# Chapter 14 Front of the house and managerial mathematical operations.

OBJECTIVES

At the completion of this chapter, the student should be able to:

1. Identify how guest checks are controlled.

2. Compare and contrast old method versus new method in guest check writing.

3. Calculate guest checks.

4. Calculate sales tax and gratuity.

5. Back out sales tax and gratuity.

b. Identify the terms minimum and cover charge.

7. Identify items on the daily cash report.

8. Complete and calculate a daily cash report.

9. Identify and fill out a deposit slip.

10. Write a check.

11. Identify the items on a bank statement.

12. Identify and balance a check register.

KEY WORDS

guest check

POS

cover charge

minimum charge

tipping

sales tax

gratuity

cashier's daily report

expenditures

receipts

gross receipts

bank

total cash

cash paid outs

cash in drawer

actual cash

over or short

record of cash paid outs

all-inclusive

savings or checking account

deposit slip

interest

check

check register

sales tax

As creatively as the culinary staff prepares the food and as good as it tastes, someone has to serve the food, collect the guest check, and account for the amount of money paid for the superb culinary creations. There has to be a partnership between the culinary staff, the front of the house (waitstaff, counter people, cashiers, etc.), and managerial employees in order to collect and account for the revenue received from the guests. This is necessary to exceed the costs of doing business and to make a profit. There are many different types of operations in the food service business. The procedures discussed in this chapter are used in traditional, quick, or casual service restaurants, banquet facilities, city or country clubs, business and industry accounts, or hospital and sports venues. The list can be expanded to any operation that serves and charges guests for food and beverages. The purpose of this chapter is to explain the importance of mathematical skills to the front of the house and managerial employees. These skills will enable employees to calculate and account for money earned by the waitstaff, as well as the business.

WAITSTAFF MATHEMATICAL OPERATIONS

Most food service operations have point-of-sales (POS) computers, used by the waitstaff to calculate the amount of the guest checks. Some establishments still prefer the system of handwritten checks. Regardless of the methods used to keep track and calculate the guests' orders, the waitstaff may use all four basic mathematical operations (addition, subtraction, multiplication, and division) to perform their jobs effectively. In addition, the knowledge of percentage calculation is of utmost importance, since most waitstaffs' pay is dependent on receiving a percentage of the guest or banquet check. Some individuals argue that knowledge of math is not needed because of modern technology (POS), but the authors believe that all waitstaff should know how to do these mathematical operations. This knowledge is required when the waitperson has to calculate guest checks in the event of a power failure or a computer crash. More important to the waitperson, however, is knowing how to determine how much money is owed to him or her when a gratuity is automatically added onto the check.

Guest Check

In the food service industry, the bill or bill of sale is called a guest check. It is a list of items ordered and the cost of those items tallied when dining in a food service establishment. (See Figure 14-1.) In addition, a guest check will have other information listed on it. This information will be pointed out when explaining the types of checks usually used in the industry. The appearance of a guest check will vary from simple to elaborate depending on the type and kind of operation. From the roadside truck stop to the gourmet restaurant, guest checks are in use and presented at the conclusion of the meal. There are exceptions, however, such as quick and casual service restaurants and buffet-type restaurants, where the guest has to pay for the food and beverages before they are received.

Guest Check Responsibility

Whether the food service operation is using a POS or a guest check that is written and totaled by the waitperson, controls must be in place to eliminate theft by members of the waitstaff and cashiers.

[FIGURE 14-1 OMITTED]

[FIGURE 14-2 OMITTED]

Guest checks are the responsibility of the waitperson. Although other employees are guided by the information listed on the check during and after the dining period, the waitperson is held responsible for its safekeeping. If a guest walks out without paying or if a check is misplaced or lost, the waitperson may be required to pay the amount due.

At the beginning of the dining period, the waitperson is issued a book or stack of blank checks with serial numbers on them. (See Figure 14-2.) Each individual check is numbered consecutively. The waitperson should sign for each book or stack of checks received. In this way, management can account for each check issued. If a check is missing, it will indicate which person is responsible. At the end of the day or at the end of a service period, the checks are reviewed to determine whether any are missing or contain any errors. Numbering checks and being able to identify the person responsible for each check are also important in checking the daily receipts and assisting the accounting department or accountant in finding and correcting any errors. With a POS system, each waitperson is assigned a personal number or code that identifies him or her, which makes the waitperson accountable for each electronic guest check. This code must be entered into the POS in order to process a guest check. The waitperson must enter all vital information, such as the table number and the guests' order. Figure 14-1 shows that Devin (server number 1283) was the waitperson, and the check was numbered 9834. The POS will keep track of the status of the guest checks, whether they are dosed or open. In simple terms, a dosed check means that the bill has been paid; an open check means that the guest has not yet paid the bill. It is easy for managers to see which waitperson has not turned in their (still opened) guest checks. Regardless of the system being used, a waitperson should never destroy or discard a check without receiving permission from the supervisor. The authors emphasize that controls are necessary in any business operation. Accounting for guest checks, whether written or computer generated, is essential in order to have a successful business.

Minimum Charge

Establishments featuring live music, a floor show, or some special type of entertainment usually add a cover charge to the check. The cover charge is a form of admission fee charged to each person to help pay for the cost of the entertainment. Another method of collecting for entertainment or service is by having a minimum charge. This means that a guest is required to spend a certain amount of money, once seated, even if the total check amounts to less. For example, if the minimum charge is \$15.00, but the check amounts to only \$4.25, the guest is still required to pay the \$15.00 minimum charge.

