of
produce to be used.
B. The operational phase
The operational phase is in five main stages
a. purchasing
There are five main points to be considered
i. product testing
To identify as a result of a series of taste panel evaluations of the particular products to
be used.
ii. yield testing
To identify as a result of tests the yield obtained from all major commodities used.
iii. purchase specification
This is a description of the quality, size and weight or count required for a particular
item.
It helps caterer to communicate with the supplier
It is necessary to ensure that specifications are used not only by the buying officer but
also by the receiving department.
iv. methods of buying
This must also be considered, the caterer must decide whether or not to purchase by
contract or in open market or invite suppliers to tender.
v. clerical procedures
 It is necessary to decide who originates and places purchase orders and what sort of the
documentary evidence is to be used.
b. receiving
They are three main points to be considered here
i. quality control
Some person must be made responsible for checking the quality of all incoming
goods especially perishable goods whenever possible the items should be checked
against the appropriate purchase specification.
ii. quantity inspection
A person must be nominated to be responsible for physical counting and weighing
goods checking that the quantity and size of items in the delivery note matches the
purchase order.
iii. clerical procedure
This shows all the records that should be kept during receiving or delivery of item.
c. storing and issuing
There are four main points to be considered
i. stock records
It is necessary to decide what records are to be kept
ii. pricing of issues
The method of pricing of various types of issues must be decided upon so that there
is consistency within the operation eg cost price, selling price average price.
iii. stocktaking
The points to be considered here are the level of stock to be held, rate of stock
turnover, identification of slow moving items.
iv. clerical procedure
There is need to determine what documentation is necessary. For example
requisitions, record cards, bin cards, stock taking reports etc.
d. preparing
There are three main points to be considered
i. volume forecasting
This is a method of predicting the volume of sales for a particular period.
The forecast must predict the number of covers and their menu choice.
ii. pre costing
This is a method of controlling food cost in the preparation and service of food.
It is done by preparing and using standard recipes for all food and beverage items and
also using portion control equipment. For examples tots, soup ladles.
iii. clerical procedures
What documentation is required and the distribution of this information.
e. selling
In this control point, the following points are considered
i. a checking system
This is necessary to keep control of the number of covers sold and items sold. This
may be done through a standard type of waiters check system through a till roll.
ii. the control of cash
It is necessary to ensure that all items sold have been paid for and that all items sold
have been paid for and the money is received or credit has been authorized.
 iii. clerical procedures
These would be necessary to control items sold and the money received or credit
entitled and would often include restaurant checking system, meal and sales
analysis, cashiers paying in book etc.
B. Control after the event ( post operational phase)
This last phase of food and beverage control is in three main stages
i. food and beverage cost reporting
Food is highly perishable both as a raw material and in cooked form and
therefore cannot be stored for long. There is also unpredictability of the volume
of business and the short cycle of catering operations. This means that the
managers must have daily, weekly and other reports covering longer periods.
ii. assessment of results
There is a need for someone from the food and beverage management team to
assess and verify the food and beverage reports and to compare them with the
budget for the period and against previous actual performance.
iii. correction / corrective action where appropriate
When the analysis of the performance of a unit on department identifies that there
is a problem, it is up to the management to take newly steps to correct the
problem as quickly as possible.
Limitations of control systems
1. It will not cure or prevent a problem from occurring. An efficient system is dependent
upon correct up to date policy measure.
2. it will require constant management supervision to ensure it functions efficiently
3. It will need management action to evaluate the information produced and to act upon it.
Reality of control
No matter how effective a control system may be there are certain realities that do not allow for
any system to be 100% efficient. The reasons for the deficiency of a system can be
1. The material product (apart from purchased beverages) is very unlikely to be 100%
consistent as to quality or the final yield obtainable from it.
2. The employees are unlikely to work to level of 100% efficiency at all times, in spite of
the fact that operational standards may exist.
3. The equipment used is also unlikely to work to the level of 100% efficiency at all times
and this could well affect the yield obtainable.
4. The customer’s choice of dishes can well be different at times to some of the budgeted
sales mix, therefore affecting all forecasts
Purchasing
This is a function concerned with the search, selection, purchase, receipt, storage and
final use of a commodity in accordance with catering policy of the establishment.
Nb// this suggests that the person employee to purchase foods and beverage in an
establishment will be responsible for not only purchasing but also for the receiving ,
storage and issuing all commodities as well as being involved with the purpose for which
the items are purchased and the final use of them.
Importance of the purchasing function
The purchasing function is important in the control cycle with no specifications for
commodities; there would be neither quality standards nor quantity standards resulting in
over ordering or under ordering as yields for items would not be determined.
The receiving department would only be able to check on quantity and not on quality.
The work in the stores and preparation departments would be difficult to measure the
performance of departments if there are continually being provided with non-
standardized commodities.
Purchasing function

Policies set by management  Determines what market segment

is aimed at
 determines price to be paid for
purchases and prices the items are
to be sold at
 determines the quality to be
purchased

Menu  determines the choice of items

available to customers
Volume forecasting  determines the quantity to be
purchased
Requisitioning  indicate the particular
requirements of each outlets
Purchasing  selects suppliers, contracts,
quantities to be purchased,
speciation’s for individual items
 ensures continuity of supply
Receiving  inspects for quality and quantity
Storing  correct storage of each items
  maintenance of stock records
 security of items
 correct stock levels
 correct issuing
Production  preparation of items purchased
Selling  provision of products at the correct
selling price
Control  the measurement of performance
of all outlets involved
 Feedback of information to
management.

The main duties of the purchasing manager

1. responsible for the management of the purchasing office, the receiving office,
storage and cellar areas
2. the purchasing of all commodities
3. ensuring continuity of supply of all items to user departments
4. Finding cheaper (for some quality) more efficient sources of supply.
5. keeping up to date with all the markets being dealt with and evaluating new
products
6. Research into products, markets, price trends etc.
7. coordinating with production department to standardize commodities and therefore
reduce stock levels
8. liaising with production, control, accounts and marketing departments
9. reporting to senior management
The purchasing officer
Responsibilities
1. seeks the required items
2. selects the most suitable suppliers
3. enters into a contract with supplier
4. ensures good delivered are correct in quality, quantity and prices
5. ensures items are transferred to the ordering department or correctly stored and
later issued
6. Follow up with the user departments to ensure goods were satisfactory.
Duties of purchasing officer
i. purchase of all food and beverages and ensures continuity of supply
ii. efficient operation and control of the purchasing officer, receiving department,
stores and cellars
iii. finding , better and cheap sources of supply, new and substitute materials to
ensure efficient supply and cost reductions
iv. Cooperate with production department to standardize commodities to keep
stock levels low.
 v. liaise with the production and control department to check that the items
purchased are satisfactory i.e. quality and yield
vi. liaise with accounts department for payment of suppliers
vii. report to management on activities of the department
viii. Research on the requirements of the establishment.

Sources of food and beverage supplies

Purchasing research
Research in purchasing is not undertaken frequently in the purchasing department. The
reason for this is often one of lack of time available in the working week or because
purchasing officers tend to became too involved in the day to day running of the department
and do not delegate routine jobs to juniors. Research need to be done in a systematic manner
in the following areas
a. Market and materials or commodities
Details of prices can be produced on graph paper, trends observed, evaluated together
with market information and used as an aid to budgeting. This would enable correct
actions to be taken to ensure that prices paid for suppliers are in relation/ accordance with
the prices charged to the customers and also to ensure at all times continuity of supply by
either entering into a contract or by bulk buying in advance of scarce /costly
commodities.
b. Cost analysis
This should be done with the full cooperation of the production department to ensure that
what is being purchased is satisfactory with regard to the final quality and yield obtained.
This checks out exactly what the cost of portion of the item really is, by taking into
account and obtaining figures on the storage loss, preparation loss, cooking loss and
serving loss.

THE PURCHASING PROCEDURE

The purchasing procedure for controlling food stocks and purchasing can be broken down into
five steps
1. purchase requisition
Is a document that requests the purchasing department to buy a stated item or items for
the requisitioning department.
It contains the following details
 Description of the goods required, exact color, size, quality etc.
It is advisable to give code number to avoid the possibility of a wrong item being
bought
 The quantity required in terms of kilograms, crates etc.
 If the item must be brought from a specific supplier, the name of the supplier
should be indicated.
  Signature and designation of the officer in the requisitioning department
authorizes the document.
A responsible officer in the department that needs goods prepares the requisition
(purchase) and sends to the purchase department.
2. the selection of the source of supplier
On receipt of a purchase requisition purchase department would contract the appropriate
suppliers and obtain quotations for tenders. It may be necessary to first ask for a sample
and set it for approve by the requisitioning department before quotation and tenders are
considered.
Once an appropriate supplier has been selected, a purchase order is issued.
Purchase order is a formal expression of desire to buy goods from a particular supplier on
stated terms. It is referred to as a local purchase order (LPO), if it is within the country.
If it is out of the country is referred to as external or foreign purchase order. (EPO).
LPO must be signed by a responsible and authorized person in the purchase department.
LPO contains
 the name of the supplier
 the details of the goods
 the quantity required
 date on which items are needed
 method and place of delivery
 price
 trade discount
 credit period required
3. entering into a contract with the supplier
This can be done by phone or in writing (email, fax) and negotiating the price to be paid
and a satisfactory delivery performance with particular reference to the time, date and
place of delivery.
4. receipts of goods from suppliers
Goods received from suppliers are usually accompanied with the following documents
a. delivery note
That gives details of goods being delivered by the supplier
It is prepared by the supplier who asks the receiving officer to sign a copy as a proof
of receipt of goods
b. advice note
If goods are being delivered through public transport, i.e. they are not being delivered
by the supplier own vehicles, an advice note may be prepared by the suppliers own
vehicles, an advice note may be prepared by the supplier and sent direct to the buying
company. It is intended to notify the buyer of dispatch of goods by the supplier
c. package sheet
May also be prepared by the supplier, if the goods are being sent in more than one
package.
It is a list of the items contained in a packet.
It is placed inside the packet to assist the buyer in verifying the items received
Goods are received in a special section of store called goods inward bay/ good
receiving department.
 Here goods are properly inspected, counted and checked before the supplier’s
delivery note is signed.
By the time the goods arrive the goods inwards bay people would have already
received a copy of the purchase order so that they are aware of what is likely to be
received.
d. rejection or receipt of goods
If the goods are not in a satisfactory order or are not of the type and they may be
refused by the goods inward bay personnel, at this stage a rejection note / credit note
may be prepared giving reasons for rejection.
If goods have already been accepted but must now be returned for some reason, a
good returned note may be prepared, addressed to the supplier, giving reasons for the
goods return.
e. payment of the supplies
A supplier will now send an invoice to the purchase department
The purchase department will ask the stores department to confirm the receipt of
goods in goods order.
A responsible official of the stores department will issue the invoice for this
confirmation.
The purchase department will verify the prices, discounts etc. and if the invoice is
found in order, it will be passed over to the accounts department for payment.
The accounts department will check the arithimated accuracy of the invoice and then
prepare a payment voucher.
The payment voucher will be approved by the accountant and passed on to the cash
office for preparation of a cheque but payment may not be made on the invoice basis
but on a statement basis (summary of all invoices and credit notes sent to clients
during the previous accounting period.)
5. Transfer of goods or commodities to the ordering department or to the stores or
cellars.

Summary of purchasing procedure.

1. Initiation of a request to purchase goods by an authorized member of staff. For
example head chef, restaurant manager. This is done on a requisition that is correctly
and completely filled and signed.
2. Determining the source of supply from which the goods arte to be purchased and the
price to be paid.
3. entering into a contract with the firm selected through telephone for perishable or in
writing on a detailed contract
4. Obtaining a satisfactory deliver performance from the supplier with regard to time
date and place of delivery. This ensures continuity of supply.
5. The acceptance of goods ordered and the transfer to the ordering department or to the
stores or cellar.

The selection of a supplier

A supplier can be selected from one or two ways
i. recommended to the purchasing officer by fellow purchasing officer of good
understanding
 ii. those with whom business has been done before
Nb// new suppliers of items may become available as result of an approach by the
purchasing officer or from suppliers representatives.
The basic information required from a new supplier
a. Full details of the firm
b. Information of other customers of their products
c. Printed copies of recent price list
d. Details of trading terms such as cash, trade, group or company discounts
e. Samples of products for testing and tasting
f. A visit to the new firm, the products, the size of processing and storing facilities,
transport facilities and to meet with the management team.

Supplier rating
Having selected suppliers on whatever basis, it is necessary to attempt to measure their actual
performance, so that when preparing a new contract or simply placing a new order for a group of
commodities, the best supplier is known.
It is necessary to periodically check/ evaluate the performance using rating system
1. price performance
The cheapest item is not necessary the best to buy, often a cheap item is of low quality.
For example one supplier may specialize in low quality goods at high quality goods at a high
price.
Both suppliers are specialize but supplying the same buyer different quality products. The
supplier the buyer chooses depends on the quality required. The lower the price depending on
quality, the higher the price performance rating.
2. quality performance
This is the ability of the supplier to supply the buyer consistently with the goods of the desired
quality as laid down in the purchasing speciation.
Consistency in meeting the purchase specifications would give a high quality performance
rating.
Factors that may affect the quantity of products to be purchased
1. Changing prices
2. Availability of storage facilities
3. Storage and handling cost
4. Waste and spoilage concerns
5. Theft and pilferage
6. Market conditions
7. Transportation and delivery
8. Order lost
3. delivery performance
This is the ability of the supplier to meet agreed delivery time and dates with the
buyer. Punctual or prompt deliveries means that the goods will be delivered
when required, when staff available to check them effectively and efficiently for
quality and quantity. Late deliveries will often add pressure of work at the
receiving department when other goods are also being checked in and
complications to the production department. The nearer the scheduled deliveries
date and time the higher the deliveries performance rating.

Other ways of rating supplies apart from performance include:

1. The suppliers’ reputation in the trade and as a result of an investigation of the supplier.
2. A supplier may be selected from one or two recommendations to the purchasing officer
by a fellow purchasing officer of good understanding.
3. Selected from those with whom businesses has been done before, as the standards of
goods obtained and the services offered would be known.
NB/ In conclusion the best supplier is the one who provides the firm with most efficient service
with regard to quantity , quality , price and delivery performance.

It’s also necessary to have the following information from suppliers

1. The total value of goods delivered by each supplier
2. The number of items rejected with their value
3. The percentage value of goods rejected
4. Any late deliveries of goods with further particulars if necessary
NB/ The information can be used to make the supplier aware of the poor performance and can
also be used by the receiving department in that they would be aware of the suppliers whose
goods would need a closer inspection.
Factors to consider when selecting a supplier
1. Location
2. Quality of supplier staff
3. Honesty and fairness
4. Delivery personal appearance
THE PURCHASING OF FOOD AND BEVERAGE
The purchasing of foods
When purchasing food, it is necessary to consider what the true cost of food item will be in
relation to what the printed price list from the supplier states it to be.
The true cost incurred will be the invoice price less any discounts claimable plus the following
a. Delivery cost if outside a give n delivery area
 b. Storage costs- particularly relevant with purchasing large quantities at special offer price.
c. Pre-production cost involved in the preparation of the item to a state ready for
production.
d. Production costs
e. Labour costs

Methods of purchasing foods

1. Purchasing by contract
There are two types of buying by contract
a. Specific period contract
This is a method which covers a specific period of time which aims at determining the source of
supply and the price of goods for a stated period often three or six months.
This reduces the time and labour of negotiating and ordering to a minimum.
It also assists with budgeting and pricing b, when the prices of items are fixed for a period of
time and also reduces paper work.
It’s suitable for items with fairy suitable prices. Eg. Milk, cream, bread etc.
b. The quantity contract.
Which aims at ensuring continuity of supply of a given quantity of an essential item at an agreed
price of a particular trading period.
This is common when purchasing frozen fish, frozen vegetables and potatoes for supply could be
affected by seasons with price fluctuation.
The advantage of this method is that there is continuity of supply and that a known and stable
price has been agreed upon.
A contract should include the following:
a. Period of contract
b. Estimated quantities
c. Purchase specification for items
d. Removal of any rejected food or goods.
e. Power to purchase in default. Establishments can purchase from any other source if the
supplier does not supply, expenses are chargeable to the supplier.
f. In case of major disputes, the decision of an agreed body should be accepted.
g. Prevention of corruption- An establishment has a right to cancel the contract if the
supplier has unethical practice e.g. bribery
h. place of delivery
i. invoice to be supplied within a specified time after delivery
j. payment of invoices- when it will be done
k. service of notice to break contract
Advantages of purchasing by contract
a) leaves no chance to improve practices
b) food budgets can be estimated quite accurately
c) food budgets can be estimated quite accurately
 d) discounts are usually obtained
e) the supplier has assured outlet for his goods
f) if properly done is very reliable
g) there is continuity of supply of commodities
Disadvantages of purchasing by contract
a. There is difficulty in negotiating fine details. e.g. delivery notes
b. Prices might have come back down during the tender period, yet you have to buy still at
the tender price.
c. To the supplier there is security only during the tender contract period.
d. the procedure can be cumbersome and ineffective
e. There is difficult in the organization especially when one is not satisfied yet the contract
period has not expired.
2. Purchasing by market sheet/list (daily quotation sheets)
This form of buying is particularly used for perishable foods, when used to ensure freshness,
they have to be purchased on a daily basis, and also where price for the commodity fluctuates
daily.
The chef takes a quick inventory of his store room and cold room after lunch service taking into
account the volume forecasting for the next day and lists the quantity required. This is given to
the purchasing officer who telephones the approved suppliers.
Advantages of purchasing by daily market list
a. Prices quoted would be with reference to the purchasing speciation for the item
previously sent to the supplier and the quantity required.
b. The purchasing office can quote the lowest price when placing an order.
c. Ensures freshness of the product
d. It assist in volume forecasting
e. Prevents wastage
f. It helps in cost control
g. Does not require storage space
h. It helps to estimate the expenditure power
Disadvantages of purchasing by daily market list
a. there are sometimes problems of general supply over the year
b. it is so tiring for the chef - making on a daily basis
c. Encourages fraud.
3. purchasing by weekly/ fortnight quotation sheets
Used for grocers which are not perishable
This depends on store room available and volume of business
The store man checks the level of items in the store or uses store records. The quantities of items
are listed on a quotation sheet and purchasing officer sends to approved supplier
The purchasing officer uses quoted prices to place an order using purchase order.
Advantages
 The purchasing officer retains general overall control of buying
 The purchasing officer exercises his or her experience and judgment in accessing quality and
service
 In the event of unsatisfactory quality service, there is an immediate remedy switch from
another registered supplier.
 Continuous assessment can be made on prices and performance of the firm concern
 Standards may be enforced without Dias action e.g. if a firm doesn’t get or from one or two
establishment for some time. It might improve its services.
Disadvantages
 The method can encourage improper practice especially at unit level

4. purchasing by cash and carry

This method is commonly used in medium and small establishments whose orders are not large
enough to be able to get regular deliveries from wholesalers and food manufacture situated in all
towns.
The cash and carry operations require their customers to pay cash for goods to provide their own
establishment for all their purchases.
Advantages of cash and carry
a. It allows the smaller establishment to obtain goods at very competitive prices even
though the total value of goods purchased may not be large.
b. the customer is able to see what he is buying
c. the level of expenditure may be kept low due to low stock levels
d. The customer is able to see special displays or particular food or company products and
be able to taste them.
e. In emergency is quite suitable as you can always go and pick what you require.
Disadvantages of cash and carry
a. the caterer provides his or her own transport and staff to collect items
b. he has to pay cash for item purchased (it works only with cash)
c. no negotiating eg in supermarket
d. it is tempting as leads to impulse buying
e. no discounts in some warehouse
5. purchasing by paid reserve
Used for particular important items on the menu to ensure continuity to supply
Cater buys a large quantity of a commodity to cover the needs of a restaurant for several months
ahead. Eg frozen fillet of beef.
6. total supply
This is offered by few suppliers who are able to provide full service of all commodities to caters
Advantages of total supply
 a. negotiation done to one supplier
b. reduced volume of paper work
c. fewer deliveries
Disadvantages of total supply
a. caterer is tied to one supplier
b. prices may not be competitive as when using several supplies
7. cost plus
This method is used in the welfare sector
The establishment agrees to pay an approved supplier exactly the same price he paid for the item
plus an agreed percentage often 10-12%.
This percentage would include the cost of handling delivery charges and a profit element for the
supplier.

Standard purchase specification

Purchase specifications for foods
Purchase specifications should be used whenever possible in purchasing particular items.
Copies of the specifications should be kept by the members of management, the goods receiving
clerk sent to all suppliers on the approved supplier list.
Reasons for preparing specifications are
1. To establish a buying standard of a commodity for an establishment, so that a standard
product is available for the kitchen and restaurant to prepare for the customer.
2. It informs the supplier in writing what is required and it assists the supplier in being
competitive with his pricing.
3. It provides detailed information to the goods receiving clerk and store man as to the
standards of the goods to be accepted.
4. It makes staff aware of the difference that can occur in production size , weight, quality
and quantity
Standard purchase specification
Is an exact description of the quality, size and weight or count factors required for a
particular item.
It contains the following
a. definition of the item
Care must be taken, here the common catering term are used by the buyer which means
exactly the same thing to the supplier.
b. grade or brand name
c. weight, size or count
d. degree of preparation
 e. Delivery notes.
Example of standard purchase specification
Lamb cutlet
Definition: that portion taken from ribs of the best lamb
Grade: Ex-Ym grade, New Zealand lamb
Weight: between 50-75g
Degree of preparation: to contain a complete rib bone
: All fat to be trimmed off
Delivery note: all cutlets to be delivered frozen
: All cutlets to be packed flat in units of grams
Purchasing of beverages
The purchasing of alcoholic and nonalcoholic beverages like that of food stuffs, has the aim to
purchase the very best quality items at the lowest price for specified purpose.
The purchasing of beverage should be undertaken by the
a. purchasing manager
b. food and beverage manager
c. head cellar man
d. head wine waiter
When purchasing beverages, it is important to bear in mind that expensive products do not
guarantee superior quality.
When purchasing beverage the following points are generally noticeable
1. They are fewer and often restricted sources of supply. eg wine agencies , Kenya
breweries, coca cola
2. The high value of beverage purchases. (beverages are expensive)
3. That free advice and assistance with purchasing is given by the wine and spirit trade. Eg
storage for example coca cola fridges.
4. That the quality factors are difficult to evaluate and require special training to identify
them. Eg attending tasting sessions several times a year.
5. there are fewer standard purchasing units than for foods etc. cases or bottles
6. There is an established standard of product eg many items like spirits will have a standard
that will not vary over the years whereas with food items there may be several grades and
wide range of ungraded items available.
7. Food items may be purchased in different forms eg fresh, chilled, frozen, and canned.
8. The prices of alcoholic beverages do not fluctuate to the extent that food prices do.
Purchasing methods of beverages
1. wine shippers
These are firms that purchase wine in the country of origin and ship it to whatever country it is to
be sold.
Usually the shipper is concerned with wine from a particular region and this means that the range
of products that he has to sell is limited.
The products of wine shippers are usually bought from wine and spirits whole sellers.
Nb// the frequency of delivery is limited.

2. wholesalers
Wholesalers buy products from large wine and brewery companies and offer a very wide range
of beverage as well as regular deliveries service to caterer.
As beverage supply industry is highly competitive wholesalers offer the following service to
selected clients.
a. suspended debt
In this case the supplier would invoice the caterer for his initial cellar stock purchases but would
request payment only on the following, the first purchase invoice being suspended until the
account is closed with the supplier.
A way of buying of beverage under the wholesaler
Wholesaler supply stock to the caterer for a specific period time for free but when the stock is
over the seller has to pay.
b. Cellar inventory.
The supplier will stock the caterer cellar to an agreed level, for a specific period of time, free of
charge, the opening stock levels being recorded by the supplier and caterer.
A stock take is made by both parties and all items are used then paid for.
The supplier then makes a delivery to replenish the stock to the levels first agreed upon.
c. publicity material
This is where wholesalers assist in the printing of wine lists and publicity materials for
promotional events e.g. coca cola posters.
Disadvantages of wholesalers
a. lack of specialist knowledge and advice
b. prices are not competitive
c. The sales representatives are the one seen by the caterer not the owner/company.
3. beverage manufacturers
This method of purchasing is used when the purchasing manager is able to buy in large quintities
to deal with the manufacturer.
This is most commonly practiced for the purchasing of the commonly used spirits, minerals and
beers.
The advantage to the caterer is the lower price that he would have to pay as compared to
purchasing through wholesalers because discounts given.
4. cash and carry
Offer very limited range of spirits, wines and beers etc. at very competitive prices.
They are useful in emergencies or when special offers are being made.
Purchasing specifications for beverages
The purpose of purchasing specifications is to set down in writing the standard of a product for a
specific use by an establishment.
This is then used by a purchasing manager to inform suppliers exactly what is required and it is
important when negotiating prices
It is also important to the receiving and cellar department staff to know what to accept when
deliveries are being made.
Unlike purchasing specifications for food, specifications for beverages are simpler to write and
understand.
The reason being that beverage are sold and purchased by the
a. brand name
b. label of the product
c. Each has consistent quality and quantity standard of contents for each selling unit. Eg
bottles.

Food and beverage ordering procedure

1. Requisition
The consumption rate of the various user sections determines what is to be bought. The
users department will make requests for various items to be purchased, using the
requisition form (internal) to the purchasing officer. For items that are frequently used,
orders are done through tenders by the purchasing officer to the suppliers
Requisition are written by various heads of departments and signed by the manager then
referred to the purchasing officer for ordering. The requisition of the items describes all
the purchase specification required as well as the delivery date or when the items are
required for use
2. Preparation of orders
Preparation of orders from the various user departments is done. A summary of all orders
or ordered items is done. The purchasing officer determines the method of purchase as
per agency of the item and the price given as well as the quantity required. Some orders
will be purchased by tenders, others by cash etc.
 3. Writing out an L.P.O (local purchase order)
Items are ordered using an L.P.O. An L.P.O is a booklet with printed forms that are filled
in triplicate; top copy is sent to the supplier, duplicate to the accounts clerk or accounts
office for payment and triplicate used for receiving items against the delivered goods.
4. Importance of follow up
Follow up is normally done by the user departments to the purchasing officer and to the
supplier. The aim of follow up is to make sure that the ordered goods are delivered on
time in order not to delay the production services. Also it is important as the purchasing
officer can arrange for alternative supply in good time without too much inconvenience
to users departments.
RECEIVING
Objectives of receiving
The primary objective in receiving procedures is to ensure that the establishment is obtaining the
food and beverage of the correct quality and quantity ordered at the agreed price.
Nb// unless the receiving department operates efficiently, it becomes almost a waste of time for
the purchasing manager to prepare purchase specifications and to negotiate price and trading
terms with suppliers.
It also becomes a weak link in the food and beverage control cycle.
The main objectives of receiving are to ensure that
1. The quantity of goods delivered matches the quantity which has been ordered. This
means that all goods will have to be weighed or counted.
2. The quality of goods delivered is in accordance with the specification stated on the
purchase order form eg checking that the grade of apples is correct.
3. To ensure price stated on the delivery note are in accordance with the prices on the
purchase order form.
4. To help the receiving clerk raise or write a credit note in case of items not delivered or
not of quantity or quality required.
5. To ensure that an accurate record is kept in the goods delivery book.
Importance of effective receiving
1. It will prevent practices of fraud by suppliers for example putting good quality items on
the top while poor ones down
2. It will prevent use of moisture ladders
3. It will prevent supply of shots counts and weights which do not agree with the invoices
4. Prevent invoicing and charging for high quality than what was actuatlly delivered
5. Ensure that the receiving clerk will open cases and also charging of food cases in
invoices.
Receiving areas
1. Receiving area should be located centrally between the stores and the user departments to
prevent pilferage.
 2. Should have a loading bay and slanting floor
3. Should be well lit
4. Should not situated in heavily traffic areas
5. Should have one exist and entry for suppliers
6. Should be situated away from the guest valuables
7. Should be in sanitary environment
8. Floor and well finishes should be easy to clean
9. Should be at the back of the hotel away from guests view
10. Should be large enough to allow off loading and checking easily
Receiving equipment
1. Weighing scale – should be in good accurate working conditions. There are various types
and sizes, for example Platform scale and basket type.
2. Trolleys – help in loading the goods to be delivered
3. Products testing devices – thermometer, hydrometer, ruler, tape measure etc.
4. Office machines – filling cabinets, calculator, duplicating machines etc.
5. Receiving documents – credit memos, rubber stamps, local purchase order etc.
Receiving procedure of food
1. A quick check is made against the delivery note and the copy of the purchase order to
check that the majority of goods are being delivered.
In the event of a short delivery or non-delivery, the purchasing officer should be
informed so that he can try alternative sources.
A delivery note must accompany all items delivered.
2. The goods on being unloaded are then checked for quantity.
If any order is found not equal to the quantity stated on the delivery note a request for
credit note is given out and signed by the delivery man.
3. The goods having been checked for quantity are next checked for quality in accordance
with the purchasing specifications.
In this stage, it is essential for the receiving clerk to have a thorough knowledge of food
and beverage; if not so a specialist e.g. a senior chef should be sent for. It is important to
open crates and cases and up to the requirements specification should reject, a credit note
obtained for the full value, for all shortages or rejected goods. The receiving department
will not in any circumstances allow themselves to be hurried when inspecting goods.
4. An accurate record is made in the goods received book as per the details of delivery note
5. Verify the invoice against quantities and arithmetic accuracy. NB// the delivery note and
the invoice are the basis for doing payments, therefore check invoices to verify prices
indicated in it and the total value therefore.
6. Accept the items
7. Store products quickly for security, quality and quantity reasons. NB// it is not good to
practice to allow the supplier or delivery persons to store the items for you.
8. Complete the daily receive record book.

It is essential in all circumstance that the supplier is fully aware that

a. delivery note must accompany all deliveries
b. everything delivered will be checked in details for quality and quantity
 c. The receiving department will not, in any circumstances allow themselves to be
hurried when inspecting goods.
d. A credit note will be required for all shortages or rejected goods.
Nb// receiving of food objectives
1. quantity inspection
Done by the receiving clerk when checking deliveries against delivery note and
purchase order
Items are counted and weighed.
2. quality inspection
This is difficult and requires the receiving clerk to have considerable experience
Purchase specification should be used in this case.
3. time tabling deliveries
This is important so that a schedule is made for deliveries from suppliers
Perishables should be delivered in the mornings.

