Controlling Food Costs in Receiving,
Storage and Issuing
6
OH 6-1
6-1
Learning Objectives
 Explain the process for managing vendor delivery
schedules.
 Describe the proper procedures for receiving goods.
 Discuss food storage techniques and the FIFO
method of stock rotation.
 Identify and describe proper methods of taking
inventory and the various methods of inventory
pricing.
 Describe the issuing process, including issuing
beverages.
OH 6-2
The Receiving Process
OH 6-3
Steps for Receiving
 Step 1 – Delivery person brings products to
receiving area.
 Step 2 – Check products against the purchase
order.
 Step 3 – Check products against purchase
specifications.
 Step 4 – Check delivery quantity against the
invoice and the purchase order.
OH 6-4
The Receiving Process
OH 6-5
Steps for Receiving continued
 Step 5 – Match invoice prices to purchase order
prices.
 Step 6 – If everything matches correctly, sign
the invoice.
 Step 7 – Put delivered products in proper
storage areas.
 Step 8 – Process paperwork in keeping with the
operation’s standard operating
policies and procedures.
OH 6-6
Steps for Receiving continued
Credit Memo Form
OH 6-7
Steps for Receiving continued
 Concerns in receiving
 Adequate tools to complete the receiving task
 Scales, thermometers, carts, hand trucks, etc.
 Commercial fraud: short weights and slack-out
seafood
 Employee training
 Knowledge, commitment, ability and attitude
OH 6-8
Storage of Inventory
OH 6-9
Issuing & Perpetual (Running) Inventory
OH 6-10
Issuing = distribution of food, beverage or other products from
storage areas to the production or service staff.
Perpetual Inventory = ongoing running total of what should be in
inventory based on what is brought into and taken from
inventory.
Storage Practices Impact Profits
 Spoilage of products
 Theft of products
OH 6-11
Sales Needed to Replace the Value
of Spoiled or Stolen Items
 Assume 5% restaurant net profit
 Assume loss of two steaks @ $7.00 cost each
OH 6-12
Amount
lost
÷
$14.00
÷
Net profit
Additional sales required
=
percentage
to replace lost revenue
0.05
=
$280.00
Controlling Spoilage
 Storage loss from spoilage is usually caused by
carelessness.
 Spoilage loss can be controlled.
 Spoilage is caused by
 Improper product rotation
 Time abuse
 Temperature abuse
OH 6-13
Controlling Spoilage continued
Excellent sanitation practices help
minimize spoilage loss.
OH 6-14
First In First Out (FIFO)
 Use for refrigerated, frozen, and dry products
 Use oldest product first.
 Relies on
 The receiving clerk (to rotate stock properly)
 The person using the product (to choose properly)
 Must be continually monitored by management!
OH 6-15
Dry Storage
OH 6-16
Fresh Fruits and Vegetables
OH 6-17
Eggs and Dairy
OH 6-18
Meat and Poultry
OH 6-19
Fish
OH 6-20
Proper Sanitation Is Key
 Store foods away
from walls and at
least six inches
above the floor.
 Store dry goods in
airtight containers.
 Walls and floors
should be nonporous
and easily cleaned.
OH 6-21
Proper Sanitation Is Key continued
 Rotate stock to minimize spoilage.
 Organize products so they are easily found.
 Label shelves and sealed food containers.
 Include “use by” dates and name labels for all
stored products.
OH 6-22
Controlling Theft
 Keep storage areas locked whenever practical.
 Establish a par stock per shift system for
key ingredients.
 Issue secondary sets of keys on an as-needed
basis only.
 Restrict delivery drivers from access to storage
areas or walk-ins.
OH 6-23
Sample Requisition Form
Large foodservice operations may use a requisition
system to help control theft-related losses.
OH 6-24
Inventory Types
 Perpetual inventory
 A count based upon additions to (purchases) and
subtractions from (requisitions) storage
 If records are properly kept, it is always up-to-date.
 Physical inventory
 An actual count of inventory items
 Usually taken to obtain information for the
income statement.
OH 6-25
Perpetual Inventory Sheet
OH 6-26
Common Inventory Breakdowns
 Meats
 Frozen foods
 Dairy
 Canned foods
 Bakery
 Dry goods
 Produce
OH 6-27
Common Inventory Breakdowns continued
The type of restaurant you manage will help determine the
specific inventory breakdowns best suited for your use.
OH 6-28
Sample Inventory Sheet
OH 6-29
Inventory Valuation Methods
 FIFO
 First in, first out
 Inventory is valued at its most recent (latest) cost.
 Oldest product is used first.
 LIFO
 Last in, first out
 Inventory is valued at the cost of the oldest product
but factored forward for ending inventory (example)
 Newest product is used first.
OH 6-30
Inventory Valuation Methods continued
 Averaged price method
 Inventory is valued at a composite of all prices paid
for the item.
 Actual price method
 Each inventory item is valued at its original
purchase price.
OH 6-31
Comparing Valuation Methods
OH 6-32
Inventory Valuation
 Let’s review an additional resource
 Extra Credit Worksheet
OH 6-33
Valuing Heavy Cream Inventory
Given the following purchases:
 May 15
 June 30
12qts $3.40
6qts $3.69
Ending inventory is 9 qts Heavy Cream.
Calculate my value based on:
 LIFO
 FIFO (official and modified)
 Average
 Actual
OH 6-34
Inventory and Cost of Food Sold
 Inventory value is a critical component of the
cost of food sold formula.