Calculating Guest Checks

In calculating guest checks, two mathematical operations are normally used: multiplication and addition. Figure 14-3 illustrates a bill that shows the operations of multiplication and addition. The first ordered item on the guest check is for "3 Clos Du Bois Merlot" that cost \$103.50. The POS is programmed to multiply the quantity by the cost of the individual bottle of wine. The cost of each item has been put into the POS (programmed) by management. In our example, the cost of one bottle was \$34.50, so the total was calculated by multiplying \$34.50 by 3. As each new item was added to the guest bill, the total amount of that item or items was multiplied to arrive at the subtotal. When the guests had completed their meal, the bill was added to obtain a subtotal. In Figure 14-3, the tax was added to the guest check, and a final total was printed.

There are times when a waitperson will also have to use the mathematical operation of subtraction. Subtraction will occur when an establishment offers a discount, coupon, or some type of reduction on the guest check. In this instance, the discount amount has to be subtracted from the original total.

[FIGURE 14-3 OMITTED]

SUMMARY REVIEW 14-1

Calculate and total the following guest checks.

1. Three guests had lunch at the Lake Resort. They had two orders of coconut shrimp @ \$8.25 each for appetizers; two glasses of Sauvignon Blanc @ \$7.50 each; and three glasses of private Chardonnay @ \$7.00 each. For their main courses, they had a turkey bacon wrap @ \$8.25, a club sandwich @ \$9.95, and a chicken wrap @ \$8.50.

2. Two guests ordered a 1/2 bottle of Chianti at \$21.00; a bruchetta @ \$6.95; an entree portion of sausage con verde @ \$11.95, and a lunch portion of sausage con verde @ \$8.95.

3. Four guests dined at a golf club for lunch. They had three pints of Saranac Pale Ale, which cost \$3.50 each; one iced tea @ \$2.00; two Birdies @ \$8.95 each; and two Bunkers @ \$9.50 each.

4. Two guests had dinner, and they had an entertainment card that qualified them for a discount. The guests had three glasses of Camelot Pinot Noir @ \$6.25 each; a veal artichoke entree @ \$16.95; and a pork tenderloin entree @ \$18.95. The entertainment card discount was \$14.00.

5. Four guests went to a buffet show at a casino. The cost of the buffet was \$21.95 each. The minimum charge was \$30.00 for each person.

Sales Tax

Most states and many municipalities have passed laws that mandate that the food service establishment collect a percentage of the guest bill in the form of sales taxes. The percentage amount is not the same in each municipality; even the items that have to be taxed are different. The food service professional must know what is taxed and what is exempt from tax in the municipality in which his or her business is being conducted. Knowing how to multiply using percentages is essential in determining the amount of tax that must be added to the subtotal of the guest check. For example: Bob and Dolores received a dinner check at the Blue Star Restaurant for \$30.75. The sales tax for that particular state is 6%. How much tax did they pay? What was the total bill?

\$30.75 Cost of two dinners x .06 6% sales tax

\$1.8450 = \$1.85 amount of tax

\$30.75 Cost of two dinners + 1.85 Amount of tax

\$32.60 Total bill

Amount purchased + amount of tax = Total bill

SUMMARY REVIEW 14-2

Calculate the sales tax and compute the total amount of the guest check for each problem in Summary Review 14-1.

1. Sales tax of 6.5%. Sales tax amount -- Guest check total -- 2. Sales tax of 8.25%. Sales tax amount -- Guest check total -- 3. Sales tax of 5.5%. Sales tax amount -- Guest check total -- 4. Sales tax of 7.125%. Sales tax amount -- Guest check total -- 5. Sales tax of 6.75%. Sales tax amount -- Guest check total --

TIPPING OR GRATUITY

Tipping, also referred to as a gratuity, is the giving of a fee for a service rendered. It is sometimes voluntarily given by customers to the waitperson for waiting on them. In banquet service, a gratuity is almost always added automatically onto the bill. Many a la carte restaurants also add the gratuity onto the guest check automatically. Even restaurants that have a voluntary gratuity have modified their practice. In many restaurants, a statement like the following will be on the menu: "A gratuity of 18% will be automatically added to your check for parties of six guests or more."

Most people tip at a percentage of the total check. The accepted practice used to be 15%, but in recent years inflation has even found its way into this old custom. Now the accepted practice is 15 to 20%. Some establishments automatically add 15 to 20% of the check amount to the bill. If this is done, guests should be made aware of this policy before they are served. Often, when the tip is added to the check, the guest is unaware of this policy and still leaves a tip at the table. If the gratuity is added automatically to the check, the gratuity can only be calculated on the amount of food and beverage, not including the tax.

For the guest who wishes to tip 15 or 20% of the amount of the check, or for the waitperson who is asked to figure the amount, there is an easy way to do this mentally. First, find 10% of the bill by moving the decimal point in the total bill one place to the left. Next, take half of the figure just found and add the two figures together if the tip is to be 15%. If the tip is to be 20%, just double the 10% amount.

For example: The total bill is \$18.00. To find 10%, move the decimal one place to the left, yielding \$1.80. Half of \$1.80 is \$0.90. Add the two together, \$1.80 + 0.90 = \$2.70, the amount of the tip at 15%. If tipping 20%, take the amount found for 10%, \$1.80, and double it. \$1.80 + \$1.80 = \$3.60, the amount of the tip at 20%.

Computerized registers may be programmed to print out suggested amounts of tips at the bottom of the receipt. (See Figure 14-4.)
```Figure 14-4 Computerized register recipe with
suggested tips

SERVICE AMERICA CORP

BEL AQU SAR RACTRACK 34

300 UNION AVE

SARATOGA SPRINGS, NY 12866

AMOUNT: \$47.88

TIP TABLE PROVIDED FOR YOUR

CONVENIENCE

15% = \$7.18 20% = \$9.58 25% = \$11.97

TIPS ... To Insure Perfect Solutions

To quickly figure out a 15% tip:

1. Use the cost of the food and beverage on the guest check
(example \$240.00).

2. Take a look at the first two numbers, which equal 24.

3. Divide by 2, which equals 12.

4. Add the 12 to the 24; the 15% tip is \$36.00.

5. If you get great service and want to leave a 20% tip, just take
the first two numbers and multiply them by 2.
```

SUMMARY REVIEW 14-3

Find the amount of tip for each of the following bills if the tip equals 15% of the bill.

