Advanced Financial Operations in Food and Beverage Industry Insights

This assignment delves into the core principles of advanced operational finance within the food and beverage (F&B) management context. It begins by differentiating between financial and management accounting, outlining their distinct objectives, users, and reporting formats. The assignment then explores variable costs within the F&B industry, providing specific examples like raw materials, direct labor, and commissions, while also discussing the challenges in controlling these costs in the short run. Finally, it distinguishes between financial and non-financial considerations in decision-making processes, emphasizing the importance of both monetary and non-monetary factors for effective management and strategic planning within the F&B sector. The content covers various aspects of financial planning and management, offering valuable insights into key financial decision-making processes.

Advanced Operation Finance in
Food and Beverage Management
There are two types of accounting.
1. Management Accounting
2. Financial Accounting
Question and answers related to advanced operation
finance in food and beverage management.
1.What is the difference between financial accounting and
management accounting?
Answer : Definition of Financial Accounting
Financial Accounting is an accounting system which is concerned with the
preparation of financial statement for the outside parties like creditors,
shareholders, investors, suppliers, lenders, customers, etc. It is the purest form
of accounting in which proper record keeping and reporting of financial data are
done, to provide relevant and material information to its users.
Financial Accounting is based on various assumptions, principles and
conventions like going concern, materiality, matching, realisation, convention,
consistency, accrual, historical cost, etc. The financial statement consists of a

Balance Sheet, Income Statement and Cash flow statement which are prepared
as per the guidelines provided by the relevant statute.
Definition of Management Accounting
Management Accounting, also known as Managerial Accounting is the accounting for
managers which helps the management of the organisation to formulate policies and
forecasting, planning and controlling the day to day business operations of the
organisation. Both the quantitative and qualitative information are captured and
analysed by the management accounting.
The functional area of management accounting is not limited to providing a financial or
cost information only. Instead, it extracts the relevant and material information from
financial and cost accounting to assist the management in budgeting, setting goals,
decision making, etc. The accounting can be done as per the requirement of the
management, i.e. weekly, monthly, quarterly, etc. and there is no format set on the
basis of which it is to be reported.
Comparison Chart
Basis for
Comparison
Financial
Accounting
Management
Accounting
Meaning Financial Accounting is an
accounting system that
focuses on the
preparation of financial
statements of an
organization to provide
the financial information to
the interested parties.
The accounting system which
provides relevant information to
the managers to make
policies, plans and strategies
for running the business
effectively is known as
Management Accounting.
Is it
compulsory
Yes No

?
Information Monetary information
only.
Monetary and non-monetary
information
Objective To provide financial
information to outsiders.
To assist the management in
planning and decision making
process by providing detailed
information on various matters.
Format Specified Not specified
Time Frame Financial Statements are
prepared at the end of the
accounting period which
is usually one year.
The reports are prepared as per
the need and requirements of
the organization.
User Internal and external
parties
Only internal management.
Reports Summarized Reports
about the financial
position of the
organization
Complete and Detailed reports
regarding various information.
Publishing
and auditing
Required to be published
and audited by statutory
auditors
Neither published nor audited by
statutory auditors.
Conclusion
Financial Accounting and Management Accounting are of great significance, in
fact, they help the organisation in various ways. As financial accounting is helpful
in the proper record keeping of innumerous transactions and comparison of the
performance of two periods of an entity or between the two entities, while the
management accounting is helpful in analysing the performance, making a
strategy, taking an effective judgement and preparation of policies for the future.

