INVENTORY AND STOCK TAKING

PHYSICAL INVENTORY:

In most hotels inventories are taken daily, weekly or monthly basis. The inventories of fast moving items are taken on daily or weekly basis.

                The process of taking a physical inventory requires two persons to undertake the job, one to count the unit on shelves, and the other to record the amount in the inventory book. During the month the weekly reports are compiled on the basis of written requisitions from the storeroom and the physical inventory of the individual bars.

The main objectives of inventory taking are:-

  1. To determine the value of stock in hand.
  2. To compare the value of goods actually in stores at a particular time with the book value of the stock.
  3. To list slowly moving items and brings to the notice of purchase officer an exe. Chef.
  4. To compare usage with sales to assess food percentage.
  5. To check against spoilage loss and pilferage.
  6. To determine the rate of stock turnover for different groups of foods.

BOOK INVENTORY

The book inventory indicates what the ending inventory should be when every item received is properly recorded and each issue is made against an authorized requisition. The formula for computing the book inventory is as follows

Add- opening inventory – equals previous month’s closing physical inventory.

Add- purchases receiving – obtained from summery of receiving sheets

Less- issues from storeroom – obtained from total of food cost and beverage control reports plus direct storeroom issues.

Equals – book inventory.

The amount of book inventory is compared with the physical inventory and the difference is calculated. The difference, either over or short, is recorded on the storeroom reconciliation. It is the physical inventory that issued as the basis for food and beverage cost accounting.

PRODUCTION INVENTORY

  • Inventory in the production area is taken on the 1st of each month before opening the business.
  • After the storeroom inventory on the last day of the month, any requisition must be clearly marked ‘post inventory’.
  • The value of the post inventory requisitions is taken off the production inventory.
  • The ‘post inventory’ issues are then recorded the following month.

POST INVENTORY

The month end inventories must reflect the amount of merchandise on hand at the end of the calendar month. As it is impossible to take all the inventories in various storerooms, kitchens, bars at the same time unless a large staff is assigned to this task, a schedule of inventory taking may indicate start in at one point at 2.p.m on the last day of the month and 7 a.m. on the first of the next month. The movement of the stock either receiving or issuing continues despite the inventory taking. It is necessary, therefore, to mark all food and beverage requisitions with ‘after (or post) inventory’ and to adjust the physical inventories accordingly. In adjusting physical inventories the following rules apply:

  • If the physical inventory is being taken before the end of the month, the issues until the month end are deducted and the merchandise received is added to the inventory value.
  • If the physical inventory is being taken after the end of the month, the issues after the month end are added and the merchandise received is subtracted from the inventory value.
  1. Explain the Perpetual inventory?

Ans: In this inventory,

  • The total inventory is counted and recorded and any additions or deletions are later added to the total inventory.
  • The costs of goods sold is continuously updated on each transaction of sales and purchases.,
  • The purchases made are debited to inventory account, whereas for each sale, two journal entries are prepared: the first one to record the sale value of inventory and the second to record the cost of goods.
  • This inventory eliminates the need for recurrent counting of additions to the inventory when goods are received and subtractions from the inventory when the same is issued.
  • The perpetual inventory cards are used to maintain perpetual inventory, these are similar to bin cards but have additional information and are used differently. It also helps to provide quick information on the quantity of food items in stock at any moment.
  • Additional information includes the name and address of the supplier, recent purchase price, reorder point, reorder quantity and par stock.
  • “The reorder point” is the point at which the supplies on hand decrease after which additional orders are placed. It is represented in weight or number.
  • The perpetual inventory card also provides par stock figure for each item in the stock.
  • “The reorder quantity” is the quantity or the amount of goods, which will be ordered each time the particular item quantity comes to the reorder level.

2. Explain the Period inventory?

Ans: In this inventory,

  • The actual physical count is taken along with the valuation of the amount which is present in the inventory for a particular time period.
  • The purchases made are recorded in the purchase account and every sale transactioin is recorded in single journal entry.
  • The inventory account and cost of goods sold account are updated is only at the end of the period.
  • The purchases account, purchase returns and allowances account are used and continuously updated.
  • The sale transaction is recorded only at a single entry.
  • The closing entries are required only in periodic inventory system so that the inventory and the cost of goods sold can be updated.

STOCK TAKING

The main object of stock taking is to ascertain the actual value of goods on hand as distinguish from the book value of the stock. The value of the goods on hand is an important item for the preparation of profit and loss account and the balance sheet of the hotel. Any discrepancies must be investigated and corrective action should be taken.