1. \$12.00 --

2. \$20.00 --

3. \$24.25 --

4. \$30.25 --

5. \$32.50 --

6. \$52.85 --

7. \$70.65 --

8. \$82.60 --

9. \$105.40 --

10. \$125.50 --

Guests, for the most part, generally tip 15 to 20% regardless of the service they receive. Some guests will tip more for exceptional service, some less for poor service. If a waitstaff's gratuity depends on the amount of the guest check, then they should be encouraged to sell more items in order to increase their income (which will also increase the establishment's income)! This is another reason for the food service professional to understand and use math. It can serve as a motivational tool. For example, if one additional \$30.00 bottle of wine is sold and the guest leaves an 18% tip, the waitperson will make an additional \$5.40. To understand this concept, complete Summary Review 14-4.

SUMMARY REVIEW 14-4

Calculate the additional tip for each server using logic and multiplication to solve the problems. Question 4 also requires addition.

1. Marisa works three shifts a week. If she sells nine additional \$30.00 bottles of wine a night and the gratuity is 18%, what is her additional income?

Each shift -- Weekly total --

2. Joe works five shifts a week. He sells 10 additional \$7.00 desserts each shift. If the gratuity is 15%, what is his additional income?

Each shift -- Weekly total --

3. Valerie works four shifts a week. She sells 20 additional \$6.00 appetizers each shift. If the gratuity is 16%, what is her additional income?

Each shift -- Weekly total --

4. Antonio works seven shifts a week. He sells 20 additional \$45.00 bottles of wine during the week. He also sells 12 additional \$8.50 desserts each shift and 15 additional \$9.50 appetizers each shift. If the gratuity is 20%, what is his additional income?

Wine -- Desserts -- Appetizers -- Weekly income --

DISCUSSION QUESTION 14-A

You are a waitperson at a restaurant with a check average of \$60.00 per person. A gratuity of 18% is automatically added onto each check. You worked five shifts and served a total 168 guests during the week. Your paycheck summary states that the gratuity is \$814.40. What would you do?

Checking the Amount of the Gratuity

If your income depends upon receiving gratuities and the gratuity is automatically added to the check, you should know how to calculate the gratuity and determine if you have been paid the correct amount by the establishment. When waitstaff receive their total gratuity at the end of the pay period, they should check to make certain they've received all the gratuities coming to them. Using a percent to find the total amount of the checks, when only the tip is known, is one way for the waitperson to check that the gratuity is correct.

This is the formula you will use when you know the percent and the amount of the gratuity:

Amount of tip / percent = amount of check.

For example:

A gratuity of 15% is automatically added onto all guest checks. The amount of the tip was \$2.00. How much was the check?

Solution:

Change 15 percent to 0.15. Divide 0.15 into the amount of the tip which was \$2.00.

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

This procedure will be the quotient, which is the total amount of the check: \$13.33.

SUMMARY REVIEW 14-5

Find the total amount of each check.

1. The amount of gratuity received was \$18.25. How much was the check if the gratuity was 15%? --

2. The amount of gratuity received was \$16.50. How much was the check if the gratuity was 18%? --

3. The amount of gratuity received was \$12.26. How much was the check if the gratuity was 20%? --

4. The amount of gratuity received was \$29.17. How much was the check if the gratuity was 18%? --

5. The amount of gratuity received was \$218.25. How much was the check if the gratuity was 18%? --

Cashier's Mathematical Operations

A t the end of each day or each service period, the cashier is required to fill out a cashier's daily report. The report is a tool used by management to keep track of cash and charge sales. Its purpose is to determine whether the actual amount of cash in the register drawer equals the total amount of cash sales made during a specific time period, as well as whether all sales (cash and charges) show the same total that the register prints out. In the past, the largest percentage of sales was cash. Today, credit card sales may exceed cash sales.

The cashier's daily report may show a very small amount of cash over or under what should be in the cash register. With the constant exchange of cash between the guests and the cashier, small mistakes may occur. Management should become concerned when amounts exceed a couple of dollars. The report is designed not only to protect the business operator from theft, but also the cashier. If the cashier makes a costly mistake, the error can usually be found by checking the daily report. The cashier's daily report shows information that will assist the accountant or accounting department when filling out financial statements at the end of a financial period.

THE DAILY CASH REPORT

There are many different types of cashier's daily reports in use, since most establishments create their own form that is best suited for their particular operation. For example, some operations may keep charge sales separate from the cash sales so that the actual cash in the register drawer can be determined more easily. In general, however, all forms will contain the same information. An example of a typical report is given in Figure 14-5. Students should be knowledgeable about accounting for credit card sales. Credit card receipts represent money taken in by the establishment in place of cash. On the daily cash report there should be a place to enter all credit card receipts. They should be broken down by companies--for example, American Express, MasterCard, and so forth. The total of each company's receipts should be listed on a separate line on the daily cash receipt form. When the food service establishment pays out tips in cash to the waitstaff, the cash amount should be recorded as cash paid outs.

Items on the Daily Cash Report

The items listed on the daily cash report example are those most important to the food service operator. (See Figure 14-5.) These items will appear on most reports. An explanation of each is given.

Explanation of Items on Report

POS Register Readings or Total of Guest Check Sales. Receipts are taken from the register. With the versatile and sometimes computerized registers in use today, items can be categorized, rung up, and totaled separately or together. For operations that do not have a computerized register, the guest checks have to be totaled.

