Table of Contents

Page
Title Page

Table of Contents

Introduction

Food & Beverage Control

Limitations of Food & Beverage Control

Objectives of Food & Beverage Control

Economics of the Food & Beverage Industry

Food & Beverage Control Theories Application

Profit Planning

Break-Even Analysis

10

Payroll Cost Control

10

Food Costs Formulas

11

The Menu & Menu Pricing

11

Food Purchasing Control

12

Food Receiving Control

12

Food Storage Control

13

Food Production Control

13
Sales & Cash Control

13

Bar Beverage Control & Bar Cost Formulas

14

Problems of Bar Operations & the Law

14

Computers & Information Systems Technology

Conclusion

15
15

Bibliography

16

Appendices

17

Introduction
The tourism industry is comprised of four essential segmentshospitality,
retail stores, transportation services, and destination sitescomplementing each
other to provide a complete service to industry customers. The hospitality sub-sector
is comprised of lodging operations and food and beverage operations. Food and
beverage operations forms part of the line functions of hotel operations because the
people providing the service directly interacts with customers and the service itself is
directly experienced by hotel guests. ( 2004) Due to this characteristic, food and
beverage operations plays an important role in ensuring quality service and
customer satisfaction. In recognition of the importance of food and beverage
operations, hotel management and the employees under the food and beverage
service unit organize in detail the entire operations as a management strategy.
Generally, this starts with detailed planning, conscientious implementation, thorough
assessment, and timely adjustments. ( 1996)
Food & Beverage Control
An important food and beverage organisation principle is food and beverage
control integrated into the management strategy as guide to planning and regulation
of operations. Food and beverage control refers to the guidance and regulation of
the costs and revenue of operating the catering activity in hotels, restaurants [] ().
This principle is crucial to hotel and restaurant operations. This is justified by the fact that
sales in the food and beverage operations often account for half of the total revenue of the
hotels or the primary or only source of revenue in restaurants. Consequently, in terms of cost,
food and beverage operations is attributed with around twenty-five to forty-five percent of
total costs. ( 2003)
The extent of control depends upon the scale of operations. If food and beverage
operations are small such as in owner-operated restaurants or hotels, more often than not the
firm may not be able to afford or see the immediacy of applying complex control over its
operations. If food and beverage operations are large such as in first class hotels and
restaurants with national or international operations, management is likely to develop precise
and up-to-date information covering its entire operations analysed and recorded in computer
systems. However, regardless of the scale of operations, owner and managers should make

sure that the data type and volume collated by the business firm coincides with its
information needs if the resulting control should become effective and meaningful to the
firm. (2003)
Limitations of Food & Beverage Control
Despite the importance of food and beverage control, it is imperative that owners and
managers recognize its limitations so that no false expectations are made and the mechanism
is utilized optimally. One limitation is that food and beverage control mechanism is neither a
solution nor a preventive mechanism. This is because the control mechanism is highly
dependent upon accurate and up-to-date policies and operations processes to become reliable.
Despite this limitation the control system should be able to aid in the identification of
problems and the determination of trends in business operations. Another limitation is the
inevitable requirement of the control system for management supervision to achieve efficient
functioning. Food and beverage control system is not in itself independently functioning
because it needs knowledgeable and skilled people to direct its utilization towards determined
goals. The last limitation is the requirement of action on the part of management to evaluate
and interpret information derived from the mechanism and utilize the evaluations in decisionmaking and planning. ( 2001)
Objectives of Food & Beverage Control
After determining the limitations of the food and beverage control mechanism,
it is timely to look into the objectives met by the use of control systems in food and
beverage operations. There are six benefits that a hotel or restaurant may derive
singly or concurrently from adopting a control system.
First objective is income and expenditure analysis. This type of analysis
focuses on the income and expenditure derived from food and beverage operations.
Income analysis is made at the level of an individual selling unit covering information
on food and beverage sales volume, sales mix, average customer spending power
for different times of a day, and total number of customers served in a given period.
Cost analysis is made at the departmental level for food and beverage costs, costs
per portion cost, and labour cost. The performance of the individual selling unit or
department is expressed and integrated in gross profitrevenue less cost of food
and beverage sold, net marginnet profit divided by the net revenues, and net profit
gross profit less all expenses incurred in the food and beverage operations. The
values derived from these measures inform managers of the financial performance
of the company, whether it is gaining or loosing from its operations. (2004)
Second objective is standard establishment and maintenance. The foundation
of food and beverage operations is the implementation of standards specifically

