FINAL EXAM STUDY GUIDE Understand the purpose of a budget Charts course for future action Expresses business plan in financial terms Requires management to plan for o Decision making o Establishing objectives o Setting priorities Know the benefits of preparing a budget Establish specific future goals Evaluate past activities Formulate work plans Forecast available revenue Predict fund expenditure Measure actual results Identify potential problems Estimate available funds at end of budget period Serve as public information system Know the different types of budgets and factors that affect budgets Operating budget a business s forecasted revenues along with forecasted expenses usually for a period of one year or less o Sometimes referred to as the revenue and expense budget o Is the most common in foodservice management o Parts of an operating budget Labor budget the total labor cost to be expended for a set period of time Calculated by taking every person in an organization department or project and multiplying the number of hours they are expected to work by their wage rates Material budget projects the cost of raw material to be used in the production of goods Overhead budget shows the expected cost of all production costs other than direct material and direct labor Cost of facilities including rent utilities repairs and maintenance Factors that influence budgeting 1 Historical trends looking at what has happened in the past 2 Federal and state subsidies will federal reimbursement rates increase 3 Operational and or program changes often the labor hours have not been reduced as the number of customers has decreased and instead work has expanded to fill the time available Increased decreased program costs ex equipment is getting older and breaking more frequently 4 5 Changes in meal pricing Know the different methods of budgeting Top down o Budgets are prepared by top management and imposed on the lower layers of the organization o Expresses the performance goals and expectations of top management o Can be unrealistic because they do not incorporate the input of the very people who implement them Bottom up o Supervisors and middle managers prepare the budgets and then forward them up the chain of command for review and approval o Tend to be more accurate o Have a positive impact on employee morale because employees assume an active role in providing financial input to the budgeting process Incremental means increasing or adding on gradual o Based on previous year s budget o Determine what was allocated last year and adjust based on the following Inflation labor contracts profitability operating losses restructuring reengineering o Easy to prepare o Not responsive to change Zero based budgeting o Each activity starts from a budget base of zero o Serves to identify and eliminate wasteful or obsolete practices o Everything on the budget must be justified o Each manager prepares estimates of proposed expenses for a specific period of time as though they were being performed for the first time o Challenges previous modes of operation o Drives managers to rethink all aspects of a foodservice operation o Difficult to prepare takes longer o Most effective when restructuring o Responsive to change Be able to calculate the PPD meals per labor minute turnover rate Per patient day PPD amount to be spent for food and each patient each day o Budgeted PPD is established by the facility o How to calculate Total all food expenses for the month Include food expenses from every food vendor used by the facility groceries produce dairy bread etc Do not include non consumable items such as paper products and cleaning supplies Estimate number of meals served month in the facility by one of these methods Review documentation of meals served daily and total this number for the month Review your daily census for each day multiply the daily census by 3 meals served day and multiple by the number of days in the month Divide the total expenditure for raw food by the number of meals served month for cost meal Multiple by 3 for cost day OR divide by average census and then by number of days in month o Example calculation Total raw food cost 6950 00 Meals served per month 50 residents day x 3 meals day 150 meals day 150 meals day x 30 days month 4500 meals month raw food costs version 1 6950 divided by 4500 meals day 1 54 meal 1 54 meal x 3 meals day 4 63 patient day Goals in this area 4 45 4 75 Raw food costs version 2 Raw food cost 6950 Average census 50 number of days in month 30 6950 50 30 4 63 Meals per labor minute OR meals labor hour o Total meals produced productive labor minutes or hours o The average is 5 5 meals labor hour for cafeterias 3 5 meals labor hour for acute care facilities and 5 0 meals labor hour for extended care facilities Turnover rate the ratio of the number of workers that had to be replaces in a given time period to the average number of workers o Tally up terminations and firings o Apply the number of lost employees to a specific time frame monthly annually For example 12 people left in 1 year so the turnover statistic will be 12 per annum o Divide your turnover number by the total staff number If company has 60 employees divide 12 by 60 to come up with overall turnover percentage which is 20 Understand inventory principles Know ways to decrease the labor and the food budget Clinical o Cost effective menu changes o Liberalized diets o Food preferences o Know your census and stay current with discharges o Ordering snacks and supplements Menus o Lower cost substitutes Consider the application of the products you are creating Maybe frozen asparagus will work out just as good for making fresh asparagus soup o Standardized recipes o Plate waste o Pre packaged o Bulk purchases o Coding o Leftovers Log in your leftovers and cross reference them with your production sheets This way you can utilize them in your menu Raw foods o Purchasing If one of your vendors has a great price on one or two items that you need ask if you will pay a surcharge for delivery or if you need a minimum order Always look at converting apples to apples which allows you to get the best idea of the actual cost Know your yields to avoid over purchasing various products o Receiving o Food preparation o Service o Inventory Take inventory monthly and review how much is on the shelf Strive to turn over inventory each week Supplements Security o Employee and guest meals o Activities o Theft Know the difference between