Gross Receipts. Gross receipts are a total of all separate register readings. The gross is the total before any deductions are made. In our example, gross receipts are a total of the amounts collected for food, beverages, miscellaneous items, and sales taxes. (See Figure 14-5.) Examples of miscellaneous items are gift certificates and clothing.

Add--Start of Shift Money (Bank). Starting change is added to the gross receipts. This money is placed in the register before any sales are made. It consists of both paper currency and coins. Its purpose is to assist the cashier in making change at the start of, and during, the dining period.

Cash Collected Daring the Shift. This amount represents the cash that should be in the cash register drawer after adding the of cash received from guests to the bank before any paid outs are made.

Less--Cash Paid Oats. This figure is acquired by totaling the amounts of money paid out of the register during the day. When a paid out occurs, a record must be made of the transaction by recording it on a report in the section headed "Record of Cash Paid Outs." For each cash paid out, the cashier should have a receipted bill, invoice, or cash payment voucher. Most registers have a key for recording paid outs. The total amount of paid outs on the report should equal the total amount of paid outs recorded by the register. Paid outs are subtracted from the total cash because this money was taken out of the register drawer.

Total Cash in Drawer. Total cash, less paid outs, gives the amount of cash that should be in the register at the end of the day or whenever the totals are taken.

House Accounts. The total amount of money that has been collected through direct charges that are billed directly to the guest or charged back to the room in a hotel.

Total Charge and House Receipts. The total amount of money that has been collected in credit card charges from American Express, Visa, and so forth, as well as house accounts.

Total Cash and Charges. The total amount of money collected by adding the cash and charge receipts together.

Over/Short. If the amount in the Total Cash and Charges line is not equal to the Gross Receipts line, the cashier is either over or short of money. If the amount shown in the Gross Receipts line is more than the Total Cash and Charges line, there is not enough money collected (a shortage). If the cashier has more money and credit card receipts than guest charges, there is an overage. In either case, the cashier must determine where the error has occurred before turning in the daily cashier report.

Record of Cash Paid Outs. All money paid out of the register drawer is recorded here with the name of the person or company to whom it was paid. Items paid out of the cash register are usually small items that are needed in a hurry and picked up, such as flowers, ice, candy, candles, tips paid to the waitperson, and so forth.

Signed. The cashier checks all the figures and is then required to sign the report.

SUMMARY REVIEW 14-6

Complete the following cashier's daily reports, using Figure 14-5 as an example.
```1.
Today's date

POS Register Readings or Total of Guest Check Sales

Food Sales                                               \$2,856.63
Beverage Sales                                            1,474.68
Miscellaneous Sales                                         191.21
Total Sales
Add the amount of Sales Tax                                 316.58

Gross Receipts

Add--Start of Shift Money (Bank)                              150.00
Total of Gross Receipts and Money Started With (Bank)

Cash Collected from Guest Checks During the Shift           625.75
Less Total Cash Paid Out
Total Cash in Drawer

Credit Card Receipts

American Express                                          1,550.56
Discover                                                    315.45
MasterCard                                                  900.37
Visa                                                        975.25
House Accounts                                              528.82
Total Charge & House Receipts
Total Cash and Charges (Should Equal the Amount
of Gross Receipts)
Over or (Short)

Record of Cash Paid Out

City Ice Company                                               21.50
Tips                                                           16.85
Arkay Florist                                                  18.75
Other                                                           0.00

Total Cash Paid Out

Signed by:

2.
Today's date

POS Register Readings or Total of Guest Check Sales

Food Sales                                               \$1,275.65
Beverage Sales                                              824.30
Miscellaneous Sales                                         116.45
Total Sales
Add the amount of Sales Tax                                 155.15

Gross Receipts

Add--Start of Shift Money (Bank)                              225.00
Total of Gross Receipts and Money Started With (Bank)

Cash Collected from Guest Checks During the Shift           625.75
Less Total Cash Paid Out
Total Cash in Drawer

Credit Card Receipts

American Express                                            550.56
Discover                                                    260.00
MasterCard                                                  450.37
Visa                                                          9.50
House Accounts                                              528.82
Total Charge & House Receipts
Total Cash and Charges (Should Equal the Amount of Gross  Receipts)
Over or (Short)

Record of Cash Paid Out

City Ice Company                                               13.92
Tips                                                           15.73
Arkay Florist                                                   8.76
Other                                                          12.95

Total Cash Paid Out

Signed by:

3.
Today's date

POS Register Readings or Total of Guest Check Sales

Food Sales                                               \$3,675.00
Beverage Sales                                              785.90
Miscellaneous Sales                                          96.48
Total Sales
Add the amount of Sales Tax                                 319.02

Gross Receipts

Add--Start of Shift Money (Bank)                              250.00
Total of Gross Receipts and Money Started With (Bank)

Cash Collected from Guest Checks During the Shift           625.75
Less Total Cash Paid Out
Total Cash in Drawer

Credit Card Receipts

American Express                                           2500.92
Discover                                                    260.00
MasterCard                                                  450.37
Visa                                                         89.50
House Accounts                                             1028.00
Total Charge & House Receipts
Total Cash and Charges (Should Equal the Amount of Gross Receipts)
Over or (Short)

Record of Cash Paid Out

City Ice Company                                               20.50
Tips                                                           25.80
Arkay Florist                                                  10.40
Other                                                          22.95

Total Cash Paid Out

Signed by:

4.
Today's date

POS Register Readings or Total of Guest Check Sales

Food Sales                                               \$6,296.50
Beverage Sales                                            1,457.95
Miscellaneous Sales                                         117.86
Total Sales
Add the amount of Sales Tax                                 551.06

Gross Receipts

Add--Start of Shift Money (Bank)                              125.00
Total of Gross Receipts and Money Started With (Bank)

Cash Collected from Guest Checks During the Shift           930.85
Less Total Cash Paid Out
Total Cash in Drawer

Credit Card Receipts

American Express                                           3750.25
Discover                                                    260.00
MasterCard                                                  450.37
Visa                                                      2,085.25
House Accounts                                            1,028.00
Total Charge & House Receipts
Total Cash and Charges (Should Equal the Amount of Gross Receipts)
Over or (Short)

Record of Cash Paid Out

City Ice Company                                               20.65
Tips                                                           15.75
Arkay Florist                                                  11.75
Other                                                          32.95

Total Cash Paid Out

Signed by:

5.
Today's date

POS Register Readings or Total of Guest Check Sales

Food Sales                                              \$10,650.00
Beverage Sales                                            2,460.55
Miscellaneous Sales                                         127.25
Total Sales
Add the amount of Sales Tax                                 926.65

Gross Receipts

Add--Start of Shift Money (Bank)                               75.00
Total of Gross Receipts and Money Started With (Bank)

Cash Collected from Guest Checks During the Shift           930.85
Less Total Cash Paid Out
Total Cash in Drawer

Credit Card Receipts

American Express                                          5,750.75
Discover                                                    625.50
MasterCard                                                1,430.25
Visa                                                      3,175.95
House Accounts                                            2,408.60
Total Charge & House Receipts
Total Cash and Charges (Should Equal the Amount of Gross Receipts)
Over or (Short)

Record of Cash Paid Out

City Ice Company                                               15.40
Tips                                                          220.35
Arkay Florist                                                   9.70
Other                                                          12.00
Total Cash Paid Out

Signed by:
```