2 . Question
What are examples of variable costs in the food and beverage industry
and why it is difficult to control them in the short run?
Variable Costs:
Variable costs are clearly related to hotel occupancy and business volume. As
business volume or occupancy increases, variable costs will increase; as hotel
occupancy decreases, variable costs should decrease as well.
The technical definition for variable costs are those costs that change with the change in
sales. The obvious ones in the restaurant industry are the food and staff. The staff
includes everyone from the hostess through the dishwashers. The chef, waiters and
busboys; everyone that participates in getting that patron served food and refreshments;
all of them are considered staff. The entire staff’s payroll is variable in nature. If you did
not have the customer, you would not need them to provide the service, so their costs do
change with the volume of sales.
Here are some examples of variable cost of raw material, direct labor, commission.
Direct Raw Materials
Direct raw materials are what the business uses to create the final product. Examples include
wood, metals, meat, vegetables, and tobacco, among many others. An important distinction to
make is that these materials only cover those that businesses use to create the final product – not
other factors of production.
The more demand there is for a final product, the more raw materials the firm needs. In turn, this
increases its variables costs that increase alongside demand and final output.
Direct Labor
Direct expenses are costs that are connected to a specific cost object, such as raw materials used
to develop a specific product or software implemented to quality control a consumer good or
service. The majority of direct costs are labor and direct materials. According to the Financial
Accounting Standards Board (FASB), which is the authority on nongovernmental generally
accepted accounting principles (GAAP), variable and fixed labor costs can be categorized as
direct or indirect.
Direct labor includes all employees responsible for producing a company’s products or services.
Some examples of direct labor include quality control engineers, assembly line workers,
production managers and delivery truck drivers. Unlike indirect labor, direct labor encompasses

costs that are allocated to each consumer good or service produced by a company. Direct labor is
typically managed through the use of specific time clock codes that can be aligned to individual
production departments to calculate a portion of the cost of goods sold.
Commissions
A commission is an additional compensation a company gives to its employees. Employees may
receive commissions for exceeding their expectations and meeting the company’s requirements.
Most companies give sales commissions at a rate predetermined in a contract agreement.
Commissions are variable in the sense that they tend to change with the company’s profitability
and the employee’s output rate. A company that does not profit as expected may not give
commissions. The same applies if the employees do not meet their set targets.
3. Question
Distinguish between financial and non-financial consideration in decision
making?
Answer :
1. Financial
2. Non-financial
Introduction
Everything you need to know about the types of financial decisions taken by a company. The
key aspects of financial decision-making relate to financing, investment, dividends and working
capital management.
Decision making helps to utilise the available resources for achieving the objectives of the
organization, unless minimum financial performance levels are achieved, it is impossible for a
business enterprise to survive over time.
There are five steps of Financial consideration which are the best of decision
making.
State Your Goals
How do you know if you are on the path toward making responsible financial decisions if you do
not even know where you’re headed? Knowing what you want from life is not always clear when
you are fresh out of college. It does not have to be! You have got plenty of time. However, I am

sure there are certain things you know you would like to accomplish for yourself. There are
steps you can take to feel like more of an adult and to make you feel like you can comfortably
support yourself and all that you want to achieve.
Avoid Making Impulse Buys
We are all susceptible to an impulse buy from time to time. Impulse buys are spur-of-the-
moment decisions, and they happen to the best of us.However, learning to pick and choose
those splurges and adopting some self-control is a large part of earning some financial
responsibility. First, get in the habit of asking yourself why you want to make the purchase.
Determine if it is a want or a need. When purchasing a car, you will want to weigh a number of
factors. Do you only need it to get to work? Does that work require a specific type of car? Next,
avoid making emotional decisions.
Consider the Pros and Cons
To make financial decisions with conviction, examine the potential outcomes.
When weighing the pros and cons, it is crucial not to get distracted by the “best-case scenario”
you are being presented. One way to do this is by doing scenario analysis. That means you
consider potential outcomes in three categories: worst-case, base-case, and best-cas.
Let’s frame this with our example of purchasing a car:
● The best-case scenario could be that you get a raise at your job or seek out some
additional income. Perhaps refinancing student debt gives you a little more wiggle room
in your budget for your car payments.
● The worst-case scenario might be if you lose your job or have a medical or family
emergency. Does your current financial situation and budget give you enough to
maintain your car payments while you are looking for new employment?
● The base-case is if everything stays the same with your current budget.
The best-case scenarios will feel good to think about. It is important to know any potential
negative outcomes that may arise, so you can balance them against the best-case ones.We
mentioned leaving emotion out of it. Knowing the list of cons will help you to remain even-
keeled. It is going to feel good when you are test driving a car. It is likely an upgrade over your
current vehicle. It may also be your first major purchase as an adult. There can be a lot of
emotion wrapped up in that.That’s why it is important to sleep on a decision, do your research
and know the outcomes. Then, you can easily avoid being distracted by seeing the best-case
scenarios through rose-colored glasses. For the example of purchasing a car, you need to know
how much you can afford to put down and what monthly payments you can fit into your budget.
According to Ronald Montoya, a consumer advice editor for car review and pricing website,
edmunds.com, If you are just kind of looking at your budget, the general advice we have been
giving is that your automotive budget should be no more than 20 percent of your take-home
pay.”