applicable to a specific operation such as bar or restaurant operations. Without

standards, managers and employees have no idea what objectives they have to
accomplish and what process they will use in the performance of their tasks.
Moreover, standards provide the measure by which performance is evaluated.
Commonly, standards are set out in manuals covering all standard operating
procedures accessible to all managers and employees. However, the establishment
of operating standards forms only half of the equation. This is because the more
difficult half involves the consistent maintenance of these standards. Maintenance is
ensured by conducting regular training programs and getting comments from
customers on the service and the service providers. Information on food and
beverage control reflects on the maintenance of standards. (2004)
Third objective is pricing. Food and beverage control provides basis for menu
for both regular operations and for special functions. The determination of an
accurate food and beverage pricing depends upon concurrently reliable information
from food and beverage control such as the costs, spending power of most
customers, prices of competitors, and acceptable market prices. ( 2004)
Fourth objective is waste prevention. Performance standards in the food and
industry operations are achieved through the establishment of cost, revenue and
profit targets. The desired performance level is achieved only through the
minimization of waste of all resources. Wastage is prevented through the
implementation of a detailed and focused food and beverage control that links plans
with actual implementation. ( 2004)
Fifth objective is fraud prevention. While a fiduciary relationship should exist
between managers and employees as well as the business firm and its customers, it
is also an important consideration to prevent opportunities for the commission of
fraud. Common fraudulent acts employed by customers are leaving without paying or
claiming substandard food and beverage ingredients and preparation while staff may
overcharge, undercharge or steal from the firm. Control systems serves as audit
mechanism dissipating the possibility of fraud. ( 2004)
Sixth objective is information management. Every food and beverage firm
requires the creation of periodic reports on the operations of the business. The
information should be accurate and timely in order to become an important source of
information for strategy formulation and decision-making. Information reported is
compared with standards set for the period to evaluate the extent of compliance with
budget and profit standards. ( 2004)
Economics of the Food & Beverage Industry

Much like any other product, the economics of the food and beverage industry
is characterised by demand, supply and price dynamics. Hotels and restaurants that
supply food and beverage base the level of supply on market demand. Consumer
demand is determined through its various determinants. Consumers differ in their
motivations to consume at a given time so that there are only generic determinants
and managers have to recognize which determinants apply to their particular food
and beverage market. Generally, demand for food and beverage is captured by this
equation ( 1991):
Qd = f(P, M, PR, T, )
where: Qd= quantity demanded of food and beverages
P= price of food and beverages
M= per capita income
PR= price of related goods
T= tastes and preferences of consumers

Simply put, the equation provides that the demand or the amount of food and
beverage consumed by customers is determined by price, income, price of related
goods, and tastes and preferences. The letter f denotes a summary of demand
determinants. Based on this formula, decision-makers in the food and beverage
industry determine specific data represented by the formula. In the food and
beverage industry price determines consumption so that in menu pricing managers
consider acceptable price based on costs, ability to pay of consumers and
competition prices. Depending upon the market segment targeted by the food and
beverage company price has to be adjusted to the purchasing power of the segment.
If the target market is the high end sector of the market, then the firm can adjust the
price up to a level acceptable to this segment. Pricing is also made relative to close
competitors so that it is equivalent or more competitive than the price of food and
beverage establishment offering products and services similar to the firm. Tastes and
preferences of consumers are determined by the socio-demographic characteristics
of the targeted market segment. Food and beverage companies utilize these
demographic characteristics to determine the food and drinks menu.