DISCUSSION 14-B

After completing the Summary Review 14-6, number 5, what might have happened to cause the report to be short?
```TIPS ... To Insure Perfect Solutions

Don't ask a guest if they need change, assume they do! Learn
how to count up change for great customer service.
```

Returning Change to the Guest

Cashiers and waitstaff should know how to verbally state and count the amount of change that a guest receives after that guest pays the bill with cash. Figure 14-6 illustrates how to count up change. For example, the guest check is for the amount of \$12.90. The guest gives a \$20.00 bill to whoever (waitperson or cashier) collects the money. Start by handing the guest a dime and say \$13.00. Next, hand them a dollar bill and say \$14, and then another dollar bill and say \$15. Finally hand them a \$5 dollar bill and say \$20.00. Remember to thank them for their business.

[FIGURE 14-6 OMITTED]

Managerial Mathematical Functions

A manager of a food service operation has to be aware of the amount of money that is being received and the amount of money that has to be paid out in order to make a profit. Simply put, the manager must use math and common sense to control the profitability of a food service operation.

DISCUSSION QUESTION 14-C

You are the manager of a food service operation. As you are checking over the POS register tapes and the cashier's report for the previous day, you discover that a check for \$97.20 is missing. What may have happened to the check, and what would you do?

All-Inclusive Pricing

Some food service operators find it advantageous to set their prices in a manner that is called all-inclusive pricing. This means that all charges (cost of food, beverages, tax, gratuity, etc.) are stated as one price, usually on a per-person basis. The guest will know the exact amount of money that he or she will spend for the meal or event. In order to compute and set the price, food service operators must know.

1. The raw cost of the meal and beverages

2. The goods and services that are subject to taxes in the municipality in which they conduct their food service business

3. The percentage amount of taxes that they must charge by law

4. The percentage of gratuity that they are charging the guest

Backing Out the Sales Tax and Gratuity

The business owner who utilizes all-inclusive pricing will need to determine how much money will be credited for each item included in the price. This is necessary for accounting purposes to make proper allocation to food and beverage costs, gratuity, and taxes. How will the owner figure out these amounts? He or she will have to use a mathematical process called backing out the sales tax and gratuity from the all-inclusive price.

It is a common practice for operators that serve alcoholic and nonalcoholic beverages to guests at a stand-up bar to include the sales tax in the cost of the beverage. In this instance, only the sales tax will be backed out, because the gratuity is an additional amount that will be voluntarily added by the guest. For example, if a guest orders two glasses of wine at a bar, the price is \$7.50 per glass and the tax is included. The guest then leaves a separate gratuity on the bar for the bartender.

How to Back Out the Sales Tax

Our guest has spent \$15.00 on two glasses of wine. Included in the \$15.00 price for both glasses of wine is the sales tax of 7.5%. It must first be determined how much money is collected for sales tax. It can then be determined how much money is left for the price of the wine, minus the sales tax. The procedure to back out the sales tax is done in the following way:

Step 1: Convert 7.5% to a decimal.

7.5% = 0.075

Step 2: Add 100%, or 1, to the decimal of .075.

1 + 0.075 = 1.075 (divisor) sales tax rate

Step 3: Divide the wine price by the (divisor) sales tax rate. \$15.00 divided by 1.075 = \$13.95 (which equals the price without the tax)

Step 4: Subtract the results from the original wine price, which equals the sales tax owed.

\$15.00 - \$13.95 = \$1.05 (sales tax owed)

To prove the formula:

Step 1: Multiply the price obtained, \$13.95, by the sales tax rate of 7.5%.
```\$ 13.95 price
x .075 sales tax rate

6975
+9765
______
104625 = 1.04625 = \$1.05
```

Step 2: Add the sales tax amount to the price of the food.
```  \$ 1.05 Sales tax
+ \$13.95 Price

\$15.00 Original price for 2 glasses
of wine
```

Backing Out Gratuity

Another example of backing out the amount of money from all-inclusive pricing occurs when the owner or manager includes the price of the gratuity with the meal. For example, a guest states that her tax-exempt group (they have obtained a form from the government stating that they do not have to pay taxes) would like to have an end-of-the year banquet. They tell the manager that their budget only allows them to pay \$25.00 per person. The manager agrees to the \$25.00 price, which includes the meal and the gratuity. In this instance, the percentage rate of the gratuity is backed out in the exact manner that the sales tax was backed out in the previous section. In addition to managers and cashiers knowing how to do this mathematical problem, waitstaff should also know how to back out the gratuity so they will be able to calculate the amount of gratuity owed to them. In our example, the cost of a meal is \$25.00, which includes the 15% gratuity. The problem is solved as follows:

Step 1: Convert 15% to a decimal.

