Foundations of cost control by daniel traster chapter08

chapter Control Through the Purchasing Process Class Name Instructor Name Date, Semester Foundations of Cost Control Daniel Traster Opening Questions • When purchasing food for yourself, what factors you consider other than price? • How you decide where to shop? • Where does price rank among those other factors? • How you decide how must food to buy? • Do you buy exact quantities or estimate? • Are the quantities impacted by packaging size? Factors for Selecting the Right Product Product Specification or “Spec” • Defines acceptable parameters for a product • Eliminates miscommunication between purchaser and purveyor • May list product ―quality ―yield grade ―size, processing ―brand name ―origin ―degree or ripeness ―color, pack size ―container type Purchase Specification A purchase specification is the product specification plus the delivery schedule and credit terms Choosing Purveyors Securing Product Pricing (and Other Shopping Means) Calculating Purchase Quantities The process for determining quantities to order differs for perishables (short shelf-life) and non-perishables (long shelf-life) Purchasing Quantities for Perishables • Order only enough to get through to the next delivery to minimize spoilage, but with a small buffer • Take into account inventory on hand and forecast sales Predicted Item Sales = Forecast Guests x Menu Mix Percent (as a decimal) Example 8a A restaurant forecasts 210 guests 7% of guests usually order the cream of asparagus soup How many asparagus soups should the chef expect to sell? Item Sales = Forecast Guests X Menu Mix % = 210 X 0.07 = 14.7 10 Perpetual Inventory Purchasing System • To order, just place an order for an ingredient of the reorder quantity when it reaches the reorder point • In determining par stock value, it must be high enough to get through an order period but low enough to fit in the storeroom and not tie up excess money 27 Calculating Reorder Point 28 Calculating Reorder Point 29 Reorder Quantity 30 Example 8e • Restaurant has par stock of 50 cans of kidney beans • It uses cans per day • Management wants safety net of cans in inventory at delivery • Order usually takes days to arrive after placement Determine the reorder point and reorder quantity 31 Example 8e (cont.) Quantity Needed between Order and Delivery =Daily Usage X Days bet Order & Delivery = cans/day X days = cans 32 Example 8e (cont.) Reorder Point =Quantity needed bet order and delivery + Safety net = cans + cans = 15 cans 33 Example 8e (cont.) Reorder Quantity =Par Stock– Reorder Point + Quantity Needed between order and delivery = 50 cans- 15 cans + cans = 41 cans 34 Perpetual Inventory Purchasing System When pack size does not match reorder quantity exactly, round down to the nearest pack size because par stock is a maximum quantity for the storeroom 35 Which Inventory Method to Use • Perpetual Inventory offers better control but requires a dedicated employee in the storeroom to record every product removal and addition Usually affordable only in large operations • Smaller businesses without a dedicated storeroom clerk usually use the periodic inventory system 36 Make-Buy Analysis To decide when to make a product from scratch vs buying it premade: Factors • cost of ingredients (cost per portion) • labor (direct labor cost) • energy cost in the decision-making process 37 Make-Buy Analysis 38 Example 8f Lasagna recipe yields 48 portions and costs $41.58 in ingredients Employee earning $12/hour spends two hours making lasagna Recipe’s energy costs are estimated at $3.50 What is the recipe’s cost per portion for a make-buy analysis? Labor Cost = $12/hour X hours = $24 Cost per portion = ($41.58 + $24 + $3.50) ÷ 48 = $1.44/portion 39 Example 8g The restaurant in example 8f can buy frozen lasagna, serving 30 portions, for $28.00 It requires $2.00 in energy and only 15 minutes of the $12/hour cook’s time What is the cost of the premade lasagna? Labor = 0.25 hours X $12/hour = $3 Cost per portion = ($28 + $3 + $2) ÷ 30 = $1.10/portion Premade ($1.10/portion) is cheaper than scratch version ($1.44/portion) 40 Other Variables in Make-Buy Analysis • Is quality of the two products similar or is one noticeably worse? ―If customers sense decline in quality, business will decrease • Does the restaurant have the space and equipment to make the product from scratch? ―A necessary major financial investment to make something from scratch may negate cost savings 41 ... predicted sales Use: AP = EP ÷ Y% 11 Example 8b Chef forecasts sales of 15 portions of asparagus soup Calculate quantity of ingredients to order using recipe below Asparagus Soup Yield = 20 portions... non-perishables every two weeks • It uses 22# of penne pasta weekly and management wants a 10# safety net in inventory at the end of each order period • Currently 12# of pasta in inventory How much pasta... Reorder Quantity 30 Example 8e • Restaurant has par stock of 50 cans of kidney beans • It uses cans per day • Management wants safety net of cans in inventory at delivery • Order usually takes days