### Cost Method

```chapter 7
Beverage
Control
Class Name
Instructor Name
Date, Semester
Foundations of Cost Control
Daniel Traster
Opening Question
What control concepts have we studied so far that
crossover easily to beverages?
• Both use standard recipes.
• Both require quality and quantity standards.
• Both require menu prices that cover cost per
portion and a contribution margin.
• Both can have costs tracked as a percent of sales.
2
Some Key Differences for Beverages
Different
beverages
require different
glassware
(presentation
and portion
control)
Differences
Beverage recipes
allow for flexibility
in brands per the
customer’s
request
3
Types of Liquor
Well Brand
• the standard go-to brand for a drink when the
customer does not request a particular brand
Call Brand
• a brand the customer requests by name
• very expensive call brand
4
Types of Bars
Front Bars
• In the public view.
• Display call brands.
Service Bars
• Prepare drinks
behind the scenes.
• May only have well
brands.
Catering Bars
• For special events.
• May offer a very
limited liquor
selection.
5
Beverage Yields
Yield percent accounts for evaporation and
spillage and is calculated by seeing how many
ounces or drinks a container yields.
Wine and beer sold by the bottle have a yield of 100%
Y% = yield in oz ÷ oz in original container
6
Example 7a
On average, each 15 Gal keg yields 108 pints of
beer. What is Y% for the beer kegs in this
operation?
Yield in oz = 108 pt X 16 oz/pt
= 1728 oz
AP oz = 15 Gal X 128 oz/Gal – 1920
Y% = Yield in oz ÷ AP oz
= 1728 oz ÷ 1920 oz
= 0.9 or 90%
7
7
Calculating Cost per Portion for a Single
Liquid Beverage
1. Convert AP\$ (from invoice) to units that match EP
portion size
2. Calculate EP\$ = AP\$ ÷ Y%
3. Cost per portion = EP portion size X EP\$
8
Example 7b
What is the cost per portion for 1 ¼ oz shot of
tequila that costs \$17.50/750 mL bottle and has a
yield percent of 94.7%?
\$17.50/750mL X 1000mL/L X 1L/33.8oz
= \$0.69/oz
EP\$ = \$0.69/oz ÷ 0.947
= \$0.729/oz
Cost per portion = 1.25 oz X \$0.729/oz
= \$0.91/shot
9
Costing Multi-Ingredient Beverages
When costing multi-ingredient beverages, you
must use a recipe costing spreadsheet.
• The spreadsheet is identical to the one used for
food recipes, except…
― BC% replaces FC% (conceptually the same but often
different numbers in the operation)
― SF% may or may not apply
― There is no Q Factor
10
Recipe Costing Example
Margarita
Cost per Portion:
BC%: 20%
SF%: 1.2%
Portions: 1
Ingredient
(Well)
EP
Quantity
Y%
AP Cost
Tequila
Cuervo
silver
1 ½ oz
95%
\$15.80/
1.5L
Triple Sec
Dekyuper
½ oz
95%
\$5.20/
1L
Lime Juice
1 oz
100%
\$0.20/
Lime (1 lime = 1
oz juice
Salt, Kosher
For rim
S.F.
S.F.
Selling Price:
AP\$
converted
EP\$
Extended
Cost
Total
11
Recipe Costing Example Solution
Margarita
Cost per Portion: \$0.78
BC%: 20%
SF%: 1.2%
Portions: 1
Selling Price: \$3.90
Ingredient
(Well)
EP
Quantity
Y%
AP Cost
AP\$
converted
EP\$
Extended
Cost
Tequila
Cuervo
silver
1 ½ oz
95%
\$15.80/
1.5L
\$0.312/oz
\$0.328/oz
\$0.492
Triple Sec
Dekyuper
½ oz
95%
\$5.20/
1L
\$0.154/oz
\$0.162/oz
\$0.081
Lime Juice
1 oz
100%
\$0.20/
Lime (1 lime = 1
oz juice
\$0.20/oz
\$0.20/oz
\$0.20
Salt, Kosher
For rim
S.F.