Receiving of beverages
The main objectives for beverage receiving are to ensure that:
1. The quantity of beverages delivered matches that which has been order.
Items would be in standard units of crates, cases etc. with standard contents of a specific
size and crates and cases should be opened to check for such things as empty, missing or
broken bottles.
2. the quality
It involves such things as checking the brand name and label on each item against the
delivery note are in accordance with the negotiated prices shown on the purchase order
form.
3. The prices stated on the delivery note are in accordance with the negotiated prices
shown on the purchase order form.
4. When the quantity or quality or both of the beverages delivered is not in accordance
with the purchase order, or an item is omitted from the order, a request for credit note is
raised by the receiving clerk or cellar man.
5. An accurate record is made in goods received book recording details of the delivery.
6. an accurate record is kept of all chargeable empties delivered and returned
7. Deliveries of beverages are timetabled with suppliers.
Receiving of expensive commodities
Although every item must be checked for quality, special attention is given to the most
expensive items such as meat.
It is common practice to tag all meat after accepting it for quality and quantity
The operation of tagging of expensive items is as follows
1. On receiving the items, they are checked against the purchase specification as to being
acceptable or not.
2. If suitable tag is made out for each item received, with the main information being taken
from the invoice or delivery note, the weight recorded on the tag, being obtained by
weighing each item individually.
3. The tag is then separated along the perforation with the control office copies being sent
direct control with the invoice or delivery note and the kitchen copy being attached by
string or wire to the food item.
4. When item is issued at a later date, to the kitchen for use the tag attached to the item is
removed and sent to control with the date of issue filled.
5. The control office usually operates a reconciliation of meat tags form, recording the tags
received from the receiving department and from the kitchen. Thus the total value of
tags of each specific expensive item would be known for daily purchases, daily issues
to the kitchen for immediate use and balance shown would give the stock value of
these items.

Purpose of tagging
1. it provides a basis for control of an expensive item
2. it ensures that the receiving clerk actually weighs and records each item and to check
against the standard purchase specification
3. it provides a reference number to aid in issuing to the kitchen and when yield testing
4. it assists in obtaining a more accurate daily food cost figure
5. It assists in controlling the stock levels of the items.

The meat tag

The item: Beef The item: Beef

Cut : F1/4 , Sirloin steak Cut : F1/4 , Sirloin steak
Total weight: 75 kg Total weight: 75 kg
Price per kg : ksh220.00 Price per kg : ksh220.00
Total value: Kshs 16,500 Total value: Kshs 16,500
Supplier/ dealer : S.K.K Meats Supplier/ dealer : S.K.K Meats
Food control number:11978 Food control number:11978
Date: 29/2/2020 Date: 29/2/2020

Blind receiving
This is a method used to weigh and count all goods incoming into the establishment.
It works as follows
The receiving clerks are sent copy of purchase order which lists the goods to be
purchased but does not show the quantities of such goods.
All invoices and delivery note are sent direct to the account office. The receiving clerk
has therefore no access to these documents.
Objectives of blind receiving
1. it compels the different receiving clerks to weigh and count all the goods coming
into the establishment
2. the receiving clerks records all quanties and quality of all incoming goods
3. it compels the clerk to do his or her job thoroughly and rightly
4. the system is meant to improve the quality received, so that only the best quality is
received as per the specifications

Document used in the catering cycle

1. purchase requisition
Purchase requisition contains the description of goods required, quantity required
and time when required.
It must be signed by an authorized person of the department that needs the goods.
Format of purchase requisition

P.K MANUFACTURING LTD

PURCHASE REQUISTITION
NO………………
DATE……………
DEPT/SECTION
Please arrange to purchase the following items

Quantity Description Code no Date required Supplier

Prepared by…………. Approved by ……………

2. Purchase order
After receiving the quotations, the purchasing department will select the supplier
from whom the goods are to be bought.
The supplier is then issued with a purchase order.
It indicates the description and quantity of goods ordered
It is signed by an authorized person in the buying firm.
It is made of five copies each copy color coded
a. white copy (top) – sent to supplier
b. yellow copy- sent to the receiving department
c. green copy – sent to the receiving department
d. pink copy – retained in the purchasing office filled under supplier
e. White copy (bottom) - retained in the purchasing office unit goods are
received and then filled under order number.
 P.K MANUFACTURING LTD
P.O BOX 26
NAIROBI
PURCHASE ORDER
To: …………. Serial no………
Dated…………..
Please supply the following goods
Quantity Description Code no Price value

Discount as per your catalogue

Prepared by …………… Authorised by ………………

3. Delivery note
It is normally accompanies the deliveries with a copy of purchase order for
comparing on quality and quantity.
4. Goods received note/book
On the receipt of goods in the buying organization, a good received note is
prepared.
It shows all items that have been received and any action that need to be taken.
It contains supplier name, order number, delivery note number, remarks, and date.

PK MANUFACTURING LTD
GOODS RECEIVED NOTE
From ……. Serial
no………..

Date…………….

Description Quantity Packages Purchase Date value

order no

Received by……….. Inspected by…………..

Purchase Bin card no Store ledge Suppliers Invoice no

requisition no delivery no

Advantages of goods received note

1. analysis of goods received is done, which can be measured against standard
2. receiving department can undertake analysis of purchase
 5. Material return note
Is a document which is used to return some material to the stores department.
Some materials received by the production department is in excess of its requirements
In order to return excess raw material, the material return note is prepared.
This contains the details of material returned, reason for its return etc.

PK MANUFACTURING LTD
MATERIAL RETURN NOTE
Returning department…….. Serial number…………..
Date ……………
Material Quantity Details Code no Date Value A/C No
returned
note no

Returned by ……….. Costed by………..

Received by………... Checked by……...

6. material transfer note

It is a document which is used to transfer the material from one department to another, the
material issued by the storekeeper to the production department for a specific job. An item may
be in excess of the requirement of that job in the production department. In this case the
production department should inform the stores department for the transfer of the material from
one job to the other.
The material transfer note contains the details of material transferred, item number involved, the
signature of the person who transfers and the person who receives.
PK MANUFACTURING LTD
MATERIAL TRANSFER NOTE
Issuing department…………… Serial no…….....
Receiving department ……….. Date ……………
Quantity Details Code no Date Value

Issued by…… Costed by…….

Approved by………. Approved by….

7. Bin cards
 PK MAUNUFACTURING LTD
BIN CARD
Material: Description…… Bin no……………
MAX: Stock level……. Code no…………
MIN: Stock level ……. Re-order level…..
Re-order quantity…….
Date Receipts Issues Balance Remarks
Good Quantit Material Quantity Quantity
received y issued
number number

8. Invoice
An invoice is sent by the supplier to the customer and a detailed account of goods
or bills sent to clients setting out the cost of goods supplied or service rendered.
Nb// it should be sent on the day the goods are dispatched or the services are
rendered or as soon as possible afterwards.

INVOICE/CREDIT NOTE
Phone no………….. No………
Telegram ………… vegetable suppliers limited
5 Warwick road
South hall
Middle east
Morocco
597, High street
East Leigh
London WS

Your order No 67 Dated 3rd September 2005

Delivered 26th :20kg potatoes at 30/= per kg 600/=
10kg sprouts at 50/= per kg 500/=

9. request for credit note

REQUEST FOR CREDIT

Cathedral Hotels No: 12670
Stag Hill
Little Milford
To: Super foods $ Co
 Please forward a credit note for the following goods returned / not delivered.

Item Delivery no Value Comments

1*rib of beef 4321 2050/= Poor quality
Receiving clerks sign……… Delivery man sign………

INSPECTING COMMODITIES
1. Weighing
2. quantity and quality
3. stamping

1. Weighing
Weighing is done to all items. Items can be received in various weights which may vary
as per the food item. Items can be of weights in terms of grams, kilograms.
A weighing scale of varying weights should be available to cross check the weights. The
weights should be checked against the one indicated in the order sheet. This is important
so as to avoid short weights.
2. quantity and quality
Quantity of items is checked by eg counting, measuring in case of liquids. The
number received should correspond to what was ordered e.g. 200 ripe mangoes.
In case of a shortage, a credit note is given to the supplier, quality of items should
correspond to what was indicated in the order sheet. Eg ripe bananas, steak beef etc.
Quality is checked in order to avoid wastes due to the poor quality during production,
or preparation. Also to avoid loss of profit in terms of sales eg affecting number of
portions in service such as beef with bones compared with steak beef.
3. stamping
Stamping is done to all meat commodities to ensure that an assurance is given to the
seller to sell the meat to customers.
Stamping is done after meat has been checked for any disease which may cause
human sickness. When the meat is found to be fit for human consumption, it is then
stamped by health officers. Meat is not supposed to be sold to customers before it is
checked and satisfied by the health personnel as being fit for consumption.
This is normally the first step before the quantity and quality is checked.
4. Treatment of beverages and damaged goods
Though the breakages, spoilage and damaged goods should be avoided as far as
possible, but the spoilage cannot be eliminated altogether. In case management is of
the view that the breakage / spoilage / damage of goods is due to the negligence of the
store department then it is charged to the stores personnel.
All breakages are recorded in damaged goods book. The book would record the date,
description of item, details of purchase, value, reasons for spoilage, action taken by
the store personnel in charge and remarks.
Normally the spoilage of items due to unavoidable reasons are written off by the
management.

STORING AND ISSUING

Storing- it is a process through which food and beverage establishments maintain an
adequate supply of foods for the immediate need of the establishment/ business with
minimum loss through spillage, wastage and pilferage.
 The main objective of the food store is to ensure an adequate supply of foods
for the immediate need of the establishment is available at all times.
 When goods are accepted at the receiving department they are categorized as
perishable items and non-perishable items.
 The perishable items go straight to the kitchen where they would be stored in
either refrigerators or cold rooms, depending on the items.
 Non perishable items go to the food store where they are unpacked, checked
for any damage and placed on racks
 It is important to note that sufficient stock of all items is held in store where
they are unpacked, checked for any damage and placed on racks.
 It is important to note that sufficient stock of all items is held in store and that
old stock is issued before new stock. (FIFO).
 Everything possible should be done to ensure that no spoilage of commodities
is allowed to take place.
Objectives of storing
1. To keep products secure from theft
2. To maintain product quality through storage
3. For matching issues with department requirements i.e. keeping the production
department adequately supplied
4. Providing information necessary for compiling accounting or financial reports.
5. To ensure adequate supply of foods for the immediate need of the establishment
are available.
Qualities of a good store
1. It should be cool and face the north so that it does not have the sun shining into it.
 2. Must be well ventilated, vermin proof and free from dampness. Dampness
encourages growth of bacteria’s and tins to rust.
3. Should be in convenient position to receive goods being delivered by supplier and
also in a suitable position to issue goods to various departments.
4. A wash hand basin, soap, hand drier and first aid box must be provided to staff.
5. A good standard of hygiene must be kept thus walls and ceilings must be kept
thus walls and ceilings must be free from cracks.
6. Shelves should be easy to clean
7. Good lighting both natural and artificial is essential and should be provided
8. A counter should be kept to keep out unauthorized persons , reducing pilferage
risks
9. Storekeeper should be provided with a desk
10. Storage space should enough with shelves of varying depths and separate sections
11. Efficient and easy to clean weighing scales for large and small scale work should
be supplied.
12. Store staff must wear clean overalls at all times and suitable shoes to prevent
injury.
13. Step ladder to reach goods on high shelves and an appropriate trolley should be
provided.
Store security
1. Goods should only be delivered at stated time when the store staffs are on duty and able
to receive them
2. Authorized person only should be allowed in the stores. An item should be offered over a
counter except where this is inconvenient.
3. Damaged or open packages should be recorded on the delivery notes before signature of
receipt
4. Delivered goods should be checked against both advise note and orders
5. Valuable stock should be under lock and key and goods must not be left outside the store
6. Faulty or missing items should be reported to the buyer or supplier at once.
7. Proper store records should be kept and periodic physical stock taking should be
organized
8. Refrigerated/ freezer units should be fitted with lockable doors with reasonable strong
locks and door hinges
9. Windows should be bungler proof so that no an authorized signatures should be accepted
for processing

Duties of a store keeper

1. To keep a good standard of tidiness and cleanliness
2. To arrange storage space for incoming food stuffs
3. To keep price list up to date of all goods
4. To ensure an ample supply of all important food stuffs is always available
5. To ensure that all orders are correctly made and dispatched in good time
6. To check all incoming goods to stores for quality quantity and price
7. To keep all delivery notes, invoices, credit notes receipts and statement efficiently
filled
8. To keep a set of bin cards
9. To check all stock at frequent intervals
10. To issue nothing without receiving a signed sheet in exchange
11. To ensure that all chargeable containers are properly kept, returned and credited.

Main features of an effective storekeeping

1. There should be immediate location of materials
2. There should be speedy process in issuing of materials at all times
3. Keeping up to date records and receipts
4. Protection of materials against fire and theft
5. Economical use of storage space.

STORE RECORDS AND DOCUMENTATION

1. BIN CARD
Bin card are used to indicate the physical stock of each separate stock line held
in the cellar.
2. PURCHASE REQUISITION
This is a requested for goods to be bought. It is sent to the store or purchasing
office when stock reaches re-order level.
3. STOCK CARDS
This is an alternative of a bin card. A card is kept for each item /commodity.
STOCK CARD
MIN SUPPLIER: 1
COMMODITY 2
RE-ORDER QUANTITY
DATE RECEIVED ISSUED BALANCE

4. PERPETUAL INVENTORY RECORD

Perpetual inventory means checking the stock of items in one day to another
This document is maintained in the control office for each item held in stock.
All quantities of the commodity received and issued are recorded with
appropriate date.
This information is obtained from invoices of supplier which would have been
checked for accuracy against the purchase order, the delivery note and the
goods received sheet.
It provides the book value of items for comparisons with physical stock take.
5. STORE REQUISITION/INTERNAL REQUISITION
This is a sheet received from various departments to the store and are only
signed by an authorized persons.
 Issues should be made without a signed requisition.
6. STORE ISSUES
When the requisition is large and would take the store man along time to collect
the item, a store issues is usually prepared in the evening for the next morning.
Supplements are issued during the normal working hours but should not be
encouraged.
7. TRANSFER NOTE
This is an internal document which is used when a department requires an item
from another department within the establishment than from stores or cellar eg
the kitchen making a transfer note.
May be the same like that of general requisition form but it is smaller.
The reason for a transfer note is to credit the department which issued to the
other. The document is sent to the control office where they are entered on the
daily issues sheet, which would summarize the total used.
This way it is possible to observe the daily trends eg group used.
8. BREAKAGES AND DAMAGED GOODS RECORDED BOOK.
This is a document kept for recording any breakages and damages done during
the normal day to day working of stores.
The details include the following
a. Date
b. Description of items
c. Name of supplier
d. Value and sign of purchasing officer who verify the
broken items and actions taken
The importance of this book is to keep a record of damaged, items which may
explain the variations that may occur in the stock book.
It also shows the storekeeper, the management is concerned with loses or
Breakages of goods.
STORAGE OF BEVERAGES
Once the breakages are received, they must be taken to the cellar and a tight level of control
maintained.
The storage of beverage is separated into five areas.
a. Main storage area- for spirits and red wine held at a temperature of 13-16 degrees
Celsius
b. Refrigerated area- of 10 degree Celsius for storage of white wines
c. Further refrigerated area- of 6- 8 degrees Celsius. This is necessary when turnover of
beer , keg is low, they may be stored at 13- 16 degrees Celsius
d. An area held at temperature of 13 degrees Celsius for storage of the bottled beers and
soft drinks
e. Totally a separate area for storage of empty bottles, kegs, crates. This area should be
tightly controlled, to prevent access of bar staff when empty for full bottle method of
issuing is in operation.
 CELLAR RECORDS
1. Cellar inwards book
This provides accurate information of all beverages coming into cellar and posting data
for the cellars man’s bin cards.
Date Beverage Delivery Bin code Bottle halves Other
invoice no no sizes

2. Bin card
These are used for each individual type of beverage held in stock and records all
deliveries and issues made.
3. Cellar control book
Provide a record of all daily deliveries to the cellar and daily issues of each beverage
from the cellar to various bars and should cross check with the entries on the bin cards
and the perpetual inventory ledger, held in food control.

4. Beverage perpetual inventory ledger.

This is a master ledger which is prepared in the control accounts department.
It consists of cards of each beverage in stock.
It keeps a daily record of any purchases of the beverage and quantities issued to various
bars and other areas balance for each item.
5. Vilages and breakages
The term village is used to cover all substandard beverages such as bottles of wine with
faulty cork unfit barrels of beer etc. whenever possible would be returned to the supplier
for replacement.
It is necessary for any Vilages and breakages to be recorded together with an explanation
and signed by a member of the food and beverage management department.
6. Empties return book
This records all containers received from various suppliers and containers returned and
the balance containers includes crates, kegs, beer, bottles.
7. Hospitality book
Used to record the issue of drinks to the kitchen and other grades of staff, as laid down by
the company policy.

Frauds in bars
There is no complete and fraud proof system but the following measures may help
a. Careful selection of staff
b. Constant vigilance
c. Strict control systems
d. Awareness of frauds that can perpetrated
Types of frauds
1. Short measure – by giving shot measures to a guest a greater yield of a bottle can be
obtained and the barman can pocket the difference. The controller should be watchful and
visit the bar man during the peak hours and listen to customers complaints. This type of
fraud can cause ill – will for the establishment and hence loss of customers.
2. Short charging – price lists should be displayed in the bar and any complain of a short
charging by a barman be investigated.
3. Ringing up the wrong amount- few customers observe the price rung up on the till or
listen all the ring which indicate that the till drawer is being opened and closed when each
item is being registered therefore it is not difficult for barman to ring or till a lesser
amount or omit to ring up and then make up a handy profit for himself so controller must
watch out for this practice and visit bar regularly.
4. Dilution- by watering drinks, a barman can produce more than average measures from
the bottles and take the additional revenue for him. In order to avoid this, a controller can
use a hydrometer to check on the gravity of proof of liquor which will detect any
watering down of spirits.
5. Adulteration –an experienced barman can adulterate drinks making a profit on sale
which he will pocket. A keen eye and pallet on the part of the controller when stamping
will be an important defense in this case.
6. Carrying in bottles – by carrying in their own stock of liquor and selling it at the bar ,
the barman can make a personal profit . The controller when analyzing the stock for the
bar should watch out for falling sales and note unusual sales of tonic without relative
consumption with sprits. Therefore a watchful eye for strange bottles not stocked by the
establishment should be kept.
7. Stock substitution- in the cellar and bar the stock checkers must be more observant. All
bottles should be examined carefully, seals should be checked, bottles wrapped should be
unwrapped and bar of sales stock checked as wine can be substituted for water and tea for
whisky.
8. Hypodermic needles – hypodermic needles can go through corks and drop off measures
of liquor and ground corks can be removed and placed by experts to look undisturbed.
9. Altering requisitions – all the copies of requisition should be married together and
figures on each checked to and fro when withdrawing stock from cellar bar.

Issuing
 Should take place at set times of the day, only against a signed requisition by head bar
man or banqueting headwaiter. Etc.
 Requisitions note are made in duplicate, one copy being retained by the cellar man to
enable him make entries into his cellar records.
 Issuing of foods
 Items are issued to department usually at set times in the day

Issuing of food
 Items are issued to department usually at set times in the day against a requisition note
signed by an authorized person e.g. head bar man, restaurant manager or head waiter or
head chef.
  When the requisition is a large which would take the storekeeper sometime to collect
together, it should be handed into the storekeeper the evening before, for an afternoon
collection.
 Supplementary issues are usually obtainable during the normal hours of the stores being
open, but they should be discouraged as too many supplementary issues would prevent
the store man from doing his routine work efficiently.

Issuing of beverages
 Issuing of beverages just like food take place at a set time during the day and only against
a requisition note signed by an authorized person.
 Requisition note are made in duplicate, one copy is retained by the cellar man to enable
him make ethnics in his cellar records and later pass it to control department person who
originated the requisition.
 The pricing of issues of beverages is different from that of food in that two prices are
recorded, the cost price and selling price. The cost price is recorded to credit the cellar
account and trading account and for balance sheet purposes. Selling price is recorded for
control purposes.
Stock taking
Stock- these are items that have been received in the stores or user department ready to be used
for the production of the required items.
Classification of stock
Stock can be categorized into three classes
a. Slow moving
These are items with a low turnover, therefore stocks must be kept at lowest level but
sufficient enough to meet the establishment demand.
b. Dormant stock
These are items which are not moving which should be decided on whether forced issues
should be made to the department.
If they are no longer required and might deteriorate, it might be necessary to try to sell
them.
They could be forgotten stock but still held in the stores.
c. Obsolete stock
These are items that are no longer in demand because they are either been kept for too
long and are no longer fit for consumption e.g. tinned foods, furniture, cutlery.
Stock taking- is a complete process of verifying the quantity balances of the entire range
of items held in the stores.

Objectives of stocktaking
1. To ascertain the actual value of goods at hand as distinguished from the book value of
the stock
2. As an aid in comparison with book value
3. Is an essential for determining the material or food cost for a certain period.
 4. To help in preparation of profit and loss account and the balance sheet
5. As a means of verification of the accuracy of stock record
6. To support the value of stock shown on balance sheet by physical verification
7. To enable disclosure of the possibility of fraud, theft or loss
8. To reveal any weakness in the system of storage and control stock.
Organization of stock taking
 Stock taking must be undertaken by a senior member of the staff normally from the
accounts or control office accompanied by a staff of the department.
 In small establishment the manager does it himself.
 The whole of stock must be covered at the same time, at the end of a given period.
 A system should be agreed upon by all the members concerned, stock taking sheets be
prepared in advance and all personnel concerned instructed in their duties. There should
be a supervisor in charge.

Stock taking process

 Stock taking is a process hence the stores should not remain for normal business, before
the operations begins no more issues should be made and no receipts recorded until
stocktaking is complete.
 All stock taking sheet must be controlled before and after the exercise
 All the items that are damaged, deteriorated or used are to be recorded separately.
 Stock taking should be systematic and every person taking stock should be responsible
for a particular section clearly defined.
 Everything should proceed in an orderly manner, that is from store to store and each bin
card upon stock or any document should be marked upon stocktaking to avoid repetition
and to ensure that nothing is missed.
 All stock taking must be physical and same method used in all items or similar items e.g.
counting, weighing, and measuring.
 After the physical check is mover all stock sheets should =be collected and arranged in
order.
 The value of each entry is extracted and a total shown.

Stock turnover
The purpose of determining the turnover of stores items is to select stock which do not move
regularly and also to avoid keeping capital locked up in items which are infrequently used or not
used at all.
The turnover should be based on a monthly calculation and is often expressed in terms of the
ratio or proportion of the cost of material used during the period to the average stock held during
a period.
Formula for calculating the rate of stock turnover
Average stock = (maximum stock + minimum stock) ÷2
Or
Average stock = (operating (opening) stock) + closing stock) ÷2

Rate of stock turnover = cost of items consumed ÷average stock of the material
Example one
The item in the stores shows the results of opening stock on 1/1/2020 was Ksh 80,000, purchases
between 1/1/2020 – 31/1/2020 was Ksh 600,000, closing stock on 31/1/2020 was ksh 100,000.
Calculate the rate of stock turnover.
Method
Cost of items consumed=opening stock +purchases between – closing stock
Cost of items consumed = 80,000 +600,000- 100,000
=Ksh 580,000
Average stock = (operating (opening) stock) + closing stock) ÷2
= (80,000=100,000) ÷2
=180,000 ÷2
=Ksh 90,000
Rate of stock turnover = cost of items consumed ÷average stock of the material
=580,000 ÷ 90,000
= 6.44444 times
Nb// this means that the total value or turner over is 6.4444 in the trading period.
The rate of stock turnover will vary with different types of establishment.
Example two
If Ksh 2,900 of food purchase were consumed in a 28 days training period, the opening stock on
day 1 was valued as Ksh 750, the closing stock on day 28 was valued as Ksh 650. What is the
rate of stock turn over?
Method
Average stock = (operating (opening) stock) + closing stock) ÷2
= (750+650) ÷2
=1400÷2
=Ksh 700
Rate of stock turnover = cost of items consumed ÷average stock of the material
=2,900 ÷ 700
= 4.142857143
This means that the total value of the stock turnover is 4.14 times in the 28 day of trading period
and just under one week stock was held on average at any one time.
Problems associated with low stock turnover
1. Capital is tied up and cannot be used elsewhere in the business
2. There is increased risk of spoilage
3. With unnecessary high stock level the payroll may be greater than necessary
4. The insurance on the stock is higher which is not necessary.
Stock taking systems of methods
1. Perpetual inventory
2. Periodic stock taking
3. Continual stock taking

1. Perpetual inventory
This is using a record card which shows the balance of an item of stocks in hand after
each transaction.
This involves recording all receipts, issues and running balances are compared with
physical balances.
All discrepancies must be investigated.
Advantages
a. It ensures continual , reliable and detailed stock check
b. It investigates discrepancies in time and take appropriate measure against corrupt and
careless staff.
2. Periodic stock taking
All stock are counted at one time at a regular interval such as six months or a year.
The physical quantities of stock on hand are ascertained at the end of period.
Stock taking may take a few hours or days
Monthly business is closed for annual stock taking or a few days.
Advantages
a. Avoids continuous stock taking
Disadvantages
a. More difficult to investigate discrepancies
3. Continuous stock taking
Recorded balances are compared with physical balances
Quantities are checked continuously against perpetual inventory balance figures
Principles of continuous stock taking
a. Few items should be checked
b. Checking should be made by the staff unconcerned with keeping of stores
c. There should be an element of surprise
 d. All discrepancies should be investigated
Stock taking of food
Objectives
1. To determine the value of goods held in stock
2. To compare the value of goods in the stores at a particular time in the book value of the
stock can be calculated as follows
Value of closing stock = value of opening stock + purchases during the period-
requisitions made in the same period
3. To list slow moving items
4. To compare the usage with sales to assess food percentage
5. As deferent against loss and pilferage
6. To determine the rate of stock turnover for different groups of food
Nb// stocktaking lists should be printed in a format related to the layout of the storeroom.
This ensures that items held in stock are checked and nothing is missed.

Stock taking of beverages

Objectives
1. To determine the total value of all beverages held in stock
2. To compare the actual value of beverages held in the cellar at a specific time with the
book value of the stock
3. To identify slow moving items
4. To compare the actual value of beverages held in the cellar at a specific time with the
book value of the stock
5. To deter pilferage and check security and control systems.
6. To determine the rate of stock turnover
Nb// stock taking should be done by staff from control or accounts department together
with a member of food and beverage management team.
It should be done at the end of every trading period
Stock control
Stock includes goods of various kinds’ e.g. raw materials, finished goods, equipment
components, office stationery, goods purchased for sale etc.
Stock of goods represent money and it must be controlled effectively.
Stock control means making sure that the business has the right quantity of goods in the right
place and at the right time.
Stock level must be neither too high nor too low, it must be maintained at a reasonable level.
Objective of stock control
1. To ensure availability of goods when required
2. To account for the goods which have been purchased
3. To reduce storage costs as much as possible
 4. To minimize the risks of deterioration, wastage and theft
5. To maintain accurate records
6. To avoid overstocking and under stocking
Stock levels
Stock should be kept at a level that is beneficial to an organization.
It should not be high because it will increase storage costs and greater risk of deterioration and
thus reduction in profits.
On the other hand if it is too low then it will not meet the demands of production.
Factors that affects stock levels
a. Availability
If a particular item is easily available thought a year, the stock level should be low and
vice versa
b. Lead time
This is the period between the date of order and date of delivery.
If lead time is more than stock must be maintained at higher level and vice versa.
c. Stock holding cost
This means the cost of keeping the material into stores.
If stock holding cost is high then stock level must be low and vice versa.
d. Consumption
If any item of material is consumed in greater quantity then it must be maintained at a
higher level and vice versa.
e. Trade discount
Sometimes suppliers offer higher discounts. If the benefit of trade discount is greater than
stock level must be maintained at a higher level.
f. Durability
The stock level of durable goods should be kept higher and perishable low.
Setting stock levels
Enterprises set stock levels under the following
a. Maximum stock level
This is the level beyond which stock should not be allowed to rise. It should be as low as
possible.
b. Minimum stock level
This is the level below which stocks should not be allowed to fall. If stock falls below
this level then, there is a possibility of production stoppages. This level is also called
buffer stock.
c. Re order level
This is the point at which purchase order must be sent to the supplier for the supply of
more material. This level is higher than minimum stock level but lower than maximum
stock level.
d. Re order quantity
This is the quantity for which a purchase order is placed.
e. Average stock level
 This is the average of maximum and minimum stock levels.
Nb//. Definition of some terms
Order period –it is a duration for which a particular commodity is ordered.
Usage rate – the rate at which the item is being used or consumed per day
Safety level –it is the level of quantity that may be kept to take care of any emergency after
placing an order that is it takes care of the lead time
Monthly usage- it is the quantity that take care of the monthly usage rate and the safety rate.
Formulae of stock levels
Average stock level = (maximum stock level +minimum stock level) ÷2
Re order level = maximum consumption * maximum re order period
Minimum stock level = Re order level – (NC *NRP)
Maximum stock level = min SL +RQ + (MINC *MIN RP)
Re order quantity = MAX SL – MIN SL – (MIN C *MIN RP)
Danger level = average consumption * maximum re order period for emergency purchases.
Where
Max c - maximum consumption
Min c – minimum consumption
NC - normal consumption. I.e. average of max c and min c
Max RP – maximum re order period or lead time
Min RP – Minimum re order period
NRP – normal re order period
RQ –re order quantity
Min SL- minimum stock level
Max SL – maximum stock level
Example one
The following information is provided for material PQ
Maximum consumption 6000 units per week
Minimum consumption 4000 units per week
Re-order period/ lead time (4-6) weeks
Re order quantity 30,000 units
Required to calculate
a. Re order level
b. Minimum stock level
c. Maximum stock level
d. Average stock level

Method
Re order level = maximum consumption * maximum re order period
6000*6 =36,000 units
Minimum stock level= Re order level – (NC *NRP)
36,000 –c
NC = average of max c + min c
(6000+4000) ÷2 =5,000
NRP= (Re order period (lead time)) ÷2
(4+6) ÷ 2 =5
= 36,000- (5000*5)
= 11,000 units
Maximum stock level = min SL +RQ+ (min C*min RP)
= minimum stock level + re order quantity + (minimum consumption *minimum re order
period)
=11,000 + 30,000 + (4000*4)
=41,000 +16,000
=57,000 units
Average stock level = (maximum stock level +minimum stock level) ÷2
= (11,000+57,000) ÷2
=68000 ÷2
=34,000 units

Normal consumption = (maximum consumption +minimum consumption) ÷2

= (6000+4000) ÷2
= 10,000 ÷2
=5000 units
Example 2
From the following find out the re order quantity
Minimum consumption 2000 units per week
Minimum re order period 4 weeks
Minimum stock level 3000 units
Maximum stock level 12,000
RQ = Re order quantity = MAX SL – MIN SL – (MIN C *MIN RP)
=12,000 – 3000- (2000*4)
= 9000-8000
=1000 units

Assignment
Given that economic order quantity is 18000units, maximum consumption is 450 units,
minimum consumption is 150 units, re order period (3-5 weeks) and normal consumption is 300.
Calculate re-order level and maximum stock level.
Economic order quantity
This is the quantity at which cost of having stock is minimum or is the procedure for balancing
ordering costs and carrying costs so as to minimize total inventory costs.
The formula is
EOQ = 2cd (ip)
Where C is delivery cost per batch
D is annual demand for product
P is cost price per item
I is stock holding cost per annum (expressed as a fraction of stock value)
EOQ = 2up ÷c
u- Annual usage in units
p- Cost of placing an order
c- Cost of storage of one unit stock for one year
Example one
A company has an annual demand for material of 25,000 tons per annum. The cost price per, ton
is sh 2000 and stock holding cost is 25% per annum of the stock value. Delivery cost per batch is
sh 400. Calculate EOQ.
Method
EOQ = 2cd (ip)
= (2(400*25000)) ÷ (25% *2000)
= 20,000,000 ÷ (25/100 *2000)
= 40,000
=200units
Example two
The rate of use of flour from stores is 20bags per year. The cost of placing and receiving an order
is Ksh 40. The cost of each bag is Ksh 100. The cost of carrying inventory per year is 0.16 and it
depends on the stock. Determine the economic order quantity. (7marks).

