GLOSSARY: definitions 1

Actual food (or beverage) cost: What has actually been spent on food (or beverages) during a
certain period of time. Actual cost is calculated as follows:

Actual opening inventory + purchases - actual closing inventory

Actual food (or beverage) cost percentage: Actual cost, divided by sales, and multiplied by 100.

Actual inventory: A physical count of food (or beverage) items actually on hand. Multiplying the
count of each item by the item unit cost and totaling the results will give a total dollar value of actual
inventory.

A.P.: As Purchased — the term refers to the weight or count of a product as delivered to the food -
service operator.

Average check (or cover): The average amount spent by each guest in a particular meal period,
day, week, month, or year. Is calculated by dividing total food and beverage sales for that period by
the number of guests served.

Average inventory: The average amount, in dollar value, carried in inventory during a period of
time. It is calculated as follows:
opening stock + closing stock
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Bin cards: A simplified version of the perpetual inventory card. Used for keeping a running balance of
what the actual count of items is in the storeroom; one card for each item. Typical example: Wine

Blind receiving: Delivery of goods with a packing slip showing no weights or quantities. This practice
obliges the receiver to actually count or weigh all items received and to record the quantities or
weights on the packing slip.

Book inventory value: The value of an inventory determined as follows:

Opening inventory + Purchases - Issues

Butcher test: A procedure used to determine the standard cost of one standard portion of a product
portioned before cooking. The butcher test is also used to determine yield factors and cost factors.

Canned food tests: Tests carried out primarily to ensure that the best net weight yield is achieved
after the liquid in which the food is packed has been drained.

Charge sales checks: Customers who do not pay cash for food or beverages are referred to as
charge customers; their sales checks, signed by them and with an appropriate room number or credit
card number recorded, are then part of accounts receivable.

Comp.: Short for the word complimentary, which refers to the practice of management giving a
product to a guest without a charge.

Control: A process used by managers to direct, regulate, and restrain the actions of people so that
the established goals of an enterprise may be achieved.

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adapted from: Food and Beverage Cost Control, by Michael M. Coltman, Prentice Hall, 1977;
Basic Food and Beverage Cost Control, by Jack Miller, Wiley, 1994; Principles of Food,
Beverage, and Labor Cost Controls, by Paul Dittmer, VNR, 1994; E-procurement, by Dale
Neef, 2001.

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Convenience food: Any food that has been partly or wholly prepared or pre-cooked prior to pur-
chase. A can of soup is a convenience food.

Cooking loss: A reduction in the weight of food as a result of cooking. Loss comes from evapora tion
and/or dripping. Generally, the higher the temperature at which the food is cooked, the greater the
loss.

Cooking, trim, and butchering tests: Tests usually carried out on meat, poultry, and fish items to
see which supplier can provide items that give the highest yield (after butchering, trim, and cook ing)
of the quality desired at the best price.

Cost: The expense incurred for goods or services when the goods are consumed or the services ren-
dered.

Cost factors: Numbers that can be calculated when meat is purchased in bulk and then butchered
and trimmed on the premises. These factors (numbers) then permit quick recalculation of the
butchered and trimmed cost per pound of meat when the supplier changes his bulk price. The general
equation is
our calculated cost E . P
= = Cost factor
supplier's price A. P.
Multiplying the supplier's new price by the relevant cost factor quickly gives us the new cost per kilo or
per portion.

Cost of food sold: Gross cost of food less the cost of employees’ meals and other adjustments.

Credit memorandum: Form filled out when goods delivered have to be returned to the supplier for
one reason or another. This form is signed by the delivery driver and is the establishment's proof that
the goods were sent back. The supplier subsequently issues a credit invoice.

C.R.M.: Customer Relationship Management — a software platform that provides customer history,
order tracking, and sales information online to customer service agents.

Delivery hours: Hours during which suppliers of food and beverages may deliver ordered goods to
the establishment. These delivery hours should be restricted to the times when the establishment has
a person on duty that can be officially designated as responsible for receiving goods.

Direct purchases: Food purchases which are not put into a lockable storeroom upon receipt. These
direct purchases are usually perishable, are generally stored in coolers or freezers close to the
kitchen(s), and are considered as being put into production within the next twenty-four hours.

Dry goods: Generally food items that are not considered, in the short run, to be perishable. This in-
cludes such items as cereals and bottled and canned or other packaged goods. They are usually con -
trolled in a lockable storeroom and issued, when required by production staff, by requisition only.

EDI: Electronic Data Interchange — a dedicated electronic connection usually between buyers and
their largest selling partners, used for transfer of purchasing information.

