Financial Management Participant Workbook

Transcription

1 Financial Management Participant Workbook National Food Service Management Institute The University of Mississippi ET59-05 (MAN) 2005

2 Table of Contents Chapter One: Communicating the Importance of Effective Financial Management PowerPoint Handouts We Remember Handout Chapter Two: Revenue Sources by Category PowerPoint Handouts Revenue Sources Worksheet Exercise Chapter Three: Expenditure Sources by Category PowerPoint Handouts Expenditure Sources Worksheet Exercise Chapter Four: Accountability in Financial Reporting PowerPoint Handouts Example of Completed Balance Sheet The Balance Sheet Exercise Example of a Statement of Revenue and Expenditures for a School Nutrition Program Account Guidance Letter about Interest Bearing Accounts Chapter Five: Using Financial Reports to Analyze Program Efficiency PowerPoint Handouts Setting Meal Prices Activity Pricing Nonreimbursable Food Items Activity Case Study #1, Part I Meal Equivalency Worksheet Projected Revenue per Meal Equivalent Worksheet Per Meal Cost Calculation Worksheet Meals Per Labor Hour Worksheet Sample Staffing Guidelines for On-Site Production Handout Case Study #1, Part II Chapter Six: Monitoring Operational Revenue and Expenditures; Studying Trends That Will Impact on Both PowerPoint Handouts Case Study # ii

3 Chapter Seven: Tools to Analyze the Financial Status PowerPoint Handouts Creating a Pie Chart Activity with Microsoft Excel NFSMI FUNDamentals Budget Pie Chart-Expenditures NFSMI FUNDamentals Budget Pie Chart-Revenues NFSMI FUNDamentals Budget Pie Chart-Meals Served-Student Lunch NFSMI FUNDamentals Consolidated NSLP and NSBP Cost Allocation and Analysis Report (pages 1-3) Chapter Eight: Evaluation PowerPoint Handouts Financial Management Action Plans Appendix...A-1 Resources...A- 5 References...A- 7 OMB Circular A Glossary...G-1 iii

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5 Chapter One CHAPTER ONE Communicating the Importance of Effective Financial Management PowerPoint Handouts Activity

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7 Chapter One-Communicating the Importance of Effective Financial Management

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9 Chapter One-Communicating the Importance of Effective Financial Management Financial Management A Course for School Food Service Directors Financial Management Course 1 Pretest Financial Management Course 2 Chapter One: Communicating the Importance of Effective Financial Management Objective Recognize the importance of effective communication regarding financial management of the school nutrition program(snp) Financial Management Course 3 National Food Service Management Institute Financial Management Participant Workbook 1-1

10 Chapter One-Communicating the Importance of Effective Financial Management Chapter One: Discussion Topics Effective financial management Good public relations Communicating the importance of FM Lines of communication Financial goals and objectives Financial Management Course 4 Question for Discussion Why do you think financial integrity is important? Financial Management Course 5 Financial Management Overview Program administrator s responsibility for financial management of the SNP. Financial Management Course Financial Management Participant Manual National Food Service Management Institute

11 Chapter One-Communicating the Importance of Effective Financial Management Question for Discussion Based on your experiences, what is your definition of financial management? Financial Management Course 7 Financial Management Financial Management: -the financial goals and program objectives for the school nutrition program, and -attaining those goals through the effective use of resources Financial Management Course 8 Question for Discussion What are some ways school food service directors can demonstrate financial accountability? Financial Management Course 9 National Food Service Management Institute Financial Management Participant Workbook 1-3

12 Chapter One-Communicating the Importance of Effective Financial Management School Environment COMMUNICATIONS between Food Service Director Manager Principals School Boards Administrators Financial Management Course 10 Question for Discussion What do we mean by environment in a school setting? Financial Management Course 11 Question for Discussion Why is communication important? Financial Management Course Financial Management Participant Manual National Food Service Management Institute

13 Chapter One-Communicating the Importance of Effective Financial Management Communication Speech Writing Signals Behavior Financial Management Course 13 Key Concepts Financial goals of the school board School nutrition program self-supporting Efficient accounting system Accurate, timely financial management Adherence to submitted food service budget Financial Management Course 14 Key Concepts Financial objectives of the school nutrition program Basic financial management practices Customer satisfaction Well managed resources for cost containment Interpreting financial information for decisionmaking Financial Management Course 15 National Food Service Management Institute Financial Management Participant Workbook 1-5

14 Chapter One-Communicating the Importance of Effective Financial Management Question for Discussion What are examples of financial goals/objectives for a school nutrition program? Financial Management Course 16 Food Service Director to Administrators/Board Financial status of SNP Chain of command Accessibility to school board members Avenues of communication Financial Management Course 17 Food Service Director to School Business Officials Business manager Secretaries Bookkeepers Accounting Clerks City/county business officials Financial Management Course Financial Management Participant Manual National Food Service Management Institute

15 Chapter One-Communicating the Importance of Effective Financial Management Food Service Director to Principals School activities affect participation Student increases/decreases in free/reduced price numbers Merchandising activities Financial Management Course 19 Food Service Director to Manager Policies and Procedures Menus Price changes Budget Explain yearly projections of revenues and expenditures Reporting forms Maintenance request procedures Special promotions Financial Management Course 20 Manager to Food Service Director Market and grocery orders Monthly inventory Meal costs Meals per labor hour Daily meal counts Daily cash reconciliation Financial Management Course 21 National Food Service Management Institute Financial Management Participant Workbook 1-7

16 Chapter One-Communicating the Importance of Effective Financial Management Manager to Food Service Director Product evaluation Guests to the program Power outages Equipment repair needs Accidents Special events Banking problems Clarification on policies/procedures Financial Management Course 22 A Communication Review Food Service Director Principals Managers School Board Members Administrators Financial Management Course Financial Management Participant Manual National Food Service Management Institute

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19 Chapter One-Communicating the Importance of Effective Financial Management We Remember: % of what we hear % of what we see % of what we see and hear % of what we see, hear and say % of what we see, hear, say and do Source: Retrieved August 1, 2005, from National Food Service Management Institute Financial Management Participant Workbook 1-9

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21 Chapter Two Revenue Sources by Category PowerPoint Handouts Activity CHAPTER TWO

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23 Chapter Two-Revenue Sources by Category

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25 Chapter Two-Revenue Sources by Category Chapter Two: Revenue Sources by Category Objective Identify school nutrition program revenue sources by category Local State Federal Financial Management Course 24 Chapter Two: Discussion Topics Revenue classification Revenue loss Revenue sources by category Maximizing revenue Financial Management Course 25 Question for Discussion What do you consider your main source of revenue in your school nutrition program? Financial Management Course 26 National Food Service Management Institute Financial Management Participant Workbook 2-1

26 Chapter Two-Revenue Sources by Category Local Sources Local Government Aid Local Grants Contributions Financial Management Course 27 Student Meal Sales Full-Paid Meals Reduced-Price Meals Prepaid Meals Meal Charges Afterschool Care Program Snacks Financial Management Course 28 Question for Discussion What are other sources of local revenue? Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

27 Chapter Two-Revenue Sources by Category Other Local Sources of Revenue Adult payments Contract meal sales A la carte income Catering Interest Miscellaneous Financial Management Course 30 State Sources Cash payment from the state Matching funds Special milk reimbursement Grant money Financial Management Course 31 Question for Discussion Do any of you receive state funds for other purposes? Financial Management Course 32 National Food Service Management Institute Financial Management Participant Workbook 2-3

28 Chapter Two-Revenue Sources by Category Federal Sources Payment for breakfast and lunch meals Federal cash reimbursement for snacks Value of donated commodities Grant money awarded to school districts Funds for other federal nutrition programs Financial Management Course 33 Revenue Generation Identifying areas where revenue is being lost. Financial Management Course 34 Scenario for Discussion Students who choose not to eat school meals result in lost revenue to the program. Discuss how schools should go about setting participation goals and then follow-up with plans to increase participation. Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

29 Chapter Two-Revenue Sources by Category Scenario for Discussion Some parents do not complete application forms for their children to receive meal benefits although the children are eligible. Suggest ways that the school districts might approach these parents and their children to encourage them to participate. Financial Management Course 36 Scenario for Discussion More and more school districts are reporting student theft of food displayed on the serving line. Suggest ways the school district can eliminate theft of food items. Financial Management Course 37 Scenarios for Discussion Have program costs been analyzed according to categories of expenditure? How do program costs in the school s food service operation compare to other school programs or to industry standards? Have school food service staffs been included in the financial management of the operation? Financial Management Course 38 National Food Service Management Institute Financial Management Participant Workbook 2-5

30 Chapter Two-Revenue Sources by Category Scenarios for Discussion Do staff have an understanding of the importance of cost controls to the success of the operation? If there is a need to reduce costs, are the reductions being made in activities that have less value to the customers? Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