The physical stock taking is done by a senior staff usually from the accounts department added by a member from the food and beverage department or the purchasing department, who is well versed with the nomenclature of goods and their units. In case of a small hotel the work of physical stock taking is done by the manager. Use of printed stock sheets facilitates ease and quick stock taking.

Depending upon the size of business, the stock taking of food items should be taken at regular intervals of a week or on a daily basis or even after each meal or session. The stock take must coincide with the revenue report. In case there are consistently no discrepancies apparent in stores, the hotel may adopt a monthly stock take. The person taking stock should be able to recognize commodities and evaluate the stock take figures.

The stock taking is done on the last day of trading period and before the opening of the business next day. Monthly stock taking is done every 28 days (i. e. 13 x 28 days trading period per year). On completion of the physical stocktaking all discrepancies are investigated and stock records are adjusted to show the actual quantity of each item in hand. When extensions of the value of goods, is completed a food stocktaking report (fig. 7.4) is prepared and necessary action is taken. Copies of this report are given to:- GM, F&B Mgr, Accounts officers, purchase officers, chief executive chef, head store man.

Special attention should be given to the following points to reduce mistakes in use:

  1. Use standard dated and numbered stock sheets, which include every food item in the stores and kitchen or in the cellar.
  2. Check the top 25 costly items first. They are the most important.
  3. Look out for items which are split between two or more locations.
  4. Make sure that all areas are covered.
  5. Never guess with the weight, volume or number of any item.
  6. Arrange for all deliveries to be made after stock taking.
  7. Record the correct size and price based on the last delivery of the item. Make adjustment for any price increase, if any.
  8. Carry out the valuation as speedily as possible.
  9. Double check the stock sheet for errors if the valuation of the stock shows an unusual result or if the foods gross profit % or gross profit result is in variance.
  10. Carryout investigation, if required, soon after the stock period is over.

Guidelines for stock taking:

  1. Before stocktaking:-
  2. Record opening stock in all control sheet
  3. Enter all purchases into perishable goods stock take sheets
  4. Enter all issues onto the non-perishable goods stock take sheet
  5. Total issues and purchases for each item and add to opening stock.
  6. Take stock before any further issue and before any sales take place
  7. Do proper planning and timing for stock take for every unit of the operation.
  8. During stocktaking:-
  9. Know all the places where stock may be stored
  10. Check that closing stock is not greater than opening stock plus any issues or purchases. If This is so, check with the executive chef
  11. Use scales to establish correct weights
  12. Record everything accurately.
  13. After stock taking:
  14. Work systematically line by line
  15. Make sure that you have the correct units and correct price
  16. Apply the principle of ‘first in first out’.

STOCK LEVELS

                An establishment is required to determine an appropriate stock level so as there is no running out of stock or of over-stocking of an item. The main determinants of stock levels are:-

  • Maximum and minimum forecast usage figures based on the volume forecast and past histories.
  • The re-ordering time for the item
  • The economic ordering quantity
  • The market trends
  • The shelf life of the item
  • Budget available for purchasing

CONTROL SHEETS

For the purpose of speed and accuracy in stock-take a set of control sheet is needed. Usually three sets could be used:-

Set no. 1 for perishable items

Set no 2 for non-perishable items

Set no. 3 for inter-departmental stocktaking.

INVENTORY ANALYSIS

  1. Write a note on ABC analysis and various benefits of ABC analysis?

Ans: this technique is based on the belief that a small portion of an item might represent the larger part of the money value of the total inventory used in the production process as compared to more number of items having a small part of monetary value.

A denotes: the highest value that should be on strict control with staff.

B denotes: less value as compared to A should be in less control.

C denotes: the lowest value may be under simple physical control.

 

A category: 5% – 10% of items which represent 70% – 75% of the money value

B category: 15% -20% of the items which represent 15% – 20% of the money value

C category: the remaining number of items which represent 5% – 10% of the money value.

 

Benefits of ABC analysis:

  • It enables strict control over items having maximum investment
  • It helps in releasing working capital and using it prudently for investing in necessary inventory.
  • It enables maintenance of high inventory turnover rate.
  • It reduces inventory turnover rates.

2. Write a note on VED analysis and various benefits of VED analysis?

Ans: In this technique, it analyses monitoring and controlling of stores and spares inventory by classifying them into respective categories. This VED analysis is similar to ABC analysis.

 

V stands for “Vital”, E stands for “Essential”, and D stands for “Desirable”

V – Very important ingredient without which dish cannot be prepared.

E – If the ingredients is necessary or essential for preparing dish.

D – If the ingredient is not essential but can be desirable.