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Understand the Financial Controls Used in Food and Beverage Operations

1.0 Introduction

            Providing food and beverage services outside the home environment is part of the functions of the hotel and catering industry. The food and beverage function is affected not only by its size, but also its diversity. There are many public and private food and beverage outlets ranging from small private owned enterprises to luxury hotels to large multinationals. This report examines the financial controls associated with food and beverage operations, and plans an event based on a budget of £1000 and 60 guests.

2.1 Discuss the Use of Financial Statements in Food and Beverage Operations

            Financial statements refer to the records of financial transactions of a business.Financial statements provide invaluable information in food and beverage operations as discussed below. In particular, they provide records of all financial transactions that help managers in managing the business. Secondly, they offer useful information to other stakeholders that include tax authorities, shareholders, lenders and banks that permit them in making informed decisions in relation to their dealings with businesses in the food and beverage sector. They also serve as reliable indicators of a business` financial health. The most common financial statements include income statement, statement of cash flows, balance sheet and statement of retained earnings. For companies in food and beverage operations, these statements provide useful information such as raw material costs which is used in computing menu prices. In addition, sales records are used for marketing purposes because they give detailed information about customers including what food and beverage product they purchased, their contacts, and their preferred mode of payment (Shim, 2008, p. 45).Other important financial statements infood and beverage operations include dish costing sheet, sales records and cost statement.

2.2 Demonstrate the Use of Cost and Pricing Processes

            In food and beverage operations, costing and pricing has to be done for various items that include menu, dishes, and beverages. Price can be defined as the monetary amount necessary to purchase a particular product or service. On the other hand, cost is the total expenditure on a good or a service. It includes labor, time and money. Costs can either be direct or indirect. Direct costs are costs of materials that form part of the final product. Indirect costs are cost of materials that do not make part of the finished product but are used in the production process, for example, the cost of oil used in cooking. Costs can also be variable (food and beverage costs and labor costs) or fixed (example payment for rates or rents) (Dittmer, 2003, p. 253).

            The approach used in pricing menus should follow basic principles and should be aligned with department`s profit targets. Food cost is defined as the menu price of a particular dish in relation to the cost of food used in preparing the dish. In general, menu price should be between 30% and 35% of the cost of food used in preparing the dish. At face value, it might seem that the business is charging more than is necessary. However, it is important to understand that the prices customers pay covers several costs and not just the cost of food, but also the labor used (Whitehutchinson, 2015, p. 1).

            In terms of pricing dishes and menus, it is worth remembering that the price tag in itself is a valuable marketing tool and can help the business in attaining its sales targets. That notwithstanding, the pricing method adopted should not factor in the departmental profit targets and the various profit margins for the menu. The costing formula is as follows: cost of product X/ 0.35 equals menu price. The same method used in pricing food is used in pricing beverage. In some instances, a business may offer discounts, which is the amount of money deducted from the market price. In such cases, the selling price for product X equals the market price for X less the discount (Daly, 2002, p. 67).

2.3 Analyze the Purchasing Process

            Purchasing is a function that deals with the searching, selecting, buying, receiving, storing, and eventually using the commodity in line with the catering policy of the business (Davis, 2012, p. 163). From the definition, it is evident that the person in charge of purchasing is not only involved in purchasing, but also in receiving, storing, and issuance of the commodities. He/she also ensures that the commodities are used for their intended purpose. The purchase process involves a number of procedures.

Firstly, an authorized person for example the restaurant manager or the department head initiates a request for the purchase of food or beverage products (Dopsen, Hayes and Miller, 2008, p. 180). This is followed by selecting the supply source from where these commodities are to be bought and the price to the business should pay. A written purchase specification is sent to the supplier detailing the food and beverage products specifying the quantity, quality, size and weight. The third stage involves entering into a contract with the supplier of the goods. The contract can be done in writing, or electronically. In the fourth step, the purchaser obtains a satisfactory delivery performance from the supplier. The purchase checks the delivery note to ensure that the goods delivered matches the order made. The goods are then accepted and transferred to the stores or ordering department (Davis, Lockwood, Pantelidis and Alcott, 2008, p. 166).

3.1 Compile Food and Beverage Menus for a Hospitality Event

            The success of food and beverage operation is determined by the menu. It dictates the establishment`s employment, organization, service and production methods (Davis, 2012, p. 71).

Adults Vegetarians Diabetes Children
Apple cakeSausage, chips and fresh saladBeer   Fruits saladJack-potatoes with vegetablesCoffee/tea   Mineral waterFish, rice and fresh saladFruits salad Battered chicken fillet with chips and saladIce-cream
Orange juice:  

3.2 Justify the Selection and Suitability of Recipes for Menu

            In preparing the menu, various factors were considered for the different guest categories including: nutrition; safety and hygiene; balance diet; health; and balance of color. Sausages, chips and fresh salad are suitable for adults because they are nutritious, easy to prepare and do not require special skills. For vegetarians jack potatoes with vegetables will be suitable because it offers both nutrition and balance of color. For diabetics, fish, rice and fresh salad is appropriate because it is low in fat, has sufficient vitamins and carbohydrate and appropriate for their health. Similarly, for children battered chicken fillet with chips and salad offers significant nutritional value in terms of proteins and vitamins, which are important for a child growth and health. For beverages, various beverages were selected to suit the different guests. Beer is primarily for vegetarians and adults while tea/coffee, mineral water and juice will serve diabetics and children. Guests will served either through counter service or buffet it is economical in terms of personnel, quicker, and permits quests to make the food/beverage choices.

4.0 Conclusion

Because of technological advancement, training and development, modern food and beverage operations are characterized by improved quality and higher levels of professionalism.Service quality continues to be the key differentiator for customers. This report examined the major financial processes applicable in food and beverage operations. In addition, a menu of 60 guests was compiled within the set budget while remaining cognizant of the issues that influence dish selection and menu compilation.


Daly, J, 2002. Pricing for profitability. New York: Wiley.

Davis, B, 2012. Food and beverage management. Milton Park, Abingdon, Oxon: Routledge.

Davis, B., Lockwood, A., Pantelidis, I. and Alcott, P, 2008. Food and Beverage Management. Hoboken: Taylor and Francis.

Dittmer, P, 2003. Principles of food, beverage, and labor cost controls. New York: J. Wiley.

Dopson, L., Hayes, D. and Miller, J, 2008. Food and beverage cost control. Hoboken, N.J.: John Wiley & Sons.

Shim, J, 2008. Analysis and uses of financial statements. London: Global Professional Publishing.

Whitehutchinson, 2015. Managing prime food and beverage costs for maximum profitability – Leisure eNewsletter. [online] Available at: [Accessed 13 Jan. 2015].