Food & Beverage Control Measures Application

Profit Planning
Profit planning involves the preparation of operating and capital budgets as
guide for future action and evaluative standard for evaluating budget execution. The

operating and capital budgets comprise the master budgetprofit statement and the
balance sheet. The operating budget involves records on sales revenue, food and
beverage cost of sales, payroll and relates expenses, other departmental expenses,
undistributed operating expenses, and fixed expenses while the capital budget
covers capital expenditure, stocks, debtors and creditors. (1992) Table 1 in the
Appendix shows the budget for opening a new restaurant including not only the food
and beverage but also the equipment needed in food preparation and service. This
could be more detailed depending upon the particular food and beverage served by
the business firm. Table 2 in the Appendix shows the master budget showing the
expected profit based on the comparison of expenses and expected revenue. In this
case, the restaurant stands to earn a net income of $ 51, 454.20 in a month.
Break-Even Analysis
Break-even analysis refers to the financial situation where the revenue earned
is equivalent to total expenses so that profit is zero. A break-even situation is
captured by this formula:
Break Even = Fixed Cost / (Unit Price - Variable Unit Cost)

Fixed cost refers to the total of all costs needed to produce the initial unit of a
particular product, unit price is the amount paid by customer per unit of product
consumed, and variable unit cost is expenses that change as additional units of a
product are produced. (1992) In the food and beverage business, this is an important
indicator for decision-making on level of production. As an example, in the case of
burgers sold at the hotel restaurant captured by the following valued: variable unit
cost is $.97, unit price is $2.79 and fixed cost for 18 months is $140,000. Assuming
that projected unit sales is 300 burgers the break-even point is 76,900 burgers at
$2.79 per unit. If the hotel is confident that it will sell before the end of 18 months
then the production plan works, otherwise the hotel has to re-evaluate its position.
Payroll Cost Control
Payroll cost control involves the classification of employees, their
corresponding salaries and benefits depending on the period agreed for the payment
of salaries, expected salary and benefit adjustment in the future and other payroll
concerns. This is done for the purpose of developing an accurate budget as well as
for human resource management considerations. ( 1992) Table 3 in the Appendix
shows an example of a payroll cost control report showing expected labour cost and
changes in the total labour expenses.
Food Costs Formulas

The food cost formula is important in determining the performance of the food
and beverage industry especially when reports show that food purchase is not
equivalent to food costs. The food cost formula (Davis, Lockwood & Stone
2003) is: Beginning Inventory + Purchases Ending Inventory = Food Cost
If a restaurant has determined its food cost at $20,000 constituting its purchases,
and it reported a beginning inventory of $12,000 and had an ending inventory of
$9,000 the food cost turns out to be $23,000, $3,000 higher than the food cost. The
disparity between the pre-determined food cost and actual food cost indicates a
problem. Commonly, food theft constitutes a problem in the food and beverage
business. Although businesses are expected to anticipate a 10-15 percent loss in
revenue due to food theft, managers still have the responsibility to prevent excessive
food theft through inventories and human resource motivations. To determine food
cost percentage and menu food cost percentage, the following formulas apply
respectively:
Cost of Menu Item / Price = Food Cost Percentage
All Food Cost Percentages / Number of Menu Items = Menu Food Cost Percentage

These formulas reflect on the viability of the food and beverage operations. In the
case of a burger, if the unit price is $2.79 and the cost of this menu is $.79, the food
cost percentage is .28, which is within the standard 25 to 30 percent margin for a
reasonable performance.
The Menu & Menu Pricing
Menu planning and subsequent pricing depends upon certain considerations of
the target market which are: 1) demographics factors such as age, gender,
socioeconomic level, and ethnic background; 2) scheduling of the menu served for
different times of the day; 3) ease of production with delicate menus difficult to serve
to a large group of people; 4) labour or payroll costs involved in menu preparation; 5)
product shelf life especially if catering to an event; 6) availability of ingredients; 7)
equipment limitations; 8) menu balance; 9) presentationAmerican, English, French
or Russian; and 10) style of service. Apart from these considerations, menu pricing
considers all costs of production and then applies at least a 35 percent margin in its
actual selling price to maintain a respectable food cost. (2001) Table 4 in the
Appendix, shows a fast food menu and the corresponding process of menu pricing.
The figures assume that the firm wants to meet a 35 percent food cost margin.
Selling price unit is computed by dividing the menu price per unit with .35.
Food Purchasing Control