31 Chapter Two-Revenue Sources by Category

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33 Chapter Two-Revenue Sources by Category Revenue Sources Worksheet Exercise 1. These funds are identified as revenue received from the sale of reimbursable meals to students. Included are monies received from full-paid and reduced-price students. Answer: 2. This item includes all revenue received from the sale of meals to adults. Meals sold to school employees, parents, and guests of the school district should be included in this category. Answer: 3. This designation may be used as the overall category for items that are priced separately and sold separately from a reimbursable meal. Answer: 4. Includes food service events provided to groups or organizations outside the school district for a predetermined price based on menu and service requested. Answer: 5. This item covers other revenue not classified or included elsewhere such as rebates, sale of surplus equipment, and lease or rental of equipment. Answer: 6. These are funds received from the sale of meals prepared and regularly served for an agreed price to constituents of an agency, organization, business, or group who have entered into a contractual agreement with the School Food Authority for meals. Answer: 7. These are funds which are state appropriated revenues paid to school districts for use in the school nutrition program and are required by USDA. Answer: 8. This is money received from a company as an incentive to use a product. Answer: National Food Service Management Institute Financial Management Participant Workbook 2-7

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35 Chapter Three Expenditure Sources by Category PowerPoint Handouts Activity CHAPTER THREE

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37 Chapter Three-Expenditure Resources by Category

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39 Chapter Three-Expenditure Sources by Category Chapter Three: Expenditure Sources by Category Objective Identify SNP expenditure sources by category Labor (Salaries and Wages) Employee Benefits Purchased Professional Services Purchased Property Services Purchased Food & Donated Commodities Other Purchased Services Supplies Property Miscellaneous Fund Transfers Out Financial Management Course 40 Chapter Three: Discussion Topics Types of expenditures Indirect costs Expenditure Sources by Category Recording and reporting Financial Management Course 41 Labor Expenditure Salaries and Wages Fringe Benefits Unemployment Insurance Financial Management Course 42 National Food Service Management Institute Financial Management Participant Workbook 3-1

40 Chapter Three-Expenditure Sources by Category Food Expenditure Food cost Purchased Donated Food Production Supplies Financial Management Course 43 Supply Costs General Supplies Financial Management Course 44 OVERHEAD Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

41 Chapter Three-Expenditure Sources by Category Question for Discussion What are other overhead costs that the school nutrition program pays for in your school district? Financial Management Course 46 Capital Equipment and Furniture Financial Management Course 47 Indirect Costs Financial Management Course 48 National Food Service Management Institute Financial Management Participant Workbook 3-3

42 Chapter Three-Expenditure Sources by Category 3-4 Financial Management Participant Workbook National Food Service Management Institute

43 Chapter Three-Expenditure Resources by Category

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45 Chapter Three-Expenditure Sources by Category Expenditure Sources Worksheet Exercise 1. This item includes both purchased food and the value of USDA Commodities and uses approximately 40% of the school district s food service program revenue. Answer: 2. This item includes salaries, wages, and fringe benefits for administering and operating the school district s food service program. Answer: 3. These items are used at the school site only for production and service of food and include disposable gloves, napkins, and pan liners. Answer: 4. These items are used in administering and operating the school nutrition program and include cleaning, janitorial, and office supplies. Answer: 5. These items are used in the process of preparing, serving, and storing food and include examples of utility carts, cutting knives, bun pans, and food storage containers. Answer: 6. This item refers to expenditure for equipment or furniture over a specified dollar amount, as defined by the state, with a life expectancy greater than one year. Answer: 7. Costs associated with this category fall outside of the school food service personnel and may include food service management fees, maintenance contracts, and advertisements. Answer: 8. Items such as training, in-district travel, marketing, professional dues, and transportation (fuel and oil directly used by vehicles owned or leased by the school nutrition program) fall into this category. Answer: 9. This is the share of general school district overhead attributable to the food service program, including food service activities and support services provided by other district departments. An example of this cost to a school nutrition program is electricity. Answer: 10. This action takes place when dollars are moved from one program to other school district accounts. Answer: National Food Service Management Institute Financial Management Participant Workbook 3-5

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47 Chapter Four Accountability in Financial Reporting PowerPoint Handouts Activity CHAPTER FOUR

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49 Chapter Four-Accountability in Financial Reporting

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51 Chapter Four-Accountability in Financial Reporting Chapter Four: Accountability in Financial Reporting Objectives Define the essential financial reports used in the school nutrition program. Recognize the importance of ethical standards in developing school nutrition program financial reports. Financial Management Course 49 Chapter Four: Discussion Topics Balance Sheet Accounts Ethical Standards Accountability In Financial Reporting Statement of Revenue and Expenditures (P & L) Financial Management Course 50 Financial Reports Balance Sheet Statement of Revenues and Expenditures Financial Management Course 51 National Food Service Management Institute Financial Management Participant Workbook 4-1

52 Chapter Four-Accountability in Financial Reporting The Balance Sheet The Statement of Financial Position Financial Management Course 52 Question for Discussion How many of you use your balance sheet to monitor your financial status each month? Financial Management Course 53 The Balance Sheet Assets include: cash on deposit; sales tax collected; investments; accounts receivable; funds from other sources; inventories; and other assets. Liabilities include: accounts payable; accrued salaries; wages, and benefits; amounts due to other school district funds; deferred income; and taxes. Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

53 Chapter Four-Accountability in Financial Reporting The Balance Sheet Fund Balance: Funds reserved for encumbrances, inventory, capital equipment, undesignated or unreserved funds. Financial Management Course 55 Statement of Revenues and Expenditures Financial Management Course 56 Statement of Revenues and Expenditures Total revenue available to the program by source Total expenditure by category Net profit (gain) or loss (deficit) to the program Financial Management Course 57 National Food Service Management Institute Financial Management Participant Workbook 4-3

54 Chapter Four-Accountability in Financial Reporting Who is responsible for acting ethically? Financial Management Course 58 Question for Discussion Do any of you have examples of unethical procedures or practices related to preparation of school nutrition program finance reports? Financial Management Course 59 Three R s of Business Ethics Respect Responsibility Result Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

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57 Chapter Four-Accountability in Financial Reporting Example of a Completed Balance Sheet Current Assets: FY 2004 FY 2005 Cash and cash equivalents $ 75,550 $ 69,230 Investments 10,225 10,435 Due from state funds 6,500 5,012 Due from federal funds 21,057 22,100 Due from other funds 1,500 2,300 Other receivables Inventories: Purchased and commodity food 4,500 4,768 Supplies and materials 2,056 2,010 Total current assets $121,388 $115,855 Noncurrent Assets: Furniture and equipment $325,456 $325,456 Less accumulated depreciation (300,122) (305,230) Total noncurrent assets $ 25,334 $ 20,226 Total Assets $146,722 $136,081 Current Liabilities: Accounts payable 5,890 5,635 Accrued payroll 3,200 4,500 Other accrued liabilities 975 1,085 Deferred revenue 2,225 1,975 Total Liabilities $ 12,290 $ 13,195 Fund Balance Invested in capital assets (equipment depreciation) $ 25,334 $ 20,226 Reserved for encumbrances 6,500 5,500 Reserved for inventory 6,556 6,778 Undesignated/Unreserved funds 96,042 90,382 Total Fund Balance $134,432 $122,886 Total Liabilities and Fund Balance $146,722 $136,081 Note: In order to determine undesignated funds, complete the following formula: Total assets minus total liabilities minus capital assets minus encumbrances minus inventory equal undesignated funds. The information in this balance sheet reflects the cost of purchased furniture and equipment less accumulated depreciation as a noncurrent asset. National Food Service Management Institute Financial Management Participant Workbook 4-5

58 Chapter Four-Accountability in Financial Reporting 4-6 Financial Management Participant Workbook National Food Service Management Institute

59 Chapter Four-Accountability in Financial Reporting The Balance Sheet Worksheet Exercise Match the words in the first column to the best available answer in the second column. Cash 1) Amounts received in advance for meals and other food services Investments 2) Funds due from federal, state, and local sources Receivables 3) Category reserved for encumbrances, inventory and capital equipment Inventories 4) Not classified or included elsewhere Other assets 5) Certificates of Deposit Deferred income 6) Item deposited in banks, often petty Liability 7) Sales tax owed Accounts payable 8) Amount owed for goods and services purchased Fund balance 9) Includes purchased food supplies or commodities Source: Created with Puzzle Maker on DiscoverySchool.com National Food Service Management Institute Financial Management Participant Workbook 4-7

60 Chapter Four-Accountability in Financial Reporting 4-8 Financial Management Participant Workbook National Food Service Management Institute