Method
EOQ = 2cd (ip)
C-40
D-20
I- 12/100
p- 100
= (2(40*20)) ÷ (16/100*100)
= 1600÷ 16
= 100
= 10 units
Example three
A catering and accommodation establishment has an annual demand for a cleaning agent of
80,000kg per annum of the stock value. Delivery cost per batch is ksh 1,000, cost price per item
is ksh 160 and stock holding cost per annum is 25%. Calculate the economic order quantity of
the cleaning agent (4marks).
Method
EOQ = 2cd (ip)
c- 1,000
d- 80,000
p- 160
I – 25%
EOQ = (2(1,000*80,000)) ÷ (25/100*160)
= 60,000,000 ÷ 40
= 40,000
= 2000 units

Methods of valuing issues / pricing of issues

When materials are issued by a storekeeper they are valued in order to determine the cost of
different items/products.
There are many methods used and the following are the commonly used
1. FIFO – first in first out
2. LIFO –last in first out
3. Simple average
4. Weighted average
5. Standard price.

The following transaction are recorded into stores ledger may

2nd received 500 units @ sh 20 each
8th received 300 units @ sh 22 each
10th issued 400 units
15th issued 200 units
20th received 600 units @ sh 25
25th issued 300 units
27th received 200 units @ sh 26
30th issued 100 units
Standard price for each unit for the month of May is sh 24. Market price of this material on June
3rd is sh 27 per unit and 400 units were purchased on that day prepare a store ledger card for
FIFO, LIFO, simple average, standard price, weighted average and NIFO.
1. FIFO (FIRST IN FIRST OUT)
This is a method of valuing materials issues where it is assumed that the good issued are
those which have been longest on hand and that those remaining in the store represent the
latest purchase.
This method is simple and very realistic, gives a fair evaluation of goods.
Does not reflect or take into account the current economic value in the presence of being
price fluctuation.

Store ledger card for FIFO

Date Purchase / receipts Issues Balance
May Quantity Price Value Quantit Price Value Quantity Value
(units) (sh) (sh) y (sh) (sh) (units) (sh)
(units)
2 500 20 10,000 500 10,000
8 300 22 6,600 800 16,600
15 400 20 8,000 400 8,600
200
100 20 2,000 200 4,400
100 22 2,200
20 600 25 15,000 800 19,400
25 300
200 22 4,400 500 12,500
100 25 2,500
27 200 26 5,200 700 17,700
30 100 25 2,500 600 15,200

Explanation
500 units purchased on May 2 were first in and must go first.
These were issued as 400 units on May 10th and 100 units on May 15th.
These should be valued at sh 20 per unit
300 units purchased on May 8th were issued as 100 units
On May 15th and 200 units on May 25th
These must be valued at sh 22 each unit
From 600 units purchased on May 25th and 100 units on May 30th
These must be valued at sh 25 each
600 units in stock are valued as under 400 units
From May 20th purchases 400×25=10,000
200 units purchased on May 27th 200×26=5,200
Advantages of first in first out
a. It is a realistic system – that is oldest items are usually issued first out
b. Unrealized profits or losses do not arise
c. It is easy to calculate if prices of materials do not fluctuate
d. Closing stocks values reflect the latest costs thus tend to reflect the current market values.
e. It is acceptable to
f. Many tax authorities and is also consistent with accounting practices

Disadvantages of first in first out

a. It involves tedious calculations if the price of materials fluctuate from time to time
b. Product costs, based on the oldest material prices
c. Comparison of one job with another may be difficult if materials are issued at different
prices.
2. LIFO (last in last out)
This method assumes that the goods issued on any particular date are those which were most
recently acquired and thus therefore stocks whose last is to be acquired and thus therefore stocks
whose last is to be carried forward are those which were acquired earliest.
The procedure of this method is exactly the opposite of FIFO method
Under this method, the materials are issued at the cost price of that stock which was received
most recently.
This method reflects the current economic value of goods charged to production
It is not realistic that the stock left in the store is valued at those prices which were
Paid first and those prices are sometimes far below current market price.

Store ledge card for LIFO

DATE PURCHASE/ REC EIPT ISSUE BALANCE
May Quantity Price Value(sh) Quantity Price(sh) Value Quantity Value
 (unit) (sh) (unit) (sh) (unit) (sh)
2 500 20 10,000 500 10,000
8 300 22 6,600 800 16,600
10 400
300 22 8,600 400 8,000
100 20
15 200 20 4,000 200 4,000
20 600 25 15,000 800 19,000
25 300 25 7,500 500 11,500
27 200 26 5,200 700 16,700
30 100 26 2,6000 600 14,100
Explanation
500 units were purchased on May 2, 300units on May 8th
400 units issued on May 10th and 300 units from May 8 purchases and 100 from May 2 purchases
300 units are valued at sh 22 each and 100 units at sh 20 each
200 units issued on May 15th will be from first stock because second stock of May 8th is already
finished. These must be charged at sh 20 each.
300 units issued on May 25th must be from last stock of May 20th and these are charged at sh 25
each.
100 units issued on May 27th and these are charged at 26 each.
600 units in stock are valued as under 100 units from May 27th purchases.
100×26=2,600
300 units from May 20th purchases
300×25=7,500
200 units from May 2 purchases
200×20=4000
2,600+7,500+4000=14,100
Advantages of LIFO
1. Product costs tend to be based on current market prices and are therefore realistic.
2. A charge to production is as closely related to current price levels as possible
Disadvantages of LIFO
1. Stocks are valued at the oldest prices.
2. It involves tedious calculations if the price of materials fluctuates from time to time.
3. Comparison of one job with another may be unfair and difficult
Simple average
Under this method, a simple average of price of all materials in stock is calculated and this
average price is used to value material issues. When the first lot is exhausted, then the price of
that lot is eliminated and simple average of the remaining price is calculated and so on.
This method is simple but difficult to determine which price should be taken to calculate the
average. Under this method the price charged is not the actual cost of the material, so profit or
loss arises out of each issues and it is difficult to account for it. The transactions are recorded
under simple average method.
Date Purchase / receipt Issue Balance
May Quantity Price Value Quantity Price Value Quantity(unit Value
(unit) (sh) (sh) (unit) (sh) (sh) ) (sh)
2 500 20 10,000 500 10,000
8 300 22 6,600 800 16,600
10 400 21 8,400 400 8,200
15 200 21 4,200 200 4,000
20 600 25 15,000 800 19,000
25 300 23.5 7,050 500 11,950
27 200 26 5,200 700 17,150
30 100 25.5 2,550 600 14,600

Explanation
The simple average at May 10 and May 15 is (20+22) ÷2=21
500 units purchased on May 2 were exhausted in second issue of 200 units of May 15th
800 units available on May 25th are from two lots of May 8 and May 20
So simple average is (22+25) ÷2=23,5
300 units purchased on May 8 are exhausted in the issue of May 25th
700 units available on May 30th are from two lots of May 20th and May 27th
So simple average is (25+26) ÷2=25.5
Weighted average
Under this method, the total value of goods in stock is divided by the number of units of stock;
the restaurant figure is weighted average price.
This method is simple and logical but it is not close to the current value of goods, under this
method profit or loss may arise on the material issued.

Store ledger card for weighted average

Date Purchase /Receipt Issues Balance

May Quantity(unit) Price Value Quantity Price Value Quantity(unit) Price
(sh) (sh) (unit) (sh) (sh) (sh)
2 500 20 10,000 500 10,000
8 300 22 6,600 800 16,600
10 400 20.75 8,300 400 8,300
15 200 20.75 4,150 200 4,150
20 600 25 15,000 800 19,150
25 300 23.94 7181 500 11,968
27 200 26 5200 700 17,168
30 100 24.53 2,453 600 14,715

Formula
= Total value of goods in stock ÷number of units
That is date may 10th 16,600÷800= sh 20.75
May 15th 8300÷400= sh.20.75
May 25th 19150÷800 = sh. 23.94
May 30th 17,160 ÷700 =sh. 24.53
Assignment
The following information was extracted from store ledger of red restaurant.
Receipt Issues
July 1 1,000 units @25/= each July 8 800 units
July 6 700 units @24/= each July 12 600 units
July 14 300 units @ 26/= each July 20 650 units
July 15 450 units @ 30/= each

Prepare a store ledger card using a FIFO and weighted average.

Replacement
This method is also called NEXT IN FIRST OUT (NIFO) method.
Under this method, materials issued are valued at replacement cost market value.
It means that materials issued are valued according to cost incurred to replace those materials.
This method is logical but is difficult to ascertain the price of next purchase. In this case the
profit and loss arises as a result of material issues.
Store ledger card for next in first out
Date Purchases / Receipt Issues Balance
May Quantity Price Value Quantity Price Value Quantity Value
(unit) (sh) (sh) (unit) (sh) (sh) (sh) (sh)
2 500 20 10,000 500 10,000
8 300 22 6,600 800 16.600
10 400 25 10,000 400 6,600
15 200 25 5,000 200 1,600
20 600 25 15,000 800 16,600
25 300 26 7,800 500 8,800
27 200 26 5,200 700 14,000
100 27 2700 600 11,300

Material issues on May 10th and 15th may have been valued at sh 25 unit because next purchase
on May 20th, was shs 25 per unit.
Material issued on May 25th, has been valued at sh 26 per unit because next purchase on May 27th
was on this price per unit.
Material issued on May 30 has been valued at sh 27 per unit because price of material per unit on
June 3rd is sh 27.

Standard price
Standard price means pre-determined price. A standard price is predetermined taking into
consideration a number of factors’
1. Consumption of material
2. Expected change in price of material
Under this method all materials issues are valued at standard price. this method is simple,
stable and provides a check on the efficiency of the enterprise
Store ledger card for simple average
Date Purchase /receipt Issues Balance
May Quantity Price Value Quantity Price Value Quantity Value
(unit) (sh) (sh) (unit) (sh) (sh) (unit) (sh)
2 500 20 10,000 500 10,000
8 300 22 6,600 800 16,600
10 400 24 9,600 400 7,000
15 200 24 4,800 200 2,200
20 600 25 15,000 800 17,200
25 300 24 7,200 500 10,000
27 200 26 5,200 700 15,200
30 100 24 2400 600 12,800
Explanation
 All materials issued have been valued at sh 24 per unit which is the standard price
Assignment
PCK training restaurant recorded the following transaction regarding supply of mangoes in
the month of January 2011
January 4th received 500 pieces @ ksh 20
January 7th received 400 pieces @ ksh 24
January 18th issued 300 pieces
January 22nd issued 300 pieces
January 24th received 400 pieces @ksh 25
January 28th issued 500 pieces.
Calculate the value of stock at the end of the month using simple and weighted average
methods.

TOPIC 6: BUDGET AND BUDGETARY CONTROL

This is the planning process by means of which budgets are evolved for business as well as
various departments or sections of a business

Budget
A budget is a plan expressed in monetary or other terms which govern the operation of a
business over a predetermined period of time.
It is a detail plan of operations for a specific period of time and is prepared for the effective
utilization of resources, which will help in achieving the set objectives. Whereas most budgets
(e.g. sales budget, labour cost budgets) are expressed in terms of money, some are expressed in
terms of units or percentages
It is a projected plan expressed in financial or other terms which set the objectives of the
business and provides a means of control by the measurement of actual results against the plan

Budget Control
It is a means of control by which responsibility for various budgets is assigned to the managers
concerned and a continual comparison is made of the actual results with the budgeted results /
figures and if there is a variance, an inquiry and corrective action follows

Therefore a budget is the plan on which a system of budgetary control is based. The budget sets
standards of performance (targets) for the managers of a business while budgetary control is a
means of ensuring that the objectives set for the managers are fulfilled
Budgetary control is the use of the comprehensive system of budgeting to aid management in
carrying out its functions like planning, coordination and control.
This system involves:
 Division of organization on functional basis into different sections known as a budget
Centre.
 Preparation of separate budgets for each “budget Centre”.
 Consolidation of all functional budgets to present overall organizational objectives during
the forthcoming budget period.
 Comparison of actual level of performance against budgets.
 Reporting the variances with proper analysis to provide basis for future course of action.

Key elements of budget

Basic elements of a budget include

1. It is a comprehensive and coordinating plan

2. It is expressed in financial terms
3. It is a plan for firms/ establishments
4. It is a future plan for a specific period of time usually one year

Objectives of budgeting/ budgets

The main objectives and advantages of budgeting are
1. To provide a detailed plan of catering operations in respect of a particular trading
period
It provides a detailed plan of action of the individuals and groups in order to achieve the
goals (assigns responsibility)
The detailed plan reduces uncertain and provides direction to the employees by
determining the course of action in advance.
Budgeting involves determining what should be done, how, the goals will be achieved
and which individuals or units are to assume responsibility and to be held accountable.
2. To give practical expressions to the aims and policies of the business
It states the firms’ expectations or goals in formal terms to avoid confusion and make
them attain the targets for expected performance are laid down when budgets are
prepared. The budget helps to clarify assumptions on future goals
3. To ensure an economical use of the resources of the business
It coordinates the activities and efforts in such a way that the use of resources is
maximized
Coordination is a major function of budgeting and it strikes a balance between labour,
material and other resources so that the goals can be achieved at minimum costs.
Activities of all departments must remain in harmony with each other in order to achieve
the goals.
Managers must establish good working relations in their departments and with other
departments
4. To set standard ( targets) against which it is possible to measure managerial
performance
 It communicates the expectations to all concerned with the management of the firm so
that they can understand the targets, support and implement them.
5. To ensure better coordination of the various departments (function of the business)

Objectives of budgetary control

1. To provide a plan of action for a set trading period to guide and regulate a business in
keeping with its stated policies and to maximize the full use of its resource’
2. To set standards of performance for management against which their performance can be
measured.
3. To set act levels of cost responsibility and encourage cost awareness.
Advantages of budgetary control
a. The budget is a detailed plan and provides the means of regulating progress of the
business.
b. The budgets sets standard of performance which can measured and assessed
c. Budgetary control establishes clear lines of responsibility and coordinates all activities
d. It ensures the best possible use of resources and helps maximize profits.
e. It controls expenditure and promotes cost consciousness within the department
f. The budget sets targets for various managers and budgetary control helps to ensure that
the objectives are achieved.
For effective running of a business, the management must know:
 Where it intends to go i.e. organizational objectives
 How it intends to accomplish its objective i.e. plans
 Whether individual plans fit in the overall organizational objective. i.e. coordination
 Whether operations conform to the plan of operations relating to that period i.e. control

Formulation of the Budget

Budget Committee
Where there is a system of budgetary control in operation there is always constituted a budget
committee. This consists of: -
 A senior executive of the business (managing director / general manager) acts as the
chairman
 Several managers (food and beverage manager, executive chef, executive house keeper,
banqueting manager)
 An accountant who acts as the secretary of the budget committee

Before any budgets are drawn up the budget committee must decide how the overall system of
budgeting will fit into the existing structure of the business
This entails: -
 A review of the organizational structure of the business
 A definition of each managers authority and responsibility
 After preliminary work, various departments and other budgets set appropriate targets
expressed in terms of
- Turn over
- Profit margins
- Operating ratios and
- Cost limits
Main Function of the Budget Committee
1. Prepare budget proposals (draft budgets) for submission to board of directors.
When preparing budget proposals, the budget committee will take into consideration the
following: -
a) Past performance – entails a thorough analysis of past income, expenditure, trends in
income and expenditure, etc.
b) Current trends – this necessitates a review of the current position with regards to the items
mentioned in (a) above
c) Other information – would include a consideration of the prosperity of the particular sector
of the hospitality industry, the condition of the local industries, the degree of unemployment,
if any, the degree of competition.

2. Choose an appropriate budget period; in most cases this will be a one calendar year.
All businesses whether large or small have budgets covering a period of one year. Where the
budget year runs from January to December, work on the following years budget will start
early in October to that the budget proposals are ready for submission to the board of
directors early in December

3. Choose an appropriate review period also referred to as control period

An essential part of budgetary control is the continual comparison of the actual with the
budgeted results. Budget reports will be submitted at various intervals i.e. (one week, one
month, quarterly, biannual and annual reports)
Formulation of budgets
Before budget can be prepared it is necessary to have the maximum available information and
date on the following
a. Full details of past performance of sales and expenditure.
This information is obtainable from the accounts
b. A study of the current trends sales, the sales mix, advance bookings , special function
business
c. Other information such as the state of employment, conditions and prosperity of local
industry, the political situation, future developments and their likely effect on turnover
and expenses and the services offered and prices charged by competitors.

Types of Budgets
Budgets are prepared to check the availability of finance according to the demand of project
while budgetary control is also essential tool of management to control cost and maximizes
profits.
A budget is a quantitative statement, for a defined period of time, which may include planned
revenues, expenses, assets, liabilities and cash flows; it provides a focus for the organizations,
aids in the co-ordination of activities and facilitates control

The following are the essential of a budget:

 It is prepared in advance and is based on future plan of action
 It relates to a future period and is based on objectives to be attained.
  It is a statement expressed in monetary or physical unit prepared for the formulation of
policy
General Classification of Budgets
a) On the basis of functionality; Sales budget, Production budget, Material budget, Labour
budget, Manufacturing overhead budget, Administrative expenses budget, Selling and
distribution budget, Cash budget

b) On the basis of flexibility; Fixed budget, Flexible budget

c) On the basis of period / time; Long term, Short Term

There are several kinds of budgets used in hospitality establishments and are based on the
following classifications: -
1.) From the point of view of the subject matter budgeted for; we may distinguish: -
 Capital budgets
 Operating budgets

2.) From the point of view of the comprehensives of budgets for; we may distinguish: -
 Master budgets
 Departmental budgets

3.) From the point of view of the level of sales assumed; we may distinguish: -
 Fixed budgets
 Flexible budgets

1. On the Basis of Period / Time

 Long Term Budget - A systematic and formalized process for directing & controlling
operations for period extending beyond one year
Long-term budgets are prepared for those organizations, which deal in regular product line.
Here organizations are not supposed to change their proceedings in short time periods.
Examples include; sales budget, fixed budget
These are prepared for those organizations, which deal in regular product line and
organizations are not supposed to change their proceedings in short time periods
 It evaluates future implications associated with present decisions
 Market trends, change in demographics, national income, etc. play important role in
preparing long term budget
 It proves useful in forecasting and evaluation of an organization over period of time

 Short Term Budget - May cover periods of 3 – 12 months depending upon nature of
business; budgets are prepared for short time periods which work for seasonal product line
 Should be long enough to allow completion of a season or all aspects of a business
 The period should coincide with financial accounting period to facilitate evaluation of
performance e.g. A budget allocated to manufacturing of lots for spring- summer
season, Fashion Retailing, etc
Short-term budgets are prepared for small time periods which work for seasonal product line.
Here products may change in near future.
Examples include; production budget, flexible budgets

2. According to Function
 Sales Budget - Sales budget is the primary budget; it is the most important budget upon
which all the other budgets are built up
It is the most important budget to prepare and the other budgets are prepared on the basis of
sales budget
It is most important because it affects the accuracy of most other budgets thus if budget sales
are forecast inaccurately, budgeted variables and semi variable costs will also be inaccurate.
Similarly the cash budget which is obviously affected by the volume of sales will be
inaccurate
 It forecast on quantities and values of sales to be achieved in a budget period
 In this budget the in-charge or expert forecast the future expected sales of the firm.
 The sales manager is responsible for the accuracy of the budget.
 Sales forecasting: Developing a sales budget requires forecasting future sales, which
depends upon the following 4 main factors:
 Past performance - is information concerning past performance
(a) Actual sales of previous periods;
(b) Sales mix;
(c) Trends in sales and sales mix
 Current trends – is information about present conditions within industry and
sales territory
(a) Trends in sales and sales mix;
(b) Bookings reserved for accommodation, banquets etc.
 Limiting factors: (a) where the increase in sales is considered inadequate,
limiting factors should be identified and dealt with accordingly
 Other information - data concerning the industry and general business
conditions
(a) Condition of local industries;
(b) State of employment and prosperity in the locality concerned;
(c) Political situation, government policy etc. and their effect on future turnover

 In preparation of sales budget the following should be taken into consideration;

- Past sales
- Sales man estimates
- Plant capacity
- Raw material
- Orders in hand
- Seasonal fluctuations
- Competition etc.

Example 1
Production budget, selling and distribution, etc. are affected by sales budget e.g.
Q1 Q2 Q3 Q4 Yearly Sales
 Sales 120 130 150 165 565
Price / unit 20 22 25 27
Total sales 2400 2860 3750 4455 13465
Example 2
Omega Pearl Restaurant is a large, licensed establishment and budgets its sales a year in
advance; actual sales are reviewed in the light of the budgeted figures at the end of each 4-
weekly period. The sales of the restaurant for the past 3 years have been as follows;

Analysis of Past Sales

1993 (£) 1994 (£) 1995 (£)
Restaurant sales 179,500.00 186,500.00 190,200.00
% increase on the previous year 7% 4% 2%
Bar sales 91,000.00 95,500.00 102,200.00
% increase on the previous year 4% 5% 7%
Sundry sales 30,500.00 32,000.00 34,000.00
% increase on the previous year 5% 5% 6%
Total Sales 301,000.00 314,000.00 326,400.00
% increase on the previous year 6% 4.3% 4%

The following supplementary information is also made available.

(a) Restaurant sales – the rate of increase in this section of the turn over if falling off.
This is due to the limited dining room space available. It is thought that, in the
circumstances, little increase in sales is possible
(b) Bar sales – the turnover has been rising satisfactorily but in view of the limiting
factor restricting restaurant sales a higher rate of increase cannot be expected
(c) Sundry sales – this is expected to increase at least as in 1995

Determination of Sales Target

Having due regard to the past trends in sales and all other relevant factors, the following sales
target are set for 1996
(a) Restaurant sales – it is decided that that these ought to be increased by 4%. In view of the
limited space available the increase in sales is to be achieved through increased prices. This
end, all restaurant prices are to be revised yearly in the year
(b) Bar sales – these ought to show an increase of 7% on the previous year
(c) Sundry sales – in view of the past trend, an increase of 7% should be aimed for

Thus the budgeted sales for 1996 are therefore as shown below;
1993 (£) 1994 (£) 1995 (£) 1996 (£) The budgeted
sales for each
 4-weekly
period
Restaurant sales 179,500.00 186,500.00 190,200.00 197,800.00 197,800.00/13
104/100*190200
=197808 = 12,215.00
% increase on the 7% 4% 2% 4%
previous year
Bar sales 91,000.00 95,500.00 102,200.00 109,350.00 109,350.00/13
107/100*102200
=109354 = 8,411.00
% increase on the 4% 5% 7% 7%
previous year
Sundry sales 30,500.00 32,000.00 34,000.00 36,380.00 36,380.00/13
106/100*34000
=36040 = 2,798.00
% increase on the 5% 5% 6% 7%
previous year
Total Sales 301,000.00 314,000.00 326,400.00 343,530.00 26,400.00
% increase on the 6% 4.3% 4%
previous year

At the end of each 4-weekly period, the actual sales would be compared with budgeted sales and
any discrepancies (variance) would then be investigated and the necessary corrective action
would be taken
The following is a monthly sales report based on the figures given above

Pearl Omega Restaurant

Monthly sales report for four weeks ended 28th January, 1995

To: Managing Director

General Manager

From: Catering Controller

Budgeted Sales (£) Actual Sales (£) Variance (+ or -)
Restaurant sales 15,200.00 14,400.00 -800.00
Bar sales 8,400.00 8,500.00 +100.00
Sundry sales 2,800.00 2,950.00 +150.00
Total 26,400.00 25,850.00 -500.00

NB: Only a small partial revision of restaurant prices has taken place; a complete revision is
called for
 Production Budget - It is stated in physical units
It specifies the number of units of each product that must be produced to satisfy the sales forecast
It involves planning the level of production which in turn involves the answer to the following
questions:
(a) What is to be produced?
(b) When is it to be produced?
(c) How is it to be produced?
(d) Where is it to be produced?
After preparing sales budget the next budget will be production budget.
In this budget works manager prepare schedule of production by breaking large production in
small units to fulfill the target production.
A properly operated budgets leads to: inventory control, improved maintenance of
production schedules and production targets.

Example 1
Suppose, if the estimated opening stock is 5000 units and estimated sales are 25000 units and
closing stock of the product is 3000 units the estimated production will be: -

Sales + Closing stock – Opening stock = Estimated production

25000 + 3000 – 5000 = 23000 units

Example 2
The number of units to be produced can be formulated using:

Units to Produce = Budgeted sales + Desired closing inventory of finished goods – Beginning
inventory of finished goods

e.g.
Budgeted sales = 70,000
Desired closing finished goods inventory = 20,000
Beginning finished goods inventory = 40,000

Units to be produced = (70,000 + 20,000 – 40,000) = 50,000

Schedule of production is prepared by breaking large production in small units to fulfill the
target production. A properly operated budget leads to
 Inventory control
 Improved maintenance of production schedules and production targets.

 Cost of Production Budget - It summarizes the materials budget, labor budget and the
factory overhead budget
This budget is an estimate of cost of output planned for a budget period and may be classified
into three budgets: -
a. Material Cost Budget
b. Labour Cost Budget
c. Overhead Cost Budget / Factory Overhead

(a) Material Budget - In the production budget material is the first requirement to be considered
and are basically divided into two categories i.e.
 Direct and
 Indirect material.

Direct materials budget: It specifies the cost of direct materials used and cost of the direct
materials purchased.
It helps in developing purchasing and delivery schedule
Helps to meet production targets
Material budget includes the preparation of estimates of different types of the raw material
needed for various products and purchasing raw material in required number at a required time.
The following are factors to be taken under consideration;
- Requirement of raw material
- Company’s stocking policies
- Price trend, and
- Cost of raw material

(b) Labour Budget - Labour is an important factor in every production organization. It plays an
important role in converting raw material into finished product.
It is evolved in relation to the budgeted volume of sales.
When an increase in sales is budgeted for it is necessary to establish how much of the increase
can be dealt with by the existing staff of the establishment
A labour cost budget cannot be realistic unless it is based on a detailed analysis of the staffing of
each department vis-à-vis the budgeted turnover
There exist two types of labour: -
 Direct and
 Indirect labour.

In this budget company has to budget the required number of hours and the expected pay scales
of the employees. This budget gives information about personnel specifications for the job for
which workers are to be recruited, the degree of skill and experience required and rates of pay.

Direct Labor Budget: Labour requirement budgets are prepared on basis of production budget.
It must disclose: - Grade of labor along with cost (wages)
- Period of training to enable production budget to be achieved
- Casual labour and authorized overtime
- Proposed changes in staffing, rates of pay and grading of staff
- Staff meals, holiday pay and other labour costs

Summary
This budget gives information about personnel specifications for the job for which workers are to
be recruited, the degree of skill and experience required and rates of pay

(c.) Factory / manufacturing Overhead Budget: Prepared on basis of chart of accounts which
reflects different accounts expense and details of cost center or departments
This budget gives the works overhead expenses to be incurred in a budget period to achieve the
production target. The cost of indirect material, indirect labour etc can be calculated with the
help of this budget.
For making proper control especially in larger establishments tend to have separate budgets for
the various component parts of overhead expenditure i.e. it can be divided into departmental
overhead budget such as maintenance, office and administration costs, marketing etc.
The overhead cost budget is also evolved in relation to the budgeted sales therefore it must
clearly distinguish between fixed overheads (rates, depreciation of premises, licenses etc) and
variable and semi-variable overheads (gas, electricity, telephone, laundry, cleaning materials etc)
thus variable expenses are estimated on the basis of the budgeted output because these expenses
are bound to change with the change in output.
This budget gives the work overhead expenses to be incurred in a budget period to achieve the
production target.

