UNIT N: INVENTORY. Table of Contents. Exhibit A: Sample Perpetual Inventory Card 6. Exhibit B: Completed Sample Perpetual Inventory Card 7 Review A 8

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1 Table of Contents Inventory Page Objective Inventory Management The Perpetual Inventory Beginning a Perpetual Inventory Maintaining a Perpetual Inventory... Exhibit A: Sample Perpetual Inventory Card Exhibit B: Completed Sample Perpetual Inventory Card Review A Answers - Review A The Physical Inventory..0 Procedures for Taking Physical Inventory..0 Best Practice for Physical Inventory..0 Exhibit C: Sample Physical Inventory Form.. Items to Inventory.. Reconciling the Inventory.. Costing the Inventory.. Equipment Inventory.. Exhibit D: Sample Physical Inventory Form.. Review B.. Answers to Review B.. Summary.. Specific Activities Activity Assist in Conducting a Physical Inventory.. Activity Role-play Explaining the Perpetual Inventory To a new employee.. Activity Checklist..0 Test.. Test.. Key for Tests..

2 INVENTORY An inventory is a detailed list of all goods and materials in stock. Two kinds of inventory methods are used in school food service physical inventories and perpetual inventories. A physical inventory is an up-to-date running record of the balance on hand of each item in the storeroom. 0 While procedures for cash management are usually very carefully followed in school food service, the management of cash in the form of inventories is frequently handled less carefully. School food services invest a large portion of their cash in food, supplies, and equipment. Good inventory management is necessary to protect this cash investment. This unit is designed to help the manager use inventories to protect the cash investments of school food service. Objectives 0 Upon completing this unit you should be able to do the following:. List procedures for good inventory management.. Prepare a perpetual inventory of food and supplies.. Prepare a physical inventory of food and supplies.. Prepare a physical inventory of equipment.

3 0 INVENTORY MANAGEMENT Procedures for good inventory management of food and supplies are as follows:. Date and record the price of foods and supplies when they are received. However, if a perpetual inventory is costed out, food and supplies do not have to be priced.. Practice first-in, first-out use of food and supplies. However, this will not apply to fresh fruits and vegetables as first used should be based on quality of product.. Protect inventories from theft and damage. (See the Phase II units on Property Protection.). Maintain a perpetual inventory.. Carefully complete and cost a monthly physical inventory.. Investigate and reconcile discrepancies between the physical inventory and the perpetual inventory.. Keep investments in inventories at the lowest level consistent with storage, delivery, production, and emergency requirements. 0 First-in, first-out (FIFO) use of food items is required by state school food service policy. The first-in, first-out procedure uses the oldest stock first and prevents deterioration of food quality. Food items must be dated on delivery to ensure first-in, first-out use. Pricing food and supplies when they are received promotes rapid and accurate calculation of the value of the inventory, but is not required if a perpetual inventory is costed out. Excessive inventories are expensive to purchase and maintain. They also increase the chance of loss through theft or spoilage. On the other hand, food and supplies must be maintained in adequate supply to meet production needs, with a cushion, to meet larger than normal participation demands, or to provide for emergency situations. 0 No ideal level of inventory can be established for all schools because inventory needs vary according to the following factors:. The amount of dry, frozen, and refrigerated storage.. The frequency of deliveries.. Participation.. The menus.

4 The Perpetual Inventory The perpetual inventory is always up-to-date because additions to and issues or withdrawals from the inventory are recorded daily. The current level of inventory for each item can be determined immediately. The perpetual inventory is an excellent tool to use in preparing food and supply orders and in analyzing the consumption of each item. 0 Beginning a Perpetual Inventory To begin a perpetual inventory, first complete a physical inventory. The procedure for this step is described late in this unit. Next, complete an inventory card or notebook page for each item listed in the physical inventory. Exhibit A is a sample perpetual inventory card. Make a separate perpetual inventory card for each form of the same food item. For example, make one card for peach halves and another card for peach slices. If two sizes of the same item are carried in inventory, make separate cards for each. For example, oz Frozen Chopped Beef Patties and oz Frozen Chopped Beef Patties should be on separate cards or pages. 0 Separate perpetual inventories should be kept for purchased or USDA donated (commodity) foods. Many systems color-code their perpetual inventory cards or pages by category (purchased or commodity) to make inventory record keeping easier and quicker. As school systems become more computerized, many districts have purchased programs to main the perpetual inventory. If your system is computerized, follow the procedure recommended by your supervisor. 0 For convenience and efficiency in recording, the items in the perpetual inventory should be listed in the same order as they are arranged in the storeroom. Storerooms should be arranged by classification, such as processed fruits, processed vegetables, baking aids, and condiments, with foods arranged alphabetically in each class. Paper and cleaning supplies should be stored separately from food items and from each other. Freezers and refrigerators also should be arranged by classification. Since commodity foods must be inventoried separately from purchased foods, they should be stored separately in storerooms, refrigerators, and freezers.