61 Chapter Four-Accountability in Financial Reporting Sample 1 Statement of Revenues and Expenditures Ending October 2004 September 2004 % October 2004 % YTD % Revenue Local Sources Student Meal Sales $ 11, $12, $23, Adult Meal Sales , Other Food Sales 2, , , Interest Income Other Local Sources Miscellaneous , , State Sources , Federal Sources 2 20, , , Fund Transfer-In Total Revenue $36, % $42, % $79, % Expenditures September 2004 % October 2004 % YTD % Salaries and Wages $12, $13, $26, Employee Benefits 4, , , Purchased Services Property Services Purchased Food and Donated 13, , , Commodities General Supplies 1, , , Food Production Supplies 1, , , Capital Equipment Miscellaneous , Indirect Cost 2, , , Total Expenditures $35, % $42, % $78, % Change in Net Assets $ % $ $ 1, % 1 School food service administrators will need to modify the Statement of Revenues and Expenditures to meet school district requirements. 2 Value of donated commodities received is included in the federal revenue category. National Food Service Management Institute Financial Management Participant Workbook 4-9

62 Chapter Four-Accountability in Financial Reporting 4-10 Financial Management Participant Workbook National Food Service Management Institute

63 United States Department of Agriculture Food and Nutrition Service Southeast Region Reply to Attn. of: March 1, 1999 Subject: Policy : Interest Earned on School Food Service Funds To: : All State NSLP Directors This memorandum reissues policy previously issued as Policy Memorandum 80-32, dated September 09, 1980, and Policy Memorandum 88-4, dated February 10, Any changes made to the originals are in bold. We have received several inquiries concerning whether or not interest earned on children s payments and program reimbursements should be considered to be program income or revenues. Section 210.2, defines revenue as all monies received by or accruing to the non-profit school food service including earnings on investments and Federal cash reimbursement. Part further states, Revenues received by the non-profit school food service are to be used only for the operation or improvement of such food service For additional information, refer to OMB Circular A-102, Attachment E, which establishes standards for federal agencies to use in administering grants to State, local, and Indian tribal governments, including school districts participating in the Child Nutrition Programs under State agency administration. USDA funds for program reimbursement should be entered into the school food service account as soon as possible on receipt. If program reimbursement funds are held in a different account, (such as a county s general fund) before placing it into the school food service account, any interest on this USDA revenue must also be credited to the school food service account. Should your staff have any questions about this matter, please have them contact this office. CHARLIE SIMMONS Regional Director Special Nutrition Programs FORM FCS-603 (3-96) 61 Forsyth Street, S.W., Room 8T36, Atlanta, GA National Food Service Management Institute Financial Management Participant Workbook 4-11

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65 Chapter Five Using Financial Reports to Analyze Program Efficiency PowerPoint Handouts Activity Case Study 1 Part 1 Activity Case Study 1 Part 2 CHAPTER FIVE

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67 Chapter Five-Using Financial Reports to Analyze Program Efficiency

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69 Chapter Five-Using Financial Reports to Analyze Program Efficiency Chapter Five: Using Financial Reports to Analyze Program Efficiency Objectives Interpret basic financial management reports Analyze financial data based on performance measures Recognize methods to increase revenue and decrease expenditures Financial Management Course 61 Chapter Five: Discussion Topics Session 1 Financial Management report analysis Food and labor cost percentages Single inventory Analyze program efficiency Pricing meals and a la carte foods Calculating the cost of purchased food Financial Management Course 62 Evaluation of revenue and expenditures Chapter Five: Discussion Topics Session 2 Calculating ADP Assigning labor hours Meal Equivalents (ME) Analyze program efficiency Meals per labor hour Financial Management Course 63 Average revenue earned per ME Cost of producing a meal National Food Service Management Institute Financial Management Participant Workbook 5-1

70 Chapter Five-Using Financial Reports to Analyze Program Efficiency Financial Management Analysis Analysis is important to ensure that the school district: Manages expenditures within the revenues received Operates without a need for transfers from the general fund Has sufficient funds to reimburse the school district for costs Financial Management Course 64 Question for Discussion Why is analysis of financial data useful? Financial Management Course 65 Financial Management Analysis Financial data Helps to determine the efficiency of a school food service operation Provides information about program profitability Promotes basic financial management decisions Generates performance benchmarks Identifies areas for improvement Staffing decisions Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

71 Chapter Five-Using Financial Reports to Analyze Program Efficiency Financial Management Analysis Evaluating and maximizing revenue Evaluating and controlling costs Evaluating program efficiency Financial Management Course 67 Financial Management Analysis: Tools Financial Reports Revenue Detail Expenditure Detail Financial Analysis Report Performance Measures Meal Equivalents Per Meal Costs Percentage Ratios Productivity Rates Meal Participation Reports Financial Management Course 68 Evaluating Revenue Identify revenue sources by category Calculate average revenue per meal Identify sources for increasing revenue Establish appropriate prices for meals and non-reimbursable food items Financial Management Course 69 National Food Service Management Institute Financial Management Participant Workbook 5-3

72 Chapter Five-Using Financial Reports to Analyze Program Efficiency Setting Meal Prices Revenue from meals served to students and adults provide the bulk of revenue to the school nutrition program. Paid student meal prices program costs less federal reimbursement and value of USDA commodities (lunch only) Adult meal prices - total program costs Financial Management Course 70 Questions to ask when considering a meal price change 1) How long has it been since lunch prices have increased in your school district? 2) What are some of the reasons for the increase this year? Financial Management Course 71 Questions to ask when considering a meal price change 3) How do school meal prices in your school district compare with other nearby school districts? 4) Is my child receiving the nutrient he/she needs from school meals? Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

73 Chapter Five-Using Financial Reports to Analyze Program Efficiency Meal Price Calculation $2.32 Cost of Lunch -.21 Paid Reimbursement Value of USDA Commodities= $ ($1.94 Rounded) Financial Management Course 73 Revenue Generation Increasing meal prices Determining non-reimbursable meal prices Financial Management Course 74 Responses for Discussion If meal prices are increased, will the benefits offset the possible decrease in participation? Can catering activities be added to the school nutrition program operation in lieu of raising prices? Financial Management Course 75 National Food Service Management Institute Financial Management Participant Workbook 5-5

74 Chapter Five-Using Financial Reports to Analyze Program Efficiency Responses for Discussion What about implementing a marketing plan to increase participation? If the school does not have a breakfast program, would it be feasible to start one? Financial Management Course 76 Responses for Discussion How about surveying the customers? Are they satisfied with the program? What changes would they make? Financial Management Course 77 Revenue Generation Determining nonreimbursable food prices or a la carte Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

75 Chapter Five-Using Financial Reports to Analyze Program Efficiency Influencing Factors Demand Perception of value Prices charged in nearby school districts Prices charged in vending machines Relationship between sales prices and volume Total costs to prepare item Nutrition value Financial Management Course 79 Establishing the Base Price 1. Determine the raw food cost of the item offered for sale. 2. Identify the desired food cost percentage for the operation. 3. Calculate a base selling price by dividing the item s raw food cost by the desired food cost percent. Financial Management Course 80 Nonreimbursable Meal Price Calculation Raw Food Cost $0.52 Desired Food Cost % 0.38 = $1.37 (Base Selling Price) Financial Management Course 81 National Food Service Management Institute Financial Management Participant Workbook 5-9

76 Chapter Five-Using Financial Reports to Analyze Program Efficiency Evaluating Expenditures Identify sources for expenditures by category Analyze Program Costs Cost of food used Cost per meal/meal equivalent served Financial Management Course 82 Performance Measures Cost of food used Cost percentages to total revenue Total meal cost Meal cost per category Productivity ratios Financial Management Course 83 Cost of Purchased Food Used Determine whether costs are within guidelines. Ascertain if there is sufficient money to cover expenditures. Establish the plate cost for each meal served. Prevent waste and theft of food items through careful monitoring of food used. Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

77 Chapter Five-Using Financial Reports to Analyze Program Efficiency Cost of Purchased Food Used Beginning Purchased Food Inventory + Food Purchases = Total Purchased Food Available Ending Purchased Food Inventory = Cost of Purchased Food Used Financial Management Course 85 Cost of Purchased Food Used Example Beginning food inventory Food purchases Food available Less: Ending food inventory Cost of purchased food used Annually $ 8, , ,000 7,000 $301,000 Monthly $8,000 25,000 33,000 7,000 $26,000 Financial Management Course 86 Streamlined Commodity Inventory USDA Single Inventory Guidance Inventories of donated foods are no longer separate from inventories of other foods Most commodities are packed with commercial labels instead of USDA labels. Procedures differ from state to state. Financial Management Course 87 National Food Service Management Institute Financial Management Participant Workbook 5-9

78 Chapter Five-Using Financial Reports to Analyze Program Efficiency Cost Percentages: Performance Measures Cost percentages relate expenses to revenues. Two of the most critical percentages are: Food cost percentage Labor cost percentage Financial Management Course 88 Food Cost Percentage Food Cost Percentage = Cost of Food Total Revenue $16,500 (Food Cost) $30,000 (Total Revenue) =.55 or 55% Financial Management Course 89 Question for Discussion Can you think of examples that would result in higher food costs than normal for a given month? Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