Example on Production Cost budget

Material Usage budget Product A Product B Total Budgeted production 50,000 80,000 Direct
materials requirements Product A X 5 Product B X 8 Direct materials usage (kg) 250,000
480,000 Cost per kg Rs. 1 Rs. 1.50 Cost of Direct materials used Rs. 2,50,000 Rs. 7,20,000 Rs.
9,70,000

 Purchase Budget - This budget provides information about the materials to be acquired from
the market during the budget period.

 Personnel Budget - This budget gives an estimate of the requirements of direct labour
essential to meet the production target.
This budget may be classified into: -
a. Labour requirement budget
b. Labour recruitment budget

 Research &Development Budget - A tool for planning and controlling research and
development costs
This budget provides an estimate of expenditure to be incurred on research & development
during the budget period. A R&D budget is prepared taking into consideration the research
projects at hand and new research & development projects to be taken up.

 Helps in coordination with company’s other plans and projects

 Helps allocation of funds for R&D by coordinating company’s immediate and long-
term plans
 Helps in planning staff and equipment requirements for R&D
 It contains details of cash inflows and cash outflows for the budget period of some
other specific period.
  It indicates effect on cash positions of seasonal requirements, unusual receipts and
slowness in collecting receivables
 Indicates availability of cash
 Shows availability of excess funds for short term investments
 Helps in planning bond redemptions, income tax installments and payments to
employees

 Administration Expenses Budget - The budget covers the expenses incurred in framing
policies, directing the organization and controlling the business operations.
In administration expense budget an estimate of expenses is prepared regarding central office
and of management salaries and the most important items covered in this budget include: -
 Office salaries
 Depreciation of office equipment
 Telephone
 Printing and stationery
 Insurances, bank charges and audit fees

The budget may be prepared at department level for effectiveness in budgeting system with
the past experience and anticipated changes taken into consideration.
As with all other budgets, the office and administration budget will distinguish between fixed
and variable costs.

 Selling and Distribution Budgets -This expense is related to the selling and distribution of
material. In this budget experts have to plan for the expected selling and distribution
expenses of the firm.
Certain items of selling and distribution costs includes cost of transportation, salesman
salaries etc.

 Capital Expenditure Budget - This is an important budget providing for acquisition of

assets necessitated by the following factors:
(a) Replacement of existing assets.
(b) Purchase of additional assets to meet increased production
(c) Installation of improved type of machinery to reduce costs.

These are budgets dealing with the assets and the capital funds of a business and more
specifically they are budgets in respect of matters such as; capital expenditure on new fixed
assets, cash, debtors, stock; the raising of fresh capital by the issue of shares or debentures
The most common of such budgets is the cash budget

 Cash Budget - Predict the inflow and outflow of cash during the budget period and is
prepared from the various operating and capital budgets. Cash sales, credit collection and
other receipts in cash payments are considered.
Particulars of cash payable over the budget period will be extracted mainly from the
operating (expense) budgets and budgets in respect of any planned acquisition of fixed assets
This budget gives an estimate of the anticipated receipts and payments of cash during the
budget period.
In cash receipt we consider cash sales, credit collection and other receipts in cash
payments for example; we consider cash payments, tax payable, dividend payable etc.
Without cash organizations cannot work so prediction thus cash is very important.
A cash budget makes provision for a minimum cash balance which will be available at all
times; may be prepared monthly, weekly even daily to meet requirements
Short range: Prepared annually and is in correspondence with annual profit plan.
 Indicates cash inflows and outflows as generated by annual profit plan

Long range: Does not disclose detailed estimates of revenue and expenses. It is prepared
according to:
 The timing of the capital expenditure projects
 The timing of long range profit plan

Differences between Cash budgets and Operating budgets

Cash budgets may look similar to operating budgets because they use much of the same
information, however;
 Operating budgets forecast income, expenditure and the level of profits over the
coming years whereas cash budgets are concerned only with the actual receipt and
payment of cash
 Depreciation for example will never feature in a cash budget because no cash changes
hands, it is however a legitimate expense in an operating budget
 In cash budgeting, receipt of cash will not always coincide with the sale of goods nor
with payment of cash with the purchase of goods (it depends on the terms of credit)

Example 1
Forecast Receipt of Cash
The following is the forecast sales budget for a restaurant for 6 months starting January

January February March April May June

Forecast £ £ £ £ £ £
Sales 4,000.00 5,000.00 6,000.00 7,500.00 6,000.00 6,500.00

Past experience has shown that 40% are for cash and 60% are on a credit basis with cash
from the above sales being received as follows: -
Expected Receipt of Cash

Cash sales 40% Straight away

Credit sales 1 50% after 4 weeks
Credit sales 2 10% after 6 weeks

Total sales 100%

Using the above information, you are required to complete the cash received section of the
cash budget statement for April, May and June
 Proceed as shown below: -
Cash budgets for 3 months ending 30th June
(Forecast cash receipts only)
April (£) May (£) June (£)
Cash Receipts
Sales
Cash 3,000.00 2,400.00 2,600.00
Credit 1 3,000.00 3,750.00 3,000.00
Credit 2 500.00 600.00 750.00
Total Cash received 6,500.00 6,750.00 6,350.00

The figures in the solution above were calculated as follows: -

It shows pattern of cash receipts and payments
(£) April (£) May (£) June (£)
Cash 40% from 7,500.00 3,000.00
April
40% from 6,000.00 2,400.00
May
40% from 6,500.00 2,600.00
June
Credit 1 50% from 6,000.00 3,000.00
March
50% from 7,500.00 3,750.00
April
50% from 6,000.00 3,000.00
Feb
Credit 2 10% from 5,000.00 500.00
April
10% from 6,000.00 600.00
March
10% from 7,500.00 750.00
April

 Master Budget - It is the summary or total budget package for a business firm; The master
budget is the aggregation of all lower-level budgets produced by a company's various
functional areas, and also includes budgeted financial statements, a cash forecast, and a
financing plan
 It can be called end product of budget making process
 It reveals the top management’s goals of revenues, expenses, net income, cash
inflows and financial positions
 Takes the macro view of business and coordinates with production, raw materials,
manpower and other resources with production targets
 It cuts across divisional boundaries to coordinate firms’ diverse activities
  The operating budgets constitute the building block used to complete the master
budget

A master budget may be a budgeted profit and loss account, incorporating all income and all
expenditure of a business.
It may also be a budgeted balance sheet incorporating all assets and liabilities of a business.
It is a summary budget incorporating all components of a functional budget and which is finally
approved, adopted and employed”. Thus a master budget is a summary of all functional budgets
in capsule form available in one report.

 Departmental Budgets - These are concerned with a particular department of a business.

Examples include; banqueting budgets, maintenance budget, rooms division budgets, food and
beverage budget

 Performance Budget - These days budgets are established in such a way so that each item of
expenditure is related to specific responsibility centre and is closely linked with the
performance of that standard.

 Marketing Budget - In smaller establishments any marketing and sales promotion

expenditure would be included in the overhead cost budget.
In larger business: hotels rather than restaurants, the marketing will involve a large amount of
expense and include amongst others
 Salaries of the marketing staff
 Cost of press and television advertising
 Cost of printing brochures and other promotional materials
 Other expenditures i.e. office expenses, travel, entertainment
 Maintenance Budget - Whilst most smaller hospitality establishments include maintenance
cost in a total expense budget or overhead cost budgets, larger units tend to have a separate
maintenance budget.
A well prepared maintenance budget will accomplish the following two functions;
 It will predetermine the maintenance costs
 It will show the sequence of the work to be done over the budgeted period

The following key points will inform budgeted maintenance cost;

 The state of the premises, kitchen plant, furniture and other equipment
 The standard of comfort which is necessary to provide with regards to the type of
customer catered for
 The current availability of funds

The following costs have to be taken into account;

 Maintenance materials and supplies include items such as paints, wall paper,
electrical components, loose tools and other supplies required by the maintenance
department
 Maintenance labour cost includes all wages and salaries payable to the maintenance
staff and
  Other costs i.e. depreciation of maintenance department’s equipment, stationery,
office supplies

3. According to Flexibility
 Fixed Budget - This is the rigid budget and it is drawn on the assumption that there will be
no change in the budgeted time period. A fixed budget will be helpful only when actual level
of activity is equal to budgeted level of activities
It is defined as a budget which is designed to remain unchanged irrespective of the level of
the volume of output or turnover attained or irrespective of activity actually attained.
 It is based on single level of activity
 It compares data from actual operations with single level of activity reflected in budget
 Fixed budget is good for performance measurement, if output can be estimated within
close limits

 Flexible Budget - It is prepared for a range, for more than one level of activity and is also
called a variable budget
A flexible budget predetermines costs in relation to several possible volumes of sales. It also
gives different budgeted costs for different levels of activities.
Is one “which, by recognizing the difference in behavior between fixed and variable costs in
relation to fluctuations in output, turnover or other variable factors such as number of
employees, is designed to change appropriately with such fluctuations”.

Important Features of Flexible Budget:

 It covers a range of activity
 It is easy to change with variation in production levels
 It facilitates performance measurement and evaluation

Advantages of Flexible Budgeting:

 Accurate budgeting: Output factor is considered during preparation, since cost of goods
may fluctuate from time to time
 Coordination: Production is planned in relation to expected sales, materials and labor are
acquired to meet expected production requirements
 Control tool: Comparison between the budgeted costs and actual costs form basis for
analyzing cost variances and fixing responsibility for same. This motivates managers to
feel themselves motivated in controlling costs for which they are responsible.

A flexible budget gives different budgeted costs for different levels of activities. This budget
is applicable where;
 Activity levels vary from period to period.
 The business is new and it is difficult to predict
 The industry is influenced by change in fashion, where there are changes in sales

Responsibility Accounting
Responsibility accounting fixes responsibility for cost control purposes by establishing
responsibility Centre’s namely: -
(a.) Cost centre
 (b.)Profit centre
(c.) Investment centre

Principles of responsibility accounting are as follows:

 Fixation of targets for each responsibility centre
 Actual performance is compared with the target
 The variances therein are analyzed so as to fix the responsibility of centres
 Taking corrective action.

Conclusion:
 Preparation of budgets is the first step in the budgetary control system.
 Implementation of budgets is the second phase.
 But preparation and implementation of budgets alone will not achieve much unless a
comparison is made regularly between the actual performance and the budgeted
performance.
 Continuous and proper reporting makes this possible.
 To ensure the success of budgetary control system, proper follow up action has to be
taken immediately for the reports submitted.

The Limiting Factor

The first step in the preparation of a budget is to forecast the volume of sales (as this affects most
of other parts of the budget).
The forecast volume of sales will: -
 Determine the level of all variable and semi fixed costs
 Affect the cash position of the business which in turn may determine the amount of capital
expenditure planned for the period

When forecasting the future volume of sales it is important to remember what is known as the
limiting factor (also referred to as the ‘key factor’, ‘governing factor’, and ‘principal budget
factor’
A limiting factor - is the factor that limits the volume of sales and makes a further increase in
sales impossible

Limiting Factors
The following limiting factors will be found operating in hospitality establishments
(a) Accommodation Availability – this operates in residential establishments namely hotels,
motels, hostels, etc Once all the accommodation available has been let it is impossible to
increase the volume of sales except by raising prices
(b) Seating Capacity – this applies particularly to restaurants where the seating capacity is
fixed; also to banqueting sales, and insufficient seating capacity may well result in loss of
potential sales
(c) Insufficient Capital – in a multiple catering business an expansion of sales through the
acquisition of further units may be impossible due to insufficient capital

(d) Shortage of Efficient Labour – many hospitality establishments could increase their sales
by improving the efficiency of their labour. Thus the speed with which cash is taken by the
 cashier in a self-service restaurant has an important bearing on the volume of sales.
Similarly the speed with which waiters serve customers can affect the volume of sales
considerably.
The abilities of the chef and other kitchen staff are equally important with this respect

(e) Shortage of Efficient Executives – more important than even the shortage of efficient
labour. Inefficient management makes an expansion of sales difficult through bad
organization, unimaginative menu planning and failure to take advantage of any
opportunities to increase sales that may present themselves

(f) Management Policy – An increase in sales may be impossible as a result of the deliberate
policy of a business. Thus restaurants may discourage the ‘wrong’ type of customer; a hotel
may refuse to accept coach tour business, football teams etc

(g) Consumer Demand – This is a limiting factor in the operation of which is most difficult to
remove. Consumer demand may be limited in several ways: by the prices charged, through
completion, as a result of a fixed potential demand e.g. in industrial canteens.
When an increase in sales proves difficult, it is important to identify the limiting factor(s).
The nature of the limiting factor will then indicate the most appropriate method of dealing
with the problem

Capital Budgeting
Capital budgeting is a decision situation where large funds are committed (invested) in the initial
stages of the project and the returns are expected over a long period of time. These decisions are
related to allocation of investible funds to different long-term assets. Capital budgeting is a
continuous process and it is carried out by different functional areas of management such as
production, marketing, engineering, financial management etc.

Basic Features of Capital Budgeting

b. Capital budgeting decisions have long-term implications.
c. These decisions involve substantial commitment of funds.
d. These decisions are irreversible and require analysis of minute details.
e. These decisions determine and affect the future growth of the firm.

Capital Budgeting Decisions Involves the following three steps

i. Estimation of costs and benefits of a proposal or of each alternative.
ii. Estimation of the required rate of return, i.e., the cost of capital
iii. Selection and applying the decision criterion

Estimation of Cash Flows

 The costs and benefits for a capital budgeting decision situation are measured in terms of
cash flows.
 An important point is that all cash flows are considered on after tax basis.
 The rule is that all financial decisions are subservient to tax laws.
 The cash flow from the project is compared with the cost of acquiring the project.
The cash flows may be grouped into
 Relevant and
 Irrelevant cash flows as follows:

(a) Relevant cash flows Irrelevant cash flows

i. Cost of new project Sunk cost
ii. Scrap value of old / new plant Allocated overheads
iii. Trade-in-value of old plant Financial cash flows
iv. Cost reduction / savings
v. Effect on tax liability
vi. Incremental repairs
vii. Working capital flows
viii. Revenue from new proposal
ix. Tax benefit of incremental
x. Depreciation
Budget methods

Main contents

• Incremental budgeting vs. Zero-based budgeting

• Top down budgeting vs. bottom up budgeting

Incremental budgeting and Zero-based budgeting

Incremental budgeting definition: Prepared based on the current period’s budget with some
added amounts regarding inflation or planned increases in sales and costs

Advantages:

• Simple to prepare and understand

• Consistent basis

• Better co-ordination between budgets

Disadvantages:

• Totally ignore the impact of changes

• No incentive in development and innovation

• Encourages spending up to the budget

• This approach is not recommended as it fails to take into 4 account changing circumstances
Zero-based budgeting
It is also referred to as priority based budgeting. It is a cost benefit approach budgeting where it
is assumed that the cost allowance is Zero for any item until the manager responsible justifies its
existence in terms of costs and benefits.
CIMA definition: A method of budgeting whereby all activities are re-evaluated each time the
budget is set. It is concerned with alternative means that established activities have been
compared with alternative uses of the same resources.
It takes away the implied right of existing activities to continue receiving resources unless they
can be shown to be the best use of such resources.
Stages of Implementation
1. Definition of decision package.
This is the comprehensive description of the organizations functions or activities.
2. Evaluation and ranking of packages.
This is on benefit basis.
3. Resource allocation according to priorities.

Advantages
1. More efficient allocation of resources.
2. Focus attention on values for money and makes clear relationship between input and output.
3. Develops a questioning altitude and makes it easier to identify obsolete, inefficient and less
cost effective operations.
4. Leads to greater staff and management knowledge of operations.

Disadvantages
1. Time consuming.
2. High skills required.
3. May encourage wrong impression that all decisions must be made through budgets.
4. Short – term benefits may be emphasized to the detriment of long-term benefits.

Assignment
a. Write five points to consider when making a budget for an outside catering function
b. Explain the steps to follow when preparing budget

Variance analysis
This is the last stage in budgeting.
It is the comparison of the actual results and the budgeted figures
The budgeted committee analyses any variance that may have occurred, suggests possible
reasons and recommends remedial action according to the type of variance.
The common types of variances are
a. Sales variance
b. Cost variance
Sales variance
Occur due to
1. Change in the number of customers’
2. Change in the amount customers spends
3. Combination of the two
An increase in the sales may occur due to
a. More customers spending the same amount
b. Less customers spending more
c. More customers spending more in terms of average
Example one
Budgeted Actual Variance
Number of covers 1,000 1,100 100
Average spending 300 330 30
power (ASP)
Sales volume 300,000 363,000 63,000

The variance shown is an increase in the total sales volume caused by an increase in the
ASP and the number of covers.
Both are known as favorable variance.
Example two
Budgeted Actual Variance
Number of covers 1,000 1,100 100
Average spending 300 265 35
power
Sales volume 300,000 291,500 8,500

In the example above, the number of covers increased but the average spending power decreased
which resulted in a drop in sales volume.
When examining these results, the budgeted committee would find out the reasons for drop in
ASP by 35 shillings per cover.
Causes of sales variance
1. When there is an decrease in the number of covers
 From the forecasted figure, the budgeted committee must find out the reasons and
recommend remedial action.
The objective of such action is to increase the number of covers sold by
a. Promotional methods for example advertising
b. Making the establishment more attractive to the customers
The committee should find out why they are not meeting their targets.
It may be because of
a. The prices
b. The menu offered
c. Quality of service
d. The image
2. When customers are spending less (Less ASP)
Causes may be due to
a. Lack of salesmanship by service staff in selling the dishes and beverages extra
cost
b. Cost of products may be too high
3. The customer may not be aware of the availability of extras
The committee should
a. Train staff to be sales person and recognize staff with high sales
b. Merchandizing by use of sweet trolleys, liquor trollies, cheese trollies
c. By pricing using more imaginative ways for example sh.999
Cost variance
Material cost variance
This will occur for three basic reasons
a. A change in the forecasted cost of material for example price fluctuation
b. A change in quality used (wasted)
The variance is referred to as material cost variance or usage variance
Other cost variances are
a. Labour cost variance
b. Overhead cost variance
Causes of cost variance
a. A change in sales (volume of sales)
b. Change in cost of materials
 Food and beverage production planning and control

a. Production planning
b. Objectives of production planning
c. Aids to forecasting and production planning
d. Aids to production process
The catering control cycle
 menu planning

selling requstioning

preparing purchasing

issuing receiving

storage

Menu planning
Control starts with menu planning. a carter needs to consider the following
1. Type of menu either ala carte or table d^hote menu
2. Type of customer
3. Funds available
4. Average spending power per customer
5. Foods in season
6. Time of the year (holidays)
7. Type of establishment (five star hotels)
Nb// this helps carter to know the quantities required for making a food order list.
Requisitioning
There are two methods of requisitioning
a. Making a shopping list
b. Preparing a purchase order / food order list that is sent to the stores for purchasing.
It should indicate the supplier name, food order number and the date

Production Planning
Production is the transformation of raw materials to finished goods.
Planning looks ahead, anticipates possible difficulties and decides in advance as to how the
production, best, be carried out.
Control phase makes sure that the programmed production is constantly maintained.
Production System is a system whose function is to convert a set of inputs into a set of desired
outputs.
Production planning given a specific process planning, process technologies and production
conditions predetermine varieties, quantities, quality, and scheduled of products to be produced
according to market demand of products

Thus Production planning may be defined as the technique of foreseeing every step in a long
series of separate operations, each step to be taken at the right time and in the right place
and each operation to be performed in maximum efficiency. It helps entrepreneur to work out
the quantity of material manpower, machine and money requires for producing predetermined
level of output in given period of time.

 Production planning is defined as the technique of foreseeing every step in a long series of
separate operations, each step to be taken at the right time and in the right place and each
operation to be performed in maximum efficiency.
 It is concerned with the organization of the supply and movement of materials and labour,
machines utilization and related activities, in order to bring about the desired manufacturing
results in terms of quality, quantity, time and place.
 Production Planning may be said to be a technique of forecasting ahead every step in the long
process of production, taking them at right time and in the right degree and trying to
complete operations at the maximum efficiency

Production planning and control is important for the following reasons

1. For Increasing Production
2. Main purpose of production planning is to arrange inputs.
3. Production control program minimizes idleness of men and machines.
4. It thus helps in raising industrial output.
5. For co-coordinating plant activity
6. In planning production is carried out in a number of processes and thus activities are
synchronized for smooth working.
Objectives of Production Planning and Control
a. Optimum Utilization of Capacity
b. Inventory control
c. Economy in production time
d. Ensure quality
e. To establish routes and
f. Schedules for work

There are four major stages in controlling the preparation of food and beverages which
together should
 Reduce over production (and possibly wastes)
 Loss from inefficient purchasing and processing
 Loss from excessive portion sizes.

The operation of the four stages in a food and beverage control system should
 Aid management in controlling costs efficiently and maximizing the profitability of the
operation
 Assist in setting the standards for the establishment and
 Ensure overall customer satisfaction

Four stages involved in the preparation of food and beverages are: -

1. Volume forecasting
2. Standard yields
3. Standard recipes
4. Standard portion sizes

1. Volume Forecasting
This is often referred to in other industries as production planning. It is a method of predicting
the volume of sales of an establishment for a specified future period. This can be done by use of
past records, current trends, current events
The sales of the establishment are broken down into the sales of each selling outlet and then
broken down into the sales per main item.
Objectives of Volume Forecasting for Food are: -
a. To predict the total number of meals to be sold in each selling outlet of an establishment
at each meal period (e.g. the number of breakfasts to be sold in the restaurant and the
coffee shop)
b. To predict the choice of menu items by customers
c. To facilitate purchasing
d. To ensure availability of all necessary ingredients
e. To ensure that appropriate stock levels are held
f. To control food costs in relation to sales (or within cost limits in nonprofit making
establishments)
g. To enable the food controller to compare the actual volume of business done by each of
the selling outlets with the potential volume of business as forecast and for management
to take action where necessary
The comparison may be by
 Total volume of sales
 Total number of customers
 Total number of main course items

Methods of Volume Forecasting

a) Time Series Analysis Method
This is a quantitative method of forecasting. It is a procedure which identifies information that
forms pattern over a period of time.
When using this method, forecasting is based on the basis of past data; the projection is made
from the past experience.
It should be used when data are available and reliable.
Forecasts are based on what has happened on a certain period of time in the past.
What has happened in a certain period in the past may indicate what is likely to happen in the
future for example sales in the past 5 years may be used to predict sales in the future.

For example
 Birth Rate / Parent Sales (f)
1982 2% 10000

1984 4% 15000
1985 5% 17000

b) Delphi Technique
This method is used when past data are not available or reliable e.g. if a new product is
introduced and past data is not available;
It is a procedure for arriving at an agreement of opinion among a group of experts; each expert
gives his own opinion regarding what the future is likely to be.
Each expert then reads the opinions of the other experts and then he can revise his own opinion.

Stages of Volume Forecasting

Initial Forecast –It is done once a week in respect of each day of the following week.
It is prepared a week in advance and shows
- The estimated total number of meals to be taken in each selling outlets
- The estimated total price of each menu item for each day of the following menu week.

Initial Forecast would be based on the following: -

1. Past records (sales histories) – Involves referencing figures recorded for the same
period the previous year. It involves examining graphs showing sales for the previous
year to check if there is the likelihood of a particular trend at this period in the year as
well as looking at the sales results for the last trading period.
2. Advance bookings – The typical factors which would be taken into account would be the
known advance accommodation bookings, from which a breakdown estimate of usage by
selling outlets should be known and applied; known banquet and party bookings, the
numbers of which would have to be confirmed prior to the event.
3. Current events – These should be taken into account in order to forecast with any
accuracy. Trade fairs, shows, exhibitions would have an influence on the business.
4. Current trends – These should be watched frequently so that any unfavorable trends can
be corrected before it is too late. What is essential is for management to be aware of any
decrease or increase in the business and to be up to date with the trends of the present
customers’ requirements so that these can be provided. Some of this information will
usually be obtained from the restaurant cashier’s sheet which would give the total takings
and number of covers served.
5. Additional information (such as the average spending power (ASP) of customers per
meal period, the most popular and unpopular menu items, the percentage of customers
eating from each section of the menu etc.) would provide some guidance on which
decisions to correct unfavorable trends or to further develop favorable trends may be
taken

b) Final Forecast – The final more accurate forecast usually takes place the day before the
preparation and service of the particular meal. This takes into account the following: -
 The previous day’s food production and food sales figures – If the actual food sales
figures is in line with the potential food sales figures (obtained from extending the potential
food production figures with the individual selling price for each item), no further action is
necessary as the actual business is in line with the forecast volume of business.
Should there be a difference, it would be necessary to check where and why the difference
has arisen thus if there were a trend of either increase or decrease in business, this would
need to be taken into consideration when producing the final forecast.

 The weather conditions – must be taken into account as the weather forecast for the next
day will without doubt be much more accurate than that made over a week before and will
frequently cause adjustments to be made to the final forecast figures

Aids to Forecasting
1. Cyclic Menus – these are a series of fixed or semi fixed menus which are repeated at a set
period. The length of the period is usually related to the length of the menu e.g.
- 21 days for a menu of 3 main courses
- 14 days for a menu of 5 main courses
Thus the greater the choice of menu items, the shorter could be the length of the cycle of
menus. In practice, cyclic menus cover various periods, usually from 10 – 28 days
Cyclic menus are often used in canteens, hospitals and in restaurants offering a table d^hote
menu.
Advantages of Cyclic Menus
a. One knows the like and dislikes of customers
b. Repetition of menu items aid in preparation of standard recipes’
c. Staff scheduling and roistering may be accurately calculated when fairly precise
requirements are known’
d. By analyzing sales, popular dishes are identified
Disadvantages of cyclic menus
a. A range of menu items offered may be Monotorious leading to drop in sales
b. They need to be reviewed and rewritten frequently
2. Sales Histories – These are detailed records of actual sales of menu items for each selling
outlet. The actual sales should be recorded alongside with volume forecast sales for
comparative and future forecasting purposes, sales should be recorded daily and then totaled
at the end of the week.
Purpose of Sales History
 Provide an accurate record of food produced and sold compared with the forecast figures
which can be used as a reference for forecasting future demand

Factors to Consider in Forecasting

1. Study the previous years of business records along with these records; it is important to be
informed the reasons behind the policy, the outcome and accuracy of past forecast. Keeping
these records in mind, we should consider present policies and evaluate their effect.
2. Consider the competition; competitors’ successes and failures can often provide hopeful
guides for the way to conduct one’s own business.
3. General economic situation of the nation and the industries can also be studied
4. Keep in touch with all publications in the field to help understand trends.

2. Standard Yields
Standards are aids to management for the measurement of efficiency, particularly of kitchens and
bars.
The term ‘standard’ is synonymous with the phrase “what it should be”
It is necessary to establish the standard number of portions that are obtainable from all major
items that appear on an establishment’s food and beverage menus. Having established the
standard yields for all major items, it is possible to be much more accurate with menu costing
and pricing as well as being able to convert the volume forecasts for specific items into raw
material requirements.