This aspect covers the development of purchase specifications for both quality
and quantity of food items to be purchased, acquiring the approval of the officer in
charge of acquisition, sending the order to pre-selected suppliers, and the exchange
of payment and finance and documents. ( 1996) The purchase order [See Table 6
Appendix] is a document that contains the details of the food ordered and important
basis for food purchasing control.
Food Receiving Control
There are basic procedures in food receiving, which are: 1) having the delivery
personnel place the order in the kitchen receiving area; 2) getting a copy of the
purchase order; 3) having a copy of the specifications of the items purchased such;
4) checking the quantity and quality of the food items purchased in comparison with
the purchase order, specifications [See Table 7 Appendix] and invoice; 5) checking
the price printed in the invoice [See Table 6 Appendix] compared to the purchase
order [See Table 5 Appendix]; 6) signing the invoice if everything is in order; 7)
storing the food items; and 8) processing of financial documents by sending copies
of the purchase order and invoice to the accounting department. ( 2001)

Food Storage Control

There are four considerations in food storage control, which are 1) utilizing
perpetual inventory [See Table 8 Appendix]a system where quantities and values
are recorded in the inventory as these change and physical inventoryannual
inventories accomplished by approved agencies; 2) controlling product quality by
using the first-in, first-out valuation method so that food does not unnecessarily stay
longer in storage; 3) securing products from theft through the perpetual inventory
system so that missing food items are easily detected; and 4) locating products
within the storage facility through proper organization according to the specifications
of the chef and best practices. (2001)

Food Production Control

Food production control involves the maintenance of supply using the
inventory, retention of food nutrients through proper storage procedures and food
preparation, use of standardized recipes to achieve serving standards, use of portion
control to ensure food service consistency, and application of food and employee
safety standards by ensuring proper attire and hygiene for employees and sufficient

food preparation equipment and clean workplace. ( 2001) Table 9 in the Appendix
shows a recipe that specifies the ingredients and portioning system.

Sales & Cash Control

To facilitate sales and cash control, a food and beverage business may utilize
one or more internal controls such as: 1) documentation of all financial sales
transactions ; 2) recording cash received in a logbook; 3) balancing cash received
with sales transactions; 4) check endorsement; 5) cash security; 6) cash
responsibility; 7) change in custody; 8) daily deposits; 9) separation of duties such as
a different accountant and auditor; 10) routine reconciliation of recorded financial
transactions with actual financial status of the firm; 11) addressing
overages/shortages; and 12) recording payments made. Table 10 shows an income
statement form that reflects these financial data. ( 1992)
Bar Beverage Control & Bar Cost Formulas
Bar managers implement control measures to manage the bar. On one hand,
there are automated control machines and on the other hand, there are also manual
service control mechanisms. Some customers are not comfortable with the
automated system and prefer manual serving of drinks. Both may be used as
complementary control mechanisms. (1999) Table 11 in the Appendix shows the
bartender accuracy summary representing the result of the implementation of pour
cost controls and requiring attention towards the performance of Billy. Table 12
shows inventory audit of beverages in the bar to determine the need to order
additional bottles as well as to identify beverages with high and low sales,
information useful in bar management decisions.

Problems of Bar Operations & the Law

Bar managers comply with certain bar operations and service standards
required by law. Generally, there are two legal considerations for bar managers,
which are 1) dram shop liability laws applied in the jurisdiction where the bar
operatesrequiring bar owners to apply due care in ensuring the safety of their
customers and the public by encouraging responsible drinking of alcoholic
beverages and 2) drinking age limitsmandating bars not to serve alcoholic drinks
to minors. ( 2006)
Computers & Information Systems Technology
Computers and information systems technology comprise an important tool in
tourism for interfacing customer demands with industry services. In the food and

beverage industry sector, information systems provide two benefits. First is the
networking of the different function or service areas of a food a beverage firm
through networked communications and financial reporting and second is the
efficient communication of the firm with its customers through online reservations
and inquiry services. ( 2003)
Conclusion

Food and beverage control is an inevitable aspect of managing a

food beverage business, whether these are business components of a hotel
or independent businesses. The various food and beverage control
mechanisms serve as guides to managers in detailed planning,
implementing and assessing the entire operations of the business directed
towards the achievement of the firms business goals.