5 Maintaining the Perpetual Inventory As items are received and as items are issued from storage, the amounts are added to or subtracted from previous totals, the date of the transaction is recorded, and the new balance is calculated. When items are received, check them off the invoices as you add them to the perpetual inventory cards. When items are issued from storage, record the amounts as you check them off the issue/withdrawal forms. Always record the amounts issued or received on the day the transaction occurs. 0 If a new item is received that has not been carried previously in inventory, add a new card or sheet to the perpetual inventory file. If a computer program is used for inventory, create a separate page entry for each item. 0 0 A completed sample perpetual inventory card is shown in Exhibit B. The pricing method illustrated on the card uses an averaging and rounding off method of calculating the cost per unit. Some systems choose to have cost per unit figured to the penny (averaging and remainder method). The averaging and remainder method requires adding the remainder after averaging to one of the cans. The two methods of pricing food items (averaging and remainder method and averaging and rounding off method) are illustrated in the following example: A case of six () #0 cans of green beans costs $. Six divided into $. equals $. with a cent remainder The averaging and rounding off method of calculating cost per unit would be recorded as: $. each The averaging and remainder method of calculating cost per unit would be recorded as: $. each And $.00 Discuss with your preceptor the pricing method used by your school system for calculating cost per unit.

6 Exhibit A Sample Perpetual Inventory Card Price Date Received Case Unit Issued Balance Total Value Classification Item Name Single Unit Unit Pack

7 Exhibit B Completed Sample Perpetual Inventory Card Price Date Received Case Unit Issued Balance Total Value /0 Balance on hand /0 cases.. 0. /. / 0.0 / / /. Classification Item Name Single Unit Unit Pack

8 Review A Directions: Complete the following questions. If necessary, review the previous materials. A. List four factors that determine inventory needs. a. b. c. d. B. Fill in the missing word.. First-in, first- use of food items is required.. The inventory is always up-to-date.. Purchased foods and foods are inventoried separately.. Items on the inventory records should be listed in the same as they are arranged in the storeroom.. The averaging and method of calculating cost per unit would list cans at $. and one $.00. TURN THE PAGE TO CHECK YOUR ANSWERS

9 Answers - Review A Directions: Complete the following questions. If necessary, review the previous materials. C. List four factors that determine inventory needs. a. _the amount of dry, frozen, and refrigerated storage b. _the frequency of deliveries c. _participation d. _the menu D. Fill in the missing word.. First-in, first- out use of food items is required.. The perpetual inventory is always up-to-date.. Purchased foods and commodity foods are inventoried separately.. Items on the inventory records should be listed in the same order as they are arranged in the storeroom. 0. The averaging and remainder method of calculating cost per unit would list cans at $. and one $.00.

10 The Physical Inventory A perpetual inventory is required for both purchased and commodity food items. Policy also requires that a physical inventory of food quantities be completed monthly. Only one of these inventories must be costed. A copy of the physical inventory is sent to the school system office monthly. USDA commodity items must be inventoried separately from purchased items. Systems that cost the physical inventory each month may use a simpler perpetual inventory form with columns labeled Date, In, Out, and Balance. 0 Procedure for Taking Physical Inventory The procedure for taking a physical inventory is simplified by having a printed form that lists all items carried in stock and their unit sizes. Use of this form eliminates the need for handwriting the items each time the inventory is taken. For convenience and efficiency in recording, the items on the inventory form should be classified and printed in the same order as they are arranged in the storeroom and in perpetual inventory. Many school food service supervisors will provide a printed form for managers to use in arranging their storerooms and in taking inventory. (See the sample inventory form, Exhibit C, on the following page.) 0 Two people should take inventory, one to count and the other to record. Using two people to take inventory reduces errors and increases efficiency. The same persons should take the inventory each month. The monthly inventory must be taken on the last business day of each month after the close of business. Best Practice for Physical Inventory Managers should save all papers/documents where monthly physical counts were taken and inventory recorded as proof that inventory was taken. Auditors may request these papers from schools for proof monthly inventory was taken and if inventory was reconciled. 0 0