79 Chapter Five-Using Financial Reports to Analyze Program Efficiency Labor Costs Salaries and wages Benefits Professional development Educational hours Financial Management Course 91 Labor Cost Percentage Labor Cost Percentage = Total Labor (Salaries and Benefits) Total Revenue $400,000 (Total Annual Labor) $800,000 (Total Revenue) =.50 or 50% Financial Management Course 92 Question for Discussion What does the 50% labor cost percentage tell the school food service directors? Financial Management Course 93 National Food Service Management Institute Financial Management Participant Workbook 5-11

80 Chapter Five-Using Financial Reports to Analyze Program Efficiency Case Study #1: Part I Financial Management Course 94 Chapter Five: Discussion Topics Session 2 Calculating ADP Assigning labor hours Meal Equivalents (ME) Analyze program efficiency Meals per labor hour Financial Management Course 95 Average revenue earned per ME Cost of producing a meal Meal Equivalents: Analysis Tool Meal equivalents - a statistical tool used to allocate costs based on a unit of production Meal Units Lunch Breakfast Afterschool snacks Nonreimbursable food sales Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

81 Chapter Five-Using Financial Reports to Analyze Program Efficiency Calculating Meal Equivalents The NFSMI Financial Management Information System uses the following ratio to determine a meal equivalent. 3 breakfast = 2 lunches 3 snacks = 1 lunch Dollar amount in sales of nonreimbursable food Free lunch reimbursement + Commodity Value Financial Management Course 97 Converting nonreimburseable food sales into meal equivalents formula. Calculation (2.4125) = 124 meal equivalents Financial Management Course 98 Determining the Average Revenue Earned Per Meal Equivalent Forecast revenue from all sources. Total the forecasted revenue amounts. Determine meal equivalents. Divide revenue generated by total meal equivalents. Financial Management Course 99 National Food Service Management Institute Financial Management Participant Workbook 5-13

82 Chapter Five-Using Financial Reports to Analyze Program Efficiency Per Meal Cost Calculation Example Costs of purchased food used Total lunches + meal equivalents Per meal cost = Total expenditures Total lunches + meal equivalents Financial Management Course 100 Questions for Discussion Why is it important to calculate the food cost and labor cost percentages? Why is the cost of producing a meal a critical piece of information for school food service directors? Financial Management Course 101 Measuring Productivity Meals per labor hour Participation rates Average daily participation Participation rate per category of meal eligibility Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

83 Chapter Five-Using Financial Reports to Analyze Program Efficiency Meals Per Labor Hour Meals per labor hour = Number meals/meal equivalents Number of paid labor hours 338 meals/meal equivalents 24 paid labor hours = or 14 meals per labor hour Financial Management Course 103 Meals Per Labor Hour: Staffing Guideline in Policies and Procedures Meals Per Labor Hour Table Financial Management Course 104 Participation Lunch Actual (# lunches/# days) Percent of attendance (ADP/Enrollment or ADA) Breakfast Actual Percent of attendance Financial Management Course 105 National Food Service Management Institute Financial Management Participant Workbook 5-15

84 Chapter Five-Using Financial Reports to Analyze Program Efficiency Participation is determined separately for breakfast and lunch. The formula for calculating ADP: Number of meals served (month) Number of operating days (month) Financial Management Course 106 Case Study #1: Part II Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

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87 Chapter Five-Using Financial Reports to Analyze Program Efficiency Activity Setting Meal Prices Sunset School District establishes menu prices based on the average plate cost of a meal minus (-) current commodity value minus (-) current Section 4 reimbursement. The school district calculates the plate cost separately for secondary and elementary levels. Using the values given below, calculate base meal prices for elementary students, secondary students, and adults for both lunch and breakfast. Enter the calculations in the table. Determine a final price based on discussions in your group. Consider questions 1-4 below. (There are no right or wrong answers for final prices.) Lunch: The plate cost for an elementary school lunch is $2.14 and $2.32 for a secondary student lunch. The Section 4 reimbursement rate is $0.21 per lunch and commodity value is $0.17 Breakfast: The plate cost for an elementary school breakfast is $1.25 and $1.30 for a secondary school breakfast. The Section 4 Reimbursement rate is $0.23 per breakfast. Meal Prices Plate Cost Lunch Meal Prices (-) Section 4 (-) USDA commodity value = Base Price Final Price Elementary Secondary *Adult Breakfast Meal Prices Elementary Secondary *Adult *All adult meal prices are based on plate costs for secondary level schools. National Food Service Management Institute Financial Management Participant Workbook 5-17

88 Chapter Five-Using Financial Reports to Analyze Program Efficiency Activity Setting Meal Prices, Cont. Consider how the following points might impact the final meal price decision. 1. What considerations should be given to rounding in the scenario above? 2. Are there occasions when a district might consider rounding down for elementary students enrolled in the district and rounding up for secondary students (or vice versa)? 3. Would serving a high percentage of free/reduced student meals impact meal prices? 4. How would a significant increase in student participation (population shifts, new industry, annexation that includes several schools) impact the process of meal prices? Hint Commodities received are based on the number of meals served the previous year Financial Management Participant Workbook National Food Service Management Institute

89 Chapter Five-Using Financial Reports to Analyze Program Efficiency Activity Pricing Nonreimbursable Food Items Pricing Method: Desired Food Cost Percent Markup Method If the desirable food cost percentage for a school food service operation is 37% for the school year, what is the base selling price for each of the following a la carte/extra sale food items? Discuss considerations for pricing food items with group members and recommend a final selling price. (There are no right or wrong answers for final selling prices.) Food Raw Food Base Selling Final Selling Cost Price Price Corn Dog 0.27 Burrito 0.38 Fresh Apple 0.12 Individual Ice Cream Cup 0.15 Hamburger 0.47 Briefly summarize how you arrived at the final selling price for each food item. 1. Corn Dog 2. Burrito 3. Fresh Apple 4. Individual Ice Cream Cup 5. Hamburger National Food Service Management Institute Financial Management Participant Workbook 5-19

90 Chapter Five-Using Financial Reports to Analyze Program Efficiency 5-20 Financial Management Participant Workbook National Food Service Management Institute

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93 Chapter Five-Using Financial Reports to Analyze Program Efficiency Program Analysis Case Study # 1 Part I: Determining Costs of Operation to Total Revenue Part II: Determining Participation Calculating Adult Meal Costs National Food Service Management Institute Financial Management Participant Workbook 5-21

94 Chapter Five-Using Financial Reports to Analyze Program Efficiency INTRODUCTION Analysis of data reported in financial statements and reports provide a more meaningful, informative, and useful way of interpreting figures. One financial report often used by school food service administrators is the Year-End Summary (page 5-25). The summary provides information to help the food service administrator determine if the school nutrition program is meeting financial goals. The following case study utilizes information found on the summary sheet to demonstrate how cost percentages, productivity ratios, and operations analysis can be used to evaluate program effectiveness. Cost percentages and productivity ratios help administrators monitor the performance of their operations and evaluate their success in meeting financial goals. There are many costs that can be calculated as a percentage of total revenue. Two of the most critical percentages are food cost and labor cost. School food service administrators often rely on these percentages to determine whether expenditures for food and labor are reasonable and within previously set guidelines. Cost percentages are calculated using the following formula: Cost Percentage = Total Expenditure Amount Total Revenue Example: A school food service operation has total revenue of $30,000 in the month of April and a food cost of $16,500 for the same month. Using the formula above, we find the operation had a 55% food cost to total revenue. Food Cost % = Total Cost of Purchased Food Total Revenue $16,500 $30,000 =.55 x 100 or 55% Food Cost To Total Revenue This means that $.55 of every revenue dollar was spent to cover food costs in April Financial Management Participant Workbook National Food Service Management Institute

95 Chapter Five-Using Financial Reports to Analyze Program Efficiency Case Study questions 1-3 are designed to help you understand how to calculate cost percentages and to use the information in program analysis. For example, the total of all percentages for expenses must be equal to 100 percent in order to breakeven. To breakeven means that the revenue in a given period of time is exactly the same as expenses for that same time period. In a breakeven situation, there are no funds left to cover increases for food, salaries, or program improvements. When a school food service operation is at the breakeven point, the operating balance remains the same. If the total cost percentage is less than 100 percent, the operation has more revenue than expenditures. If the total cost percentage is more than 100 percent, the operation has more expenditures than revenue. The operating balance will increase or decrease accordingly. If the total of all cost percentages is: Less than 100 percent - operating balance increases Equal to 100 percent - food service breaks even More than 100 percent - operating balance decreases ***Important*** Although USDA has taken steps to integrate commodities with purchased food in a single inventory, the value of commodities received by the program remains an important part of program analysis. For this reason, the food cost percentage of entitlement commodities received and food expenditures are calculated separately in the case study. Most school districts have the ability to separate the value of commodities received from food purchases based on state agency information. Schools districts can also calculate an approximate commodity value by multiplying the annual commodity value per meal by the number of reimbursable lunches served in the preceding school year. While it is recognized that these calculations may vary, nevertheless they are useful as an analysis tool. National Food Service Management Institute Financial Management Participant Workbook 5-23