The term ‘Yield’ may be defined as the edible or the usable part of a food item which is available
after preparation or cooking

A standard yield is the yield obtainable when an item is processed in the particular standard
methods of preparation, cooking and portioning of an establishment, the items having firstly
been purchased to a known standard

The Main Objectives of Standard Yields

a. To establish a standard for the quantity and number of portions obtainable from a specific
item of food
b. To establish a standard for comparison with operating results and thereby measure the
efficiency of the production departments
c. To establish a standard cost factor for the item of food
d. To assist in menu coasting and pricing
e. To assist in converting forecast requirements into raw materials requirements
Advantages of standard yields
a. Determine the most appropriate and advantageous size, weight to buy a particular
commodity
b. Determine raw material production levels anticipate from production forecast and then
act as an aid in purchasing food stuffs
c. Act as a double check for purchasing department
d. Safeguard against pilferage and wastage occurring in the kitchen
e. Aid to accurate food costing since cost factor can be established
3. Standard Recipes
A standard recipe may be defined as a written formula for producing a food or beverage item of a
specified quantity or quality for use in a particular establishment
It should show precise quantities and qualities of the ingredients to be used, together with the
sequence of preparation and service of the item
It consists of the following details
 Name of commodity
 Ingredient used
 Quantities required
 Yields
 Methods of producing the dish
  Temperature and cooking time
 Equipment to be used
 Nutritional value
Objectives of Preparing Standard Recipes are: -
i. To predetermine the quantities and the quality of the ingredients to be used, stating the
standard purchase specification whenever possible
ii. To predetermine the yield obtainable from a recipe if a standard yield has not been prepared
iii. To predetermine the food cost per portion. This can be accurate when known quantities and
qualities of ingredients will be used for a particular dish
iv. To predetermine the nutritional value of a particular dish. Again this can be accurate when
known quantities and qualities of ingredients will be used
v. To facilitate menu planning. This is achieved by knowing precisely what the ingredients of
each dish are and then being able to restrict the dominance of a meal by a particular colour,
ingredient, flavor or texture
vi. To facilitate purchasing and internal requisitioning. An approved standard recipe establishes
the quality and quantity of the ingredients to be used.
vii. To facilitate food preparation. This is achieved by using standard products for a particular
dish and processing them by a standard method. This ensures a standard quality of a
particular dish for the customer at all times.
viii. To facilitate portion control. The standard recipe sets out the portion size of a dish in one of
the following three ways as a: -
- Raw weight figure (often abbreviated to R.T.C or ready to cook
- As purchased (often abbreviated to A.P or
- The last need little, if any preparation before serving and a precise portion weight
may not be possible, necessary or desirable
ix. To provide an accurate source of reference to all staff concerned. The standard recipe manual
would be available in particular to the control office staff for costing purposes, the food and
beverage manager, and all kitchen and restaurant staff

4. Standard Portion Sizes

This is the quantity of a particular food item that will be served to a customer for example
one bread roll per person.
 The standard portion size is usually established when the standard recipe is being prepared
 It represents the number of ounces of a food item to be served to customers in relation to the
food cost and selling price of the item
 The portion sizes is determined by the management of the establishment in conjunction with
the head chef and restaurant and canteen supervisor
 There may well be two standard portion sizes for the same commodity in an establishment,
depending on whether the commodity is being offered on a table d^hote and a’ la carte menu

Importance of Standard Portion Sizes

a. Standard quality of an item is served to all customers
b. Standard quantity of an item is served to all customers
c. Standard and consistent price is changed to all customers
d. Correct and fair price lead to repeat business being secured
N/B: Assistance must be given to staff by posting lists of the standard portion sizes in prominent
places in preparation and service areas, these lists should have been extracted from the standard
portion size manual which should be freely available to all staff
Assistance given should also be by means of equipment such as ladles and scoops of specific
capacities, easily-readable scales

Establishment of portion sizes

1. By buying proportioned food items for example butter condiments
2. By buying food items in bulk and portioning them in the kitchen before service
3. By portioning food items being served to the customer.
Portion control means regulating / controlling the sizes or quantity of food to be served to each
customer.
Determinants of portion sizes
a. The type of customer to be catered for
The nature of a person’s work can have an effect on his or her appetite and eating habits. If a
restaurant caters for manual worker, then the menu will be basic and the portion size bigger than
of if it were catering for office workers, who would prefer more variety in the menu and smaller
portion sizes.
b. Type of establishment
In a medium restaurant providing a three or four course meal at a reasonable price, the portion
size would be average. A high class establishment with a comprehensive ala carte menu would
attract customers who prefer variety in their food and the portion will be of medium size and in
keeping with the type of food and price charged.
c. Customer spending
Many hotels and restaurants have fixed their prices according to the average spending power of
their customer. The size or portion they can offer at a set price will depend on much the customer
can afford to spend.
d. The buying price of food
This should correspond to the quantity of the food if the person responsible for buying has
bought wisely. A good buyer will ensure that the price paid for any item of food is equivalent to
the quality. That is a good price should mean good quality which should mean good yield and
therefore help to establish a sound portion control.
e. The quality of the food
Better quality food usually yields a great number of portions than poor quality food. For example
low quality stewing beef often needs so many trimmings that are difficult to get six portions to
the kilo and the time and labour involved also loses money. On the other hand, good quality
stewing beef will give eight portions to the kilo with less time and labour required for
preparation.
Portion control equipment
These are certain items of equipment which can assist in maintaining control of size of the
portions. The carter must make sure that the correct equipment to implement portion control is
available and that use of it is demonstrated to the staff.
1. Scoops for ice cream or mashed potatoes
2. Ladles for soups and sauces
3. Butter pat machines
4. Fruit juice glasses
5. Tot measures
6. Soup plates
7. Milk dispensers
8. Tea measuring machines
9. Slicing machines
10. Standard sized baking tin
Methods of portion control
a. Counting pieces or slices
b. Use of service equipment
c. Using special sized containers for cooking for example pie dishes
d. Buying portioned foods for example pre packed food for sugar, ice cream, jam, honey
and butter.
e. Weighing items during production
f. Use of standard recipes
g. Use of portion charts
h. Regular checking.
Reasons for portion control
1. To keep to the standard required by the establishment – to ensure customer satisfaction
2. For costing reasons – once portion size has been established , gross profit can be
calculated
3. For efficiency during buying, preparation and selling
4. For fair play that is equal portions
Meat costing and pricing
The major determinants are
a. Yield percentage
b. Cost per servable kg
c. Cost factor
d. Portion cost
e. Number of portion obtainable
f. Selling price per portion to attain a particular gross profit margin
Formulae
Yield percentage = (yield ÷original weight) ×100
Cost per servable kg = total purchase price ÷yield
Or
Cost per servable kg = (cost per kg ÷ yield percentage) ×100%
Cost factor =cost per servable kg ÷cost per kg or purchase price
Portion cost = total purchase price ÷ number of portions
Yield =original weight –total loss
Number of portions obtainable = yield ÷portion size
Example one
A joint weighing 20 kg is purchased at sh 120 per kilo. The bone loss is 30% of the original
weight and the cooking loss is 3.6 kg.
Calculate the following
a. Yield
b. Yield percentage
c. Cost per servable kg
d. Cost factor
e. Portion cost
f. Number of 200g portion obtainable
g. Selling price per portion to obtain a 35% gross profit margin
a. Yield =original weight –total loss
Total loss = 30% of original weight (20kg) +3.6kg
(30÷ 100)×20 =6kg
6kg + 3.6 kg =9.6kg
20kg -9.6kg =10.4kg
b. Yield percentage = (yield ÷original weight) ×100
(10.4kg ÷20kg) × 100
=52%
c. Cost per servable kg = total purchase price ÷yield
20×120 =2,400
2,400÷ 10.4 =sh. 230.77
Or
Cost per servable kg = (cost per kg ÷ yield percentage) ×100%
(120 ÷ 52) ×100% =sh.230.77
d. Cost factor =cost per servable kg ÷cost per kg or purchase price
230.77 ÷120 =sh. 1.92
e. . Portion cost = total purchase price ÷ number of portions
2,400 ÷ number of portions obtainable
Number of portions = yield (10.4kg) ÷ portion size (200g)
Portion 200g
1000g= 1kg
200g =?
 200÷ 1000= 0.2kg
10.4kg ÷ 0.2kg= 52 portions
2,400 ÷ 52 = 46.15
f. Material cost = 46.15
Selling price =100% -35% =65%
46.15 =65%
= 100%
(46.15 ÷100) ÷65
sh. 71
Example Two
A joint of beef was purchased and the following results obtained.
Raw weight 12kg, loss o trimming 0.75 kg, loss on cooking, portion loss 3% of original weight ,
cost per kg sh.180 and portion size 240g.
Required calculate
a. Yield
b. Yield percentage
c. Cost per servable kg
d. Cost factor
e. Portion cost
f. Number of portion obtainable
g. Selling price of one portion to attain 45% gross profit margin
h. If the new cost per kg is increased by 25% calculate the new selling price to attain a 30%
gross profit margin.
a. Yield =original weight –total loss
12kg – total loss
Total loss (0.75 +0.75 + (3 ÷ 100) ×12)) =1.86
12- 1.86 =10.14
b. Yield percentage = (yield ÷original weight) ×100
(10.14 ÷ 12)×100 =84.5%
c. Cost per servable kg = total purchase price ÷yield
(180÷10.14) ×12 =213.02
Or
Cost per servable kg = (cost per kg ÷ yield percentage) ×100%
(180 ÷ 84.5) ×100 =213.02
d. Cost factor =cost per servable kg ÷cost per kg or purchase price
213.02 ÷180 =1.18
e. Number of portions obtainable = yield ÷ portion size
10.14kg ÷240g
1000g=1kg
240g= 0.24kg
10.14kg ÷ 0.24kg =42.25portions

f. Portion cost = total purchase price ÷ number of portions

 (12 ×180) ÷42.25 =51.12
g. Selling price of one portion to attain a 45%of gross profit margin
Material cost 51.12 which is (100% -45%) =55%
Selling price = 100%
Gross profit margin = 45%
51.12 =55%
= 100%
(100% ÷ 55%) ×51.12 =sh.92.95
h. New cost per kg is increased by 25%, calculate the selling price per portion to attain a
30% gross profit margin
Initial cost = 180 which is 100% what about 25%
(180 ÷100) ×25 =sh. 45
Thus new price 180+ 45 =225
First calculate cost per portion
Portion cost = total purchase price ÷ number of portions
(225 ×12) ÷42.25 =63.90
100%-30%=70%
70%= 63.91
100%=?
(100 ÷70) ×63.91 =sh. 91.3

Example three
A yield test was performed from a joint of beef and the following results were obtained.
As purchased raw weight 23kg, loss on cooking 1.2kg, loss due to trimmings fat and bones
1.6kg, loss on preparation 6% of original weight, cost per kg sh. 230, portion size 260g.
Calculate the following close to two decimal places
a. Yield
b. Yield %
c. Loss %
d. Cost per servable kg
e. Cost factor
f. Number of portions obtainable
g. Cost per portion
h. The selling price of one portion to attain 68% of gross profit margin
i. The new cost per portion if the price per kg is increased by 22%

a. Yield =original weight –total loss

23kg – (1.2 +1.6 + (6 ÷100) ×23) =18.82 kg
b. Yield percentage = (yield ÷original weight) ×100
(18.82 ÷23) ×100 =81.83%
c. Loss % = (total loss÷ original weight)×100
(4.18 ÷ 23)×100 = 18.17%
d. Cost per servable kg = total purchase price ÷yield
Or
 Cost per servable kg = (cost per kg ÷ yield percentage) ×100%
(230 ÷81.83) ×100 =sh. 281.07
e. Cost factor =cost per servable kg ÷cost per kg or purchase price
281.07 ÷ 230 =1.22
f. Number of portions obtainable = yield ÷portion size
18.82 kg ÷ 260g
1000g = 1kg
260g= 0.26kg
18.82kg ÷ 0.26kg =72.38 portions
g. Cost per portion = total purchase price ÷ number of portions
(230 × 23)÷72.38 =73.09
h. Selling price of one portion to attain a 68% gross profit margin
Material cost is 73.09 which is 100% -68% =32%
100% = 68%
= 32%
73.09 = 32%
= 100%
(100 ÷ 32 %) ×73.09 =228.41
Meat costing
Examples
36kg beef purchased at £1.85 per kg. After boning, trimming, cooking and carving 24,090g was
obtained. After boning trimming and carving and cooking, 240g portions were obtained.
Weight loss 36kg – 24090g (24.09 kg) = 11.91kg
Total purchase price 36 ×1.85= £66.6
Price per kg of cooked meat 66.6 ÷24.09 =£ 0.28
The calculation of the price of cooked meat may be expressed as a formula
1. Cooked meat price per kg =( raw meat price per kg × raw meat weight ) ÷ cooked meat
weight
2. Cooked meat price per portion = ( raw meat price ×raw meat weight) ÷number of
portions of cooked meat
3. Percentage of served meat price per kg = (raw meat price per kg ×100%) ÷ usable cooked
meat as a percentage of raw meat.
Purchasing meat
When you purchase at wholesale no labour is charged by the butcher.
When you purchase pre portioned – labour is charged by the butcher.
When you purchase fully prepared or portioned the labour charges will be reflected accordingly.
When costing meat consider the following
1. Bone loss is the reduction in the weight of meat due to cooking
2. Cooking loss is the reduction in the weight of meat due to cooking
NB// the trimmings, boning and cooking loss is calculated as a percentage of weight of the raw
meat purchased.
Regular checking will standardize the average percentage of the loss and kitchen procedures
should be laid down and adhered to by staff on treatment of meat so that any unusual variance in
percentage will be noted
Treatment of meat
1. Joint of meat is weighed before cooking
2. Joint of meat is weighed after cooking
3. Cooking loss as a percentage is calculated
A wholesale cut of fore rib of meat weighs 10kg and cost sh. 120 per kg. Trimmings and wastes
amounts to 1kg. Weight after cooking is 6kg, after curving 53× 100g portions are obtained.
Calculate
a. Total wholesale cost of the joint = raw weight ×price per kg of raw weight
10×120 =1,200
b. Cooking loss= (weight after trimming 10-1=9)- (weight after cooking 6kg)
9- 6= 3kg
c. Cooking loss as a % of the trimmed weight
(3÷9) ×100 =33.3%
d. Total weight of served meat
53×100g= 5300g or 5.3kg
e. Total bone loss, trimming and cooking loss in weight as a percentage of the gross
wholesale cut
= trimming loss + cooking loss +curving loss
1+3+ (curving loss)
Curving loss 5.3+ 3+1 =9.3
10-9.3 =0.7
1+3+0.7=4.7kg
As a % (4.7 ×100)=47%
f. Cost price per portion of the served meat
= total wholesale price for the joint ÷ number of portions
1200 ÷5.3 =sh. 22.64
g. Selling price per portion of served meat at 60% gross profit margin
(Cost per portion ÷food cost %)× 100%
Gross profit is 60% , selling price is 100%
Material cost % is selling price – gross profit
100%- 60% =40%
(22.64 ÷ 40%) ×100% =sh. 56.60
h. Total selling price of the 53 × 100g portions
Cost per portion × number of portions
 56.6 ×5.3= sh. 299.98
i. Gross profit in monetary terms
299.98 ×10 =sh. 2999.8
2999.8-1200 =sh. 1,799.8
j. Curving loss in weight = after cooking weight – number of portions weight
6000g- 5300g= 700g

Assignment
The results below were obtained from a yield test performed on leg of lamb.
As purchased weight 4.6kg, as purchased price sh.320, loss due to trimming 1.18kg and
portion size 0.18kg.
Using the above information and showing the formula used, calculate correct to two
decimal places the following
1. The yield percentage 4marks
2. Cost per servable kg 3marks
3. Number of portions obtainable 3marks
COSTING AND PRICING
1. The element of cost
2. Cost dynamic
3. Break even analysis
4. Methods of costing
5. Pricing methods
The element of cost
The cost of operating a catering unit or department is usually analyzed under the following
a. Based on their nature
b. Based on their behavior
Based on their nature
1. Material cost
Material cost (food cost) = opening stock + cost of purchases – closing stock – cost of staff
meals
NB// the cost of any food and beverage provided to staff in form of meals is subtracted from
material cost and added to labour cost.
2. Labour cost
Refers to the wages and salaries paid to all employees including any employees contribution to
government taxes, bonus, staff meals, pension funds, national insurance, contribution , cost of
supplying meals and accommodation to staff.
3. Overhead cost
These are expenses of running the establishment other than material cost and labour cost. For
example rent, rates of insurance, depreciation, repairs, printing and stationary, china and
glassware, capital equipment, cleaning materials, laundry , renewals, telephone , legal fees and
any other expenses typical of the catering industry.
NB// Total cost = material cost +labour cost+ overhead cost
Based on their behavior
It is necessary to examine costs not only by their nature but also by their behavior in relation to
changes in the volume of sales
Cost may be identified as being of three kinds
1. Fixed cost
These are cost which remain fixed irrespective of the volume of sales. For example rent, rate of
insurance and salaries for permanent employees.
 2. Semi fixed cost
Cost which move in sympathy with but not in direct portion to the volume of sales. For example
fuel costs, telephone, laundry, renewals, cleaning materials and replacement.
3. Variable cost
These are cost which vary in proportion to the volume of sales. For example food and beverage
4. Total cost
This is the sum of the fixed cost + semi fixed cost + variable cost
Example one
The following information was obtained from books of Evans caterers. January, 2014. Opening
stock 3,500/=, cost of purchase 14,000/=, closing stock 4,000/=.
NB// cost of staff meals is 1,000/=, calculate the material cost.
Material cost = opening stock +cost of purchases –closing stock –cost of staff meal
3,500 + 14,000 – 4,000-1,000=12,500/=
Profits
They three kinds of profit
a. Gross profit
b. Net margin profit
c. Net profit
Gross profit
May be defined as the excess of sales over the cost of materials
Gross profit is also referred to as kitchen profit or bar profit depending on whether it is the
gross profit on food operations or beverage operations.
Gross profit = sales% - material cost%
Gross profit = total sales –cost of materials
Net margin profit (after wage profit)
May be defined as the excess of sales over the cost of materials and labour costs
Net margin =total sales – (material cost + labour cost)
Net profit
May be defined as the excess of sales over the total cost
Net profit = total sales – total cost
NB// carriage inwards is the same as transportation cost
 Return onwards is the same as returned purchase
Example two
The following information was extracted from red bull restaurant in respect of June 2017
Sales Sh. 26,000
Opening stock (1st June 2017) 2,500
Closing stock (30th June 2017) 3,200
Purchases 12,300
Wages and salaries 5,600
National insurance 300
Gas and electricity 800
Repairs and renewals 1,000
Rent and rates 1,800
Insurance 400
Postage and telephone 200
Printing and stationary 300
Depreciation 2,000

a. Calculate the elements of cost and express each as a percentage of sales assuming that
800/= of food has been used for staff meal.
b. Calculate gross profit, net margin profit, and net profit and express each as % of sales.
c. Calculate the average spending per customer assuming that 5,900 customers were served
in June 2017.
Material cost = opening stock +cost of purchases –closing stock – cost of staff meals
(2,500+ 12,300)- (3,200-800) =10,800/=
Material cost as % of sales = (material cost ÷ sales) × 100
(10,800 ÷ 26,000) × 100 =41.5%
Labour cost = staff meal +wages and salaries + national insurance
800 + 5,600 +300 =6,700
Labour cost as % of sales = (labour cost ÷ sales) × 100
(6,700 ÷26,000) ×100 =25.8%
Overheads cost = gas + repairs +rent +insurance + postage $ stationary + postage and telephone
+depreciation
800 + 1,000 + 1,800 +400 +300 +200 +2,000 =6,500/=
Overheads as % of sales = (overhead cost ÷ sales) ×100
(6,500 ÷26,000) × 100 =25%
Gross profit = sales – material cost
 26,000 -10,800= 15,200/=
Gross profit % = sales %– material cost%
100% - 41.5% =58.5%
Net margin profit = total sales – (material cost + labour cost)
26,000 – (10,800 +6,700) =8,500/=
Net margin profit % = total sales % – (material cost % + labour cost %)
100% - (41.5% + 25.8%) = 32.7%
Net profit = sales – (material cost + labour cost + material cost)
26,000- (10,800 + 6,700 + 6,500) =2,000/=
Net profit % = sales % – (material cost %+ labour cost % + material cost %)
100% - (41.5% + 25.8 % + 25%) = 7.7%
Average spending power per customer = total sales ÷ number of customers
26,000 ÷ 5,900 =4.40677966
Assignment 1
a. Given the following information, determine sales, cost of materials sh. 46,500, cost of
labour sh. 33,247, cost of overheads sh. 75,883, gross profit sh. 3,129
b. The information given below is extracted from records of victory restaurant in respect of
September 2017. Sales sh. 190,000 cost of sales 40%, labour cost 25%, overhead cost
20%, and net profit 15%.
Required calculate the following in monetary terms total cost and net margin profit
(8marks)
Assignment 2
Showing your working
Calculate the cost of food consumed from the following information (5marks)
Sh.
st
Stock 1 June 2011 144,000
Stock 30th June 2012 176,000
Purchases 196,000
Purchase returns 4,800
Breakeven analysis
It is very common for food and beverage management to be faced with problems concerning the
level of food and beverage cost, that can be afforded. Price of food and beverage to be set, level
of profit required at department and unit level, number of customers required to cover specific
cost or to make a certain level of profit.
Typical questions include
a. What level of sales is needed to cover the fixed cost of a unit?
b. What level of sales is required from a particular unit to achieve excess net profit?
c. What level of sales is required to increase the net profit of a unit by let say 10,000/=?
d. What increase level of sales must be obtained to cover the spending of 1,000/= on
advertising to promote the restaurant?
e. What will be the financial implication of discounting beverage during a proposed
promotion?
f. What is the relationship between the capital invested in a restaurant and its sale?
NB// answers to the above is attempted by using the technique of breakeven analysis. The
technique allows for relationship between fixed, semi fixed and variable cost at specific volume
of business.
Breakeven point
Volume of business at which the total cost are equal to the sales and neither profit or loss is
made.
Assumption
1. Selling price remains constant irrespective of sales of business
2. Variable cost per unit remain the same at various level of output
3. Fixed cost remain unchanged at all levels of fixed activity
4. It is possible to distinguish between fixed cost and variable cost
5. This chart shows the relationship between the sales and cost of a single product only
6. The method of production remains the same
Uses of breakeven chart
a. It enables to determine the profit or loss at different level of activities
b. It is useful to measure the relationship between cost volume and profits
c. It helps to determine the break even units that is output and sales volume
d. It helps to measure the profitability of various products
e. It facilitates most profitable product mix to be adopted
f. It assists future planning and forecasting
Breakeven point can be presented into two ways
1. Graphical presentation
2. Tabular presentation
Graphical representation
Margin of safety
This represents the difference between the actual level of activity and the breakeven level of
production or activity.
Or it is range of output between breakeven point and the actual output achieved, for example
If the actual level of activity is 80,000 units and the breakeven point lies at 30,000 units,
therefore the margin of safety would be shown as below
80,000 units- 30,000 units= 50,000units.
P/V ratio is the profit volume ratio.
This is the relationship between a given increase in sales and consequent increase in net profit
Tabular presentation
A restaurant has a sitting capacity of serving a maximum of 10,000 customers per 28 days
trading period. Average spending power of customer is £2, the fixed cost of the restaurant is £
6,000 for that period and variable cost are 40% of sales. Prepare breakeven point chart for the
restaurant.
Sales = number of customers × average spending power per customer
10,000 × 2 = 20,000
Fixed cost =6,000
Variable cost = % of total sales
(40 ÷ 100) ×20,000 =8,000
Total cost = fixed cost + variable cost
6,000 + 8,000= 14,000
Net profit or net loss = sales – total cost
20,000 -14,000 =6,000
Number 1000 2000 3000 4000 5000 6000 7000 8000 9000 10,000
of
covers
Average 2 2 2 2 2 2 2 2 2 2
spending
per
customer
Sales 2000 4000 6000 8000 10,000 12,000 14,000 16,00 18,000 20,000
0
Variable 800 1600 2400 3200 4000 4800 5600 6400 7200 8000
cost
Fixed 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000
cost
Total 6800 7600 8400 9200 10000 10800 11600 12400 13200 14000
cost
Net -4800 -3600 -2400 -1200 0 1200 2400 3600 4800 6000
profit or
Net loss
Pricing policy
Prices are always subjected to change, when demand is great; prices can be increased and when
sales is low, prices can be decreased to boast the sales.
Price policies are usually influenced by the following factors:
1. Customers Demand – This applies to what the customers are able to spend as per their
capability. If the prices given are beyond what the customers are able to offer, therefore we
can say that the price given is beyond the customers spending power.
Prices should be what the customers are able to offer as per their pockets
2. Cost of Production – If the cost e.g. 60% Gross Profit Margin was the previous year’s
sales was necessary to cover labour and overhead costs and give a reasonable Net Profit.
The percentage must be the minimum to aim for when deciding on a future price. Production
Cost
There are three methods of production in the food industry; the method adopted will be a chief
factor in determining pricing policy
a. Cooking Order – This is the most expensive method because it requires a wide variety of
fresh foods. The fixing of selling price on the A la Carte menu is relatively simple as each
dish is individually priced.
The cost of one portion of every dish offered on the menu is obtained from the unit cost
card.
b. Table d’hote – Some or all orders are prepared in advance to cope with the lunch or dinner.
Dishes used to compile the menu and by a use of the appropriate dish costing card, an
accurate food cost for the menu is quickly obtained. This method has got an advantage in
that it controls cost by restricting.
c. Continuous Flow of Production – The quantities prepared are small and continuous. Here
the use of the unit cost card provides the cost per dish or portion
3. Competition – A study of competitor’s price could also dictate in what range the prices
have to be fixed in order to attract customers.

4. Production Material
When costing a menu, you must account for all the raw materials you used in the preparation of
each item in figuring or determining an adequate Selling Price.
Standardized recipes are important in production because ingredients are still the same and
should be followed closely if you are to price accurately.

5. Special Functions
Include weddings, receptions, special parties, conferences and other special functions require
additional food costs, labour and overheads therefore when costing for functions, extra labour
e.g. casuals should be considered as well as extra overheads e.g. cost of decorations used should
also be considered.
There is also the need to include; transport cost, equipment (both production and service)
premises e.g. rental hall etc.
Importance of pricing
 1. It is what the guest pays for product or service
2. Prices set lead to maximization of profit
3. It helps place products in the market

Pricing Methods / approaches to pricing

There are two main types of Pricing Techniques.
1. Objective Pricing Method /formal pricing method
2. Subjective Pricing Methods / informal pricing method
3. Other pricing consideration

Prices determine to a large extent whether the financial goals of the Operation are met, many
managers use very Subjective Pricing Methods to establish Prices, however, fail to relate them to
Profit Requirements and even Costs. This Pricing method is based merely on assumptions.

1. Subjective Pricing Methods

a. Reasonable Price Method: The method uses a price that the Operator thinks will represent
value to the guest. In other words, the Operator puts himself in the guest’s shoes and asks
“How much am I willing to pay for this Item, considering the type of setting? ” The answer
to this is the Reasonable Pricing Method.
b. Highest Price Method: Using this Pricing Method, the Operator sets the Highest Price for
an Item that he thinks the Guest is willing to pay. This is pushing the concept of Value to the
Maximum. A High Price is set then “Backed Of” in order to provide for an Error Margin in
the estimate.
c. Loss Leader Pricing Method: In this type of Pricing Method, the Menu Items are Priced
very low. The philosophy for this Pricing method is that the Guests will be attracted to the
Operation due to Low Prices and will then buy other items while they are there (Spin Off
Business). In this case, it is very important to sell other items to make Profit. This Pricing
method is used as an Early Bird Promotion to attract specific market segments.
d. The Intuitive Price Method: Like the name suggests, Prices are set by Intuition of the
Operator alone. The Operator takes a little more than a “Wild Guess” about the Selling Price.
It differs from the Reasonable Price Method in that it takes a little less effort to determine the
price as one does not consider what would represent Value to the Customer
e. Pricing on the basis of competitors prices
This is setting according to competitors prices, when competitors prices change , the
management also changes the price
f. Pricing on psychological pricing
Prices are set on the basis of what the guest expects to pay. This method is used in high class
establishment where guest believe that the higher the price s mean better product.
Prices are set just a few shillings near the whole number for example 99
g. Pricing on trial and error
Managers set prices and monitors the reaction of customers.
Problems faced by trial and error method
1. You may lose customers
2. Monitoring reactions takes sometimes
3. Guest reaction may cause frequent prices changes that may lead to price confusion among the
guest
4. Does not consider other uncontrollable factors which affect customers purchase decisions
5. Does not consider cost of producing products

Limitations of Subjective Pricing Methods / Drawbacks:

 Cannot relate to the Profit Requirements of the Operation.
 Cannot relate to the Cost of a Menu Item.
 Solely based on Assumptions, Guess Work and Hunches.
 Seldom works in an era where Consumers are looking for “Value for Money” and
 AP Prices of Ingredients are sky rocketing.

3. Objective Pricing Methods

This is pricing on the basis of cost
Quality factors are considered in order to fix the selling price.
It considers setting the lowest selling price at which the product should be sold.

a) Simple Mark –Up Pricing Methods

 Ingredient Mark – Up
 Prime Ingredient Mark – Up
 Mark – Up with Accompaniments Costs
b) Contribution Margin Pricing Method
 Ratio Pricing Method
 Simple Prime Costs Method
 Specific Prime Costs Method

a. Simple Mark – Up Pricing Methods

 It considers a Mark – Up from the Cost of Goods Sold (In the case of a Menu Item, that
would be the Standard Food Cost).
 The Mark – Up is designed in such a way that it covers all Costs to Yield the Desired Profit
Levels.

h) Ingredient Mark – Up Method; This Pricing method attempts to account for all Product
Costs (Food Cost in case of Food and Beverage cost in case of Beverage).
Consideration of total cost of goods, mark up is designed to cover other costs and give a
reasonable net profit.
This is done using three steps
1. Determine Ingredient Costs;
2. Determine Multiplier to use in markup based on food cost %
3. Multiply the food cost by multiplier to get basic selling price
Example
Assume grilled fillet steak in a city restaurant cost 154.85, the desired food cost is 35%.
Calculate the basic selling price.
Work out
Cost of ingredients 154.85
Multiplier 1 ÷ 35 ×100 =2.857143
154.85 ×2.86 =442.87
Determining the multiplier
This method is easy to use but managers have problem establishing a reasonable mark up
multiplier to give the required profit.
Most of them make decisions based on experience of actual average food cost%
They also base on operating budget
Disadvantages of markup pricing
1. Does not reflect labour and other cost incurred
2. Assumes that all operating costs are reflected from food cost
ii) Prime – Ingredient Mark – Up Method; differs from the Ingredient Mark – Up Pricing in
that it concerns itself with only the Prime Ingredient of the Menu Item. Only the Cost of the
Prime Ingredient is Marked Up. The Multiplier is usually higher in Order to account for the Cost
of the ancillary ingredients in the recipe.
The Pricing method approach assumes that the Cost of other Recipe Ingredients increases in
Proportion to the Cost of the Prime Ingredient.
iii) Mark – Up with Accompaniment Costs; In this pricing method, the Operator determines
the ingredient costs based only upon the Entrée items and then a Standard Accompaniment cost /
Plate Cost is added before Multiplying by a Mark – Up.
b). Contribution Margin Pricing Method:
Contribution Margin = Selling Price – Food Cost
Contribution Margin can be defined as the Amount left after deducting the Food Cost from the
Selling Price of the Menu Item. This is amount left behind to meet all Non Food Expenditure and
Profit Requirements.
Steps followed
1. Determine the average contribution margin per customer.
ACM = (nonfood cost + required profit) ÷number of customers
2. Add ACM to standard food cost per item to get selling price
Selling price =ACM + item standard food cost

Example one
Consider the given data obtained from the Operating Budget of the Restaurant:
Non – Food Costs = $695,000
Profit Required = $ 74,000
No. of Guests Expected to be served = 125,000
With the above information, compute the Base Selling Price of a Menu Item with a Food Cost
per portion of $4.60.