11 EXHIBIT C SCHOOL FOOD SERVICE SAMPLE PHYSICAL INVENTORY FORM School Date Classification Item Unit Ending Inventory Cost per Unit Total Cost Fruits, Processed Apples, Sliced #0 can Applesauce #0 can Apricots, halves #0 can Cherries, maraschino Cherries, red, sour Cranberry Sauce Fruit Cocktail Grapefruit sections Oranges, Mandarin gal #0 can #0 can #0 can # cyl #0 can Peaches, cling, halves #0 can Pears, halves #0 can Pineapple, crushed Pineapple, sliced #0 can #0 can Vegetables, Processed Asparagus, cut spears Beans, green, cut Beans, green, French Beans, Lima Beans, Pinto Beans, Sliced #0 can #0 can #0 can #0 can #0 can #0 can Subtotal

12 0 Items to Inventory All unopened single units of food stored in refrigerators, freezers, storerooms, and kitchen should be inventoried. Any single unit of food that has been opened during the month, but not completely used by the end of the month, should be counted as being used and should not be inventoried if NO software is being used. If software is used, all un-used quantities should be counted and listed in the physical count. A single unit is defined as the smallest quantity of the food item. The smallest quantity is usually the purchase unit listed in the USDA Food Buying Guide, such as pounds or cans. The only exemption to the single unit rule are large bulk units of staples (flour, rice, meal, etc.) and fresh produce (apples, lettuce, celery, etc.), which may be costed by the pound or by the purchase unit if NO software is being used. Units to be inventoried are as follows: 0 0. Canned items inventory by cans.. Frozen foods - inventory by the pound or box.. Meats inventory by pound or by box or individual piece for proportioned items.. Packaged condiments inventory by the packaged unit.. Fresh Eggs inventory by the dozen or case.. Staples inventory by weight or packaged units.. Fresh Produce inventory by weight or packaged unit.. Paper supplies inventory by tube, sleeve, box, or other packaged unit.. Spices inventory by packaged unit. 0. Milk inventory by cartons. To begin taking the inventory, start with the first item on the inventory form. Count the number of cans, pounds, boxes, sleeves, or other single units. Check the prices on each item. Count the number of containers at each price. For instance, if there are eighteen () #0 cans of applesauce that cost $. each, record them separately. (See the completed sample physical inventory form in Exhibit D.) Record prices on the inventory form while taking the inventory to aid in the costing or valuation of the inventory. Count and record all of the first item and the prices before going on the second item. Then count all items in the storerooms, refrigerators, freezers, and kitchen in the same manner. It is necessary to account for every item. Do not forget safety rules as take inventory. Use a ladder to reach and count items on higher shelves; do not climb up the shelves.

13 0 0 Reconciling the Inventory After the physical inventory has been completed, it is compared to the perpetual inventory to find discrepancies. Discrepancies occur when the amount on hand, the physical inventory, differs from the balance in the perpetual inventory. This comparison process is called reconciling the inventory. When any discrepancies occur, they must be investigated to determine the cause. The cause might be failure to post a delivery to the perpetual inventory, failure to post an issue/withdrawal, or inaccurate issue/withdrawal records (for example, six cans of peaches were recorded as issued, but a seventh can, which was withdrawn after serving began, was not recorded). When a discrepancy cannot be explained by reviewing invoice and issue/withdrawal records (and food production records, if necessary), the manager must be alert to the possibility of theft. Costing the Inventory After the physical inventory has been taken and reconciled with the perpetual inventory, the total value of the ending inventory is determined. This inventory value is then used to determine the cost of food used for the month. The opening or beginning inventory is the value of food and supplies on hand at the beginning of the month. The ending or closing inventory for one month is always the beginning inventory for the following month. To determine the amount of food used during the accounting period, record the beginning inventory value and make any adjustments. Then, add all invoices to achieve the total food available, and subtract the ending inventory. The resulting total is the cost of food used for the month. 0 Equipment Inventory State school food service policy requires that a physical inventory of equipment be completed annually by the school food service manager or other designated person. Some schools inventory equipment at both the beginning and ending of the school year. Schedule the inventory when equipment is not in use. Make sure every piece of equipment is in its assigned place. Use the equipment inventory forms furnished by your supervisor. Record the name, model number, serial number, and manufacturer of each piece of large equipment. Be certain every piece of equipment, large and small, is counted. One copy of the inventory is kept on file in the school and one copy sent to the school system office. Any additional equipment received during the year should be recorded on the inventory as it is received. Any items withdrawn from service should be lined through on the inventory with a pen and the date and reason for withdrawal noted.