S.F.
S.F.
S.F.
\$0
Total
\$0.773
\$0.782
12
Determining Sales Prices
Determining the sales price is the same process as
for food. The food cost method is the most
common approach.
13
Determining Sales Prices
BC
SP x BC%
BC= Beverage Cost
14
Example 7d
A cocktail costs \$0.92/portion. The bar runs a BC%
of 18%. What should the selling price be?
SP = BC ÷ BC%
= \$0.92 ÷ 0.18
= \$5.11
15
Beverage Cost Percent
Use BC% to monitor compliance with company
quality and quantity standards.
• Often tracked separately for beer, wine, liquor,
and non-alcoholic drinks
• BC% usually lower than FC%
• Biggest challenge in tracking BC% is that the
same liquid earns different amounts of money
depending on how it is sold
16
Three Methods for Reconciling Alcohol
Standard vs. Actual Costs and Sales
Cost Method
Sales Value
Method
Liquid Measure
Method
17
The Cost Method
The Cost Method is similar to tracking food cost:
1. Conduct a physical storeroom inventory.
2. Inventory the bar as well.
3. Compare cost of beverages sold to beverage
sales to get beverage cost percent.
18
Cost Method: Cost of Food Sold
Step One
Opening Inventory
+ Purchases
-
Closing Inventory
+
Transfers In
-
Transfers Out
-
Promotions and Write-Offs
Cost of Beverages Issued (from storeroom)
19
Cost Method: Cost of Food Sold
Step Two
Bar Inventory Differential =
Opening Bar Inventory – Closing Bar Inventory
• Accuracy of the differential depends on how one
measures the contents of each open bottle at the bar.
• Measure partials by eye, by ruler, or by scale.
• Differential may be positive or negative.
20
Cost Method: Cost of Food Sold
Step Three
Cost of Beverages Sold =
Cost of Beverages Issued + Bar Inventory Differential
• If differential is negative, it results in the number being
subtracted.
21
Cost Method: Cost of Food Sold
Step Four
Beverage Cost % (BC%) =
Cost of Beverages Sold (BC) ÷ Beverage Sales
• BC% can be done separately for beer, wine, liquor,
and non-alcohol by calculating each category’s cost
and sales totals separately
22
Cost Method
• Using the cost method, each category’s BC% should
remain relatively consistent from month to month; OR
• Use sales records and recipe costing sheets to
determine standard beverage cost for that month.
Actual and standard cost (or actual and standard
BC%) should be fairly close
23
Example 7e
The data set on the next slide is from a restaurant
bar. Calculate cost of beverages sold and BC% for
this operation.
24
Example 7e
• opening storeroom inventory = \$38,740
• closing storeroom inventory = \$35,490
• purchases = \$71,750
• transfers in = \$860
• transfers out = \$1,730
• promotions = \$220
• bar opening inventory = \$1,270
• bar closing inventory = \$1,430
• total bar beverages sales = \$381,400.
25
Example 7e (cont.)
Cost of beverages issued =
\$38,740 + \$71,750 - \$35,490 + \$860 - \$1,730 - \$220
= \$73,910
Bar differential = \$1,270 - \$1,430 = (-160)
Cost of beverages sold = \$73,910 + (-\$160)
= \$73,750
BC% = \$73,750 ÷ \$381,400 = 19.3%
26
The Liquid Measure Method
The Liquid Measure Method counts liquor, not
dollars.
• Use sales data and recipes to calculate how
many oz of each liquor should have been
consumed in prior period.
• Requires scale to measure partial bottles.
• Save empty bottles to track used bottles.
• Easier with automated dispensers.
27
The Sales Value Method
In the Sales Value Method, the manager
compares money that should have been made in
sales from each bottle of alcohol to actual sales
during the period.
• Challenge lies in that the same alcohol can sell for
different prices based on how it is sold (shots vs.
cocktails; mugs vs. pitchers, etc.)
