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Friday, November 20, 2009

Restaurant Finished Goods Inventory Question

Hi Joe - I've had a recent question about counting stocktake and wonder if you could help me answer it. You're welcome to also use it on your blog if you wish.

In our discussion forum the question is:

My question has been playing on my mind since we opened. Where do products that we make and store eg. canneloni, lasagna etc. go in relation to the stocktake? At present, I am counting up all finished products and deducting that from my final costs of goods sold. ( My guess was that if you didn't then you would be counting the flour and the eggs used twice).

Ken Burgin
Profitable Hospitality
Management Systems & Profit Strategies for Hotels, Clubs & Restaurants
Sydney Australia ph 1800-001353 (international +612 93401089)
fax +61 2 93692668 mob 0414-660550

Thanks for the question Ken. I favor including the finished goods inventory in the ending inventory value for all batch recipe products. As long as the operation expects to receive revenue for the item as it was prepared, it should be included in inventory.

These stuffed pasta dishes are commonly sold for several days at the full menu price. Roasted meats are trickier. If the cooked item will not be sold in the primary manner (for example, leftover roast used in hash), they should consider including only 1/2 the value or completely eliminating this item from the ending inventory.

The accounting treatment should be consistent.

Monday, November 09, 2009

Butchering and the Inventory Impact

Hi Joe,
My question would also be, how do account for it in inventory. Right now we are sitting on 400 lbs of this usable trim product for grinding stewing or otherwise. We will generate revenue from it, but wonder do we count it at a discounted price per pound or the original price per lb. that we paid for it when it was a whole muscle item?

Thanks for the quick and informed response. Greatly appreciated!!


Imagine you have a vendor, Fabricated Beef Products, who you swap whole pieces of meat for fabricated, portion control items. You never pay this vendor any money since you swap one large item for several smaller items. If you give them $1,000 worth of whole sirloin and they return sirloin steaks and ground beef, you would treat the transaction as a wash.

Credit the inventory value of the whole piece of meat. Then debit the inventory for the steaks and trim meat. If you decide to treat the trim as free, the steaks would carry the full cost of the whole piece of meat. On the other hand, if you place a value on the trim, discount the value of the whole piece by the trim credit and then value the steaks based on the net.

The key issue here is the value of the steaks. You probably would not spend the labor cost butchering the whole sirloin simply to achieve many pounds of ground beef. If you have a true value in your operation for the trim meat (I use revenue generating menu items for my test.), go ahead use a full credit based on comparable market prices for ground beef.

The total of the steaks and trim for a specific production batch would be exactly equal to the value of the whole sirloin used in the batch. In a nutshell, your steak cost goes higher as the credit for trim goes lower.

It seems you meet the criteria for valuing the trim based on the market cost of ground beef. Your inventory value of the steaks and trim should reflect the cost of the whole sirloin used to produce these items.

Sunday, November 08, 2009

Butchering and Usable Trim

Hi Joe,
Just a quick question we are having a debate about at out businesses.

We bring in our own whole sirloins of beef, trim them, and cut and portion them to our specs typically for sirloin steaks in a variety of portions 8 oz. and 10 oz. cuts.

So we have 3 items resulting from that process:
1. A usable salable product in the form of cut and portioned sirloin steaks as mentioned above.
2. We get actual waste that does not go into anything other than soups, stocks, reductions etc…
3. And we have a considerable amount of usable trim that we can manipulate into another food form and generate revenue with, i.e. burgers, chop steak, etc.

My question is we have a considerable amount of this usable salable trim in our freezer. The question is how we account for it in our inventory. At the price/ lb we paid for it upon delivery, a factored price after we it is trimmed and in the ready to use format in the freezer waiting to be utilized (essentially the same costing formula applied to the steaks we are portioning for immediate sale) or at a cost reduced price as it is no longer a part of the original piece of meat we would be using to generate sales with in the immediate as we do with the portioned steaks.

Your wealth of knowledge and assistance here would be greatly appreciated!! Get back if you can.

Kindest Regards,
Ross Munro

There are two schools of thought on this issue Ross. The first group charges the cost of the whole sirloin to the steaks. They consider all usable trim "free" and they use the total weight of steaks divided into the purchase cost of the whole sirloin to calculate the cost per usable pound. This philosophy is correct if the trim is used in employee meals, stock pots, etc.

The second school of thought credits the cost of usable trim. Typically, there are two primary trim bi-products: ground beef and stew meat. These people weigh the ground meat and cost the credit using the prevailing cost per pound for ground beef. They do the same for the stew meat. The net cost is then divided by the weight of the steaks to get a cost per usable pound.

I prefer the second method if the restaurant serves burgers, meatballs, meatloaf and entrees which utilize the stew meat. The bones may also be credited if you genuinely gain revenue from their use. If the chef had to buy beef bones for base menu items and did not need to purchase as many due to the butchering process, you can go ahead and follow suit with the bones.

Sunday, November 01, 2009

Menu Planning and Strategy

Our industry is experiencing a shift in the demand curve. Restaurant goers are downsizing from upscale to casual, casual to fast casual and fast casual to QSR and take-out. The regular patrons at many family owned restaurants are watching their checks and eliminating an appetizer or dessert course. If you have a lower priced entree on your menu, you may find the popularity on the increase.

Most of the menu analysis and menu engineering models were built during a time of solid annual growth for our industry. These models focus on high gross margin entrees loved by patrons. Blindly using these models to adjust menu prices may hurt your bottom line. These models are designed to eliminate low gross margin menu items if the popularity is low.

Rather than completely eliminating these dogs, you may want to repackage these items. Take them off your printed menu and try them as budget specials. You may find a winner or two.

The stars need to get your full attention. Are your guests still selecting the reliable cash cows? You may see the high gross margin items slipping in popularity. Chef Mario Batali (one of my favorite chefs) was quoted in a USA Today article: "There's less caviar, foie gras and truffles, but they're still there. They're just not on nine courses. They're on one course." This same article highlights other chefs who have decided to offer more price points for their patrons.

Expense accounts are being scrutinized at every major S&P 500 company. The current earnings season on Wall Street shows companies are slashing costs.

The wine lists are offering guests fewer trophy bottles as demand for the $200 plus bottle of wine has collapsed. Many restaurants religiously ordered their annual commitment from the same boutique vineyards without regard to consumption. Now, these wine cellars are loaded with these high cost bottles. Many have decided to end this practice and they are moving these bottles by the glass.

Are there ways to produce the same gross margins in this new era? Yes. You need more turns on busy nights. Offer early bird specials, table d'hote options, and popular add-ons for your popular menu items. Promote seasonal ingredients which typically offer lower cost of sales.

Customer knowledge (including dining out budgets) leads to effective menu planning efforts. Rather than completely revamping your current menu, you may find a few strategic revisions will help you meet your targets.

Restaurant Data Pros

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