96 Chapter Five-Using Financial Reports to Analyze Program Efficiency Case Study: Part I Oaks School District 1. Using the attached Year-End Summary (page 5), complete the following by: (1) entering the amount of expenditures in each category, and (2) calculating the percentage of expenditure to total revenue in each category. The dollars spent for annual Salaries/Wages and Capital Equipment (See Expenditures on the Year-End Summary) have been recorded to help you get started. NOTE Calculate each percentage four decimal places. If the 5 th decimal place is 5 or higher, round UP; if 4 or less, round DOWN. Total Revenue for Year Ending June 30 $2,468,317 Expense Category Expenditure Amount % of Revenue a. Salaries and Wages 699, b. Employee Benefits c. Purchased Food d. Commodity Value e. Supplies f. Capital Equipment g. Indirect Costs 48, h. Overhead Costs i. Total 2. Total the percentages for all categories. What does the answer tell you about the operation? 3. a. When you combine food and labor costs, what is the percent to total revenue? Is this within generally accepted guidelines? b. What happens if there is a 3% increase in the cost of labor and a 5% increase in food products? 5-24 Financial Management Participant Workbook National Food Service Management Institute

97 Chapter Five-Using Financial Reports to Analyze Program Efficiency Oaks School District Year-End Summary Exhibit A Meal Category Free Reduced Paid Total % Free % Reduced % Paid # Days Enrollment ADP ADP Enroll. Student Break. 233,365 24,750 57, , , Student Lunch 430,861 70, , , , Adult Break Adult Lunch 36,311 36, Aftersch snacks 51,285 51, Meal Equivalents Full Time Employees 75 Lunch Equivalents 928,887 (Includes students and paying adults) Part Time 12 Breakfast Equivalents 208,943 (Total students and adults x.66) Hours Pd. Labor 103,140 Afterschool snacks 17,095 (Total 3) Other Food 30,395 (Other Food Sales ) Total 1,185,320 Expenditures for year ending June 30 Meal Costs Revenue for year ending June 30 Meal Revenue Salaries $ 699, Student Meal Sales $665, Benefits 297, Adult Meal Sales 73, Food Purchased 909, Federal Reimbursement 1,497, Commodity Value 140, State Funds 17, Supplies 363, Interest 1, Equipment, Cap. 48, Other Food Sales 71, Indirect Cost Pd. 60, Commodity Value 140, Overhead 90, Total $2,468, Total 2,610, includes lunch, breakfast, and snack reimbursements 2 based on 0.02 per student lunch 3 based on.1575 entitlement per student lunch National Food Service Management Institute Financial Management Participant Workbook 5-25

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101 Chapter Five-Using Financial Reports to Analyze Program Efficiency Meal Equivalency Worksheet In school food service programs, the production of meals is the unit of measurement used to gauge the effectiveness and efficiency of a school food service program. To determine meal cost or meals per labor hour, customer transactions for a la carte/extra food sales and other revenue producing services must be converted to a meal equivalent. The meal equivalent is a statistical tool that is used to allocate costs based on a unit of production; in this case, the reimbursable student lunch. It is not a unit of production but a calculation that allows the operator to equate all meals to a standard, the student lunch. Counting meals other than lunches is not as clear-cut as counting lunches served to students. Thus, a method for converting operational data for other food services must be used to determine an equivalent measure. Examples of meal equivalent conversion formulas and calculation for different types of meals are presented below. Lunch: All reimbursable lunches served to children and full paid adult lunches are considered to be one meal equivalent. Second lunches are considered to be extra food sales. Breakfast: Determining the total number of meal equivalents served in any given day may require several calculations. The method used in this training initiative for determining breakfast meal equivalents specifies that three breakfasts are the equivalent of two lunches. In 2004, this breakfast equivalency was updated from a ratio in which two breakfasts were considered the equivalent of one lunch. The new ratio is based on recommendations from participants in a national task force convened in March 2004 to update the Financial Management Information System model. Task force members indicated a three to two ratio is more representative of the effort and cost required to produce and serve the average breakfast in The breakfast meal equivalents can be calculated as follows: Meal Equivalent = Number of Breakfasts Served x Conversion Factor (2/3 =.66) Calculate: A school food service program served 300 student reimbursable breakfasts and 58 adult breakfasts one morning. Using the formula that three breakfasts are equivalent to two lunches, what are the breakfast meal equivalents? National Food Service Management Institute Financial Management Participant Workbook 5-27

102 Chapter Five-Using Financial Reports to Analyze Program Efficiency Afterschool Snacks: National School Lunch Program snacks are served to children and youth in afterschool care programs that are eligible for USDA reimbursement. While there are no current research studies to support the meal equivalency ratio, a survey of selected state agencies indicated most states use a 3/1 ratio of snacks to lunch. Using this equivalency snacks can be converted to meal equivalents as follows: Meal Equivalent = Number of Snacks Served 3 Calculate: An elementary school served 450 students reimbursable afterschool snacks. Using the formula that three snacks are equivalent to one meal, what are the snack meal equivalents? Other Food Service Sales: Meal equivalent calculations for all other food services are based on the annual federal reimbursement rate for students eligible for free lunch plus the entitlement commodity value. The sales from nonreimbursable food sales during meal services can be converted to meal equivalents as follows: Meal Equivalent = A la carte Sales or Extra Food Free Lunch Reimbursement + Commodity Value Per Meal Calculate: A food service operation allows nonreimbursable food sales (including second student meals) at lunch. During one lunch period, nonreimbursable food sales totaled $ Using the formula above, what are the nonreimbursable food sales meal equivalents? The same formula would apply for other food service events such as catered meals or special school functions. Meal Equivalent = Catered Meal Sales Free Lunch Reimbursement + Commodity Value Per Meal Calculate: A school food service operation offers catering services to departments within the school system for specified fees. During one month, the food service department catered three events with resulting sales of $ To determine the meal equivalents for catered sales, the school food service administrator divided the catering sales total by the value of the federal reimbursement for students eligible for free meals plus the commodity value of the lunch. Using this calculation, what are the catering sales meal equivalents for that month? 5-28 Financial Management Participant Workbook National Food Service Management Institute

103 Chapter Five-Using Financial Reports to Analyze Program Efficiency Projected Revenue Per Meal Equivalent Worksheet Calculating the projected average revenue earned per meal equivalent is very important in the management of school nutrition programs. Complete the following activity to determine the projected revenue for each meal equivalent served. For purposes of this activity, projected revenues for each category and projected meal counts were obtained from a school district spreadsheet. Step 1: Total the projected revenue. Account Amount Student Meal Sales $250,544 Adult Meal Sales 26,751 Other Nonreimbursable Food Sales 391,780 Interest 1,197 Miscellaneous 287 State Revenue 15,493 Federal Revenue 436,210 Fund Transfer-In 0 Revenue Sub-Total Commodity Value (286,940 x.1725)* Total Projected Revenue * The projected entitlement commodity value is determined by multiplying the number of projected student lunches (see table below) by the commodity value per meal for entitlement commodities (.1725). The actual value of commodities received (entitlement and bonus) will be reflected in the year-end analysis. Step 2: Determine meal equivalents from meal count categories using the following factors. Round to nearest whole number. Lunches: 1 lunch = 1 lunch Breakfast: 3 breakfast = 2 lunch Snacks: 3 snacks = 1 lunch Nonreimbursable food sales: Dollar amount in sales divided by free reimbursement (2.24) + commodity value (.1725) = Account Projected Meal Count and Nonreimbursable Food Sales Student Lunches 286,940 Adult Lunches 9,727 Breakfast 65,228 Snacks 17,400 Non-reimbursable food sales Total Meal Equivalents $391,780 Meal Equivalents Step 3: Divide total projected revenue by total projected meal equivalents to find the revenue earned per meal equivalent served. National Food Service Management Institute Financial Management Participant Workbook 5-29

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105 Chapter Five-Using Financial Reports to Analyze Program Efficiency Per Meal Cost Calculation Worksheet Analyze this situation: School food service staff members concerned about the plate costs in their school decided to analyze per meal costs on a daily basis. On this particular day, the school food service operation served 200 student lunches, 23 adult lunches, 96 breakfasts, 54 snacks in the afterschool care program, and had $ in a la carte and extra milk sales. There was $ in expenditures for the day. Using the following steps, calculate the per meal cost based on the number of meal equivalents served. Step 1 Expenditures Food Costs $ USDA Commodities Used* Labor Costs Benefits Costs General Supplies/Paper Supplies Other Costs Small and Large Equipment 4.00 Repairs, Maintenance 4.55 Professional Development (travel, conferences, training, etc.) 2.60 Overhead (utilities, telephones, postage, waste management, etc.) Indirect (charges from the district).70 Total Costs for the Day $ *USDA Commodity cost is the value of the commodities used for the specified meal or period of time. Processing costs associated with the commodity are included in the food costs. Step 2 Calculate all meals and meal equivalents Refer to the meal conversion formulas reviewed on the Meal Equivalency Worksheet and calculate all meals and meal equivalents Breakfast Meal Equivalents = Snack Meal Equivalents = A la Carte Meal Equivalents** = Student Lunches + Adult Lunches = **Free lunch reimbursement is $2.24 and commodity value is $ National Food Service Management Institute Financial Management Participant Workbook 5-31