14 EXHIBIT D SCHOOL FOOD SERVICE SAMPLE PHYSICAL INVENTORY FORM School Central High School Date October, 0 Classification Item Unit Ending Cost per Unit Total Cost Inventory Fruits, Processed Apples, Sliced #0 can.. Applesauce #0 can /. /.0.0 /.0 Apricots, halves #0 can /. /.. /0. Cherries, maraschino gal.. Cherries, red, sour #0 can 0..0 Cranberry Sauce #0 can. 0. Fruit Cocktail #0 can /. /.. /. Grapefruit sections # cyl.. Oranges, Mandarin #0 can.. Peaches, cling, halves #0 can /. /.. /. Pears, halves #0 can /. /.. /. Pineapple, crushed #0 can.. Pineapple, sliced #0 can.. Vegetables, Processed Asparagus, cut spears #0 can..0 Beans, green, cut #0 can / 0.0 /. 0. /.0 Beans, green, French #0 can.0. Beans, Lima #0 can.. Beans, Pinto #0 can /. /. 0. /. Beans, Sliced #0 can.0. Subtotal,.0

15 Review B Directions: Mark with T if correct; F if false. If necessary review the previous material State school food serve policy requires a physical inventory of food and equipment. The physical inventory should be taken by one person. Canned items are inventoried by the case. Fresh eggs are inventoried by the dozen or by the case. Flour may be costed by the pound or by the sack. In costing canned goods, the highest price is used for all cans if various cans have different prices marked. Reconciling is determining why there are differences between the perpetual inventory and the physical inventory. Small equipment is not listed on the equipment inventory. TURN THE PAGE TO CHECK YOUR ANSWERS

16 Answers - Review B Directions: Mark with T if correct; F if false. If necessary review the previous material. 0 0 T. F. F. T. T. F. T. F. State school food serve policy requires a physical inventory of food and equipment. The physical inventory should be taken by one person. Canned items are inventoried by the case. Fresh eggs are inventoried by the dozen or by the case. Flour may be costed by the pound or by the sack. In costing canned goods, the highest price is used for all cans if various cans have different prices marked. Reconciling is determining why there are differences between the perpetual inventory and the physical inventory. Small equipment is not listed on the equipment inventory.

17 SUMMARY An inventory is a detailed list of all goods and materials in stock.. Procedures for good inventory management of food and supplies are as follows: Dating items and recording prices as soon as goods are received. First-in, first-out use of items (except for produce which is based on product quality). Protection from theft and damage. Maintenance of a perpetual inventory. Careful completion and costing of a monthly physical inventory. Investigation and reconciliation of discrepancies between perpetual. inventory and physical inventory. Keeping inventories at lowest reasonable level.. The ideal inventory level is influenced by the following: Amount of dry, frozen, and refrigerated storage. Frequency of deliveries. Participation. The menu.. A perpetual inventory is always current because additions and withdrawals are recorded daily.. A physical inventory is prepared by actually counting and recording items on hand.. Reconciling is comparing and explaining differences between the perpetual inventory and the physical inventory.. Costing the inventory is determining the value of the items on hand by using the price of the item when it was received.. A physical inventory of all small and large equipment is required annually.

