A Proper Evaluation of the Food Costs - Case Study Example

Name Institution Tutor Date Introduction Operating any business in a food industry for example a restaurant or even a culinary school cannot succeed without a proper evaluation of the food costs. Accurately calculating the food cost then a successful recipe will be found that can be used in running a highly profitable restaurant. Calculating the food costs requires one to take the inventory for the entire period and then adding the made purchases to the number. One then subtracts this with the inventory number at the end. This therefore gives one the theoretical value of the product used in the entire week. The number is then divided by the sales and then the sales percentage is then calculated for the entire cost. An example is when someone has a 40% food cost. This means that one has spent 40 for each dollar that was taken in sales. Sales and Revenue Management Sales and revenue management and implementing it on the beverage sales are significant. Revenue management refers to applying disciplined analytics to be used in predicting consumer behavior at the hotel. Revenue and sales management are both used in optimizing the availability of products as well as prices to be used in maximizing revenue growth. The main aim of implementing these two in the sale of these beverages is in order to sell the right amount of products to customers as well as accurately align product process, availability and placement with all the customers’ segment. Sales and revenue management has potential impacts on the costs of the beverages. It will assist in pricing issues. This involves redefining pricing strategies as well as developing pricing tactics that are disciplined. The main objective here would be the creation of an anticipating value for customers as well as setting particular prices. Revenue and sales management will also aid in marketing as well as inventory (Brown, 2003)s. Pricing however the most important factor since once the beverage costs are determined then the company will continually capture the value. Financial chart 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Monday Tuesday Wednesday Thursday Friday Saturday Sunday This is a sample of a financial graph that can be created in order to determine beverage costs on a weekly basis as well as the sales and revenue management Creating a financial chart for the hotel will also assist in issues to do with pricing strategies and in determining the percentage of sales that have been made on a daily basis. The lowest sales incurred will enable the restaurant to decide on ways of increasing the percentage. Important tips for calculating food cost It is always necessary for one to use similar sales data as well as the purchase activity. One also needs to take the inventory always after sales activities have already ceased. This can be maybe in the night or much early in the morning. Another tip is that deliveries should not be made during the inventory. The inventory value refers to a recent cost that has been paid for each item. Another very important tip is that the dollar amount for each inventory can only matter since it always relates to the cash flow (Cross, 2011). An example is if one carries our an inventory of $6,000 then for the week it is $7,000 but then the food cost just ends up to be the same. On the other case, one has $1,000 that is in inventory. If one needs the product for specific reasons, one can have it but if one does not require it then there is no need to get it. If one however counts an additional $1,000 to the inventory then this will not have any effects on the costs. The effects on the costs will then be at zero. Controlling the food costs In order to control food costs one has to carry out a proper tracking food costs always on a daily basis. Controlling food costs summarizes into four main significant principles. The first one is ordering only as necessary. The second principle is maximizing on each ingredient. The third one is cooking seasonally while the fourth one is for one not to have just one vendor. One must have several vendors. Ordering wisely Ordering wisely is highly essential for an exceptional food cost. A most exceptional way to be used in controlling the food cost is through ordering correctly. This means that one must always know what they need as well as how much they need. Keeping the inventory will inform the owner of all these details. It is also important to always take advantage of buying power (Dahl, 1999). Controlling the portion size Controlling the portion size is also important. During some instances, small things can bring out a difference when meeting the target food cost. Portion control must be the biggest concern. It is important for the owner to be highly diligent with the staff in order to ensure that the staff is portioning proper weights of protein. It is also important to train the staff efficiently (Brown, 2003). This can bring out differences when meeting food cost targets as well as offering right quantities. The restaurant or hotel owners should also avoid raising the menu princes as well as potentially having potentially profitable restaurant. This should always go along with consistent dishes for the patrons. Decreasing the waste It is important and highly advantageous to train the employees on important rule of not wasting food. This is a factor that is crucial for the restaurant that often specializes in high cost and highly perishable items for example sea foods. It is important to have cooks to always understand the importance and values of using all the pieces of the products as well as being creative with all the scraps (Dahl, 1999). Balancing the menu It is also important to balance the menu. This is important based on the location of the restaurant. It is important to analyze all the menus as well as ensure that the mid weeks are not empty with any customers in the restaurant. There is much success with weighing the menus with both the high and low cost items as well as ensuring that there are adjustments that are made to the menu in order to meet the food cost targets (Carolan, 2011). Information to be monitored There are key pieces of information that need to be monitored over the coming few weeks in order to measure the results of all the food costs strategies written above. These include the effect on the labor cost. The different contribution margins, the overall effect on the food cost as well as profitability and finally the amount of food prepared daily for the buffet as well as ways of dealing with waste and leftovers. Labor costs Labor costs are significant. They can be variable and this depends on several factors from within the restaurant as well as outside the restaurant. The restaurant owner can control the effect of the labor costs. It is always important to note the factors that cause both an increase as well as a decrease on labor costs in order to know the food costs effects. Managing labor costs is important. The owner can have only sufficient employees who can ensure that the business runs well. Temporary employees on the other hand can often be compensated at lower rates depending on the amount of work they did unlike the long term employees (Dopson, 2010). This therefore creates a low labor cost for the restaurant. Another positive effect on labor cost can occur after creating a voluntary reduction on hours. Different contribution margins A contribution margin refers to a marginal profit measured per unit sale. This is highly significant when carrying out several calculations. These can be used when measuring operating leverage. Low contribution margins are highly prevalent during labor intensive sectors whereas the high contribution margins are highly prevalent only in a capital intensive industrial sector. A contribution margin refers to a sales fraction that always contributes to the fixed costs’ offset. On the other hand a unit contribution margin refers to an amount of each unit sales that adds up to profit. It is often the slope of a profit line. Calculating the unit contribution margin is by subtracting the unit variable cost from the unit revenue price. The contribution margin ration on the other hand refers to the percentage of the entire contribution divided by the total revenue. This can be calculated from a unit contribution over the entire unit price. This can also be calculated by dividing the total contribution by the total revenue. It is important for the restaurant manager to calculate the contribution margin analysis between the buffet as well as a la carte. This will enable the measurement of the way in which the entire growth translates towards profitable growth (Carolan, 2011). Differences in contribution margins are important when calculating food costs in the restaurant. Predicting profitability is also important. It is therefore important to always calculate profit margins. This is done by subtracting the cost of goods from the selling price. The result from here is then divided by the selling price. This results to the profit margin which is also the selling price’s percentage. Mixing up the recipes as well as engineering the menu is important. This includes products mixing when preparing food to the menu’s physical design (Dahl, 1999). This will help to improve the menu and the food prepared. Eventually the number of customers will increase and this means that there will be an increase in profit for the restaurant. References BIBLIOGRAPHY \l 1033 Brown, D. R. (2003). Controlling Restaurant and Food Service Food Costs. Florida: Atlantic Publishing Company. Carolan, M. (2011). The Real Cost of Cheap Food. New York, NY: Routledge. Cross, R. G. (2011). Revenue Management. New York, NY: Crown Publishing Group. Dahl, J. O. (1999). Food [cost] control for hotels and restaurants. New York, NY: The Dahl publishing company. Dittmer, P. R. (2008). Principles of Food, Beverage, and Labor Cost Controls, Study Guide . New Jersey, NJ: Wiley. Dopson, L. R. (2010). Food and Beverage Cost Control. New Jersey, NJ: John Wiley & Sons. Read More