15% = 0.15

Step 2: Add 100%, or 1, to the decimal of 0.15.

1 + 0.15 = 1.15 (divisor) gratuity rate

Step 3: Divide the menu price by the (divisor) gratuity rate.

\$25.00 divided by 1.15 = 21.74 (which equals the price without the tax)

Step 4: Subtract the results from the original menu price, which equals the gratuity owed.

\$25.00 - 21.74 = \$3.26 (gratuity owed)

To prove the formula:

Step 1: Multiply the menu price obtained, \$21.74, by the gratuity rate of 15%.
```\$21.74 Price of meal
x .15 Gratuity percentage

10870
+2174

32610 = \$3.26 Amount of gratuity
```

Step 2: Add the gratuity to the price of the food to obtain the original menu price.
``` \$ 3.26  Amount of gratuity
+\$21.74 Price of meal

\$25.00  Original all-inclusive price
```

SUMMARY REVIEW 14-7

Back out the sales tax or gratuity from the following problems. Show the sales tax owed and the amount of money that the business or waitperson will receive.

1. John Curry purchased a new combination oven for \$12,500, tax included. The sales tax was 7.25%.

Sales tax owed -- Amount of money for the oven --

2. The Paridiso Restaurant charges \$125.00 for its chef's seven-course meal, inclusive. The gratuity of 20% is included in the price. There is no sales tax.

Gratuity owed -- Amount of money for the restaurant --

3. For a banquet, each guest pays \$95.00, inclusive. A gratuity of 19% will have to be backed out.

Gratuity owed -- Amount of money for the restaurant --

4. For a tax-exempt banquet, each guest pays \$75.00, inclusive. A gratuity of 18% will have to be backed out.

Gratuity owed -- Amount of money for the restaurant --

5. Judy Brown's wedding cost her \$35,500, with the sales tax of 8% included.

Sales tax owed -- Amount of money for the restaurant --

Backing Out Both the Sales Tax and Gratuity or All-Inclusive Pricing

Whenever the owner or a manager decides to engage in all-inclusive pricing, the backing out process has to be exact for accounting and recordkeeping purposes. In the following example, our restaurant charged each guest a price of \$40.00, all-inclusive. This price was for the food, gratuity of 15%, and sales tax of 7%. It must be determined how much of the \$40.00 will be allocated for food, how much for the gratuity, and how much for the sales tax.
```TIPS ... To Insure Perfect Solutions

Back out sales tax first, because a gratuity is not paid on the
sales tax.
```

Step 1: Back out the sales tax.

Convert 7% to a decimal 7% = 0.07

Step 2: Add 100%, or 1, to the decimal of 0.07. 1 + 0.07 = 1.07 (divisor) sales tax

Step 3: Divide the all-inclusive price by the (divisor) sales tax. \$40.00 divided by 1.07 = \$37.383 (which equals food and gratuity)

Step 4: Subtract the results from the original all-inclusive price, which equals the sales tax owed.

\$40.00 - \$37.383 = \$2.617 (sales tax owed)

Step 5: Back out the 15% gratuity from the remaining all-inclusive price of food and gratuity.

\$37.383 is the amount of money left after sales tax has been removed.

Step 6: Convert 15% to a decimal.

15% = 0.15

Step 7: Add 100%, or 1, to the decimal of 0.15.

1 + 0.15 = 1.15 (divisor) gratuity rate

Step 8: Divide the remaining all-inclusive price by the (divisor) gratuity rate.

\$37.383 divided by 1.15 = \$32.507 (which equals the food amount)

Step 9: Subtract the results from the all-inclusive price (without the tax), which equals the gratuity owed.

\$37.383 - \$32.507 = \$4.876 (gratuity owed)

To prove the formula:

Add the food, gratuity, and tax to obtain the all-inclusive price. \$32.507 + \$4.876 + \$2.617 = \$40.00

SUMMARY REVIEW 14-8

Back out the sales tax and gratuity from the following problems. Show the sales tax owed, the gratuity owed, and the amount of money that the business will receive.

1. An all-inclusive banquet was held that cost \$52,100. The sales tax was 6.25% and the gratuity was 18%.

Sales tax owed -- Amount of money for the restaurant --

Gratuity owed --

2. Mr. Toby's restaurant charges \$20.00 for an all-inclusive, complete meal. The sales tax is 8.25% and the gratuity is 15%.

Sales tax owed -- Amount of money for the restaurant --

Gratuity amount --

3. A guest has to pay \$20.00 for a meal. Both the gratuity of 15% and the sales tax of 5% have to be backed out.

Sales tax owed -- Amount of money for the restaurant

Gratuity amount --

4. An all-inclusive banquet was held that cost \$72,100. The sales tax was 8.25% and the gratuity was 18%.

Sales tax owed -- Amount of money for the restaurant

Gratuity owed --

5. An all-inclusive banquet was held that cost \$152,100. The sales tax was 7.25% and the gratuity was 20%.

Sales tax owed -- Amount of money for the restaurant

Gratuity owed --

BANK DEPOSITS

Bank deposits are a system used to entrust accumulated money for safekeeping in a bank. It is a system used by both individuals and businesses. It is unwise to store money at home or on the premise of a business. This can be an invitation to theft, or loss by a disaster. After opening an account, a deposit can be transacted in person--by taking a completed deposit slip and money to the bank--or the deposit can be made automatically. These two methods will be discussed further in this section. Depositing money in an account is a way of holding money in reserve for future expenditures.