106 Chapter Five-Using Financial Reports to Analyze Program Efficiency Step 3 Add all meal equivalents and lunches together When the number of meal equivalents or lunches for each type of service has been determined, add them together to get the total meal equivalents served for the period being analyzed. Breakfast equivalents Snack equivalents A la carte equivalents Lunch meal equivalents = Total meal/lunch equivalents Step 4 Calculate the per plate meal cost Divide the total expenditures for the period by the total meal equivalents. This tells the school food service director the cost of producing a meal on a per plate basis for the period of time being analyzed. Meal Cost = Total Expenditures = $ Total Meals/Lunch Equivalents The meal cost of $1.77 for the day may be compared to other meal costs for this school food service program. The previous week's daily plate or meal costs were as follows: Monday $1.68 Tuesday 1.65 Wednesday 1.62 Thursday 1.67 Friday 1.69 Is the meal cost just analyzed for the day higher or lower than the previous week's meals? If it is higher, it may be a red flag for the school food service director to investigate the reason for the increase or the need to balance high cost with low cost meals in line with established cost guidelines. This data may be used for future menu planning Financial Management Participant Workbook National Food Service Management Institute

107 Chapter Five-Using Financial Reports to Analyze Program Efficiency Meals Per Labor Hour Worksheet The essential services provided by school food service programs are measured in number of reimbursable student lunches and/or meals equivalent to the reimbursable lunch. They are the prime unit of productivity of school food service programs and are essential elements in formulating budgets and determining productivity. Meals Per Paid Labor Hour: To monitor the effectiveness of the operation many school food service administrators use the productivity index of meals per labor hour to determine appropriate staffing. This is an important piece of information that indicates to administrators whether they are using their resources efficiently and productively. It can help in determining how many employees are needed in a single production unit or throughout the district. Many factors affect meals per labor hour. They should be considered when comparing meals per labor hour of kitchen or production units. These factors include: Type of service provided Production system Amount of convenience foods used Skill level of employees Complexity of the menu Paid labor hours are calculated on time actually paid for by the school food service program. For example, if break times for employees are paid for by the program, then the break time should be included; if breaks are unpaid, the break time would not be included when calculating paid labor hours. The formula for determining meals per labor hour is to divide the number of meals or meal equivalents by the number of paid labor hours. Meals per Labor Hour = Number of Meals or Meal Equivalents Number of Paid Labor Hours Calculate: An elementary school food service program served 338 meals/ or meal equivalents and had 24 hours of paid labor for the day. Using the formula above, help the school food service administrator determined the school's productivity rate. National Food Service Management Institute Financial Management Participant Workbook 5-33

108 Chapter Five-Using Financial Reports to Analyze Program Efficiency Sample Staffing Guidelines for On-Site Production Meal Meals per labor hour (MPLH) Total hours Conventional Convenience Equiv. System System MPLH Total MPLH Total Hours Hours Retrieved August 2,2004 from Financial Management Participant Workbook National Food Service Management Institute

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111 Chapter Five-Using Financial Reports to Analyze Program Efficiency Program Analysis Case Study # 1 Part I: Determining Costs of Operation to Total Revenue Part II: Determining Participation Calculating Adult Meal Costs National Food Service Management Institute Financial Management Participant Workbook 5-35

112 Chapter Five-Using Financial Reports to Analyze Program Efficiency Case Study: Part II Determining Participation Calculating Adult Meal Costs Knowing the average daily participation over a period of time can assist the school food service administrator in making better financial management decisions that will affect productivity such as staffing and food production. Case Study question #4 provides an example of calculating average daily participation percentages. Case Study question #5 is designed to help you check your understanding of conducting program analysis. For example, assume the food service administrator wants to know whether or not the meal price charged to adults was sufficient to cover adult meal costs for the year. By using the Year-End Summary (Case Study: Part I, page 5-25) and following the steps below, the food service administrator can calculate the cost of meals for adults in any given year and determine whether there was a net gain or loss. Step 1. Step 2. Step 3. Determine Adult Meal Equivalents [Lunch + (Breakfast x.66)] * Hint Lunch/breakfast counts are shown in the Year-End Summary. Multiply adult meal equivalents by the meal cost. *Hint Total meal cost is shown in the column next to expenditures on the Year-End Summary. Compare the results from step 2 to the revenue recorded for adult meal sales for financial gain or loss in adult meals.*hint The total for adult meal sales is shown under revenue Financial Management Participant Workbook National Food Service Management Institute

113 Chapter Five-Using Financial Reports to Analyze Program Efficiency Case Study: Part II Oaks School District 4. What is the percent of daily participation to total enrollment for breakfast? For lunch? The necessary information to calculate the percents can be found on the Year-End Summary (Hint Divide the ADP for breakfast or ADP for lunch by the enrollment). 5. The amount of revenue received from the sale of adult meals should cover the total cost of producing a meal. Complete the following calculations to help you analyze adult meal costs (Refer to the three steps on page 9). a. What are the total adult meal equivalents for the current year? (Remember: breakfasts served are converted to lunch equivalents using the ratio three breakfasts equals two lunches.) b. Using the meals equivalents calculated in 5a and costs for producing each meal provided on the Year-End Summary sheet, calculate the total costs of adult meals in the current year. c. What was the total dollar amount of the adult meal gain (or loss) for the current year? National Food Service Management Institute Financial Management Participant Workbook 5-37

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115 Chapter Six CHAPTER SIX Monitoring Operational Revenue and Expenditures; studying trends that will impact both PowerPoint Handouts Case Study 2

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119 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Chapter Six: Monitoring Operational Revenue and Expenditures; studying trends that will impact both Objectives Recognize the importance of developing a budget based on forecasted operational revenues and expenditures. Recall the value of identifying industry trends in developing a budget. Financial Management Course 108 Chapter Six: Discussion Topics Mind Mapping? Budget building: A case study Forecasting revenue and expenditure needs Budgeting: Monitoring revenue and expenditures Factors influencing the budget Methods used for budget planning Financial Management Course 109 Forecasting the Future Customer satisfaction Internal organization Financial aspects Innovation Financial Management Course 110 National Food Service Management Institute Financial Management Participant Workbook 6-1

120 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Forecasting the Future Customer Satisfaction Environment Sensory Interpersonal Procedural Deliverable Informational Financial Financial Management Course 111 Forecasting the Future Internal organization People Machinery Systems Financial Management Course 112 Questions for Discussion How well does the SNP serve the internal customers, specifically other departments in the school/school district? How well does the SNP director listen to or understand their concerns? Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

121 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Questions for Discussion How well is the SNP director solving problems/supporting other entities to help the organization succeed? How well does SNP value not only its own employees but also employees in other departments? For example, how well does the catering department work with custodial staff in a school or school district? Financial Management Course 114 Forecasting the Future Financial aspects Revenue Expenditures Financial Management Course 115 Forecasting the Future Innovation Future trends Financial Management Course 116 National Food Service Management Institute Financial Management Participant Workbook 6-3

122 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Budget Planners Food Service Administrator Manager and Food Service Assistant Student (Customers) Superintendent Business Official School Board Financial Management Course 117 Question for Discussion Who is involved in the budget planning process in your school nutrition program operation? Financial Management Course 118 Methods Used in Budget Planning Baseline budgeting Zero-based budgeting Combination baseline and zero-based budgeting Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

123 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Methods Used in Budget Planning Baseline or incremental budgeting Financial Management Course 120 Advantages of Baseline Budgeting Less time consuming Best method for budgeting basic cost items. Financial Management Course 121 Disadvantages of Baseline Budgeting Existing budget errors may not be corrected Less planning may go into the budget process May not take into account changing program needs Financial Management Course 122 National Food Service Management Institute Financial Management Participant Workbook 6-5

124 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Methods Used in Budget Planning Zero-based budgeting Financial Management Course 123 Advantages of Zero-based Budgeting Better equips management to make decisions Gives a better estimate of revenue projections Creates a model for spending by breaking the habit of budgeting nonessential costs Financial Management Course 124 Disadvantages of Zero-based Budgeting Time consuming Some categories in budget are difficult to calculate from zero Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