However, more frugal-minded consumers may want to keep their monthly payments closer to 10
percent of their monthly budget. That means budgeting $300 for a car payment, if you make
$3,000 each month.
You should also consider how it will affect the goals toward which you are working. Will there be
a delay in any of your other goals? Is it worth that delay?
Ask for Help
We’re never too old to ask for help.
In fact, most of our parents would relish the opportunity to dole out some advice. They are
usually giving it whether or not you ask, right?
Your parents or family friends may have been in your same shoes. Ask people in your circle of
trust for advice.
Track Your Results
Remember the ‘M’ part of SMART goal setting?
It is important to check in with your goals and see how your budget is holding up. Are you still on
track? You will be more comfortable making each financial decision you face if you have
monitored the outcomes of your previous decisions and you know what worked (or did not).For
the times it did not work, what did you learn from it? Can you avoid that outcome by
approaching it differently the next time?A few months after purchasing a car, are you still able to
maintain the budget that you expected? Are you happy with your purchase or did you have
some buyer’s remorse? If you had the information you have now, would you make the same
purchase? Analyzing these questions will help you to make smarter decisions moving forward.
Wrapping Up
Nobody is perfect. Sometimes life gets in the way of our goals. If one goal is not on track with
your timetable, it is important to know why. Was there an unexpected emergency such as car
trouble or a health scare? You can forgive yourself for those.
Did you ever have buyer’s remorse from any purchase? Did you miss a step in the checklist?
Perhaps emotions crept in. Maybe you were overconfident in a best-case scenario or your
ability to avoid the worst-case one. If you can learn from those mistakes and do better next time,
you’re already on a better path.
With this checklist in hand, you’re on your way. Print it out if you need to and pin it near your
desk or nightstand.
Introduction of non-financial
Although the financial case for making an investment is a vital part of the decision-making
process, non-financial factors can also be important.

Non-financial consideration
Non-financial factors to consider include:
● meeting the requirements of current and future legislation
● matching industry standards and good practice
● improving staff morale, making it easier to recruit and retain employees
● improving relationships with suppliers and customers
● improving your business reputation and relationships with the local community
● developing the capabilities of your business, such as building skills and
experience in new areas or strengthening management systems
● anticipating and dealing with future threats, such as protecting intellectual
property against potential competition
For example, you might need to take into account the environmental impact of a potential
investment. To some extent, this may be reflected in financial factors, e.g. the energy
savings offered by new machinery. But other effects - such as the effect on your
reputation - will also be important. For more information see making the case for
environmental improvements.
Weighting non-financial consideration
In some cases, non-financial criteria may be essential requirements. For example, you
would not invest in new machinery that breaks health and safety regulations.
In other cases, you may need to balance financial and non-financial factors. You will
need to decide how important each factor is to your business. An appraisal like this can
take into account how well the investment fits with your overall business strategy - see
strategic issues for investment appraisal.
4. Discuss the importance of non-financial factors in menu
planning.
Answer :
Introduction
You are a food service manager. What is the first thing that comes to mind when you hear
the following: appetizers, entrees, desserts, daily specials, ethnic cuisine, fine or casual
dining, pricing psychology, trends, cut food costs, reduce your staff, dietary guidelines,
government regulations, sustainability, special diets, food delivery, marketing,
equipment, customer demand?