Employee meal: Employees working in food establishments are frequently entitled to free meals
while on duty. The estimated cost of such meals should be separated out from the regular food cost.
Even if employees have to pay for their meals, because they usually pay less than a regular customer
eating the same food, the cost of these meals should be separated out. Any in come from employee
meals should also be shown separately from sales to regular guests. If costs (and sales, if any) of
employee meals are not kept separate, a distorted food cost percentage may result.

E.P. (Edible Portion): This term refers to the weight or count of a product after it has been

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trimmed, cooked, and portioned.

Extending a requisition: A two-step process for determining the total value of all items listed on a
given requisition. The first step is to multiply the quantity of each item listed by its unit price to de -
termine a total value of the quantity issued. The second step is to add these individual totals to deter-
mine a grand total for the requisition.

First-in/First-out: A method of ensuring that items purchased at an earlier date than others are is -
sued first. This reduces the possibility of spoilage.

Food and Beverage control office: A branch of the accounting department.

Food and Beverage manager or director (depending on size of operation): The person
primarily responsible for the profitability of the food and beverage department. The Food and
Beverage cost controller (as part of the finance and accounting department) and the food and
beverage manager/director must work closely and harmoniously together.

Food (or beverage) cost: Sometimes referred to as cost of goods sold. See actual food (or bev-
erage) cost.

Food (or beverage) cost percentage: See Actual food (or beverage) cost percentage.

Food tests: See canned food test. Cooking, trim and butchering tests; fruit and vegetable tests.

Fruit and vegetable tests: Tests carried out to ensure that the best count or weight consistent with
quality desired is received for money spent.

Full-bottle sales slip: A special beverage requisition form used to record the issue and sale of full
bottles of beverages.

Gratis to bar: The dollar value of foods given away without charge at the bar that have been previ -
ously added to food cost, e.g. olives and nuts given to guests complimentary accompanying the drinks
(as part of the guest supplies allocated into the operating expenses on the income statement to not
distort the food and beverage cost of sales).

Grease sales: The dollar value of fats and oils sold to rendering companies.

Gross profit: Food (or beverage) sales less food (or beverage) cost.

Guest check: A special type of invoice used in restaurants and other similar food and beverage op-
erations to provide customers with itemized bills for their menu selections / purchases.

Inventory. See Actual inventory.

Inventory turnover: The rate of turnover of inventory of food (or beverages). The general equa tion
for expressing this turnover is:
Cost of food (or beverages ) used
Average food ( beverage) inventory

Turnovers are usually calculated on a monthly basis and range from two to four times a month for
food, and half to one time a month for beverages.

Invoice: A bill from a vendor for goods or services, often presented as the goods are delivered or the
services performed.

Invoice stamp: A rubber stamp used by the receiver to overprint a small form on an invoice for the

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purpose of recording the date on which goods were received, as well as the signatures of the several
individuals verifying the accuracy of data on the invoice.

Issues: When the food or beverage products are supplied from storage for use in an outlet (food or
beverage).

Mark-up: The amount by which the cost of an item is increased to arrive at a selling price. The
difference in dollars between selling price and cost is known as gross profit.

Meat tag: A two-part, perforated tag that aids in the control and use of meat.

Memorandum invoice: Food (or beverage) deliveries are generally accompanied by an invoice. If
an invoice is inadvertently forgotten by the supplier, the receiver can make out a "memorandum in-
voice" when he receives the goods. This is a blank piece of paper on which he records relevant in -
formation (supplier's name, quantity or weight of each item, and brief description of the item). It can
be used until the actual invoice is received.

Most recent price: A simple, although not necessarily completely accurate, method of recording unit
costs of food items on perpetual inventory cards. As each new delivery is received, the item price from
the invoice is recorded on the card. From that point on, all previous prices (costs) on the card are
ignored. All items still in the storeroom of that type and size are subsequently costed out at the new,
most recent, price on requisitions.

Net sales: The amount of sales revenue (food or beverages) excluding tax and allowances.

Ounce-control method: A method for monitoring bar operations that compares the number of
ounces of alcoholic beverages consumed at the bar with the number of ounces sold as recorded on
sales records.

Packing slip (delivery slip): A document the supplier sends with goods. The packing slip carries a
brief description of the goods and the quantity or weight. It is separate from the invoice, which is a
more formal document and includes cost information.

Par stock: The maximum quantity of a food or beverage item that should be on hand to take care of
normal production requirements. When goods are ordered from suppliers or requisitioned from the
storeroom, the amount ordered or requisitioned should be the amount required to bring stock back up
to this predetermined par level.

Payroll: Total wages and salaries paid by a foodservice operation to its employees.

Perishables: Items of a perishable nature generally purchased on a daily basis, such as fruit, veg-
etables, bakery and dairy goods, and sometimes even meat, fish, and poultry.