125 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Methods Used in Budget Planning Combination baseline and zero-based budgeting Financial Management Course 126 Some items in the budget should be based on need without preconceived estimates based on the previous year. For other items, the budget need only be adjusted to accommodate price changes. Financial Management Course 127 Bonus of a Budget Establish specific future goals Forecast revenue Predict expenditures Compare actual over-projected revenues and expenditures Identify potential problems Calculate what is available at the end of a budget period Financial Management Course 128 National Food Service Management Institute Financial Management Participant Workbook 6-7

126 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Factors to Consider Historical trends Participation rates Federal and state reimbursements Operational and/or program changes Increased or decreased program costs Changes in meal prices Financial Management Course 129 Discuss Historical Trends Look at the number of reimbursable meals sold over the past two to three years. Is there a trend emerging? Apply that same process to the percentage of a la carte sales or extra sales to total sales. Is there and increase/decrease in that percentage? Consider the status of catering services and special functions in your school district. Is there a tendency for those services to increase/decrease or remain the same? Financial Management Course 130 Discuss Participation Rates Look at changes in the economy of the area. Have there been layoffs/plants shut down? Have the demographics changed from young families with children to retirees? Are new school openings on an upward spiral? Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

127 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Discuss Federal and State Reimbursements Speculate what the Federal reimbursement rates will be for the upcoming school year. Will there be an increase or decrease in those figures? If there is a state reimbursement, will it continue and how much will it be? Question whether the commodity delivery charge will increase or remain the same. Financial Management Course 132 Discuss Operational and/or Program Changes Since Federal program regulations frequently are being revised, consider that implementation of the final changes may be at an additional cost to the SNP. Financial Management Course 133 Discuss Increased or Decreased Program Costs Examples of increased costs to the SNP are: Salary raises and a more costly health insurance plan. Flood and storm damage to citrus crops in Florida could substantially increase the price of oranges to the SNP. Other examples Financial Management Course 134 National Food Service Management Institute Financial Management Participant Workbook 6-9

128 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Discuss Changes in Meal Prices Consider the possibility that student/adult participation in SNP will decrease if meal prices are raised. Financial Management Course 135 Budget Building Case Study #2 Financial Management Course 136 Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

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131 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Budget Building Case Study # 2 National Food Service Management Institute Financial Management Participant Workbook 6-11

132 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Oaks School District Exercise: The school food service administrator is preparing the budget for the coming year. Using the information below and the attached revenue and expenditure report (pages 6-14 & 6-15), calculate the financial data needed to prepare the budget. The school district serves meals 180 days per year. Revenue Due to a loss during the past year, the price of a student breakfast will be increased from 0.75 to 0.80, a student lunch from $1.50 to $1.75, and adult lunches from $2.00 to $2.25. Federal reimbursement has been adjusted to the new rates. Meal Prices Breakfast Lunch Full Paid Student.80 Full Paid Student 1.75 Reduced Student.30 Reduced Student.40 Adult.95 Adult 2.25 Federal Reimbursement Rates ( ) Breakfast Lunch Free Student 1.23 Free Student 2.24 Reduced Student.93 Reduced Student 1.84 Paid Student.23 Paid Student.21 Afterschool Care Snack Service The school district is presently operating one afterschool care program; however, they plan to open a second site in the next budget year. Both sites qualify as area eligible to receive free reimbursement for all snacks served. The projected participation for the second site is approximately 70 snacks per day for 180 days. The Federal reimbursement for each snack in the budget year will be Other Revenue Commodity value per meal (based on student lunches served) will increase to.1725 per reimbursable lunch. A la carte prices are expected to remain the same; however, the school food service administrator is planning a 3% increase in prices charged for special functions. Historical data indicates that the number of events remain constant from year to year Financial Management Participant Workbook National Food Service Management Institute

133 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Oaks School District Exercise (continued): The school has negotiated a higher interest rate on bank deposits. The increase will amount to an estimated 1% increase in interest for the school food service fund. According to a State memo, State matching funds will increase by 2%. Expenditures According to the State agency and market reports, the following increases can be expected in expenditures: Purchased Food* (see note) 3% General Supplies 2% Indirect Cost No change Overhead Expenses 1% *This does not include the extra cost of food for additional snacks served at the new site. For the current year, the cost of the snack and reimbursement received was at the breakeven point. This trend is expected to continue into the new budget year, so the school food service administrator anticipates that the cost of food to cover daily snacks will average about 0.61 per snack. To determine the additional cost of purchased food to cover snacks, the school food service administrator will multiply the reimbursement rate for free snacks by the total number of additional snacks forecast for the new site. Salaries The board has given all employees a 4% raise in salaries. (For the purposes of this exercise, benefits are expected to remain constant. In reality, there would be an increase due to benefits on the 4% raise.) Equipment Because of a decrease in the fund balance over the past year, the school food service administrator is reducing the amount for equipment purchases. During the next budget year, the school food service operation will add two new pieces of equipment for an approximate total of $32, National Food Service Management Institute Financial Management Participant Workbook 6-13

134 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both School Food Service Revenue Report (current year) Breakfast Number Price Charged Reimbursement Total Paying Students 57, $43, Reduced Price 24, , Adult Breakfast Paying Student (Fed. R.) 57, , Reduced Student (Fed. R.) 24, , Free Student (Fed. R.) 233, , Total Revenue/Breakfast $366, Lunch Number Price Charged Reimbursement Total Paying Students 391,417 $1.50 $587, Reduced Price 70, , Adult Lunch 36, , Paying Student (Fed. R.) 391, , Reduced Student (Fed. R) 70, , Free Student (Fed. R.) 430, , Afterschool Snacks (Free Site) 51, , Total Revenue Lunch/Snacks $1,870, Other Revenue Revenue Item Revenue A la carte $50, Special Functions 20, Interest State Matching 17, Total Other 91, Total Revenue $2,327, Commodity Value (.1575 per student lunch)(892,576) 140, Total All Revenue $2,468, Note - Check with your State agency for the best method to project revenue from State funds. If State funds are issued on reimbursable meals served, add sections under meal and breakfast categories for State revenue Financial Management Participant Workbook National Food Service Management Institute

135 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Budget Building Case Study #2 School Food Service - Expenditure Report Expenditure Category SY Current Year Salaries and Wages $699, Benefits 297, Food Purchased 909, Commodity Value 140, Supplies/Miscellaneous 363, Equipment, Capital 48, Indirect Cost 60, Overhead 90, Total Expenditures $2,610, National Food Service Management Institute Financial Management Participant Workbook 6-15

136 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Calculate blank cells using Oaks SD data. School Food Service Revenue Budget Worksheet Breakfast Number Price Reimbursement Total Paying Students 57,550 Reduced Price 24, , Adult Breakfast Paying Student (Fed. R.) 57,550 Reduced Student (Fed. R.) 24, , Free Student (Fed. R.) 233,400 Total Revenue/Breakfast 377,684.50* Lunch Number Price Reimbursement Total Paying Students 391,500 Reduced Price 70, , Adult Lunch 36,300 Paying Student (Fed. R.) 391, , Reduced Student (Fed. R) 70, , Free Student (Fed. R.) 430,900 Afterschool Snacks (Free sites) Total Revenue/Lunch & Snacks Revenue Item 63,885 Other Revenue Revenue from Previous Year A la carte $50, Special Functions 20, % plus % increase 2,010,672.85* Revenue 0% 50, Interest State Matching 17, Total Other 101% 1, ,051.56* Total Revenue (Total of all *cells) Commodity Value (.1575 per student lunch) (.1725)(892,700) $2,634, Total All Revenue Note - Check with your State agency for the best method to project revenue from State funds. If State funds are issued on reimbursable meals served, add sections under meal & breakfast categories for State revenue Financial Management Participant Workbook National Food Service Management Institute

137 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Budget Building Case Study #2 Expenditure Category School Food Service Expenditure Budget Worksheet Current Year (rounded) % Increase Projected Cost /Budget Salaries $699, % 727, Benefits 297, Purchased Food + **Extra Snacks Commodity Value 909, , (Based on lunches served/ should match revenue) Supplies/Miscellaneous 363, Equipment, Capital Indirect Cost Overhead 48, (Budget based on need) 60, % 60, , Total Expenditures $2,678, Hint To calculate projected cost in budget, multiply expenditure x percent increase + 100, then enter using the percent key. Example Enter 909,400 x 103, then hit % key. The new budget figure for purchased food is $936,682 **Hint To calculate cost of food purchased for extra snacks counts over last year due to the addition of a new school, multiply the 70 snacks x 180 days x reimbursement. National Food Service Management Institute Financial Management Participant Workbook 6-17

138 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Budget Building Case Study #2 Analyzing the Budget A budget is a tool for financial management. It helps the school food service administrator decide when a price increase is needed and when expenditures must be decreased. Analyze the budget you have just completed for Oaks School District by answering the following questions. 1. What is the bottom line net (excess or deficit)? 2. Calculate the budgeted amount of each expenditure to total budgeted revenue in the following areas. Salaries and Wages Employee Benefits Purchased Food Commodity Value Supplies Capital Equipment Indirect Cost Overhead Category Budgeted Amount % of Revenue Total Expenditures 3. Based on the budget analysis, will there be an improvement in the financial status of the school food service program in Oaks School District in the next school year? If so, what has contributed to the improvement? 6-18 Financial Management Participant Workbook National Food Service Management Institute