When a bank deposit is made, the money deposited is placed in a savings or checking account. If the deposit is made in person at a bank, the money being deposited is accompanied by a deposit slip, which provides the depositor and the bank with a record of the transaction. (See Figure 14-7.) If the deposit is made electronically, the transfer of funds is made through special communication lines set up between the depositor and the banking institution.

If the money deposited is placed in a savings account, it is held by the banking institution until the depositor wishes to withdraw some or all of the funds. While the money is in the savings account, the bank uses the money to make loans to customers for home or business improvements, the purchasing of new or existing homes, and so forth. At the same time, the bank pays you interest (the sum paid for the use of money) at a certain percent annually. This means that while your money is in the banking institution, it is earning money. This money can be withdrawn at any time without a penalty.

[FIGURE 14-7 OMITTED]

If the money is deposited in a checking account, it is held in reserve to cover any check amount written by the depositor. A check is a written order directing the bank to make a payment for the depositor. The bank honors the check and makes the payment, providing the depositor has enough money in the checking account. A checking account is more active than a savings account because the money is usually on the move. That is, deposits are made, checks are written, and money is withdrawn.

Bills are usually paid by check whether they are for business, or personal and household expenses. Therefore, you should have some knowledge of how a checking account works. There are four important steps involved in using a checking account.

1. Filling out the deposit slip

2. Balancing the check register

3. Writing a check

4. Checking the bank statement

If these steps are not completed properly, problems result for both the depositor and the banking institution. These problems can sometimes result in a fine for the depositor, especially if the account is overdrawn (to write checks upon an account for a greater amount than the money in the account).

The Deposit Slip

The deposit slip provides the depositor and the banking institution with a record of the transaction when money is deposited in the checking account. (See Figure 14-7.) When filling out the deposit slip, cash and checks are listed separately. After this is done, they are added to find a subtotal. ("Sub" means under; therefore, this is a part of the total.) If cash is received when the deposit is made, the amount is subtracted from the subtotal, giving the net deposit, or the amount you wish to place in the checking account. When receiving cash, some institutions require your signature on the deposit slips. In the upper left-hand corner of the slip your name and address usually appear, and in the bottom left-hand corner two groups of numbers appear. The first group is a routing number for the purpose of routing automatic deposits and checks to the correct institution. The second group is the customer's checking account number. (These numbers are not shown on Figure 14-7.) When deposits are made electronically, a deposit slip is not required, but the depositor would be required to know the proper route number. All deposit slips are not the same. Each institution has its own idea of arrangement and information desired. However, you will find that most are very similar. The banking institution supplies the deposit slips to the customer.

The Check Register

The check register is given to the depositor by the banking institution, so the depositor can record deposits and checks, knowing the balance of money on hand. (See Figure 14-8.) In this way, the depositor always knows the largest amount for which a check can be written and is less likely to overdraw the account.

[FIGURE 14-8 OMITTED]

[FIGURE 14-9 OMITTED]

The balance brought forward (shown at the top in Figure 14-8), is the balance from the previous page in the register. It shows a total of \$283.00. On August 10, a check was drawn for \$18.00, leaving a balance of \$265.00. On August 13, another check was drawn for \$175.00, leaving a balance of \$90.00. On August 16, a deposit of \$250.00 was made. This amount was added to the previous balance, creating a new balance of \$340.00. On August 18, a check for \$75.00 was drawn, leaving a balance of \$265.00, and on August 20, another check for \$135.00 was drawn. The remaining balance, \$130.00, is the net amount against which future checks may be drawn.

Writing a Check

The check, as pointed out previously, is a written order directing the bank to make a payment for the depositor out of the money the depositor has in his or her checking account. The banking institution issues checks to the depositor. The depositor may be required to pay for the checks, or the bank may deduct the cost from the balance in the checking account. Sometimes the checks are free, if the depositor has a savings account or C.D. (certificate of deposit) at the same banking institution.

When writing a check, always write neatly and clearly, using ink. (See Figure 14-9.) Be sure that all of the information listed on the check is complete and correct, such as amount, date, check number, account number, and so forth. Do not forget to sign the check. Without your signature, the payment will not be made.
```TIPS ... To Insure Perfect Solutions

When writing a check, never use a pen with erasable ink. Anyone
can change the information that you write on the check.
```

The Bank Statement

At the end of a certain period of time (for example, one month, three months, etc., each banking institution has its own regulations), the bank provides the depositor with a statement showing the activity of the account during that time period. In Figure 14-10 (time period of three months), the statement shows the checks drawn and deposits made during that period of time. The bank also returns all checks (canceled checks), or a copy of the checks issued during that period. The canceled checks are the depositor's receipts if proof is needed that payment was made. The bank statement is used to check the bank's figures against those recorded in the depositor's check register. In this way, mistakes can be detected before a problem arises or a fine is imposed.

[FIGURE 14-10 OMITTED]

The top left corner of Figure 14-10 shows the depositor's account number. In the center, the depositor's name and address are given. The balance brought forward shows that, as of May 20, there was no money in this account. This was probably when the account was opened at the bank. Deposits and credits show that during this period (May 20 to July 15), eight deposits were made totalling \$1,710.32. This figure can be checked by finding the sum of all the amounts listed with a DP (deposit) before them. Checks and debits (a charge against the account) show that 25 checks were drawn on the account, and the amount of those checks totaled \$1,435.25. There is no service charge indicated by the bank during this period, which shows that the depositor received this service free of charge or paid for the checks when they were received. The current balance shows that as of July 15, \$275.07 remained in the account. Other figures shown on this statement include the complete checking activity during this period of time, and the dates and amounts of all checks written. The bank statement shown in Figure 14-10 is a simplified one so that you can follow it without becoming confused. Most statements issued by banking institutions today are computer printouts and can be a little more confusing, because they combine statements for both the checking and savings accounts and show a service charge for regular account maintenance.