Appendices

Table 1: Budget for a Newly Opened Restaurant

Rent Deposit

$ 2000.00

Licenses and Permits

$ 300.00

Workers Compensation (Floor Area)

$ 3,175.20

Equivalent to Two Heads at Minimum

Wage of $ 8.82 x 30 days
Chefs Compensation Slight Higher
than the Minimum Wage Equivalent to
Two Heads $ 10 x 30 days

$ 3,600.00

Liability Insurance Equivalent to One

Month Sales

$ 144,000.00

Equipment:
Tables and Chairs ($ 100/ set x 5 sets)

$ 2,500.00

Kitchen Cooking Materials

$ 3,000.00

Basic Cooking Ingredients

$ 5,000.00

Furniture and Fixtures

$ 3,000.00

Chinese Improvements/ Displays

$ 2,000.00

Some Imported Start Up Souvenirs

$ 5,000.00

Supplies

$1,000.00
TOTAL

$ 174,575.29

Table 2: Projected Profit Statement for a Newly Opened Restaurant

Sales
Food Income ($ 10 /serving x 14,400
customer /month)

$ 144,400.00

Other Food Income from Take-out

(20% of the dine-in sales)

$ 28,880.00

Souvenir Income (10% of the dine-in

sales)

$ 14,440

Total

$ 187,720.00

Less: Cost of Sales

Basic Ingredients

$ 5,000

Main Ingredients and Groceries (50%

of the projected general sales)

$ 93,860.00

Wrappers for take-out (3% of sales)

$ 3,754.40

Total

$ 102,614.40
Gross Income

Less: General and Administrative

Expenses

$ 85,105.60
n/a

Less: Equipments and other Office

Supplies
Tables and Chairs ($ 100/ set x 5 sets)

$ 2,500.00

Kitchen Cooking Materials

$ 3,000.00

Furniture and Fixtures

$ 3,000.00

Chinese Improvements/ Displays

$ 2,000.00

Some Imported Start Up Souvenirs

$ 5,000.00

Supplies

$1,000.00

Total

$ 16,500

Net Income Before Tax

68, 605.60

Less: 25% Income Tax

$17, 151.40

Net Income After Tax

$ 51, 454.20

Table 3: Payroll Control Report

Classification

Regular
Employees

Duration of
Employment

Payroll
Month 1

Payroll
Month 2

Payroll
Month 3

$1,920

$1,920

$1,920

$5760

$1,920

$1,920

$1,920

$5760

$1,920

$1,920

$1,920

$5760

$1,920

$1,920

$1,920

$5760

TOTAL

$1,920/mo
_

Employee 1
_
Employee 2
_
Employee 3
_
Employee 4

Contractual
Employees

$1,600/mo
_

Employee 1

1 month

$1,600

$1,600
_

Employee 2

1 month

$1,600

Employee 3

3 months

$1,600

$1,600

$1,600

$4,800

Employee 4

3 moths

$1,600

$1,600

$1,600

$4,800

$14,080

$10,880

$10,880

$35,840

TOTAL

$1,600

Table 4: Menu Planning & Pricing

Menu Items

Menu Cost $ Menu Price/Unit Selling Price/Unit

Burger
Hamburger Patty 6

0.75

Hamburger Roll

0.10

Lettuce

0.05

Tomato

0.05

Labour

.33

oz.

1.33

3.8

Other Costs

.05

Fries
French Fries 4 oz.

.58

1.66

.05

.14

$2.41

$6.89

0.20

Labour

.33

Other Costs

.05

Soda 6 oz.

.05

Total Cost

Table 5: Purchase Order

SHIP TO:

| BILL TO:

ACQUISITIONS DEPARTMENT

| ACQUISITIONS DEPARTMENT

CDE Foods

| CDE Foods

94 Lambs Conduit St,

| 94 Lambs Conduit St,

Bloomsbury, London

| Bloomsbury, London

_________________________________________________________
ATTN:
Mary Wiley
FGH Meat & Vegetables Wholesaler
100 Oakwood St.
Llandudno, Wales
_________________________________________________________
ORDER DATE SHIPPING INSTRUCTIONS