Perpetual inventory card: A useful control form for storeroom items completed daily from invoices
and requisitions. There should be one card for each separate type or size of item in the office. The
card gives, among other things, a running (perpetual) balance of the count of items there should be in
the storeroom.

Portion control: The establishment of the quantity or weight that should be served for each
separate menu item to ensure consistency. Portion control also refers to a system of control of food
items purchased in pre-packaged individual containers (i.e., purchasing ketchup in tinfoil packets
instead of in large bottles) and to purchase meat items in pre-butchered portions of specified weight
or size which can be more easily controlled than the bulk purchase of meat with subsequent on
premise butchering.

Portion size: The portion size should be incorporated in the standard recipe.

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Potential food (or beverage) cost: The estimated, or expected cost to generate a given amount of
sales. This will seldom be the same as the actual cost calculated from inventory and purchase records.

Potential food (or beverage) cost percentage: Potential cost, divided by sales, and multiplied by
100 equals potential cost percentage.

Quotation: Price of an item given (quoted) by a possible supplier.

Receiving Clerk’s Daily Report: A general term used to identify those forms used in F&B op-
erations to record data from invoices for goods received on a given day and, for accounting purposes,
to distribute purchases into appropriate categories. Sometimes referred to simply as a Receiving Re-
port or Receiving Sheet.

Receiving stamp: A rubber stamp used to validate each invoice received. The stamp provides a
space for the receiver, or other person responsible, to indicate with a signature that goods re ceived
and described by the invoice are acceptable insofar as quantity and quality is concerned, and that the
price on the invoice agrees with the supplier's quotation.

Requisition: A form that permits a department (kitchen, dining room, bar) to order (requisition)
needed supplies from the storeroom. Requisitions can also be used for interdepartmental transfers--
for example, to permit the bar to obtain eggs and fruit from the kitchen.

Sales: The money collected (or to be collected in the case of charge sales) from customers in the
food and beverage dining room(s) and bar(s).

Sales check: The document on which a waiter or waitress records what a guest orders. The server
can subsequently price the items and extend and add up the check for presentation to the guest for
payment.

Sales mix: The quantity of each separate menu item that customers buy. A change in preferences
will change the sales mix, which in turn can cause a change in the food cost percentage.

Spillage allowance: A discretionary amount of liquor that management may permit bartenders to
not account for in sales. In other words, if 1 oz. drinks are the standard size, then only 24 drinks out
of a 25 oz. bottle must be accounted for. The 1 oz. "allowance" will take care of an occasional spilled
drink or accidental over pouring.

Specifications: Guidelines given to suppliers, primarily concerning the quality of goods on which
they are invited to quote a price.

Spot-checks: Occasional checks of certain control forms or procedures to ensure that the control
system is being followed correctly.

Standard recipe: A written formula detailing ingredient quantities needed to produce a certain
quantity and quality of a menu item. The formula includes cooking method and portion size.

Standing orders: Orders given to suppliers directing them to deliver specific quantities of certain
perishable items each day. Standing orders eliminate the necessity of telephoning suppliers each day.

Steward sales: The dollar value of foods from inventory sold at cost. These are typically sales to
employees. Steward sales are cost recoveries and thus serve to decrease food cost in the pe riod
during which they occur.

Storeroom purchases: Purchases put into a storeroom under lock and key to be issued by requisi-
tion only.

Transfers: Products received by one cost center from another. The value of the foods or beverages

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transferred are normally recorded and these values used later for end-of-period adjustments.

Yield: What is available of a food product for sale to customers after the product has been trimmed,
boned and cooked.

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GLOSSARY OF TERMS
SALES
FOOD SALES
This category includes revenue derived from the sale of food in the restaurant. Food sales
also include the sale of coffee, tea, milk and fruit juices, which usually are served as part
of a meal. If there is no service of liquor, beer or wines, the soft drink sales also would be
included in this category.
BEVERAGE SALES
This category includes revenue from the sale of wine, spirits, liqueurs, beer, and ale.
These sales do not include coffee, tea, milk, or fruit juices, which normally are served
with meals and, therefore, are considered food.

COST OF SALES
Food Cost
The direct and variable costs of all food sold.

Beverage Cost
The direct and variable costs of all beverages sold.

TOTAL COSTS
The total of both food and beverage costs for the period.

GROSS PROFIT (ON SALES)

The value of total sales less direct cost of goods sold.

CONTROLLABLE EXPENSES
These expenses are considered controllable by management. They may or may not vary
with the level of activity in the restaurant.

PAYROLL
This category includes the regular salaries and wages, extra wages, overtime, vacation
pay and any commission or bonus payments made to employees. The entire restaurant
payroll generally is included under this category.