+
Opening inventory
Purchases
Total food available
–
OH 6-35
Closing inventory
Cost of food sold
Extending and Totaling
OH 6-36
Inventory Turnover Calculation
Step 1 – Calculate average inventory.
(
Opening
+
inventory
Closing
inventory
)
÷ 2 =
Average
inventory
Step 2 – Calculate the inventory turnover.
Cost of
food sold
OH 6-37
÷
Average
=
inventory
Inventory
turnover
Average Inventory Turnover
 Industry averages vary per concept
 Rules of thumb for turnover
 1 – 2 times per week (4-6 times per month)
 1 ½ times the weekly food cost
 Liquor – approximately 7 – 12 times per year
(once a month)
 Inventory turnover is the #1 consideration
bankers use to evaluate a business for loans!!!
OH 6-38
How Much Inventory To Carry
 Low end would be your cost of goods sold ÷ 6
$25,000 ÷ 6 = $4,167 Inventory value (low end)
 High end would be your cost of goods sold ÷ 4
$25,000 ÷ 4 = $6,250 Inventory value (high end)
OH 6-39
Number of days of inventory
Another measure of inventory turnover:
Calculate the average daily food cost
Food cost ÷ # of days in period = Avg daily food cost
Calculate days sales in inventory
Ending food inventory ÷ Avg daily food cost = Days sales in
inventory
OH 6-40
Daily Food Cost Percent Calculation
Using Perpetual Inventory
Step 1 – Compute daily food cost.
+
–
Requisitions
Transfers in
Transfers out
Daily food cost
Step 2 – Compute food cost percentage.
Daily food
cost
OH 6-41
÷
Daily unit
sales
=
Daily food cost
percentage
Beverage Inventory Management
 Processes similar to food inventory management
 Perpetual inventory method used to track flow of alcohol
into and out of storage through requisitions
 Breakage is tracked on the requisition form also {product
emptied during shift}
 Par levels established for every shift
 Depletion allowance form to track spillage, transfers or
complimentary drinks
 Physical audit of inventory compared to perpetual
inventory {tenthing to estimate product in bottles}
OH 6-42
How Would You Answer
the Following Questions?
1.
The greatest cause of inventory loss is (theft/poor
buying practices).
2.
The most common product storage method used in
foodservice is (FIFO/LIFO).
3.
The type of inventory that is based upon a theoretical
count is called a
A.
B.
C.
D.
4.
OH 6-43
Breakdown inventory
Requisition inventory
Physical inventory
Perpetual inventory
Daily food cost divided by (unit sales/transfers out of
inventory) equals daily food cost percentage.
Next Week
 Review Quiz 4 (Chapters 5 &6)
 Read Chapter 7
OH 6-44
Chapter 6 Controlling Food Costs in Receiving, Storing, and Issuing
Key Terms continued:
Directs Items that are charged to food cost as they are received by the
operation, on the assumption that these perishable items will be used
immediately.
Extending Multiplying the number of units of each item by the item’s unit
price.
First in, first out (FIFO) A method commonly used to ensure that
refrigerated, frozen, and dry products are properly rotated during
storage.
Inventory An itemized list of goods and products, their on-hand quantity,
and their dollar value.
Inventory breakdown A method of categorizing the operation’s food
and supplies.
Inventory turnover A measure of how quickly an item in storage is used.
OH 6-45
Chapter 6 Controlling Food Costs in Receiving, Storing, and Issuing
Key Terms continued:
Issuing Taking food or beverage products from storage.
Key drop delivery Delivery of food items and goods after hours when the
establishment is closed for business.
Last in, first out (LIFO) An inventory method used when an establishment
intends to use the most recently delivered product before using any part
of that same product previously on hand.
Latest price method A method that uses the latest price paid for a
product to value an inventory; this is the most widely used pricing
method in the restaurant and foodservice industry.
Padding Inflating the inventory for the purpose of reducing the food
cost.
Perpetual inventory A theoretical count based on goods received and
issued, which exists on paper only.
Physical inventory An actual physical count and valuation of all items on
hand.
OH 6-46
Chapter 6 Controlling Food Costs in Receiving, Storing, and Issuing
Key Terms continued:
Reduced oxygen packaged (ROP) bulk food Food contained in a
package in which (a) oxygen has been removed, (b) oxygen has been
displaced with another gas or combination of gases, or (c) something
else has been done to reduce the oxygen content to a level below that
which is normally found in air; also called reduced oxygen packed bulk
food.
Requisition A form listing the items and quantities needed from the
storeroom.
Short weight The amount a shipment actually weighs subtracted from
the weight given on its label.
Slack-out seafood A type of fraud in which frozen seafood is thawed to
appear fresh.
Stores Items that are considered part of the inventory until issued for use
in an establishment and are not included in food cost until they are
issued.
OH 6-47
Chapter 6 Controlling Food Costs in Receiving, Storing, and Issuing
Key Terms continued:
Temperature danger zone Food kept out at a temperature of 41°F to
135°F (5°C to 57°C) for a total of more than four hours is unsafe and
must be discarded.
Time and temperature control Policies and procedures that monitor the
amount of time and the ongoing temperature of food products in the
flow of food.
Transfer A form used to track items going from one foodservice unit to
another.
Uniform Commercial Code (UCC) Sets of guidelines established to
harmonize business transactions law across states.
OH 6-48