Determine the Avg. Cost of Meal per Guest:

Avg. Cost of Meal / Guest = (Non F.C. + Profit Req.)
Total No. of Guest Served = ($ 695000 + $ 74000) / 125000 = $ 6.152
Determine the Base Selling Price:
B.S.P. = $ 4.60 + $ 6.152 = $ 10.8
Example two
The following information was extracted from a restaurant operating budget for one month
Item Sh.
All non food expenses 1,475,000
Required profit 120,000
Expected number of customers 7,080
Standard food cost per item 188.82
Calculate the basic selling price for the item
ACM = (nonfood cost + required profit) ÷number of customers
(1,457,000 + 120,000) ÷ 7,080 =225.28
Selling price =ACM + item standard food cost
225.28 + 188.82 =414.10
Advantages of contribution margin pricing
a. easy and practical to use when accurate information is available from the operating
budget
b. It is partial in operations where cost for serving each guest is the same for example
buffet, table d^hote.
c. It reduces the range of prices on the menu because the same ACM is used in all prices.
i) Ratio Pricing Method:
This method determines the relationship between food cost and all non-food cost expenses plus
profit requested.
The ratio is then used to calculate the base selling price per the menu item
Steps to follow
1. add all non-food expenses plus required profit then divide by food cost
Ratio = (nonfood cost + required profit ) ÷ food cost
2. Multiply the ratio by standard food cost of the item to get the amount of nonfood cost
plus profit required for the item.
Nonfood cost = menu item cost × ratio (contribution per item )
3. add the answers of step 2 ( contribution per item ) to standard food cost of the menu
item to get the basic selling
Example one
The following information is contained from the approved operating budget of restaurant XYZ
ITEM SH
Food cost 618,750
All nonfood expenses 720,000
Required profit 96,250
Standard food cost 188.85

Calculate the basic selling price

1. Ratio = (nonfood cost + required profit ) ÷ food cost
(720,000 + 96,250) ÷ 618,750 = 1.32 ratio
2. Nonfood cost = menu item cost × ratio (contribution per item )
188.82 ×1.32 =249.24
3. Basic selling price = nonfood cost + menu item cost
249.24 + 188.82 =438.06
Example two
Consider the data given below:

Food Costs = $ 435,000

Non – Food Costs = $ 790,
Profit Requirement = $ 95,000
Standard Food Cost of Menu Item = $ 4.75
Step A) Determine the Ratio of Food Costs to Non Food Cost and Profits:
All N.F.C. + Profit) / Food Costs = Ratio (R)
Ratio = ($ 790000 + $ 95000) / $ 435000 = 2.03
This Ratio implies that for every $ 1 earned to cover Food Cost we have to earn $ 2.03 to cover
Non Food Cost and Profit Requirements
Step B) Amount of N.F.C. and Profit Required:
The Cost of the Menu Item is $ 4.75
Amount required to cover all Non Food Costs and Profit Requirements = $ 4.75 x 2.03 = $ 9.64
Step C) Determining the Base Selling Price for Menu Item:
Base Selling Price = $ 4.75 + $ 9.64 = $ 14.39
Advantage of ratio pricing
1. It is simple to use, based on operating budget assuming that the operation offers food and
beverage only.
Disadvantages of ratio pricing
1. Not easy to apply in operations that offer both food and beverage because nonfood
expenses plus profit has to be shared between two departments that is food and beverage
department.
2. Does not compensate for higher labour cost associated in preparation of labour intensive
items.
ii) Simple Prime Costs Method:
The term Prime Costs refers to the most significant Costs in a Food & Beverage Service
Operation. Prime Costs for any F&B Operation would be: - Labor Costs
- Food Costs
This method involves assessing Labor Costs and Food Costs for the operation and then factoring
these into the Pricing Equation.
Steps to follow
1. Divide the budgeted total labour by the expected number of the guests to get labour cost
per guest.
Labour cost per guest = total labour cost ÷ number of expected guest
2. Add labour cost per guest to the menu item food cost to get prime cost per guest
Prime cost per guest = labour cost per guest + item food cost
3. Divide prime cost per guest by the desired prime cost% to get menu items basic selling
price
Basic selling price =prime cost per guest ÷ prime cost %
Example one
The following information is contained in approved operating budget of restaurant XYZ
Item Sh.
Total labour cost 60,000
Number of guests 2000
Food cost of t bone 80
Prime cost % 40%

Labour cost per guest = total labour cost ÷ number of expected guest
(60,000 ÷2000) = 30
Prime cost per guest = labour cost per guest + item food cost
30+ 80 =110
Basic selling price =prime cost per guest ÷ prime cost %
110 ÷40% = 275
Example two
Consider the following data given below:
Menu Item Food Cost = $ 3.75
Labor Cost = $ 210,000
Number of Exp. Guest = 75,000
Desired Prime Cost % = 62%
Step A) Labor Costs per Guest = $ 210,000 / 75,000 =$ 2.8
Step B) Determine the Prime Cost per Guest = $ 3.75 + $ 2.8 = $ 6.55
Step C) Computing Base Selling Price: = Prime Costs per Guests
Desired Prime Cost age%
B.S.P. = $ 6.55 / 62 % = $ 10.56
An obvious disadvantage of this Pricing method is to assign an equal share of Labor Costs to all
Menu Items. This is not true as the Labor Cost of each item may greatly differ.

iii) Specific Prime Costs Method: - In this type of Menu Pricing the F&B Operator develops
mark –ups for Menu Items which takes into account their Food Costs and also their Fair Share of
Labor Costs.
This method tries to overcome the limitations of the Simple Prime Costs Method. In this method,
Menu Items requiring more labor intensive preparation would have a higher mark – up and those
involving less labor during preparation would have a lower mark – up.

Disadvantages of Specific Prime Costs Method:

1. Very Time Consuming as All Menu Items have to be Classified and then the % Costs
have to be allocated to each Category.
2. Deals with Assumption that all other Costs vary in relationship to the Food Cost
Associated with the Menu Item.

Pricing Considerations
The Base Selling Price is the Starting Point for deciding the Selling Price of a Menu Item. The
Base Selling Price is further subjected to further assessment based on several factors as shown
below
- Concept of Value
- Law of Supply and
- Volume Concerns – Higher the Volume / Turn Over lower the Overheads and vice
versa.
- Competition
- USP – Unique Sales Proposition
Evaluating the Menu
The menu is the most important tool influencing the success or failure or a Food & Beverage
Operation.

The Process of Menu Engineering is an increasingly popular tool in evaluating the menu. Any
menu item is evaluated on the basis of two criteria
  Popularity
 Profitability

Pricing consideration

1. Historical prices
The manager should consider prices that were changed in the past and sudden prices
changes especially incensements.
2. The perceived price / value relationship
This considers whether the product price is in line with product quality and this makes
the guest feel that he or she is getting value for his money paid. For example location,
atmosphere, quality service.
3. Competition
The manager should consider the competitors prices in relation to product quality.
4. Pricing rounding
This is where prices are rounded off to fit the currency of the country or for country
convenience in making changes.
5. Taxes
The manager should take into account the local taxes levied by the government.
For example
V.A.T is usually 16%, this is reviewed annually.
Government taxing policy levy on food and beverage is 2% and service charge is 5% to
10%

NB// most establishments include taxes in the total price of menu while some do not include it
but separate it.
Sales control
Sales control in service
Requirements of an effective sales control system.
It should ensure the following
1. That every consumption is charged
This is to ensure that all products leaving the production area are accounted for using a set of
record.
a. Captain order
b. Guest checks with serial number
c. Cash registers where available, eliminating verbal order
2. Correct prices are charged to customers
The management should provide up to date price list to each selling outlet.
3. Ensure all guest checks, are accounted for
Using cashiers guest check summary sheet, showing each individual guest card and the mode of
settlement.
Methods of sales control
The method chosen for sales control depends on
a. Type of menu used
b. Style of service
c. Size of the establishment – large establishments require detailed control system
d. Volume of business
e. Mode of setting bills for example vouchers, prepaid
f. Competence of both management and staff.
Three main sales control methods
I. Oral records
Number of transaction records made, waiter asks for item without any record.
This method is difficult to control.
Mostly used in bars and small food outlets

II. Written records

Waiters obtains goods from kitchen using a written order, guest pays using a restaurant bill.
Cashier accepts payment by use of duplicate copy as proof that guest has been served.
III. Machine/ computerized records
Records are kept.
This method is effective and it is possible to audit the transaction in future if need arises.
To understand this method it is possible to track the flow of a restaurant sale.
Formal flow of a restaurant sale
1. The guest enters in a restaurant and is seated
2. The guest gives the order to the waiter who enters it in captain order and distributes it as
follows
Original and duplicate to the cashier
Triplicate – waiters copy
3. Restaurant cashier uses original and duplicate copies to open a guest check
 4. Waiter uses original copy to obtain goods from the kitchen.
5. Once the guest requests for his/her bill, the waiter gets a posted guest check from the
cashier and present it to the guest for payments.
6. The guest pays cash, credit card or signs his bill using posted guest check
7. Cashier settles the bill, the original guest check is stamped paid and submitted to the
guest
8. The cashier attaches duplicate copies of captain order and guest check summary report
9. Cashier hand over all cash received documents used to front office cashier
10. The front office cashier verifies the amount of cash and credit sales as shown by
restaurant cashiers.
11. The night auditor ensures that credit sales have been posted to guest ledgers and that the
amount of cash submitted correctly recorded.
12. The documents will then be submitted to the control office where it is then verified that
the correct prices were charged on all items and that sales reports were completed
correctly.
13. The hotel management uses the report to review all operations and corrects any mistakes.

NB// from the above flow, the system provides an independent record of the sales value
of item from the production taking into account the following factors,
a. There is a pricing policy with prices to be charged each item offered
b. Guest orders are recorded in captain order and distributed accordingly
c. Cashier opens guest billing using captain order
d. Cashier will charge correct prices
e. Production area uses food and beverage against controlled captain orders
f. Guest pays for services provided upon receipt of guest check only
g. All money collected is handed over to the front office cashier who will issue cash receipt
h. Front office cashier posts guest checks to guest ledger.

Additional controls
Additional controls are necessary to make the system more effective, these include control of
captain orders, guest checks, cash registers, complimentary and staff meals.
1. Control of captain order
Should be prepared in three copies
Should be legible
Should include all details for example serial number, number of covers, table number , waiters
name, guest room number and all the items ordered by the guest.
2. Control of guest checks
They should be legible and accurate should contain all details
 Guest check serial number
 Name of the hotel, restaurant, logo
 Waiters name or number
 Table number
 Number of covers
 Date of service
 Meal service period for example breakfast, lunch etc.
 Details of guest order- item ordered
  Bottom part (stamp) where it is stamped paid, cut off and handed over to the waiter to
keep in case of any problem later when shifting responsibility to another waiter.
3. Control of cashier guest check summary
This is a summary of all guest check including those that have been cancelled.
At the end of service, food and beverage cashier prepare a summary by listing the checks
using serial number.
Serial number details include
a. Guest check number
b. Number of covers that have been served on that check
c. Amount paid
d. Mode of payment
e. Total guest ledger sales
f. Total amount of complimentary
g. Room number for guest
h. Grand total for all sales
i. Name of cashier
4. Control of departmental cash sales
All departmental sales must be paid to the front office cashier
The front office does the following
 Verifies corrections in guest check summary
 Determine total postings
 Subtract all complimentary, discounts etc. from total printing figure
 Total up the cash guest checks and compare to the figure obtained from physical cash
paid in and the machine print act as sales.
 These should balance and if any difference should be investigated
5. Control of accounting machines
Accounting machines come in various types according to different establishments and
this will depend on
a. Needs of establishment
b. Cost benefit of installing particular machine

Types of accounting machine

1. Mechanical cash register
This is where the first ones to come in the market and they have limiting accounting ability
2. Electric cash registers (ECRS)
Modern and very effective
Are high speed
Functions
a. Change of computation- automatically prints the total sales and change dues
b. Addition and subtraction of customer transactions
c. Quantity extension that is multiple item transacted
d. Single items are recorded without going through the programme sequence of subtotals
 e. Counts money using keys
f. Provides transaction control for cash sales, money received on account
Advantages of electric cash registers
I. Price customers check through present price look ups
II. Print checks
III. Have a special key so that present price can be changed during happy hour. Promotions
IV. Provide an analysis of sales by type of product
V. Provide an analysis of sales by waiter
VI. Complete automatic tax collection, VAT, service charge.
VII. Provide waiter checking in and out facilities
VIII. Restrict access to ECR and till drawer by the key or code for each operator

Some common features in electric cash registers

a. Multiple department keys- room, bar, restaurant
b. Multiple settlement keys – cash, cheque, credit card
c. Cashier shift responsibility for example through cashiers identification
d. Cash sales
e. Room rates
f. Room number and balance pick up
g. Telephone charges
h. Discounts
i. Cancelled checks or operation
j. Balance and audit

Control in the control office

Control staff collects all service documents for the previous day after they have been verified by
front office cashier.
These documents include:
a. Cashiers guest summary
b. Food and beverage sales summary
c. Discounts summary form
d. Staff meals

Beverage sales control

Effective beverage sales control can be done through the following control procedures
a. Determining per stock
b. Determining beverage consumption
c. Determining potential sales
d. Determining actual sales

Budgetary control
This is concerned with the comparison of estimated and actual results of a department or
establishment.
Standard costing (means pre-determined cost)
This is a technique which compares the standard cost of each product or service with actual cost
to determine the efficiency of operation so that any remedial action may be taken immediately.

Marginal costing
Marginal cost is the variable cost incurred as a result of undertaking a specific activity.
All direct costs are known as marginal costs
Marginal cost is a useful technique for studying the effect of change in volume and type of
output in a multiproduct business
Marginal costing is also known as direct costing or contribution approach
In marginal costing all costs are divided into two parts
a. Variable cost
b. Fixed cost
Contribution is the difference between sales and marginal cost
Marginal cost = DM+ DL+ DE+ VO
DM- direct material
DL- direct labour
DE – direct expenses
VO- variable overheads
Contribution =sales – marginal cost
Profit = contribution – fixed cost

Example
Highball restaurant sold 10,000 meals during the month of April, the following additional
information was provided
Direct material sh. 8 per meal
Direct labour sh. 4 per meal
Variable overheads sh. 2 per meal
Fixed overheads for the month of April sh.36, 000
Selling price sh.20 per meal.
Prepare a statement showing the marginal cost and the profit or loss for the month of April
Calculate the breakeven point
Solution
Sales = meals × selling price
10,000 × 20=200,000
Marginal costs

DM 10,000 8 80,000
DL 10,000 4 40,000
DO 10,000 2 20,000
Add them =140,000

Contribution = sales – marginal costs

200,000 – 140,000 =60,000
Profit = contribution – fixed cost
60,000- 36,000 =24,000
B.E.P in covers = fixed cost ÷ contribution per unit or fixed cost ÷ (sales per unit – variable cost
per unit)
Contribution per unit =contribution ÷meals
60,000 ÷ 10,000 =6
36,000 ÷ 6 =6,000 covers

B.E.P in shillings = (fixed cost ÷ contribution per unit) ×ASP or selling price
= (36,000 ÷ 6) ×20=sh. 120,000

Absorption costing
According to absorption costing all overheads incurred by an establishment must be charged to
cost units/ centers. It is necessary to assess at the time of preparing cost statements for different
cost centers as to what portion of each overhead should be saved by each cost centers.
For example
In a particular establishment there are four departments and each department is a cost centers.
The rent is paid monthly for the whole establishment. It would be necessary to make a decision
as to how much of the total rent paid should be done by each department.
This decision must be based on such factors that affect the particular expenses in relation to the
different cost centers so that each cost center bears only its due share of various overheads.
The process of allocating various overheads over cost centers is called apportionment of
overheads.
Absorption of overheads is the process of determining how much should be added to the direct
cost of each cost unit to ensure all the overheads apportionment over a cost centers are fully
recovered.
Recovery rate – the rate used to determine the portion of total overheads to be charged to each
cost unit.
Example
The owner of a hotel estimates that in addition to the direct materials (for example flour, potatoes
etc.). Cost of sh. 500,000 and direct labour costs (cooks wages) of sh. 300,000 in 2006, he will
incur overheads of sh.240,000 on such things as rent , electricity, insurance, clerical services etc.
a decision must be made as to how much must be added to the direct cost (material and labour )
of various products to fully recover the indirect cost. That is overhead of 240,000.

Overhead absorption or recovery rate % = (total overheads ×100) ÷ direct material cost
(240,000 × 100) ÷ 500,000 = 48%
Direct labour cost = (overheads × 100) ÷ direct labour cost
(240,000 × 100) ÷300,000 =80%
TOPIC 9: REVENUE CONTROL SYSTEMS
To control the revenue of a unit, particular attention must be paid to the major factors which can
have influence on the profitability. Therefore it is essential to control the main factors which can
affect the revenue of a business; they include: -
 Menu – beverage list
 The total volume of food and beverage sales
 The sales mix
 The average speed of customers in each selling outlet at different times of the day
 The number of customers served
 The gross profit margins

Total control system in commercial operations, is of particular importance; there is need for the
accountability of what has been served to the customer and the payment for what has been issued
from the kitchen or the bar.
Food and beverage payment may be made in many forms such as cash, foreign currency, credit
cards, cheques, traveler’s cheques, luncheon type and signed bills.
All staff handling cash should be adequately trained in the respective company’s methods
It is common practice for a cashier’s or waiter’s handbook / manual to be produced so that an
established procedure may be followed with the specific aim of ensuring that cash security is
sufficiently carried out at all times.
A typical handbook / manual would contain information on the standard procedure to
follow to be followed for such things as: -
1. Opening procedure – instructions here would include procedures about checking the float,
having a float of specific denominations, checking the till roll, recording waiters’ bill pad
numbers etc.
2. Working procedure – instructions on how to accept payment and the procedure to follow
3. Closing procedure – instructions on any documentation and recordings to be completed,
cashing up, recording of credit cards, cheque etc.
4. Procedure for accepting foreign currency – what currency is to be accepted, how to obtain
the current exchange rates, how this is to be recorded etc.
5. Procedure for accepting credit cards – which credit cards are to be accepted, how they are
to be checked, methods of processing credit cards for payments, recording of credit vouchers,
etc.
6. Procedure for accepting vouchers i.e. luncheon vouchers – which vouchers are acceptable,
how is it to be recorded, etc.
7. Procedure for accepting cheques – how cheques are to be made out, customers to produce a
valid cheque guarantee card, checking that signatures correspond, etc.
8. Procedure for accepting travellers’ cheque – what travelers cheques are acceptable, what
currencies are acceptable, witnessing and checking signatures, how this is to be recorded
9. Procedure for a complementary or signed bill – check against current list of authorized
persons and their signature, how this is to be recorded.

Systems of Revenue Control

There are two basic approaches to recording and controlling food and beverage sales
 A manual system – which is commonly used in small and in exclusive type catering units
  An automated system – which is commonly used in units with several outlets, in units
with a very high volume of business and in up-to-date companies with many units.

1. Manual System
Here we examine two basics of a manual system; the sales check, and the role of the cashier
which is a computerized system it becomes defunct as every server can his /her own float as the
adding and printing of the bill is automatically done.

a. Sales Checks – One of the simplest steps to take when attempting to establish sales
control procedures is to require that each item ordered and its selling price are recorded
on a waiter’s sales check.
Using some form of a check system serves the following functions: -

a. To remind the waiting staff of the order they have taken

b. To give a record of sales so that portion sales and sales mixes and sales histories can be
compiled
c. To assist the cashier and facilitate easy checking of prices charged
d. To show the customer a detailed list of charges made

b. Use of numbered checks and control – control these tightly, recording all cancelled
and missing checks. It is more common to find duplicated or triplicate checks being used
as an aid to control for the following reasons
 They provide the kitchen, buffet or bar with a written record of what has been ordered
and issued
 They authorize the kitchen, buffet or bar to issue the food and / or beverage
 They provide the opportunity to compare the top copy of the check with the duplicate to
ensure that all that has been issued has been charged and paid for

The Cashier’s Role

In addition to following precisely the unit’s procedure for the handling of all revenue
transactions within the restaurant or bars, it is normal practice for the cashier working a manual
system to be required to complete the following: -
1. To issue check pads to the waiting staff prior to a meal period, to record the numbers of the
checks issued in each pad, and obtain the waiting staff’s signature for them, and on the
completion of the meal period to receive from the waiting staff their respective unused check
pads, record the numbers, and sign for the receipt of those returned.
This information should be recorded on the check number issue control sheet.
2. To check the pricing, extensions and subtotals of all checks and to add any government tax
charges and to enter the total amount due.
3. To receive and check money, credit or, when applicable, an approved signature in payment
for the total amount due for each check.
4. To complete the missing checklist for each meal period. This is an aid to the cashier in
controlling what checks are used. The respective check numbers on the list are crossed out
when payment is made.
 When a missing check is identified, investigation needs to be carried out to find the reason
for this, and if no satisfactory explanation is forthcoming, inform a member of management
on duty.
Missing checks need to be marked on the missing checklist.
5. To complete the restaurant sales control sheet for each meal period. This form requires that
all revenue received (or its equivalent) is recorded under specific headings such as cash,
cheques, credit card transactions etc. From this control sheet, basic data; such as the number
of covers served, or the average spending per customer on food and beverage – is quickly
obtained.
6. To complete the necessary paying in of all cash etc. in accordance with the unit’s established
practice. This could be a direct to a bank whether a small independent unit, or a unit of a
large company, or th the head cashier’s office if a large unit within many outlets.
Problem of the Manual System
The basic problems of controlling any food and beverage operation are: -
1. The time span between purchasing, receiving, storing, processing, selling the product, and
obtaining the cash or credit for the product is sometimes only a few hours.
2. The number of items (food and beverage) held in stock at any time is high
3. A large number of finished items are produce from the combination of the large number of
items held in stock
4. The number of transactions taking place on an hourly basis in some operations can be very
high
5. To be able to control the operation efficiently, management ideally requires control in
formation of many types to be available quickly and to be presented in a meaningful way.

NB: The full manual control of a food and beverage operation would be costly, time
consuming and data produced would frequently be far too late for meaningful management
action to take place. Therefore regularly updating the costing of standard recipes, calculating
gross profit potentials and providing detailed sales analysis would seldom be done because of
the time and labour involved.
A manual system providing a restricted amount of basic data is still widely used in small and
medium size units, however, these are likely to be replaced in the near future by machine or
electronic systems

The day to day operational problems of a manual system include the following: -
a. Poor hand writing by waiting staff resulting into; incorrect order given to the kitchen
or dispenser bar, wrong food being offered to the customer, incorrect prices being
charged to the customer, poorly presented bill for the customer
b. Human error can produce such mistakes as; incorrect prices charged to items on a
bill, incorrect additions to a customer’s bill, incorrect service charge made, incorrect
government tax (e.g. VAT) charge made
c. Communication between departments i.e. restaurant, dispense bar, kitchen and
cashiers has to be done physically by the waiting staff going to the various department.
This is not only time consuming but inefficient.
d. Manual systems do not provide any quick management information data, any data
produced at being best being normally 24 hours to 48 hours old as well as being old.
 e. Manual systems have to be restricted to the bare essentials because of the high cost
of labour that would be involved in providing detailed up-to-date information

2. Computerized Systems or an automated system

EPOS technology and windows based software specifically designed for the food and beverage
operations seems to have replaced every other type of machine based systems. Other than EPOS,
worth noting that some other older technology exist and may still be in use in other countries and
in very small operations in the world.

i. Pre-checking systems – Pre-check machines are somewhat similar in appearance to a standard

cash register and are designed to operate only when a sales check is inserted into the printing
table to the side of the machine
Operation of pre-checking system
a. A waiter has his or her own machine operating key
b. A check is inserted into the printing table and the particular keys, depending on the order
taken, are pressed giving an item and price recorded as well as recording the table
number, the number of covers and the waiter’s reference number.
c. A duplicate is printed and issued by machine which is then issued as the duplicate check
to obtain food and beverages.
d. For each transaction a reference number is given on the sales check and the duplicate
e. All data is recorded on a continuous audit tape that can be removed on by authorized
persons At the end of the day when the machine is cleared and total sales taken and
compared to the actual cash received.
Advantages
a. The sales check is made out and a record of it made on the audit tape before the specific
items can be obtained from the kitchen or bar
b. Analysis of total sales per waiter is made on the audit tape at the end of each shift
c. No cashier is required as each waiter acts as his / her own cashier, each keeping the cash
collected from the customers until the end of the shift and then paying it in.
d. As each waiter has his / her own security key to operate the machine, there is restricted
access to the machine and no other way by which pre-checks can be provided and used in
exchange for items from the kitchen or bar.

ii. Pre-set pre-checking system – This is an up-date on the basic pre-check machine. The
keyboard is much larger than the previous machines, and has descriptive keys corresponding to
all items on the menu which are pre-set to the current price of each item. For example a waiter
pressing the key for say one cheeseburger would not only have the item printed out but also the
price.
A control panel, kept under lock and key, would enable management to change the price of any
item, if required very quickly.
It is also possible to have a running account kept of each item recorded and at the end of a meal
period, by depressing each key in turn to get a printout giving a basic analysis of sales made.

iii. Electronic cash registers – Are very high speed machines which were developed mainly for
operations i.e. super markets and were further adopted for use in high volume catering
operations.
They have the capability of printing the customer bill as well as provide basic reports such as
sales by type of product, payment method etc.
The advancement in EPOS technology and the low costs are making electronic cash registers
(ECRs) a thing of the past, although in small operations that do not require heavy inventory
control and detailed reporting. ECR is still the choice due to its much lower cost.
The system can record the following information; cashiers identification card number and name,
time bill was opened, item served, present price, table number, present service change , totals of
what has been served, method of payment, VAT and time bill was closed.
Advantages of electronic cash registers
1. The machine will price customer change through preset method
2. The machines Have an additional special key that preset price can be changed during
promotional period such as happy hour in a bar where special offers price are given.
3. Provide an analysis of sales made by type of product
4. Provide an analysis of sales by waiter per or per shift period
5. Analyze sales by method of payment for example cash, credit card etc.
6. Complete automatic tax calculations and service charges
7. Provide waiter checking in and checking out facilities
8. Provide facilities for operator training to take place on the machines without disrupting
entry information already in ECR
9. Eliminate the need for a cashier by requiring each waiter to be responsible for taking
payment from the customers and paying in the exact amount as recorded by the ECR at
the end of each shift.

iv. EPOS control system or point of sale control system

– At a basic level, a point-of-sale control system is no more than a modern ECR with the
additional feature of one or several printers at such locations as the kitchen (or sections of the
kitchen) or dispense bar. Some systems replace the ECR with a ‘server terminal’ (also called
‘waiter communication’ systems), which may be placed at several locations within a restaurant,
and is a modification of an ECR in that the cash features are eliminated making the terminal
relatively small and inconspicuous.

Objective of having Printers

a. To provide an instant and separate clear and printed order to the kitchen or bar, of what is
required, and by, and for whom
b. To speed up the process of giving the orders to the kitchen or bar
c. To aid control, in that items can only be ordered when they have been entered into the ECR
or terminal by an identifiable member of the waiting staff and printed.
d. To reduce the time taken by the waiter in walking to the kitchen or bar to place an order and
as, frequently happens to check if an order is ready for collection
e. To afford more time if required for customer contact.

Advantages of computerized point-of-sale system

 It is capable of processing data as activities occur, which makes it possible to obtain up-to-
the-minute reports for management who can be better informed and able to make immediate
and accurate corrective action if necessary
NB// This type of point-of-sale control system has been taken one step further with the
introduction of hand-held terminals, or radio frequencies or infrared or blue tooth technology to
communicate from the quests table direct to the kitchen or bar preparation areas.

Advantages of mobile point of sales

 Food and beverage orders are delivered faster and more efficiently to preparation sites
 Waiters in turn can attend more tabled;
 With two way communication service staff can be notified if an item is out of stock
 All food and beverage items ordered are immediately charged to the guest’s bill, which is
accurate and ready to write
 Operation can reassess their labour utilization and efficiency
 Certain members of the service staff for example can take the simple orders, while others can
spend more time with customers to increase food and beverage sales

NB: Touch screen technology utilized by the systems enables the server to use EPOS and MPOS
technology with minimal training as the system often resemble a Microsoft windows type
interfaces.
Micro computers
Computer equipment is necessary for food and beverage control system because it is cheaper,
more reliable, and less complex for an operator to use.
Advantages
1. Ability to provide for management easy and quick access to accurate and complete
information related to the total or part of the business at any time that is required, thus
allowing management more time to evaluate the information produced and take action
quickly when required.

Operating yardsticks/ supports used in controlling

The following are brief explanation of those that are frequently used.
1. Total food and beverage sales record
Should be recorded, checked and measured against the budgeted sales figure for the particular
period for example a week or month
The analysis of these figures is usually done daily for large establishment and for those that are
not operating manual control system.
The analysis would show separately the food sales and beverage sales per outlet and per meal
period.
2. Departmental profit
Is calculated by deducting the departmental expenses from departmental sales, the expenses
being the sum of the cost of food and beverages sold, the cost of labour and the cost of overheads
charged against the department and the profit being usually expressed as a percentage of the
departmental sales.
For example (departmental profit (12,000) ÷food and beverage sales (8,000) × 100% =15%
The departmental profit should be measured against the budgeted figures for that period.
3. Ratio of food and beverage sales to total sales
Food and beverage sales should be separated from each other and to express each of them as a %
of total sales.
This would be a measure to performance against the establishment standard budgeted percentage
as well as indicating general trends in the business, when they are identified they should be
examined and action taken if necessary.
4. Average spending power
These measures the relationship between food and beverage sales to the number of customers
served.
For example
Food sales are sh. 7,000 and the number of customers served is 70, the average spending power
by each customer is sh.100.
The average spending power per customer for beverages is usually related to the number of items
recorded on the till roll, rather than the number of customers and total beverage sales.
Thus if sh. 4,000 is recorded beverage sales and an analysis of the till roll shows that 800 drinks
had been sold, the average spending power per drink would be sh.5.
What is different here is that the customer may order several drinks during an evening and
therefore the average amount spent in one drink is more important than the average spending
power per customer.
5. Sales mix
This measures the relationship between the various components of the total sales of a unit
For example
Coffee shop sales - food 20% beverage 5%
Restaurant sales - food 25% beverage 15%
Banqueting sales - food 20% beverage 10%
Cocktail bar sales - beverage 5%
Total 100%
In addition a sale mix may be calculated for food and beverage menus for each outlet under
group headings such as starter, main course, sweet course, coffee, cocktails, spirits etc.
This could not only highlight the most and least popular items but would a times help to explain
a disappointing gross profit % that occurred in spite of a good volume of business, the reason
being that each item is usually coasted at different gross profit figures being less than budgeted
for.
6. Pay roll (labour cost)
Pay roll cost is usually expressed as a % of sales and are normally higher than the level of
service offered.
It is important to note that payroll costs are tightly controlled as they contribute a higher % of
total cost of running operation.
Pay roll costs can be controlled by establishing a head count of employees per department in
relation to a known average volume of business.
In addition all overtime must be strictly controlled and should only be permitted when necessary.
7. Productivity
This is calculated by the formula = sales ÷ payroll (including any staff benefits)
Cost of productivity can be calculated separately for food sales, beverage sales or for total food
sales.
The use of term payroll costs in the formula includes not only payroll cost but also any other
employee benefits such as employees medical insurance etc.
8. Stock turnover
Is calculated by the formula
Rate of stock turnover = costs of food and beverage consumed ÷ average stock value of food and
beverage
The rate of stock turnover gives the number of times that the average level of stock has turned
over in a given period.
Too high turnover would indicate very low levels of stock being held and a large number of a
small value purchases being made.
Too low a turnover would indicate unnecessary capital tied up in an operation and therefore
additionally a large control and security problems.
9. Sales per seat available
This shows the sales value that can be earned by each seat in a restaurant, coffee shop etc. the
seat is the selling point and is required to contribute a certain value to turnover and profits.
10. Rate of seat turnover
This shows the number of times that each seat in a restaurant, coffee shop etc.is used by
customers during a specific period. thus if in a 120 seated coffee shop 400 customers were
served in a three hour lunch period , the rate of seat turnover would be 400÷120 =3.33.
As the coffee shop staff can only sell food to customers while they all seated at a table ,
importance of the rate of seat turnover is highlighted.
11. Sales per waiter or waitress
Each waiter will have a known number of covers for which he is responsible. This would vary
depending on the style of service offered. As sales people for the restaurant or coffee shop, their
taking should be of a predetermined target level so as to contribute to a satisfactory level of
turnover and profit.
12. Sales as per square foot
The space of all selling outlet needs to be used to its best advantage so as to achieve a desired
turnover and profit. This can be calculated on a square foot basis. The square foot age per
customer varies with the type of food and beverage service offered and this will determine the
desired turnover and profit per square foot of selling space.
TOPIC 10: LABOUR COST CONTROL
Introduction
Labour cost is the second important element of cost of production. Wages, salaries and other
forms of remunerations represent a major portion of the total cost of a product or services. The
growth and profitability of the concern depends upon proper utilization of human resources or
labour forces which in turn needs proper accounting and control of cost. Thus, control of labour
cost is a very significant issue from the viewpoint of management.
Types of Labour Cost
The labour cost can be classified into two types:
(1) Direct Labour Cost.
(2) Indirect Labour Cost.