18 Activity I. Learning Activity Assist in Conducting a Physical Inventory 0. Secure copies of the forms used for a physical inventory in your school.. Review with your preceptor the steps for taking inventories.. Assist in taking the physical inventory. a. Follow the order listed on the form, completing one item before going on to the next item. b. Count the number of items in each price category. c. Work with the manager to reconcile the physical inventory with the perpetual inventory. d. Cost the inventory.. When you and your preceptor are satisfied with your ability to complete a physical inventory, have the preceptor date and initial your activity checklist.

19 Activity II. Role-play Explaining the Perpetual Inventory to a New Employee 0. Secure three blank perpetual inventory cards or notebook pages.. Fill in several lines on each card as a sample of how an inventory is maintained. Complete one for a staple item, one for a canned item, and one for a frozen item.. Assume you are the manager and your preceptor is a new technician. Explain the perpetual inventory. a. Discuss the cards, including the classification, single unit, unit pack, case and unit prices, calculation of balance, and calculation of total price. b. Explain how a perpetual inventory is maintained. c. Explain the value of a perpetual inventory in detecting loss and discouraging theft. d. Explain reconciliation of perpetual and physical inventories.. When you and your preceptor are satisfied with your explanation of a perpetual inventory, have the preceptor date and initial your activity checklist.

20 Activity Checklist Inventory Date Completed Initials Activity I.... a. b. c. d. II.... a. b. c. d. I. Assists in conducting physical inventory.. Secures inventory forms.. Reviews inventory steps.. Assists with inventory. a. Completes in order listed. b. Counts number of items in each price category. c. Reconciles physical and perpetual inventories. d. Costs the inventory. II. Explains the perpetual inventory.. Secures perpetual inventory cards or pages.. Completes cards as samples.. Role-plays explanation to technician. a. Explains all items listed on card. b. Explains procedures to maintain inventory. c. Explains how perpetual inventory helps detect loss and discourages theft. d. Explain reconciliation of perpetual and physical inventories. School Food Authority 0 Student Name Date Preceptor s Signature 0

21 Unit name: Inventory Student s Name Test Date Directions: Choose the best answer. When you have chosen your answer, circle the letter in front of it. There is only one answer for each question.. Excessive inventories a. Decrease the chance of loss through spoilage and theft. b. Are expensive to maintain. c. Are recommended if storage space is available. d. All of the above.. Items in the perpetual inventory should be listed a. In alphabetical order such as paper plates, pears, peas. b. In the order of purchase. c. In the order they are arranged in storage. d. Either a or c.. The perpetual inventory is to be updated a. Daily. b. Twice a week. c. Weekly. d. Monthly.. A physical inventory should be taken by a. One person. b. Two people. c. The manager and three helpers. d. The supervisor and the manager.. Reconciling an inventory is a. Determining the actual cost of the inventory. b. Explaining to the school administration the need for inventory. c. Explaining discrepancies between the perpetual and physical inventories. d. None of the above.. State school food service policy requires that an equipment inventory be kept a. Weekly. b. Monthly. c. Quarterly. d. Annually.

22 Test Unit Name Inventory Student s Name Date Directions: Choose the best answer. When you have chosen your answer, circle the letter in front of it. There is only one answer for each question Good inventory management a. Is primarily the responsibility of the supervisor. b. Means that only a perpetual inventory of food is needed. c. Includes dating and pricing food and supplies when they are received. d. All of the above.. With a perpetual inventory a. A separate card is necessary for each form of an item. b. Items of different forms such as sliced and crushed pineapple are recorded on the same card. c. Items of different sizes such as oz and oz beef patties are recorded on the same sheet. d. Both b and c.. To maintain the perpetual inventory, indicate a. The amount added or withdrawn. b. The date of the transaction. c. The new balance. d. All of the above.

23 0 0. Items in the inventory that are counted include a. Cans of crushed pineapple. b. The number of eggs. c. The number of napkins in the dispenser. d. All of the above.. In costing an inventory, use a. The average cost for the school year. b. The price marked on the items when received. c. The price on the latest invoice. d. All of the above.. When taking an equipment inventory, list a. Only large equipment. b. Only small equipment. c. All equipment, large and small. d. Large equipment and small equipment purchased within the last three years.

24 Inventory Examination Form KEYS TO TESTS Item Number TEST TEST b c c a a d b a c b d c