P.O.TYPE

04/07/1999

BUY LIST

PAYMENT TERMS
NET 30 DAY

ACCOUNT NUMBER HB-999

Quantity

Description

List Price $

Cost $

38 pounds

Ground Beef

1.97/pound

75

25 pounds

French Fries

.8/pound

20

SHIPPING CHARGE

.00

SALES TAX

.00

SERVICE CHARGE

.00

PROCESSING CHARGE

.00

MISCELLANEOUS CHARGE

.00

DISCOUNT

.00

TOTAL

$95.00

Table 6: Sales Invoice

INVOICE
__________________________________________________________

MARY WILEY

INVOICE #

FGH Meat & Vegetables Wholesaler

DATE: 5/14/09

100 Oakwood St.

Llandudno, Wales
Phone Fax
__________________________________________________________
Bill to:

ACQUISITIONS DEPARTMENT
CDE Foods
94 Lambs Conduit St,
Bloomsbury, London
__________________________________________________________

Reference #: 123456

Product Code

Quantity

Description

GRNDBF

38 pounds

Ground Beef

75

FFB

25 pounds

French Fries

20

Subtotal

95

Tax

9.5

Total Amount $

Amount $

104.5

If you have any questions about this invoice, please contact the issuing department
above.

THANK YOU FOR YOUR BUSINESS!

Table 7: Ground Beef Specifications

Product Name

Ground Beef

Intended Use

Burger Patties

Item Description

GRNDBF

Grade

3/Select

State of
Refrigeration

Chilled

Product Size

28 pounds

Packaging

6 oz servings in wax paper

Table 8: Restaurant Inventory

Purchasing
Units

Recipe Units

Perpetual Inventory Count

Inv

Meat &
Poultry

Unit
Unit

Price $

Unit
Unit

Conversion

Cost $

Count
Unit
Conversion

Unit

On

Cost

Hand

$Total

Ground
Beef

lb

1.97

oz

.75

lb

1.97

20

39.4

lb

.8

oz

.2

lb

.8

15

12

Chicken
Preserved
Foods
French
Fries
Dry

Goods
Cooking
Oil
Catsup
Mustard
Salt

Table 9: Barbecue Burger Recipe

No. of Portions: 1

Menu Price: $ 1.01

Ingredients

No Recipe Units

Recipe Unit

Cost per Recipe Unit

Ground Beef

oz

.75

Salt

1/6

ts

.01

Chili Sauce

ts

.02

Lemon Juice

tb

.01

Catsup

1/6

tb

.01

Brown Sugar

ts

.01

Hamburger Bun

pcs

.10

Lettuce

oz

.05

Tomato

oz

.05

Recipe Cost

$1.01

Portion Cost

$1.01

Selling Price

$2.89

Table 10: Income Statement Form

2006

Total Revenue

Cost Of Revenue

Gross Profit

Operating Expenses

Research And Development

Selling General And Administrative Expenses

Non Recurring

Other Operating Expenses

2005

2004

Operating Income

Total Other Income And Expenses Net

Earnings Before Interest And Taxes

Interest Expense

Income Before Tax

Income Tax Expense

Equity Earnings Or Loss Unconsolidated Subsidiary

Minority Interest

Net Income From Continuing Operations

Nonrecurring Events

Discontinued Operations

Extraordinary Items

Effect Of Accounting Changes

Other Items

Net Income

Preferred Stock And Other Adjustments

Net Income Applicable To Common Shares

Table 11: Bartender Accuracy Summary

Bartende # of Inv. Days Pour Cost % Shrinkage % Shrinkage Goal Achieved

r
Daphne

14.28

-.4

Yes

Arthur

14.91

.69

Yes

Alvin

14.83

.96

Yes

Celina

15.58

1.10

Yes

Billy

19.75

5.72

No

Table 12: Bar Beverages Inventory Audit

Previous Full+New
Beverage
Amaretto

Current Full Missing (Error)

Empties

Par

Order

Cost $

23 GLZ

24 GLZ

-4

26 STN

17 STN

Baileys
Crown
Royal
Dewars

Jack

20 STN

16 GLZ

14

-4

29

15

Daniels
Malibu
Totals

Full Liquor Bottle Inventory: $ 516

Open Liquor Bottle Inventory: $ 186