1. Direct Labour Cost: Any labour cost that is specially incurred for or can be readily charged
to or identified with a specific job, contract, work order or any other unit of cost is termed as
direct labour cost.
Wages for supervision, wages for foremen, and wages for labours who are actually engaged in
operation or process are the examples of direct labour cost
.
2. Indirect Labour Cost: Indirect labour is for work in general. The importance of the
distinction lies in the fact that whereas direct labour can be identified with and charged to the
job, indirect labour cannot be so charged and has, therefore to be treated as part of the factory
overheads to be included in the cost of production. For example, salaries and wages of
supervisors, storekeepers and maintance labour etc.

The elements of labour cost

Management attempting to maximize efficiency and to control labour costs should be aware of
the two elements of labour cost.
a. The fixed cost personnel
b. The variable cost personnel

The fixed cost personnel

Are the key people within an establishment, they are those members of staff whose numbers
bears little relationship to the volume of business done. Such as the manager, the chef, the dining
room supervisor, the cashier etc.
Scheduling of fixed cost personnel
Fixed personnel tend to be the key personnel in an establishment and therefore scheduling of
them is restricted by the nature of their jobs and position within the organization and the hours of
operation.
For example the manager or his or her deputy would be present during the period of production
and service; the cashier should be present on duty during the meal service period.
Any increase in the volume of business would not require an increase in the number and cost of
fixed personnel, unless the increase is of a permanent nature.

The variable cost personnel

The element of the variable cost personnel includes all the staff whose employment is related to
the volume of sales.
The large the number of customers expected, the large the number of staff employed, in order to
cope efficiency with the extra business.
The smaller the number of customers expected, the fewer the variable cost staff who should be
employed.
It is by skillful employment of this element of labour costs that are budgeted costs are kept
within limits.
If both elements of labour costs are taken together, labour costs becomes a semi variable cost hat
is the cost would increase when the volume of business increases and decrease when the volume
of business decreases, but not directly in proportion to the changes in the volume of business.

Scheduling of variable cost personnel

The manager is in a position to schedule efficiently the variable personnel with the daily and
hourly volume of business.

Control of Labour Cost

Control of labour cost is a significant influence on the growth, profitability and cost of
production. Labour cost may become unduly high rate due to inefficiency of labour, ineffective
supervision, ideal time, unusual overtime work etc. The primary objectives of the management
therefore are to efficiently utilize the labour as economically as possible.

Techniques of Labour Cost Control

In order to achieve the effective utilization of manpower resources, the management has to apply
proper system of labour cost control. The labour cost control may be determined on the basis of
establishment of standard of efficiency and comparison of actuals with standards. The
management applies various techniques for the effective control of labour costs as under:
1. Scientific method of production planning.
2. Use of labour budgets.
3. Establishment of labour standards.
4. Proper system of labour performance report.
5. Effective system of job evaluation and job analysis.
6. Devise a proper system of control over ideal time and unusual overtime work.
7. Establish a fair and equitable remuneration system.
8. Effective cost accounting system.

Organization for Control of Labour Cost

The objectives of proper control on labour cost are effectively achieved through the functions of
various departments responsible for controlling labour cost in an organization. The following are
the important departments for control over labour costs:
1. Personnel Departments
2. Engineering and Works
3. Study Department.
4. Time Keeping Departments.
5. Pay Roll Department
6. Cost Accounting Department.
 1. Personnel Department
Personnel department plays a very important role in control of labour costs. It is primarily
concerned with the recruitment of labours on the basis of employee placement requisition and
imparting training to them. And thereafter placing them to the job for which they are best suited.
In order to achieve the efficient utilization of manpower resources, this department is responsible
to execution of labour policies which have been laid down by top management.

2. Engineering and Works Study Department

Engineering department is primarily concerned with maintaining control over working
conditions and production methods for each job, process, operation or departments. It is
performed by undertaking the following functions:
a. Preparation of plan and specification of each job.
b. Maintaining required safety and efficient working conditions.
c. Making time and motion studies.
d. Conducting job analysis, job evaluation and merit rating.
e. Setting fair and equitable piece rate or time wage system.
f. Conducting research and experimental work.

Job Analysis:
Job analysis is the process of determining by observation and studies the task, which comprises
the job, the methods and equipment used and the skills and attitudes required for successful
performance of the job.
Job Analysis is a formal and detailed study of jobs.
Job analysis may be defined as "the process of determining by observation and study the task,
which comprise the job, the methods and equipment used and the skills and attitudes required for
successful performance of the job."
Job analysis covers
a. Job title
b. Range of salary
c. Short description of duties and responsibilities
d. Lines of authority, working conditions, hour’s etc.
Job analysis is then translated into a job specification so that the right person is engaged, trained
for a specific position.
Advantages of Job Analysis u
The following are the important advantages of job analysis:
1. It is useful in classifying job and interrelationship among them.
2. If facilitates forecasting of manpower requirements.
3. It helps in effective utilization of manpower resources.
4. Effective employee development programme can be established.
5. Enables in determining performance standards of each process or job.
Job specification
A detailed statement specifying the precise skills and knowledge required to carry out the
component parts of a job may be given.
The skills include social skills requirements which are necessary for many catering staff.
Timekeeping:
It refers to recording of each worker's time of coming in and going out of the factory during
engagement of the factory. It is essential for the purpose of attendance and determination of
wage payable to each worker.
Objectives of Timekeeping
 Preparation of payrolls
 Ensuring discipline in attendance
 Apportionment of overhead on the basis of labour hours
 Effective utilization of human resources
 Minimization of labour costs
 Ascertaining ideal labour time and ideal machine time.
Methods of Timekeeping:
The following are the two important methods of timekeeping:
1. Manual Method:
a. Attendance Register Method.
b. Token or Disc Method.
2. Mechanical Method:
(a) Time Recording clocks.
(b) Dial Time Records.
(c) Key Recorder System.
Manual Method:
The choice of the manual method adopted by the factory depends upon its size, number of
workers employed, and nature of the business and policy of a firm. Under manual methods, there
are two important methods which are in use: (a) Attendance Register Method and
(b) Token or Disc Method.
a. Attendance Register Method:
Under this method, an Attendance Register is maintained by the Timekeeper in the time office.
This register may be filled in by the Timekeeper when the worker gets inside the factory and the
time of departure, normal time and overtime. Workers may be required to sign both at the time
of arrival and time of departure. This method is very simple and most suitable to small-scale
industries. It is very difficult to operate when the number of workers is large.
b. Token or Metal Disc Method:
In this method, each worker is given a metal disc or a token bearing his identification number.
All the tokens or discs are hung on a board serially at the entrance of the gate in the factory. As
the worker enters the gates of the factory, he removes his disc from the board and drops it into a
box. This process is continued until the scheduled time expires. Latecomers may drop their
tokens in a separate box or handover personally to the timekeeper. In the case of absentees the
tokens are not removed from the board. Based on the above process, the Timekeeper records the
attendance in the register known as Muster Roll for the purpose of pay rolls.
This method is simple and economical. But it suffers from certain disadvantages given
below:
 There is chance to remove the disc of fellow worker's token from the board to ensure his
presence.
 Difficult to ascertain about overtime work, early leaving, ideal time etc.
 Lack of accuracy regarding the exact time of arrival of a worker which may result in
many disputes.
 Unless there is strict supervision, the timekeeper may include dummy or ghost workers in
the Muster Rolls.
Mechanical Method
In order to achieve the accuracy and reliability of recording of time of workers, the following
different mechanical devices are used:
(1) Time Recording Clocks.
(2) Dial Time Records.
(3) Key Recorder System.
(a)Time Recording Clocks:
Under this system, each worker is' given a time card for a week or fortnight. These time or clock
cards are serially arranged in a tray at the entrance to the factory. When the worker enters the
factory, he takes his allocated card from the tray and puts it in the time recording clock that
records the exact arrival time at the space provided on the card against the particular day. This
process is repeated for recording time of departure for lunch, return from lunch, leaving the
factory after his day's work. Late arrivals, early leavings and over time are printed in red so as to
distinguish these from normal period spent in the factory. This method is very popular for correct
recording of attendance.
(b) Dial Time Records:
This is a machine which is used for recording correct attendance time of arrival and departure of
worker automatically. This recorder has a number of holes about the circumference. Each hole
represents worker's number which corresponds to identification of allotted clock numbers. At the
time of arrival and departure of worker, by operating this machine, the dial arm into a hole and
the time is automatically recorded on an attendance sheet placed inside. This machine is most
suitable in small scale industries.
(c) Key Recorder System:
In this machine there are a number of keys, each key denotes worker's number. When the time
of arrival and departure the worker inserts his allotted key in the key hole and gives a tum, the
ticket time and clock time are recorded on a sheet of paper. This method is economical and easy
to operate.
Idle time
Idle Time is that time during which the workers spend their time without giving any production
or benefit to the employer and concern. The idle time may arise due to non-availability of raw
materials, shortage of power, machine breakdown etc.
Types of Idle Time: It refers that any loss of time is inherent in every situation which cannot be
avoided. Any costs associated with the normal idle time are mostly fixed in nature.
The normal idle time arises due to the following reasons:
a. Time taken for personal affairs.
b. Time taken for lunch and tea break.
c. Time taken for obtaining work.
d. Time taken for changing from one job to another.
e. Waiting time for getting instructions, tools and or raw materials, spare parts etc.
f. Time taken by the workers to walk between factory gate and place of work.
Abnormal Idle Time
Abnormal idle time refers that any loss of time which may occur due to some abnormal reasons.
Abnormal idle time can be prevented through effective planning and control. The abnormal idle
time may arise due to the following avoidable reasons:
1. Faulty planning.
2. Lack of co-operation and co-ordination.
3. Power failure.
4. Time lost due to delayed instructions.
5. Time lost due to inefficiency of workers.
6. Time lost due to non-availability of raw materials, spare parts, tools etc.
7. Time lost due to strikes, lock outs and lay-off.
Accounting Treatment of Normal Idle Time and Abnormal Ideal Time
Normal Idle Time: Normal idle time wages is treated as a part of cost of production. Thus, in
case of direct workers an allowance for normal idle time is built into labour cost rates. In the case
of indirect workers, normal idle time wage is spread over ,all the products or jobs through the
process of absorption of factory overheads.
Abnormal Idle Time: Abnormal idle time cost is not included as a part of production cost and is
shown as a separate item in the Costing Profit and Loss Account. So those normal costs are not
distributed.
Over Time:
The term "over time" refers to when a worker works beyond the normal working hours or
scheduled time is known as 'overtime.' According to Factories Act, the wage rate of overtime
work to be paid at double the normal rate of wages. The extra amount of remuneration is paid to
the worker in addition to normal rate of wages is said to be overtime premium.
Effect of Over Time Payment on Productivity:
a. Overtime premium is an extra payment over normal wages and hence will increase the
production cost.
b. The efficiency of workers during overtime work may fall and hence output may be reduced.
c. To earn more, workers may not concentrate on work during normal hours, and thus the
output during normal hours may fall.
d. Reduced output and increased premium will increase the cost of production.
Accounting Treatment of Overtime Wages
The following are the ways of charging of overtime premium:
1. If overtime is resorted to at the desire of the customer then overtime premium is charged to
concerned job directly.
2. If overtime is required to cope with general production schedule or for meeting urgent orders,
the overtime premium should be treated as overhead cost of particular department or cost
center which works overtime.
3. If overtime is worked on account of abnormal conditions such as flood, earthquake etc. that
should be charged to costing profit and loss account.
Control of Overtime:
Control of overtime is essential to minimize the cost of production and increase the overall
performance of the efficiency. Effective control of overtime can be possible through the
following ways:
a. Effective sound planning of production
b. Adequate supervision
c. Ensuring availability of raw materials, spare parts
d. Encouraging productivity
e. Reducing labour turnover
f. Ensuring effective system of repairs and maintenance, material handling and smooth flow of
production
g. Fair and equitable remuneration to efficient and inefficient workers.
Labour turnover
Labour Turnover may be defined as "the rate of changes in labour force, i.e., the percentage of
changes in the labour force of an organization during a specific period. Higher rate of labour
turnover indicates that labour is not stable and there are frequent changes in the labour force in
the organization. It will affect the efficiency of the workers and overall profitability of the firm.
The determinant result of labour turnover is expressed in terms of percentage.
Causes for labour turnover
The causes for labour turnover can be classified into two categories
a. Avoidable causes
b. Unavoidable causes
Avoidable causes
1. Lack of job involvement
2. Lack of cooperation among the employees
3. Lack of smooth relationship between employer and employees.
4. Dissatisfaction with wages and incentives
5. Bias attitude of management
6. Poor working condition
7. Dissatisfaction with promotion, recognition, transfers etc.
8. Lack of coordination
9. Non availability of adequate protection, proper instructions, accommodation etc.
Unavoidable causes
1. Retirement or death of employer
2. Marriage in the case of female workers
3. Permanent disability due to accident or illness
4. Dismissal or discouraged due to inefficiency of disciplinary ground
5. Dissatisfaction with job
6. Shortage of power, raw material etc.
7. Personal responsibilities
8. Personal betterment with regard to new job
9. Change in nature of business and plant location
Advantage of labour turnover
1. Those whose leave can be replaced with new staff from outside the organization hence
avoiding stagnation of ideas
2. Provision is made for promotion of existing staff which facilitates carrier paths and aid
motivation
3. Those leaving are considered unsuitable to the establishment and by leaving, they save the
organization problems of lack of cooperation
Disadvantages of labour turnover
1. Leads to high financial cost for example recruitment and training cost
2. Loss of resources invested in training of staff who leave
3. Loss of productivity while new staff are undergoing training
4. Leads to errors and wastage of available resources by untrained staff
5. Payment of overtime to assisting workforce
Ways of efficient use of staff
1. Having a work plan , work organization and control of wages
2. Avoidance of overtime – work to be done within a specified period of time
3. Avoidance of overstaffing – this leads to high labour cost
Ways of avoiding high labour turnover
1. Provide job satisfaction and training
2. Provide promotion opportunities
 3. Improve supervision
4. Improve morale
5. Improve working and welfare condition
6. Improve work organization by preparing duty rosters
7. Provide good staff accommodation
8. Introduce incentives for example bonus systems
9. Arrange transport to and from when public transport presents difficulties
Job evaluation
Is a technique for determining the work of each job relative to the other jobs. The main purpose
of job evaluation is to ascertain the comparative labour work of different jobs.
Merit rating
Is a technique for determining any addition that should be made to an individual’s normal wage
rate to reward him for above average service.
NB// Job evaluation means to evaluate worth of a job irrespective of who does it while merit
rating means to evaluate employee who does the particular job.
Cost of labour turnover
The chief aim of the preventive costs which are incurred in order to keep the workers satisfied
and reduce the labour turnover rates as much as possible, these preventive costs include:
a. Cost of providing medical facilities, canteens and other welfare facilities
b. Cost of administration
c. Cost of providing better working conditions
d. Cost of pension, provident fund and other retirement benefits.
Labour turnover = (number of leavers in a period (usually one year) ×100) ÷ average
number of personnel employed during the period
Example
We assume that 50 workers out of total average of 200 workers leave the organization, in a
particular year calculate labour turnover percentage.
(50 ×100) ÷ 200 = 25%
Methods of measurement of labour turnover
The following are the important methods of measuring labour turnover
a. Separation method
b. Replacement method
c. Flux method
Separation method
Under this method, labour turnover is calculated by dividing the total number of separation
(number of employees left or discharged) during the period by the average number of workers on
the pay roll.
Thus the formula is
Labour turnover = (number of separation during the period × 100) ÷ average number of workers
during the period
Replacement method
In this method , labour turnover is measured by dividing the number of replacement of workers
during the period by average number of workers during the period.
Thus the formula is
Labour turnover = (number of workers replaced during the period ×100) ÷ average number of
workers during the period
Flux method
Under this method, labour turnover is measured by dividing the total number of separation and
replacement of workers by the average number of workers during the period.
Thus the formula is
Labour turnover = (number of separation + number of replacement × 100) ÷average number of
workers during the period
Example
From the following information, calculate labour turnover ratio and turnover flux rate. Number
of workers as on January 2019 is 7,600, number of workers as on 31st December 2019 is 8,400.
During the year, 80 workers left while 320 workers were discharged, 1,500 workers were
recruited during the year of 2019, 300 workers were recruited because of exits and the rest were
recruited in accordance with expansion plan.
Labour turnover ratio
1. Replacement method
a. Due to exit
b. Number of replacement 300 workers
c. Average number of workers (7,600+ 8,400)÷ 2 =8,000
Labour turnover = (number of workers replaced during the period ×100) ÷ average number of
workers during the period
(300 ×100) ÷ 8000= 3.75%
2. Due to new recruitment
Labour turnover = (Number of new recruitment ×100) ÷ Average number of workers
(1,200 ×100) ÷8000 =15%
Labour turnover = (number of accession ×100) ÷average number of workers
(1,500 ×100) ÷100 =18.75
3. Flux method
Labour turnover = (number of separation + number of replacement × 100) ÷average number of
workers during the period
((1,500 + 400) ×100) ÷ 8,000 =23.75%
Labour costing
Labour cost consists of
a. basic pay that is daily or weekly or monthly wages
b. Labour related cost for example holiday pay, overtime pay etc.
Labour cost must be analyzed against the various jobs completed by labour/ employees
It must be ensured that the employees have really worked for the hours paid to them
It means that the employees should not sit idle during the working hours paid to them.
It means that the employees should not sit idle during the working hours and they should
contribute effectively to increase the production
Methods of computing wages
This refers to the basic of determining what to be paid to an employee for his service wages are
paid according to performance or time spent by an employee or employers on work.
Various methods of computing wages are explained as under the following
1. Time rate method
Under this method payment is made on the basis of time, which may be an hour, a day, a week,
or a month.
A certain sum of money is set for each of the above unit of time
Mostly workers are paid according to number of hours worked during a particular week or
month.
Hourly rate is decided in advance at the time a worker is employed. This hourly rate is multiplied
by the number of hours worked during a particular month and the resultant figure is the wage for
the month.
Advantages of time rate method
a. It is a convenient method and wages can be calculated easily
b. Employees can forecast their income and they are assured to receive this income
c. This method eliminates the need to measure the performance of the workers
d. This is more suitable for such job where work cannot be divided into smaller units for
example the worker of a driver, a typist or any other office worker.
Disadvantages of time rate method
a. This method discourages the more efficient workers because they receive the same amount
which is received by inefficient and lazy employees
b. This method requires close supervision of employees; otherwise they do not show interest in
their work.
2. Piece rate method
Under this method an employee is paid per unit of production or per job completed. This
method is used only if the work can be divided into uniform pieces as is often possible for
factory jobs. If a worker is paid 100/= for every 20 units produced. Then this method is
called as piece rate method.
Advantages of piece rate method
a. It provides an incentive to more efficient workers. They are paid according to work done so
they get more income
b. It does not require close supervision of employees
c. It provided the employees with an easy way of determining labour cost per unit of a product

Disadvantages of piece rate method

a. The workers can produce inferior or poor quality products in order to produce greater
quantity in a short time.
b. This method cannot be applied to those jobs which are not easy to divide in small pieces
c. This method does not ensure a stable monthly income of workers
3. High time rate for overtime
Under this method, normal working hours are paid at the normal time rate but for overtime
worked during week days and at weekends a higher rate is paid in order to induce workers to
work for more hours.
Usually, normal working hours from Monday to Friday are 8 hours per day and for Saturday
5 hours
It means weekly normal working hours are (8 ×5 +5) =45 hours
During weekdays an extra time worked, hourly rate is 50% higher than the normal hourly
rate.
For Sundays it is double the normal hourly rate.
For example
We assume a Roberts’s hourly rate is sh.10. During a particular week, he worked for 60
hours including 8 hours on Sundays. His wages for this particular week will be as under:
At normal hourly rate 45
At 5% above normal hourly rate 60-(45+ 8) =7 hours
At double hourly rate = 8 hours Sunday
 Total hours worked.
Wages
Normal hours 45 ×10 =450/=
Overtime
Weekdays 7 × sh ((50 ×10) ÷100) =5 (5 +10) = 15
7 ×15 =105/=
Sundays 8 × (10 × 2) =160/=
Total wage 450 +15 +160 =sh. 715.00
4. Piece rate with guaranteed time rate
Under this method, a specific amount is paid to the worker on a daily basis irrespective of
units produced by him during that period but if his output exceeds beyond a minimum limit
then he is paid according to the piece rate method.
This method ensures a specific daily or monthly income of the worker. Lower output in a
specific period may result due to some reason not related to the efficiency of workers. For
example: shortage of materials, power failure, machinery breakdown etc.
In such cases the guarantee of wage is paid to the workers.
For example
We assume the guaranteed wage of Douglas is 1,500 shillings and he is paid sh. 5 per unit
produced. Find out his monthly wage on the assumptions that he produced in a month
a. 500 units
Total wage for 500 units is 500 ×5 = sh. 2,500.
This wage is more than guaranteed wage, so he will receive sh.2, 500
b. 270 units
Total wage for 270 units is 270 × 5= sh. 1,350.
This wage is less than guaranteed wage so he will receive sh.1.500
5. Differential piece rate
Under this method, piece rate varies at different levels of output. If the worker produces more
units, then he gets higher piece rate beyond a specific level of output.
For example ‘
We assume Musembi is paid sh.5 per unit up to 100 units, sh.6 per unit for 100 to 200units
and sh. 7 per unit produced in excess of 200 units. We further assume that he produced in
excess of 250 units during a particular month. His wages for this month will be as under
100 units at sh.5 per unit = 100 ×5 =sh.500
100 units at sh. 6 per unit = 100 ×6 = sh. 600
50 units at sh. 7 per unit = 50 × 7 = sh.350
Total wages = 500 + 600 + 350 =1,450/=
Premium bonus schemes
The premium bonus is paid to the workers according to hours saved. The employees assign some
jobs to the worker to complete those jobs in less than time allowed then there are some savings to
the employers.
For example
We assume, the time allowed for a job is 50 hours and wage rate per hour is sh.10. It means the
employer is supposed to pay sh. 500 for this job.
If this job is completed by a worker in 40 hours then it means he will pay wage 40 × 10 =sh. 400.
There are three common premium bonuses
a. Halsey
b. Halsey weir
c. Rowan schemes
The formula for the workers total pay is
= day rate wage + bonus based on the time saved
Time saved = time allowed- time taken
If the time taken exceeds the time allowed then there is no time saved
In this case there are no bonuses and wage rate is only paid for the time allowed.
The formulae for the bonus earned under three common schemes are as followed.
Halsey scheme
Bonus = ½ (time saved × wage rate)
Halsey Weir scheme
Bonus = 1/3 (timed saved × wage rate)
Rowan scheme
Bonus = (time taken ÷ time allowed) × time allowed × wage rate
Example one
S Kamau completed a job in 45 hours for which 60 hours were allowed. His wage rate per hour
is sh.6.
Calculate S Kamau total wage according to
Halsey scheme
Halsey weir scheme
Rowan scheme
a. Time allowed TA = 60 hours
 b. Time taken TT = 45 hours
c. Time saved TS = 60 – 45 = 15 hours
d. Wage rate per hour sh.16
Basic wage 45 ×16 = sh. 270
Halsey scheme
Bonus = ½ (time saved × wage rate)
½ ×15 ×16 = sh. 120
Total wage = basic wage + bonus
720 + 120= sh.840
Halsey Weir scheme
Bonus = 1/3 (timed saved × wage rate)
1/3 × 15 ×16 = 80
Total wage = basic wage + bonus
720 + 80 =sh.800
Rowan scheme
Bonus = (time taken ÷ time allowed) × time allowed × wage rate
(45 ÷ 60) × 15 ×16= sh.180
Total wage = basic wages + bonus
720 + 180 =sh.900
Example two
Total output of SK for one week was 480 units. He was allowed 8 minutes per unit. He
completed those units in 52 hours. His wage rate per hour is sh. 18. Calculate SK total wage
according to Halsey and rowan scheme.
Units completed 480
Time allowed per unit 8 minutes
Time allowed for 480 units
1 units = 8/60 to get in terms of hours
480 units =?
(480× 8) ÷60= 64hours
Time taken = 52 hours
Time saved 64 hours- 52 hours = 12 hours
Basic wage = 52 hours× sh. 18= sh.936
Halsey scheme
Bonus = ½ (time saved × wage rate)
½ ×12 × 18 =sh.108
Total wage =Basic wage + bonus
Sh.936 + sh. 108 =sh. 1,044
Rowan scheme
Bonus = (time taken ÷ time allowed) × time allowed × wage rate
(52 ÷ 64) × 12 × 18 =sh.175.50
Total wage = basic wage + bonus
Sh.936 + sh. 175.50 = sh. 1,111.50
Assignment 1
Peter Wilson produced 1,200 pieces of chapatis in a week but 80 pieces were rejected. Time
allowed per piece is 6minutes. No charge is made beyond the time allowed but the bonus is paid
on accepted pieces only. Also no penalty is imposed on the not sold pieces.
The 1,200 pieces were produced in 96 hours. The wage rate per piece is sh. 30. Calculate Peter
Wilson total wage on the basis of Halsey Bonus scheme. (7 marks)
Assignment 2
State five disadvantages of labour turnover (5marks)
Wage control
The system of paying wage is of great importance in an organization. Correct amount of wages
must be paid to the employees at the right time. Wages should be paid according to terms and
conditions of employment of each worker. Any over or under payment of wage is not desirable.
The main purpose of wages control is to ensure the payment of wages in such a way that both the
employees and employer are benefited.
Sometimes, wage payments are not shown on the payroll to non-existent employees. These
wages are called Dummy wages.
In some cases, when wages are paid according to hours worked, some employees may try to
show more hours in order to get extra wage. Precautionary measures are required to ensure that
wages are paid correctly.
In order to prevent the wages frauds the following steps should be taken.
1. The names of the workers should be checked with the names of workers to whom wages are
paid
2. Personnel records should be checked from time to time
3. Time records and piece work records must be maintained accurately
4. The various stages of wage preparation should be assigned to different employees
5. The wages sheet should be signed by all persons responsible on the preparation of wage
6. Total wages should be compared with original / estimate of the costing department
7. Receipts of wages should be duly signed by the workers
8. The amount drawn from the bank should tally with the actual amounts required
9. Any unpaid wages should be deposited in the bank immediately.
Wage procedure
The procedure of calculation and payment of wages is established in all organizations, the main
purposes of establishing wages procedure are as follows
1. To calculate the wages earned by each employee view of terms of employment and number
of hours worked.
It also includes payment of bonus, allowances, overtime premium and holiday pay.
2. To fulfill the legal requirements like deductions of income tax, national social security fund
and national hospital fund
3. To take into account other deduction like pension contribution, repayments of loans etc.
4. To provide the adequate information to the cashier to enable him to pay the amounts due to
the workers.
5. To complete the accounting records of the business regarding the wages paid
6. To ensure the proper use of amounts deducted for various reasons
NB// wages are paid to the workers on hourly basis. Their hours of work are recorded on clock
cards issued to them. These clock cards contain the information regarding name , clock number,
hours worked on different dates of the month etc. from these cards, the number of hours worked
showing normal time and overtime are transferred to the payroll
Payroll is a list of all employees showing their details of their gross wages due to them. It is
also called as wages sheet. The gross pay of workers is calculated on the basis of the following
documents.
1. Clock cards
This gives the number of hours worked by each employee
2. Pieces tickets
These provide information regarding the number of items provided by each worker. These are
used for those workers who are paid according to work completed.
3. Employees personal card
These provide the information regarding the wage rates etc.
Payroll contains different columns which are used to record some specific figures. One line is
used for one worker. The names of workers are arranged alphabetically or according to the serial
numbers of their clock card. A separate wage sheet is prepared for each month.
The following procedure is adopted to prepare a payroll
1. The number of hours worked are multiplied by wage rate per hour. Overtime worked is
multiplied by wage rate which is applied to the overtime worked. In this way , gross wage of
each employees is recorded into gross wages column.
2. The income tax payable to each employee is calculated under the system of P.A.Y.E. This
tax amount is entered into P.A.Y.E column of payroll.
3. The contributions of each employee regarding the NSSF and NHIF (national hospital
insurance fund) are shown into respective columns. These two are compulsory deductions
and these amounts are paid by the employer on the behalf of employees to the respective
departments
4. Total deductions for each employee are shown in a separate column
5. The total deductions are subtracted from the gross wages and net wages are entered into
another column.
6. Any advance taken by employees or loan repayments are subtracted to find out the wages
payable.