139 Chapter Six-Monitoring Operational Revenue and Expenditures; studing trends that will impact both Budget Building Case Study #2 Analyzing the Budget (continued) 4. How many student and adult meal equivalents are projected for Oaks School District in the new budget? 5. What is the projection for meal cost per meal equivalent? Revenue per meal equivalent? 6. Calculate the cost of adult meals based on budget projections. Will revenue from adult meals cover the cost? 7. Are there any changes you would recommend? Why? National Food Service Management Institute Financial Management Participant Workbook 6-19

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145 Chapter Seven-Tools to Analyze Financial Status Chapter Seven: Tools to Analyze the Financial Status Objective Identify appropriate tools to analyze the school nutrition program s financial status. Financial Management Course 138 Chapter Seven: Discussion Topics Microsoft Excel Spreadsheets Pie charts NFSMI educational CD-ROM Tools to analyze the financial status of SNPs NFSMI FUNDamentals Financial Management Course 139 Analysis of Financial Data Financial management software Microsoft Excel NFSMI FUNDamentals Financial Management for FSDs Financial Management Course 140 National Food Service Management Institute Financial Management Participant Workbook 7-1

146 Chapter Seven-Tools to Analyze Financial Status Analysis of Financial Data Microsoft Excel X Financial Management Course 141 Analysis of Financial Data NFSMI FUNDamentals Financial Understanding for Necessary Decision making Financial Management Course 142 Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

147 Chapter Seven-Tools to Analyze Financial Status Question for Discussion NFSMI FUNDamentals Budget Pie Chart- Expenditures Sample Elementary What categories are included in the other category in this pie chart? Answers: Miscellaneous (.25%) Purchased Technical Services (.41%) Financial Management Course 144 Question for Discussion NFSMI FUNDamentals Budget Pie Chart- Expenditures Sample Elementary If the user sets the cutoff value at 5%, what category will disappear from the pie chart and be included in the other category? Answer: Property Operation, Maintenance, Energy (4.16%) Financial Management Course 145 Question for Discussion NFSMI FUNDamentals Budget Pie Chart- Expenditures Sample Elementary What percent of the total will the other component represent if the cutoff value is set at 5%? Answer: 4.82% ( ) Financial Management Course 146 National Food Service Management Institute Financial Management Participant Workbook 7-3

148 Chapter Seven-Tools to Analyze Financial Status Financial Management Course 147 Question for Discussion NFSMI FUNDamentals Budget Pie Chart-Revenues Sample Elementary What category did the school district anticipate would provide the greatest percent of revenue for Sample Elementary? Answer: Federal Financial Management Course 148 Question for Discussion NFSMI FUNDamentals Budget Pie Chart-Revenues Sample Elementary What categories are included in the other slice of the pie chart for Sample Elementary? Answers: Fund Transfer-In Miscellaneous Other Interest State Source Revenue Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

149 Chapter Seven-Tools to Analyze Financial Status Question for Discussion NFSMI FUNDamentals Budget Pie Chart-Revenues Sample Elementary If the cutoff value is set at 5%, what category will disappear from the pie chart and be included in the other category? Answer: Other Food Sales (3.54%) Financial Management Course 150 Financial Management Course 151 Question for Discussion NFSMI FUNDamentals Budget Pie Chart-Meals Served-Student Lunch In which category is the largest number of students served? Answer: Paid Financial Management Course 152 National Food Service Management Institute Financial Management Participant Workbook 7-5

150 Chapter Seven-Tools to Analyze Financial Status Question for Discussion NFSMI FUNDamentals Budget Pie Chart-Meals Served-Student Lunch If the cutoff value was set at 5%, what category would disappear from the pie chart and be included in the other category? Answer: Adult (4.20%) Financial Management Course 153 Financial Management Course 153 Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

151 Chapter Seven-Tools to Analyze Financial Status Questions for Discussion NFSMI FUNDamentals Consolidated NSLP and NSBP Cost Allocation and Analysis Report What is the total YTD average cost per meal for this district? Answer: $ How much revenue has been generated YTD on a per meal basis? Answer: $ Financial Management Course 156 Financial Management Course 156 Analysis of Financial Data Financial Management for Food Service Directors A Year in the Life of a Food Service Director Financial Management Course 158 National Food Service Management Institute Financial Management Participant Workbook 7-7

152 Chapter Seven-Tools to Analyze Financial Status Financial Management Course 158 Financial Management Course 159 Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

153 Chapter Seven-Tools to Analyze Financial Status Financial Management Course 161 Financial Management Course 162 Financial Management Course 163 National Food Service Management Institute Financial Management Participant Workbook 7-9

154 Chapter Seven-Tools to Analyze Financial Status Financial Management Course 164 Financial Management Course 165 Financial Management Course Financial Management Participant Workbook National Food Service Management Institute

155 Chapter Seven-Tools to Analyze the Financial Staus

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157 Chapter Seven-Tools to Analyze Financial Status Creating a Pie Chart With Microsoft Excel Pie Chart Data Pie Charts display the contribution of each value to the whole. To create a pie chart, one must first set up a spreadsheet with a single series of labeled data (instructions will be provided). It will be necessary to use two columns on the spreadsheet. Designate the first column for labels of data entries and the second column for data. See example below: EXAMPLE: Column A (labels) Column B (Data) A 1 B 2 C 3 Assume you have the following meal counts for a given period of time and want to create a pie chart that displays the contribution of each meal count category to the total meal count. By following the instructions provided below, you will be able to create such a pie chart using Microsoft Excel Wizard. Meal Count Lunch Participation A (labels) B (Data) Adult 458 Paid 5142 Free 3722 Reduced 1432 Inkind 162 Hint - The arrangement of pie slices in the chart will depend on the sequence of data entry. For example, if one wanted the reduced meal count to appear next to the paid meal count in the pie chart, the data for the reduced meal count would have to be entered after the paid meal count. INSTRUCTIONS 1. Open Microsoft Excel 2. Enter meal count labels in column A and meal count data in column B. 3. Highlight all entries in columns A and B. 4. Click on the Chart Wizard icon at the top of the screen or go to Insert, then click on Chart to bring up Step 1 of 4 (Chart Type). Select pie under the Standard tab. National Food Service Management Institute Financial Management Participant Workbook 7-11

158 Chapter Seven-Tools to Analyze Financial Status Creating a Pie Chart With Microsoft Excel (continued) 5. Select desired view (i.e., flat, 3-D, etc.) under Chart Sub Type. 6. Select next in the chart wizard. This brings up Step 2 of 4 (Chart Source Data). There are two tabs, Data Range and Series. The Series tab does not apply in this application. Under the Data Range tab, there are 2 options: Data Range: Skip (accept the default information) Series In: Select Columns 7. Select next in the chart wizard. This brings up Step 3 of 4 (Chart Options). There are three tabs under Chart Options: Title, Legend, and Data Labels. Select the following under each tab: Title tab: Type in chart name (i.e., Lunch Participation). Move to next tab. Legend tab: Select the area of the page you want the legend to appear (i.e., left side, right side, above chart or under the chart). Move to next tab. Data Labels tab: Select the labels you want to appear on the pie slices (i.e., value, name, percentages, etc.) Hint *Try value and percentage. 8. Select next in the chart wizard to bring up Step 4 of 4 (Chart Location). Choose your preferred location for the chart. If you desire only the pie chart, select as new sheet. If you prefer to have the chart on the spreadsheet data page, select as object in. 9. Click Finish. Final Chart will appear. 10. You can modify data label alignments by clicking on each individual set of numbers. For instance, percentages can be moved so they appear below the values by placing the cursor after the comma between the sets of numbers and hitting return Financial Management Participant Workbook National Food Service Management Institute

159 Chapter Seven-Tools to Analyze Financial Status NFSMI FUNDamentals Budget Pie Chart Expenses Sample Elementary National Food Service Management Institute Financial Management Participant Workbook 7-13

160 Chapter Seven-Tools to Analyze Financial Status NFSMI FUNDamentals Budget Pie Chart Revenues Sample Elementary 7-14 Financial Management Participant Workbook National Food Service Management Institute

161 Chapter Seven-Tools to Analyze Financial Status NFSMI FUNDamentals Budget Pie Chart Meals Served-Student Lunch National Food Service Management Institute Financial Management Participant Workbook 7-15

162 Chapter Seven-Tools to Analyze Financial Status 7-16 Financial Management Participant Workbook National Food Service Management Institute

163 Chapter Seven-Tools to Analyze Financial Status National Food Service Management Institute Financial Management Participant Workbook 7-17