DISCUSSION QUESTION 14-D

The bank statement for the checking account does not balance with your checkbook. The bank statement shows that your restaurant has \$10,500. Your checkbook shows that you have \$11,462. Give five possible reasons why the checkbook is out of balance with the bank statement.

SUMMARY REVIEW 14-9

1. Prepare deposit slips for problems a through c. Follow the example given in Figure 14-7. If deposit slips are not available, make some by listing the necessary information on blank paper.

a. On August 18, Duane Johnstone deposited the following in his checking account.

2 twenty-dollar bills

4 ten-dollar bills

6 five-dollar bills

5 one-dollar bills

2 checks: \$12.75 and \$22.25

2 half dollars

8 quarters

6 dimes

7 nickels

b. On October 6, Carmen Santi-Roberts deposited the following in her checking account.

4 twenty-dollar bills

8 ten-dollar bills

7 five-dollar bills

4 two-dollar bills

9 one-dollar bills

1 check for \$53.40

6 half dollars

3 quarters

7 dimes

9 nickels

c. On November 10, Sonna Kozlowski, treasurer of the Cuisine Club, deposited in their checking account the following checks and money collected for dues.

2 twenty-dollar bills

2 ten-dollar bills

8 five-dollar bills

6 one-dollar bills

3 checks: \$10.40, \$8.50, and \$6.75

5 half dollars

5 quarters

4 dimes

2. Prepare check registers for problems a through c. Follow the example given in Figure 14-8. If a check register is not available, make one by listing the necessary information on a sheet of paper.

a. Balance brought forward \$520.65

October 2 Check No. 6 \$43.50 Gas and Electric Co.

October 5 Check No. 7 \$25.80 Best State Insurance Co.

October 10 Deposit \$165.50

October 15 Check No. 8 \$35.80 Albers Meat Market

October 20 Check No. 9 \$265.00 Bill's Service Station

b. Balance brought forward \$680.48

December 3 Check No. 15 \$63.45 Swallen's Dept. Store

December 5 Deposit \$183.20

December 8 Check No. 16 \$158.00

Evanston Building and Loan Co.

December 9 Check No. 17 \$178.25

Bay State Insurance Co.

December 12 Deposit \$98.75

December 15 Check No. 18 \$62.78 G.M.A.C.

c. Balance brought forward \$728.60

January 4 Check No. 19 \$15.34 Webster Insurance Co.

January 6 Check No. 20 \$187.00 Home Savings and Loan Co.

January 9 Deposit \$223.50

January 12 Check No. 21 \$208.60 Joe's Service Station

January 14 Deposit \$197.60

January 17 Check No. 22 \$179.79

McMillians Dept. Store

January 20 Deposit \$368.75

January 25 Check No. 23 \$ 76.45 Metropolitan Hospital
```Vice-President Sez ...

"Math is at the core of all successful
businesses. We make decisions based on
financial performance, which is predicated
ultimately on daily cash sales reports. We
add, subtract, multiply, and divide to
obtain food, labor, and controllable
percentages. These percentages are the
basis of decisions that will affect the
bottom line of your operation. It makes
sense--we must do the math and do it
correctly.

All the hard work in both the front and
the back of the house would be for naught
without current, accurate, and verified
bank deposits from the daily cash register
tapes. If you are the owner, manager, or
the chef manager, insist on accurate
daily cash reports. Anything less, and
the integrity of your operation will be
compromised. As managers, we are paid to
make decisions. Without accurate, daily
verified bank deposits, these decisions are
jeopardized.

In this age of ultimate technological
devices, it remains imperative for us to
utilize these tools to our advantage.
Whether it is a POS system or an Excel
spreadsheet, we need to ensure that the
'our revenues exceed our expenses' is
constantly monitored. Invest the time . . . it
may be your employment career that is in
the balance."
```

James V. Bigley

Vice President

HMB Consultants

Voorheesville, NY

HMB Consultants assists self-operated school districts (college and K-12) in assessing and fine-tuning their food service operations. This company analyzes and makes recommendations to the school districts, both for financial and operational success. HMB Consultants assists school districts from Washington D.C. to the Canadian border.
```Figure 14-5 Cashier's daily report

Today's date

POS Register Readings or Total of Guest Check Sales

Food Sales                                              \$2,035.78
Beverage Sales                                           3,015.95
Miscellaneous Sales                                        257.00
Total Sales                                            5,308.73
Add the amount of Sales Tax                                451.24

Gross Receipts                     5,759.97

Add--Start of Shift Money (Bank)                             200.00
Total of Gross Receipts and Money Started With (Bank)      5,959.97

Cash Collected from Guest Checks During the Shift          689.25
Less Total Cash Paid Out                                   157.00
Total Cash in Drawer                                       532.25

Credit Card Receipts

American Express                                         2,270.72
Discover                                                   450.00
MasterCard                                                  25.00
Visa                                                     1,750.00
House Accounts                                             732.00
Total Charge & House Receipts                              5,227.72
Total Cash and Charges (Should Equal
the Amount of Gross Receipts)                            5,759.97
Over or (Short)                                                0.00

Record of Cash Paid Out

City Ice Company                                              25.00
Tips                                                         132.00
Arkay Florist                                                  0.00
Other                                                          0.00

Total Cash Paid Out                     157.00

Signed by: Thomas Kearney
```