S. Nam Total R Gross Deductions Net Advance Bala

No e hours at wage wag of wage nce
worked e e payment due
P.A.Y. N.S.S. N.H.I. Tota
E F F l

For example
From the following information, prepare a payroll for the month of May 2019
Clock number Name Number of hour Rate of pay Advance paid in
worked shilling
S012 Robert 180 Sh. 10 per hour 500
S016 Mwangi 200 Sh. 14 per hour 700
S011 Alex 190 Sh. 12 per hour 600
S015 Josphet 210 Sh. 10 per hour 800
S013 Wachira 200 Sh. 16 per hour 800
S014 Paul 170 Sh. 13 per hour 500

Additional information
a. Normal working hours per month are 180, overtime payable for extra hour at the rate of
50% above the normal pay rate
b. P.A.Y.E to be deducted at the rate of 100% of gross wage
c. N.S.S.F to be deducted sh. 80 for each employee
d. N.H.I.F to be deducted sh. 20 for each employee
Payroll may 2019

S. Nam Total R Gross Deductions Net Advance Bala

No e hours at wage wag of wage nce
worked e e payment due
P.A.Y. N.S.S. N.H.I. Tota
E F F l
S0 Alex 190 1 2,340 234 80 20 334 2,00 600 1,40
11 2 6 6
S0 Rob 180 1 1,800 180 80 20 280 1,52 500 1,02
12 ert 0 0 0
S0 Wac 200 1 3,360 336 80 20 436 2,92 800 2,12
13 hira 6 4 4
S0 Paul 170 1 2,210 221 80 20 321 1,88 500 1389
14 3 9
S0 Josp 210 1 2,250 225 80 20 325 1,92 800 1125
15 hat 0 5
S0 Mw 200 1 2,940 294 80 20 394 2,54 700 1846
16 angi 4 5
Tota 14,900 1,490 480 120 2,09 12,8 3,900 8,91
l 0 10 0

Alex gross wage

Normal working hours 180
Total hours worked 190
Overtime 190- 180 =10
Payment sh. 12 per hour
180 × 12 = sh. 2,160
100% = sh. 12
50% =?
(50÷ 100) ×12 = 6
12 + 6= sh. 18
18 × 10= sh. 180
2160 + 180 =sh. 2,340
P.A.Y.E
10% of gross wage
100% = 2,340
10% =?
(10 ÷ 100) × 2,340 = sh. 234
Net wage
2,340 -334 = sh. 2,006
Balance due
Net wage – advance
2,006 – 600 = sh. 1,406
CATERING CONTROL REPORTS/ FOOD AND BEVERAGE REPORTS
Catering control includes information required for financial, material, labour and equipment
control.
1. Financial control
Financial control is found in the last stage of the control cycle. In this case, is to ensure that any
increase in the quality of food prepared is matched with a corresponding increase in cash
received from the customers, plus anything charged to their accounts in the form of V.A.T
service charge.
This usually requires a restaurant checking system, which is necessary to keep control of the
number of covers sold and of the items sold. This may be done through a till roll.
It is also important to take into account the control of cash.
It is necessary to ensure to ensure that all items sold have been paid for and that the money is
received or credit has been authorized .
It should be ensured that all amounts received by the waiting staff are paid to the cashier and that
the cashier banks the whole of each days taking intact profit and loss account and wages reports
should be prepared.
2. Material control
a. Beverage stock reports
Beverage stock reports are given after stock taking.
The purpose of stocktaking of beverage is to ascertain the actual value of beverages held in stock
as distinguished from the book value of the stock according to the perpetual inventory ledger.
Perpetual inventory ledger means the checking of stock items from one day to another
Stock taking will usually take place at the end of each trading period. This is expected when
running inventory is taken more frequently of the high usage and high value items to control
them more tightly.
The stocktaking in a cellar would involve the counting of each type and size of beverages held in
Stock, recording the information of preparing stock taking sheets.
The stocktaking becomes a little more involving than just the counting of bottles when the
returns to the cellar from function bars are taken into account. This would sometimes involve the
calculation of the contents of opened bottles.

b. Weekly / monthly food cost reports

This is a reconciliation report on an activity that it tightly controlled daily by management.
It is an example for the calculation of the monthly food costs for an operation where detailed
information is not thought to be necessary or for a small or owner managed unit where the
control is an everyday part of the manager’s activity, in order for the operation to be successful.
Example of a monthly / weekly food cost report
Kshs.
Opening food cost 15000.00
Purchases for period (4weeks day 1-28) 28525.00
Sub total 43528.00
Less closing food stock level at end of day 28 14800.00
Total cost of food consumed 28725.00
Total food sales 75836.00
Food Cost %age 37.87%
Preparation of weekly / monthly food cost report

Advantage of a weekly / monthly food cost report

1. It is simple and quick to produce
2. It can give an indication of the general performance of the unit

Disadvantages of a weekly / monthly food cost report

1. This information is only produced after seven or twenty eight days of operation
2. It provides no intermediate information so that any undesirable trends (e.g. food costs too
high) may be corrected earlier
3. It does not provide the daily or to-date information on purchases, requisitions and sales for a
unit with an average of £2700 a day turnover

c. Daily Food Cost Report

This food cost method is suitable for a small to medium-sized operation, or one where a not too
sophisticated method is required or where the costs involved in relation to the savings to be made
do not justify a more involved method

A B C D E F G H I J K L
 Today To Date
Dat Day Openi Purch Total Food Fo Food Food Food Foo Food
e ng ases food requisiti od cost % purch requisit d cost
food Avail oned sal (F/G)* ases ions sale %
Storer able es 100 s (J/K)*
oom (C + 100
inventi D)
on
Mar £ £ £ £ £ % £ £ £ %
ch
1 M 2220 321 2541 290 82 335.37 321 290 820 35.37
0 % %
2 T 2251 385 2636 370 98 37.76 706 660 180 36.67
0 % 0 %
3 W 2266 404 2670 440 11 40.00 1100 1100 290 40.00
00 % 0 %
4 T 2230 480 2710 480 10 45.71 1580 1580 395 40.05
50 % 0 %
5 F 2715 890 3120 405 10 40.25 1985 1985 495 39.09
05 % 5 %
6 S 2383 203 2918 535 14 35.91 2520 2520 644 38.51
90 % 5 %
7 S 0 2383 240 72 33.33 2760 2760 716
0 % 5
8 M 380 310 92 808
0 5
9 T 402 395 10 910
15 0
10 W 425 345 92 100
5 25
11 T 464 427 11 111
60 85
12 F 844 463 12 124
20 05
13 S 185 512 14 138
05 10
14 S 0 265 69 145
0 00
Tot 5382 5477
als:

Proof of Inventory
Opening Stock – 2220
Plus Purchases – 5382
Sub Totals – 7602
Less requisitions – 5477
Closing Stock – 2126
Preparation of a daily food cost report

Advantages of producing a daily food cost report

a. It is simple and easy to follow
b. It gives a reasonably detailed account of the general performance of the business on a day to
day business
c. It records the daily stock levels, daily purchases, daily food requisitioned and daily food sales
and enables the daily food cost percentage to be calculated
This information is used for preparing to-date totals (i.e. running totals to date)
d. The to-date food cost percentage smooth’s out the uneven daily food cost percentage and
highlights the corrective action to be taken, if necessary, early in the month
The uneven daily food cost percentage is often caused when food when food is requisitioned
on one day to be processed and sold on subsequent days
Disadvantages of daily food cost report
a. Although simple and easy to prepare, the report relies heavily on the accuracy of the basic
information to be collected, for example the total of daily purchases, daily requisitions, etc
b. It is not totally accurate as it ignores such things as the cost of the staff meals; food
transferred to bars for example potato crisps, nuts, salted biscuits, trays of canapés etc which
are given away free in the bars to customers and items such as limes, lemons etc. which are
included in certain drinks; and beverages transferred to kitchens, for example wine, spirits,
beer etc. for use in the cooking of specific dishes.

d. A Detailed Daily Food Cost Report

This food cost report is a development of the previous report and refines the accuracy of the
report by taking into account the cost of beverages transferred into the kitchen, the cost of food
transferred out of the kitchens to the bars, and the cost of employees meals as shown in the table
below: -
It is more accurate that the weekly / monthly and daily food cost report in that it includes
additions to the cost of food for beverages transferred to the kitchen (e.g. cooking wine etc.) and
deductions for the cost of food transferred from the kitchen to the bars (e.g. lemons, oranges,
olives, nuts, etc.) and for the cost of all employees’ meal.
It is also separates purchases into those that go straight to the store rooms and those that go direct
to the kitchen and are charged immediately to the kitchen.

Day March-2001 March-2002 March-2003

 M T W
A Stock levels at the beginning of each 2220.00 2250.50 2265.50
day
B Storeroom purchases 120.50 200.00 204.00
C (A + B) Total food available in storeroom 2340.50 2450.50 2469.50
D Food requisitioned 90.00 185.00 240.00
E Direct purchases 200.00 185.00 200.00
F Beverage transfer to kitchen 0.00 5.00 5.00
G (D + E + Cost of food used 290.00 375.00 445.00
F)
H Cost of employee meals 35.00 25.00 30.00
I Transfer of foods to bars 0.00 0.00 5.00
J (G – H – Cost of food sold 255.00 350.00 410.00
I)
K Food sales 820.00 980.00 1100.00
L Food cost %age 31.09 35.71 37.27
M Cost of food sold (to-date, running total 255.00 605.00 1015.00
of J)
N Food sales (to-date, running total of K) 820.00 1800.00 2900.00
O Food cost %age (to-date) 31.09 33.61 35.00
A detailed daily food cost report
NB: The accuracy of the to-date food cost percentage is refined to take into account all daily
transaction and these figures should be fully relied upon to be the basis against which corrective
action may be taken.

Disadvantage of a detailed daily food cost report

a. It is more detailed than weekly / monthly and daily food cost report
b. It relies very much on the accuracy of the collected information for example the collection of
all the requisition notes and the accurate extensions of the pricing of items; the collection of
the goods received sheet and the checking of it against delivery notes, credit notes, invoices,
etc.
Catering supervision
Supervision is the effective deployment of money, material and manpower
The job of the supervisor is essentially to be an overseer.
The supervisory role involves three functions
1. Technical function
Catering skills and the ability to use equipment are essential for a supervisor.
A supervisor needs to be able to as knowing what to do and how to do it.
It is also necessary to be able to do it well and to be able to impact some of the skills to others
2. Administrative function
A supervisor in any kitchen will be involved with the main planning which also includes the
ordering of food stuffs and accounting for and recording materials used.
The administrative function includes allocation of duties and the writing of reports particularly
where it is necessary to make comparisons.

3. Social function
The role of the supervisor is clearly seen in staff relationships, because the supervisor has to
motivate the staff under his or her responsibility.

Element of supervision
The accepted areas of supervision include
a. Forecasting
Before making plans, it is necessary to look ahead, to foresee possible outcomes and to allow for
them, for the supervisor; forecasting is the good use of judgment acquired from the previous
knowledge and experience.
b. Planning
From the forecasting, the supervisor puts on how many meals to prepare? How much to have in
stock? How many staff will be needed? Which staff needs training , if they are not capable of
what is required of them.
c. Organizing
The supervisor has to ensure that what is wanted is where it is wanted, when it is wanted, in the
right amount and at the right time. The supervisor is required to prepare duty role, training
programs and cleaning schedules.
d. Commanding
The supervisor has to give instructions to staff on how, what, when and where, this means that
orders have to be given and a certificate, degree of order and discipline maintained.
e. Coordinating
Coordinating is the skill required to get staff to cooperate and work together. To achieve this, the
supervisor has to be interested in the staff, to deal with their questions, listen to their problems
and to be helpful.
Particular attention should be given to new staff easing them into the work situation so that they
quickly become part of the team but the most important person to remember is the customer who
are to receive the service and good service is dependent on cooperation between waiters and
cookers.
f. Controlling
This includes the controlling of people and products, preventing pilfering as well as improving
performance, checking that the staff arrive on time, do not leave before time and do not misuse
time in between, checking that the product is of the right standard, checking to prevent waste and
also ensure that staff operates the portion control systems correctly.
The supervisor also inspects the dustbins to observe the amount of waste, checking
disappearance of quantity of food, supervising the cooking of the meal etc.
Responsibilities of the supervisor
1. Delegation
The supervisor can be more effective by giving a certain amount of responsibility to staffs.
The supervisor needs to be able to judge the person capable of the responsibility before any
delegation can take place.
2. Motivation
Since not everyone is capable of , or wants responsibility, the supervisor still needs to motivate
those with less ambitions. Most people are prepared to work and improve the standard of living
but they also desire to get satisfaction from the work they do. The supervisor should be aware of
why people work and how different people achieve job satisfaction and then be able to act upon
their knowledge.
 3. Welfare
People always work well in good working condition and this includes freedom from fear that is
fear of becoming unemployed, fear of discrimination, fear of failure to work, job security and
incentives encourage good attitude to work. The physical environment should be contusive.
4. Understanding
The supervisor needs to try to understand both women and men and to deal with both sexes
fairly.
The work needs to be allocated according to each individual’s ability. Everyone should be kept
fairly occupied and the working environment must be conducive to producing the best work.
5. Communication
The supervisor must be able to communicate effectively. To convey orders, instructions,
information and manual skills. The supervisor requires to possess the right attitude to those with
whom h/she needs to communicate . in order for the instructions to be acceptable by the one
receiving them. It is necessary to use the right words and the right time, selected to give the
instructions.
Instructions and orders can be given with authority without being authorative , therefore the
supervisor needs technical knowledge and the ability to direct staff and to carry responsibility ,
so as to achieve the specified objectives of an organization.
He or she is able to do this by organizing, coordinating, controlling, planning and through
effective communication.
Economic and financial aspects of food and beverage supervision
The supervisor should be able to explain the significance of the industry in national economy,
social values and its products and service.
The supervisor should ensure that the establishment is recognized by people and that there is a
demand for the products and service.
The supervisor should ensure that there is control of the budget and material, labour, and
overhead cost.
Personal aspect of supervision
The supervisor is responsible
1. Selection and interviewing
2. Introduction of new staff
3. Job training
4. Staff appraisal and development
5. Staff welfare
6. Legal aspects concerning wages and employment , public health act, factory or industry Act
etc.
7. Human motivation
8. Communication for example upward, downward, horizontal and grapevine communications
9. Organization of work that is planning and work schedules, duty rosters in relation to duty
times to peak and off peak , meal break, cost of overtime, appreciation of work duty etc.

Emerging Trends
CONSUMER TRENDS
One of the biggest changes in the past decade in the food and beverage area has been the
recognition of the importance of consumers and the choices they make. The industry has become
more market led and operators who do not take account of their customers’ needs and wants have
suffered. This change has been partly reflected in the growth of food-related issues reported in
the media and the wide array of television programmes with food, cooking, chefs and restaurants
as their focus.
Key food trends
1. Contrary to trends in the UK, economic pressures are encouraging more Americans to eat
and cook more dinners at home, with three quarters of the respondents eating dinner at home
at least five days a week – although many of these will be restaurant branded meals from a
food store or takeaways. At the same time, however, eating out for breakfast and lunch is
continuing to grow.
2. There is a growing ‘foodie’ culture and many customers are ‘trading up’ to more exotic and
gourmet meals, both in restaurants and as indulgent treats to cook at home.
3. There has been a growth in pre-prepared convenient products, such as peeled and chopped,
and even cooked, vegetables and upscale frozen dinners. Portion sizes are however reducing,
with TGI Fridays Right Portion Right Price promotion (30% smaller portions for between
$6.99 and $8.99) being reflected in smaller cook at home portions.
4. More foods with greater sensual appeal in flavour, aroma and texture.
5. Increasing numbers of children but increasing awareness of child obesity and so interest in
healthier options.
6. For grown-ups, there is a trend towards foods ‘ without ’ – fat free, dairy free, sugar free,
caffeine free and so on.
7. There has been a growing interest in locally sourced, seasonal produce from specialist or
artisan producers, with a strong association with a reduction in food miles – the distance
between the producer and the plate.
8. This is linked to an interest in healthier eating, either to reduce the risk of developing a health
problem or to help with an existing issue.
9. A new interest in unusual beverages, ranging from high energy drinks to ready-to-drink tea
and coffee, and bottled mineral waters and even Health Colas.
10. Snacking and sharing extends from new snack offers in the mid afternoon and late at night
growing in popularity in fast-food operations, to ranges of upscale bite size appetizers for
sharing and even the appearance of bite size dessert platters.

ENVIRONMENTAL ISSUES
There are a number of environmental issues of which food and beverage operations must be
aware. Three of those issues strongly related to food and beverage operations are explored. The
issues of waste management, energy and water consumption, and the effects to the environment
by procuring products from far away parts of the world.
Waste management
So what can operators do to ensure they minimize waste? Depending on the size of the operation
the operator could do some or all of the following:
1. Invest in waste minimizing technology such as grinder’s and incinerators not unlike the ones
that are currently utilized in some cruise ships.
2. Reuse items such as printer paper, envelopes, packaging.
3. Reduce usage of things like paper, for example do not print what does not need printing.
4. Compost as much of the waste as possible.
5. Recycling glass, paper, aluminum and plastic can reduce an operations waste by up to 35%.
6. Invest in a vacuum drainage system
7. Ensure you operate a waste minimization programme and that you evaluate the amounts of
waste your business generate regularly.
8. Educate your staff, suppliers and customers so that they also minimize waste whilst on your
premises. The Acorn House restaurant, for example, offers various portion sizes in an attempt
to reduce customer wastage and at the same time offer better value for money.

Energy and water consumption

Ways of reducing energy and water consumption can be achieved by:
1. Using energy efficient equipment and light bulbs.
2. Recycling of grey water.
3. Utilizing alternative energy sources, such as solar power.
4. Adjusting taps and toilet water tanks.
5. Minimizing water leakages.
6. Training staff to switch off lights when not needed and use water responsibly.

ETHICAL ISSUES
Ethics in food and beverage management is an important area and one that could easily be the
focus of another book. Here, the reader is directed towards two issues that are current and will
probably continue to be so in the next few years. Ethical food production and a debate on ethics
in tipping practices

HIGH TECH FOOD

As new technologies in food production emerge, this book would not be complete without
mentioning the emergence of high tech foods. In more and more restaurants around the world,
chefs decide to use convenience products in their menus either because of the lack of staff in
their kitchen or because of the lack of kitchen space or equipment.
But what does high tech food really means? Is there a clear definition? High tech food can be
defined in two ways:.
 As food that has been manipulated at a base level.
 From a more generic point of view; from convenience goods to high tech equipment.

CATERING COST CONTROL

Specific Objectives
By the end of this sub-module unit, the trainee should be able to:
a) Explain the importance of control in food and beverage production
b) Discuss control measures during preparation, production and presentation
Importance of cost control in food and beverage production
The principal purpose of food and beverage planning and control systems is
 To avoid excessive costs by reducing waste and other forms of loss to a minimum,
without sacrificing the quality or quantity of the food which goes to the customer an
effective control procedure will serve other purposes as well:
 Aid in developing popular menus
 Aid in improving the quality of the product
 Aid in pricing for profit
Control measures during preparation, production and presentation
Control measures during preparation
1. Accurate weighing
2. Use of standard recipes
3. Correct preparation methods
4. Use of correct tools and equipment
Control measures during production
1. Use of standard recipe
2. Use of efficient equipment e.g. non-stick pans
3. Strict observation of cooking duration
4. Strict observation of cooking temperature
5. Choice of the correct production methods
Control measures during presentation
1. Use of correct service equipment
2. Use of portion control aids
ACCOMMODATION COST CONTROL
Specific Objectives
By the end of this sub-module unit, the trainee should be able to:
a) Explain the importance of control in housekeeping, laundry and front office
b) Discuss cost control measures used in housekeeping, laundry and front office
Importance of cost control in housekeeping, laundry and front office
1. To make operations more efficient and cost effective
2. To evaluate the degree to which departmental objectives are being met
3. To take preventive measure against theft, pilferage and misuse of material and equipment
4. To prevent wastage of materials
Cost control measures
Costs of cleaning and maintenance
 Careful selection, induction and training of all staff
 Standardization of surfaces, furniture, fittings, equipment and cleaning materials
 Use of mechanization- providing sufficient equipment for all staff so that time is not
wasted waiting for equipment to be available.
 Good planning and layout of premises
 Good planning and organization of staff
 Good supervision and means of checking work standards
 Use of standard times for various tasks
 Use of job analysis
 Use of work study, method study and work measurement
 Careful purchasing, stores and stock control procedures to prevent abuse and wastage of
materials etc.
 Use of contract services especially for very specialized work.
 Use of preventive and planned maintenance
 Effective use of preventive devices, E.g. mats, bin liners, ashtrays, seals, etc.
 Good communications system
 Keeping up to date with modern technology – being prepared to accept change
CONTROL OF SALES
Specific Objectives
By the end of this sub-module unit, the trainee should be able to:
a) Explain checking methods
b) Describe the distribution of cheques
c) Explain billing methods
d) Describe methods of payment.
Checking methods
Checking methods/ systems in food service operations refers to order taking and billing methods.
A good checking system will ensure that every dish that goes out of the kitchen is recorded and
billed.
If it is a complimentary food, then the kitchen order ticket (KOT) must be authorized by the head
waiter.
The KOT must provide the following information
a. Name and code of the waiter serving the guest
b. Table number
c. Food order and quantity ordered
d. Date and time of the order taken
e. Number of guests
 f. Signature of the order taker.
Importance of checking systems
1. To provide the cashier with the information to make up the bills
2. To keep a record of all food and drinks used
3. To keep a check on stores so that wastage can be minimized and pilferage discovered
4. To store information so that the cost of each menu item can be calculated accurately and
the profit made on it worked out
5. To provide a breakdown of sales and financial statistics
Absence of proper checking system may lead to the following
1. Staff entertaining their friends and family members with food may undercharge or not
charge them at all.
2. Consuming the food during and after duty hours. The staff members may be tempted to
eat food meant for sales without anyone’s knowledge as there is no record.
3. Increased food cost and pilferage rate
4. Staff selling dishes without others knowledge and taking away the money
5. Non availability of proper account of sales
6. Inability to pay creditors and thereby leading to closure of business
Checking methods
1. Triplicate checking system
2. Duplicate checking system
3. Electronic billing machines
4. Computerized checking system
Methods of taking food order
Orders from the guests for food and beverages should be recorded for effective control and to
avoid confusion during service.
Order taking has the following functions
1. It should be clear to the production staff to know what dishes are to be made
2. The service staff should be able to know which dish is to be served to which customer
3. The billing staff should be able to see clearly what has been ordered and consumed
4. The auditing staff should be able to understand when and what was served and by who.
Method Description Where followed
Check and bill system It is printed list of dishes on Fast food and cafes where
offer with quantity and rate limited dishes are on offer
columns.
The quantity required is
written against the dish; the
top copy goes to the
kitchen, the second copy
acts as a bill, and the third
copy is retained for control
 purpose.
Service with order Order is taken , payment is Fast food outlets, take
received according to that away, cafeterias, canteens
order, and guest is served
Duplicate system Order is taken on a Popular restaurants and
duplicate book. The top cafes
copy goes to the kitchen and
the second copy is retained
for service and billing
Triplicate system Order is taken on a triplicate Upscale and fine dining
book. The top copy goes to restaurants
the kitchen; the second copy
is sent to cashier for billing;
and third copy is retained by
the waiter for reference
during service.

CIRCUMSTANTIAL KITCHEN ORDER TICKETS

The following situations may arise during the service
a. Dish is collected from the kitchen against KOT, but is dropped accidentally
b. General manager or manager of the restaurant who is eligible to dine in the restaurant
orders food
c. Guest asks for extra portion of accompaniments, which are not chargeable.
d. Guests ask for some other dish in place of the dish offered on the table dhote menu
NB// in such situation is necessary to write out special checks, called circumstantial
KOTS
1. Accident
The waiter may accidentally drop a dish, which has been collected from the kitchen. It
must be replaced without any extra charge to the guest.
Here a KOT must be written with the heading ‘accident’.
It will show the number of proportions of dishes required and should be signed by the
headwaiter and authorized by the supervisor in charge. No charge is made

Name of the establishment

Table no:4 Covers: Date :
Accident
Braised rice 1
Signature:

2. Supplement
When an extra portion of food is required because sufficient quantity has not been sent
from the kitchen, a special KOT must be written out with the heading ‘supplement’. This
 means to supplement what has already been sent. It should be authorized by the head
waiter or supervisor and normally there is no charge, however, this depends on the policy
of the establishment concerned.

Name of the establishment

Table no:4 Covers: Date :
Supplement
Braised rice 1
Signature:

3. Retour or return and En place or in its place

When a wrong dish has been sent, it should be sent back to the kitchen and replaced with
the right dish, making a special KOT. If the service being carried out is from an ala carte
menu then the price of the two dishes concerned must be clearly shown.
Two main headings are used on this special check: retour and name of dish going back
to the kitchen and en place and name of the new dish to be served.

Name of the establishment

Table no:4 Covers: Date :
Retour
Swahili Chapati
En Place
Braised rice 1
Signature:

4. Suivant
Sometimes, it is necessary to write out more than one KOT for a meal, for example,
where ‘coffee’ check is written out after serving the dishes. At the head of this check
should be written the word ‘Suivant’ which means the ‘following’ check and shows that
one check has already been written out for that particular table. The term ‘en suite’ may
also be used.
Name of the establishment
Table no:4 Covers:3 Date:2/3/2020
Suivant
Braised rice 2
White coffee 1
Signature:

5. No charge
Managers who are entitled to dine in the restaurant and to entertain guests for sales
promotional activities or public relations may order for dishes, which are not charged.
These dishes should be written on KOT with the words ‘No Charge’ or
‘Complimentary’. These KOT must be signed by the waiter and the manager who places
the order.
Nb// the KOT book has a serial number and every sheet must be accounted for. If any sheet is
spoiled in any way, it has to be cancelled and sent to the control department. The word
‘cancelled’ should be written across all the three leaves and it should be signed by the
headwaiter. The spoiled KOT should never be thrown away as every slip in KOT book is
accounted for and the waiter is responsible for the same.
Billing methods
1. Bill as check- in duplicate checking system, the duplicate copy of food order is made as a bill
by entering value of food ordered and is presented to the guest. The guest may pay directly to
cashier or pay the waiter. At the end of service, the cash collected must be handed over to the
control department. This system is followed in a smaller hotel, popular restaurant, department
store catering and cafes.
2. Separate bill –this bill is made referring to the second copy of KOT at the end of service by
the billing staff.
The bill must have the reference KOT number. All bills are serially numbered for control
purposes and are made in triplicate.
The top copy of the bill is presented to the guest in a folder. On receiving cash, the bill is
stamped paid and returned to the guest. If he or she is a resident guest, name and the signature of
the guest should be obtained to bill and submitted to front office to charge his or her account.
The second copy of the bill is retained by the cashier, which will be verified at the end of
operations by the control staff. The third copy remains in the book for future reference. This
system is followed in a rated and high class restaurant.

Sample of manual bill

Name of the establishment
Bill No: 2457
Ref KOT
Waiter: Table: Covers: Date: Time:
Serial No Items Quantity Rate Amount

Tax
Total
Room No: Guest’s Name
Guest’s Signature Cashier

3. Bill with order- this is the food order and customer bill combined on one sheet and
would be presented to the guests. When the order is taken, each of the guest requirements
 would be written down in the next column and amount will be noted down in the
appropriate column.
This method can also be done through machine. Each key of the computer is programmed
to a specific dish. As the dish is entered, the price of each dish appears on the monitor
showing the order to the customers. When the order is complete, the total sum is
displayed on the monitor, on receiving payment, the order is dispensed and a printed
receipt is given.
4. Prepaid- this occurs when money is received for a specific occasion or an event and allows
the organizer to determine the exact number of guests prior to the day of function.
5. Voucher –in such cases, a guest has been issued credit by a third party, his/her employer or
any firm, in the form of a voucher .this voucher can be exchanged for food and non-alcoholic
drinks to the maximum value indicated in the voucher. If the cost of dishes consumed is less than
the voucher value, no cash will be returned to the guest to make up the difference. If the cost
exceeds the voucher value, then the guest must pay the excess amount,
6. No charge –in this method, the customer is requested to sing the bill for services received and
the bills sent to the firm or company sponsoring the hospitality. The customer may be insisted to
show the official authorization from the sponsoring company.
7. Deferred account –this method of billing is used often in function or event catering.
In this method, bill for the services offered is sent to the company or firm after the event. This
will be paid by the organizing person.
The methods of payment
1. Cash
the amount of cash received by the operator should always be checked in front of the customer
and change given be counted back to the client. It should be accompanied by an itemized and
receipted bill.
2. Cheque
This payment should always be accompanied by a cheque card.
The cashier should confirm the following points in the cheque;
a. Dated correctly
b. Made payable to the correct company
c. Filled in with the correct amount.
d. Signed by the person indicated on the cheque.
The operator should also check that the card is valid.
3. Credit cards
On receipt of a credit card it should be checked for validity.
A voucher is then made out and the appropriate details filled in.
The customer is then requested to sign the voucher, which is then counter checked with the credit
card.
The customer receives a copy of the voucher as a receipt.
Credit cards also be checked for validity by passing it through an electronic machine after which
details of the transaction are printed.
4. Debit cards
Used in a similar manner to credit cards but results in the amount due being immediately
deducted from the customer’s bank account.
5. Charge cards
Here the customer is normally invoiced once a month for all services rendered during that
month. The account must then be paid up in total and no is allowed. Examples include Diners
club card.
6. Vouchers and tokens
Vouchers such as luncheon vouchers may be offered in exchange for food in those
establishments accepting such vouchers.
These vouchers have an expiry date.
Should food be purchased over the value of the voucher the difference would be paid for in cah.
Tokens may be exchanged for specific meals or for certain values.
If food purchased is more than the value of the token, then the difference is again paid in cash.