EMPLOYEE BENEFITS
This category includes federal retirement (Social Security) tax (FICA), federal and state
unemployment taxes and state health insurance tax. Other items considered benefits are
workmen's compensation insurance premiums, welfare plan payments, pension plan
payments, accident and health insurance premiums and hospitalization,

Blue Cross/Blue Shield and group insurance premiums. Also listed under employee
benefits are education expenses, employee parties, employee sports activities, credit
union, awards and prizes, and transportation and housing.

DIRECT OPERATING EXPENSES

Expenses directly involved in providing service to the customer such as uniforms, laundry,
linen, china, and cleaning and paper supplies, are considered operating expenses. Also
included are utensils, kitchen fuel, menus and drink lists, flowers and decorations,
contract cleaning, auto or truck expense, parking and licenses and permits.

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MARKETING
This group of expenses includes selling and promotion expenses such as direct mail and
entertainment costs in promotion of business (including gratis meals to customers). Also,
the cost of advertising through newspapers, magazines or trade journals, outdoor signs,
and radio and television is included. Public relations and publicity (including fees and
commissions to advertising or promotional agencies) and franchising fees and royalties
are found in this category.

REPAIRS AND MAINTENANCE

The following items are repairs and maintenance expenses: painting and decorating;
plastering: upholstering; mending curtains; and maintenance contracts on elevators,
signs and office machinery. Repairs to dining room furniture, refrigeration, air
conditioning, buildings, and floors, plumbing and heating are charged to this category as
well. Repairs to dish washing and sanitation equipment, kitchen equipment and office
equipment are also included here.

UTILITIES
This section is composed of the costs of all fuel except that charged to direct operating
expenses in the account "kitchen fuel." Water, ice and refrigeration supplies, and the
removal of waste are also included. The cost of oils, boiler compound, fuses, grease and
other supplies, plus any small tools used in the operation or maintenance of the
mechanical and electrical equipment should also be charged to this account

ADMINISTRATIVE AND GENERAL

This group of expenses includes items that are necessary to the operation of the business
rather than those connected directly with the service and comfort of the customer. This
account should be charged with the cost of all printed matter not devoted to advertising
and promotion, such as accounting forms, account books, restaurant checks, office
supplies, cash register and other checking supplies, letterheads, bills and envelopes. All
postage, except amounts applicable to advertising, should be charged here. The cost of
telephone equipment rental, local and long distance call should be charged to this
account, with the exception of calls chargeable to marketing. Other items charged to this
account are data processing costs, dues and subscriptions and insurance costs (other
than those included as employee benefits or fire and extended coverage on the premises
and contents). Commission on credit card charges collection fees, cash shortages,
professional dues and protective services are also considered administrative and general
expenses.

MUSIC AND ENTERTAINMENT

The total expenditure for on premise activities. Live entertainment and visiting
personalizes for sales promotions would be examples in this expense category.

TOTAL CONTROLLABLE EXPENSES

The total of the above eight line items.

PROFIT BEFORE OCCUPATION COSTS

The gross profit less total controllable expenses.

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 OCCUPATION COSTS
These expenses, together with interest and depreciation charges, are the cost of readying
the premises for operations. These are sometimes called "fixed charges," since they
usually are determined by the financial setup of the restaurant and not by the trend of its
business. Rent, taxes and property insurance are occupancy costs.

PROPERTY TAXES
The taxes assessed on property owned by the restaurant, including furniture and fixtures,
equipment, building, and land, if owned.

RENTALS AND MISC.

The cost of use for items rented for the operation during the last three months. This may
include for example banqueting tables and chairs.

LIQUOR LICENSE FEES

The cost of all fees and permits needed if alcoholic beverages are offered and sold.

INSURANCE
The cost of insurance coverage on the properties owned by the business including
furniture and fixtures, buildings, land.

INTEREST-LONG TERM DEBT

The period charge for the use and enjoyment of contributed capital from lenders. This
includes the associated interest charge on long term leases.

DEPRECIATION
The composite depreciation on all assets owned and qualifying as a wasting asset

TOTAL OCCUPATION COSTS

OTHER INCOME OR EXPENSES

EXTRAORDINARY INCOME OR EXPENSE

This line would record the gain or loss associated with any transaction outside of the
ordinary course of restaurant operations. This may happen when assets are sold and
leased back.

PROFIT BEFORE INCOME TAX

The sum of the above expenses deducted from the profit before occupation costs. This is,
if positive, the basis for computing the income tax liability.

INCOME TAX
After consideration of tax loss carry forwards or tax loss carry backs, if there is a tax
liability the estimated annual tax, based on a quarterly basis, is calculated here.

NET INCOME OR LOSS

The resulting income or loss after all revenues, expenses, and taxes have been
enumerated for the business quarter. This line item is sometimes called the Bottom Line.

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