Each of the above words probably brought quite a few different thoughts to mind. One
word, however, affects—and is affected by—every term on the list: THE MENU.
Importance
These different categories overlap among each other and types of foodservice operations,
both commercial and non-commercial, offer both advantages and disadvantages to
management and control. For example, static menus would be easiest for forecasting,
purchasing and labor scheduling since they are the same every day, but cycle menus have
those same advantages over daily menus. Daily menus are the most flexible and can be
easily changed to adjust to product or market price changes. Static, and to an extent cycle
menu, offer the customer a predictable dining experience, but daily menus offer a new
dining adventure with every visit to the foodservice operation. Of course, foodservice
operations often combine elements of these different types of menus to gain the
advantages offered by each. For example: many restaurants using a static menu offer
daily specials or features, which give some flexibility to offer menu items that are
seasonal, or trendy, or use products that need to be sold and not wasted.
Menu Planning Factors
Menu planning principles include balance, nutritional quality, aesthetics, and variety, including
color, texture, flavors, shapes and sizes of food. The equipment and personnel available to
produce and serve the menu are also important considerations in planning the menu. Along with
all of these considerations, the effective foodservice manager also has to consider costs,
production and other management issues.
Customer satisfaction Knowing your customers (and your potential customers) is obviously a
key to planning and designing menus. Think about yourself as the customer. What are some of
the reasons you like or dislike a menu? You probably have certain preferences— certain foods
and combinations of foods—from your experiences growing up. Many of us only like the way
mom makes spaghetti sauce or the way dad grills the steaks; or we think that grandma’s sugar
cookies are definitely the best.
A few key points to remember for the non-commercial sector:
● A “textbook” approach to menu planning is not enough. As a food service or dietetic
professional, you have to recognize those unique factors that significantly affect each
individual consumer.
● You must design your menus to ensure a balanced, nutritious diet that reflects more of
the recipient’s values than your own. The introduction of unusual or unfamiliar foods may
cause a customer to lose interest in eating altogether.
● A noncommercial foodservice menu can be used to help a consumer adjust to a new,
unfamiliar regimen. But this educational function usually requires an increased menu
variety with a greater food production effort and perhaps higher costs.

Aesthetics
Not to be forgotten is the issue of aesthetics. You have heard it many times before: we do
eat with our eyes. How our food is presented, along with texture, consistency, color,
shape, and the preparation method, influences how we feel and what we think about a
menu. It can even influence our appetite and our interest in eating.
5. Explain the use of break-even analysis in ARU business.
Introduction
Break-even is a situation where an organisation is neither making money nor losing
money, but all the costs have been covered. Break-even analysis is useful in studying the
relation between the variable cost, fixed cost and revenue. Generally, a company with
low fixed costs will have a low break-even point of sale. For example, say Happy Ltd has
fixed costs of Rs. 10,000 vs Sad Ltd has fixed costs of Rs. 1,00,000 selling similar
products, Happy Ltd will be able to break-even with the sale of lesser products as
compared to Sad Ltd.
Uses Break-Even Analysis
Break-even analysis is not only used for making strategic decisions but has also proved to be
applicable in day to day business activities.
Let us now go through its following uses in business functions:
● Goals: Through the break-even analysis, the company can determine the number of
units to be sold or sales revenue to be generated for reaching the break-even point.
● Planning: The further plans of expansion or growth can be set easily if the management
knows what exactly is to be aimed.
● Material: Material management becomes easy with break-even analysis since the
company decides to advance the cost and quality of material to be used as input.
● New Product: Break-even analysis is also used by the management for monitoring the
performance of a new product.
● Prices: It is an essential tool for balancing the cost of a product and setting up a
competitive price. For instance, if the price is low, it becomes difficult for the company to
attain a break-even position on time.
Some others Uses Break-Even Analysis
(i) It helps in the determination of selling price which will give the desired profits.
(ii) It helps in the fixation of sales volume to cover a given return on capital employed.

(iii) It helps in forecasting costs and profit as a result of change in volume.
(iv) It gives suggestions for shifts in the sales mix.
(v) It helps in making an inter-firm comparison of profitability.
(vi) It helps in determination of costs and revenue at various levels of output.
(vii) It is an aid in management decision-making (e.g., make or buy, introducing a product etc.),
forecasting, long-term planning and maintaining profitability.
(viii) It reveals business strength and profit earning capacity of a concern without much difficulty
and effort.