Worksheet 13: Management of Financial Resources The new director of foodservices for the Evergreen Computer Company, Jeff Jordan, has some real concerns. He was hired to turn around the foodservice operation that was experiencing major financial difficulties. Upper-level management noticed that the net profit of the foodservice operation had dropped from nearly $40,000 in the first quarter to less than $15,000 in the fourth quarter in spite of rising sales. Jeff's job is to identify the problem and fix it. As Jeff analyzed the profit and loss statement (see Profit and Loss Statement), it became clear that the item that was rising the fastest was the cost of goods sold. This increase was occurring in an environment where the cost of living had increased by 2.5 percent on an annual basis. Cost of goods sold includes the cost of food used to produce meals. Controllable expenses that include salaries and wages, employee benefits, direct operating expenses, energy and utility services, administrative and general expenses, and repairs and maintenance had increased but still constituted 47 percent of the income from sales. Jeff considered controllable expenses to be under good control. The previous director had thought that an appropriate strategy to increase net income was to increase prices for meals. Upper-level management did not view raising prices favorably if there was any other way to avoid losses. The company provided the space for the foodservice rent-free and they believed that there should be some profits accruing to the organization. The way things were going it looked as if the next quarter could show a loss in net income. Evergreen Computer Company is the headquarters quarters, the major manufacturing location, and the warehouse for a computer firm that produces both personal computers and software to support business applications. There are approximately 1, 100 employees in the headquarters building with another 1,200 employees in the manufacturing facility and warehouse. Food is prepared in the main kitchen in the headquarters and is served there in a cafeteria as well as in several satellite cafeterias scattered throughout the complex. There are also a number of mobile carts that provide food for coffee breaks and light snacks in a variety of areas. The mobile carts carry a cash drawer to accept payment for products sold. oil asholso Food costs are determined by adding up all costs of food received plus the beginning inventory. BARUM S The ending inventory is subtracted to provide the cost of food used during the time period (see Inventory Reconciliation). The production manager routinely submits requisitions to the storeroom for needed ingredients and supplies. These are delivered to the production area on a daily basis. Jeff noticed that the storage facilities are not always locked. Additionally when ingredients are forgotten, the production staff goes to the storage area and picks up needed items. There are many doors in and out of the various production and service units through which people can pass at will. The cashiers in all of the cafeterias are longtime employees who use POS registers. They have many friends among the employees of the computer firm who they greet by name and engage in conversation. The receiving and storage systems are completely computerized so that a perpetual inventory is maintained. The purchasing manager uses the perpetual inventory to order. Frequently, however, products that are listed as available in the computer are not found in the storage facilities. A physical inventory is conducted once each quarter to verify the perpetual inventory (see Inventory Reconciliation). When Jeff compared the physical inventory with the requisitions, there was shrinkage of over $55,000 in three months. did: to How can Jeff improve net income?Show Me the Money! to Inan Worksheet 13: Management of Financial Resources (See Hospital Foodservice Scenario) As Jim Hennessey, foodservice director, thinks back over the past few months he is pleased to see leon0 the improvement the Memorial Hospital Food and Nutrition Services is finally beginning to show on Press Ganey scores for patient feeding. Now it is time to turn his attention and focus to the staff/visitor cafeteria. Jim reviews his profit and loss statement and sees that food costs for the past two months have increased from 40 percent of revenue (his guideline) to 42.5 percent. One recommendation made by Chef Ralph Jeffries is to offer rotisserie chicken to increase sales in the cafeteria. Ralph would purchase five-pound broilers (at $1.08 per pound) and prepare them in a rotisserie placed directly on the serving line in the cafeteria. The cook would quarter the chickens right in front of the customer who would be enticed by both the sight and smell. Ralph estimates they could sell eighty portions a day. Average labor cost is $16.00 per hour; Ralph calculates it would take about one hour of prep time for every batch of twenty chickens, which would include prepping the chicken and loading and cleaning the rotisserie. In addition, he approximates another two minutes of labor per chicken quarter to remove it from the rotisserie, portion it, and serve it. Using an operating margin of 52 percent, Ralph would like to charge $4.00 per portion. Jim is questioning the price since they usually use the markup factor to determine price and this would be quite different. More so, he wonders if spending $12,500 on a new rotisserie would really give him a return on his money. As he's mulling this over Jim attends his regular meeting with Linda Bolton, clinical nutrition manager. Like Jim, Linda is pleased that Press Ganey scores are increasing for patient food services but continues to look for ways to increase food quality, especially for patients on modified diets. She's just completed a nutritional analysis of the current heart healthy/prudent menu and finds that it only provides 23 percent calories from fat, inconsistent with the current ATP III guidelines and also the recommendation to bubo increase MUFAs. The diet is also very low in fiber at 20 grams. Linda recommends a change to olive oil in all food preparation and an increase in fresh fruit and vegetable selections. Jim responds shaking his head, "Show me the money!"