28
Sales Value Method
To account for varied sales values:
1. Make an adjustment to standard sales totals based
on the actual drinks sold; add or subtract the extra
sales dollars made or lost for each drink sold
differently from a shot or bottle
2. Base the expected sales value on the bar’s historical
average sales for that value (not menu price);
remains constant over time if menu mix does not
change. Compare expected to actual.
29
Sales Value Method
3. Calculate a standard deviation from sales for each
category of alcohol. Calculate potential sales value
of inventory used assuming all liquor sold as shots,
wine as bottles, beer as glasses. Compare potential
sales value to actual sales totals and determine the
percent difference. This difference should remain
constant month to month with constant sales mixes.
30
Universal Method Response
No matter which method is used, managers
should investigate any unacceptable variances
between standard and actual data
• Investigation may reveal improper measuring,
giving away drinks, or off-the-record sales.
31
Beverage Portion Control
Over-pouring
• using more alcohol than called for in a recipe. (costly over
time)
Free pour
• dispensing alcohol without a measuring device; provides
showmanship but no control
Shot glass
• small cup for measuring alcohol
Jigger
• hourglass with two size cups for measuring alcohol
32
Beverage Portion Control (cont.)
Pourer
•device placed atop a bottle that clicks off when a certain amount of
liquid is dispensed. Must hold bottle at certain angle to be effective.
Automated dispensing system
•series of tubes connected to various liquid ingredients; bartender pushes
button and system dispenses drink per preset recipe
Service Gun
•handheld automated dispensing system that can be moved from glass to
glass
Integrated beverage control system
•automated dispensing system connected to a POS. Drink only dispensed
once assigned to a guest check. No showmanship, but maximum control
33
Portion Control and Glassware
• Most drinks are paired with a specific glass and filled
to the rim, so it is impossible to over-pour
• Right glassware makes the portion look large while
controlling portion size
• Wine is the exception as it is not filled to the top of a
wine glass. To control, pour into another
measurement container first and then pour into the
wine glass. (Aerates wine, too!)
Alcohol Laws and Ethics
U.S. State that issues
to sell alcohol to
bars/restaurants
vs.
Control State:
U.S. State that
operates all liquor
stores itself (no
competition)
All restaurants and bars need licenses to sell alcohol.
When licenses are limited by the state, restaurants may
35
Alcohol Laws and Ethics
• Cannot sell legally to minors or intoxicated guests;
• To maximize profit, push quality, not quantity
• Upselling is encouraging guests to purchase higher
quality alcohol for a drink
• Dram shop laws: laws that allow the victim of an
alcohol-related accident to sue the business and
server who sold alcohol to the perpetrator of the
accident.
36
Common Forms of Theft at Bars
• Improper measuring
― Controlled with pourers, automated dispensing machines,
proper glassware.
• Giveaways
― Controlled with integrated beverage systems.
• Inaccurate Charging
― Controlled with POS systems.
37
Common Forms of Theft at Bars
• Playing with the Cash Register
― Do not allow bartenders to leave the cash drawer open
― Keep tip jar away from register; use POS system
― Give each bartender a separate cash drawer that only the
manager closes out
― Swap cash drawers mid-shift to see if they match the register
38
Common Forms of Theft at Bars
• Playing with the Inventory
― Controlled with automated dispensing systems.
― Bottles marked with a stamp to spot unauthorized bottles.
― Maximum par stock at the bar.
― Forbidding employee bags or coats behind the bar.
― Using a bottle exchange system (return empties to get new
bottles).
― Requiring employee to sign for requisition at pick-up.
39
Non-Alcoholic Beverages
Common
Categories:
• Coffees and espresso drinks
• Teas and herbal infusions
• Sodas (including small batch or
• Juices, milks
• Bottled or house-filtered waters
• Virgin drinks
40
Non-Alcoholic Beverages
• Good sources of profit.
• When costing, include common add-on’s (honey,
sugar, milk, etc.) and assume an average number of
refills.
• Maintain quality and quantity standards for
production, storage, and portion size as with any other
product.
• Control which beverages employees may consume