Calculating Food Cost
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Transcript of Calculating Food Cost
OH 2-1
Calculating Food Cost
3OH 2-1
OH 2-2
Chapter Learning Objectives
Define food costs and explain how managers track and analyze food costs.
Explain how to calculate the cost of sales, and how to calculate the actual cost of sales.
Describe how to calculate the food cost percentage.
Explain the importance of standardized recipes to cost control and product consistency.
Contrast the three types of standardized recipe files.
Describe why and how managers create recipe cost cards.
Outline the process for calculating plate cost.
Explain how managers calculate food costs for buffets.
OH 2-3
Food Cost
The actual dollar value of the food used in a foodservice operation
Often referred to as “cost of food sold”
OH 2-4
Food Cost continued
Includes the cost of food sold to customers
Also includes the value of food that is given away, wasted, or even stolen
OH 2-5
Theft Increases Food Cost
Employee theft can be difficult to prevent, but its control is vitally important to ensuring profitability.
OH 2-6
Adjustments to Food Cost
Because the actual costs of food used in an operation includes costs not related to the sales generated many establishments adjust their food cost
When these adjustments are made the costs still exist so they must be charged to some other expense category
Common categories would be:
Labor cost (employee meals)
Promotions or Marketing (comp meals)
OH 2-7
Reductions from Cost of Food
Employee meals The actual cost of the food served to
employees is subtracted from cost of food.
Complimentary (“Comp”) meals The actual cost of the food that is given away
(not its selling price) is subtracted from cost of food.
OH 2-8
Reductions from Cost of Food continued
Grease sales Payments from sales of used oil or grease, bones,
and fat scraps are subtracted from food cost.
Transfers to other units If an operation has more than one unit, transfers TO
another unit are subtracted from food cost.
Transfers INTO a unit are added to its food cost.
OH 2-9
Bar Transfers
Food to Bar Transfers The value of items transferred to the bar for making
drinks is subtracted from food cost.
Typical products transferred to the bar include nonalcoholic beverages, fruits, vegetables, spices, juices, and dairy products.
OH 2-10
Bar Transfers continued
In a busy bar, the amount of food that is transferred from the kitchen to the bar can be significant.
OH 2-11
The Food Cost Formula
Opening inventory
+ Purchases
Total food available
– Closing inventory
Cost of food sold
OH 2-12
The Food Cost Formula in Use
Opening inventory $5,000
+ Purchases + $30,000
Total food available $35,000
– Closing inventory – $4,000
Cost of food sold $31,000
OH 2-13
Physical Inventory
To accurately calculate cost of food sold, managers must take a physical inventory.
OH 2-14
Food Cost Formula Definitions
Opening inventory Dollar value of the physical inventory at the beginning of an
accounting period
Purchases Dollar value of all food purchased (less any appropriate
subtractions) during the accounting period
Closing inventory Dollar value of the physical inventory counted at end of the
accounting period
OH 2-15
Applying Adjustments to Food Cost
If cost of food sold = $31,000, and: $155 in sales was recorded as employee meals (at
30% food cost)
$125 in sales was comped for an upset guest (at 30% food cost)
$300 was transferred to the bar
Calculate the new adjusted cost of food sold
In which accounts would you reflect these costs?
OH 2-16
The Food Cost Percentage Formula
Food cost ÷ Sales = Food cost percentage
OH 2-17
The Food Cost Percentage Formula in Use
Food cost ÷ Sales = Food cost percentage
$7,000 ÷ $25,000 = 0.28 or 28.0%
OH 2-18
Two Ways to Make a Decimal Conversion
Method One
Move the decimal two places to the right.
.35 = 35%
Method Two
Multiply by 100.
0.35 x 100 = 35%
OH 2-19
Food Cost Percentage
Allows managers in one restaurant to compare their food usage efficiency to that of previous time periods
Can be used to compare the food usage efficiency of one restaurant to another
Allows comparison to the restaurant’s budgeted food cost percentage or other standard
OH 2-20
Industry Standards Restaurants typically run in the low to mid 30%
Italian - ~ 28% Multi Unit - ~ 32% American/Regional - ~35% Steak - ~ 40%
Fine Dining Labor Food Cost
Vs.
Fast Food Food Cost Labor
OH 2-21
Food Cost Percentage continued
Is the proportion of the restaurant’s sales that is used to pay for food
Means “out of each dollar” A 35% food cost percentage means that “out of
each dollar” of sales, the restaurant pays $0.35 for food.
Must be controlled by management
OH 2-22
Costs and Sales Affect Food Cost Percentage
Food cost is a variable cost, so it should increase when sales increase and decrease when sales decrease.
If controls and standards are in place, food cost will go up and down in direct proportion to sales.
If controls and standards are not in place, it will not!
OH 2-23
How Costs and Sales Affect Food Cost Percentage
A food cost percentage is computed using both a food cost (the numerator) and sales (the denominator).
An equal percentage increase (or decrease) in each of these will result in an unchanged food cost percentage.
OH 2-24
Ten Percent Increase in Sales andCost of Food
Original cost of food $1,000
Original sales $3,000
Food cost percentage 33%
With 10% increase in sales and food cost
New cost of food $1,100
New sales $3,300
Food cost percentage 33%
Realigned numbers
Realigned numbers
OH 2-25
Ten Percent Decrease in Sales and Cost of Food
Original cost of food $1,000
Original sales $3,000
Food cost percentage 33%
With a 10% decrease in sales and food cost
New cost of food $ 900
New sales $2,700
Food cost percentage 33%
Realigned numbers
Realigned numbers
OH 2-26
The ABCs of Food Cost Percentage (A/B = C)
Where: A = Food Cost
B = Sales
C = Food Cost Percentage
1. If A stays the same, and B increases, C decreases.
2. If A stays the same and B decreases, C increases.
OH 2-27
ABCs of Food Cost Percentage (A/B = C) continued
3. If A decreases, and B stays the same, C decreases.
4. If A increases, and B stays the same, C increases.
5. If A increases at the same proportional rate that B increases, C stays the same.
OH 2-28
Food Cost Percentage
Should be controlled
Should not be allowed to fall far below the restaurant’s standard
OH 2-29
Food Cost Percentage continued
If food cost percentages are allowed to drop too far below the restaurant’s standards, the guests’ perceptions of value may be negatively affected.
OH 2-30
Finding Cost , Sales, or Percentage
X
OH 2-31
Examples
1. Your Cost for a catered event is $610 and the Sales were $2,000…………what is your Food Cost Percentage?
2. Sales for the day at the deli counter was $4,100 and your Food Cost % is 21%.......what was your Food Cost?
3. Cost for the rib eye for the event is $1,115 and you run a 35% Food Cost……what should your selling price (sales) be?
OH 2-32
One more example:
If food and beverage sales are $35,000 and 60% of that is food. You run at 30% food cost and a 10% beverage cost, find:
Food Cost _________
Beverage Cost __________
OH 2-33
Another way to figure Food Cost Percentage
If we know the cost of our menu item and we know the selling price we can also determine the food cost percentage using the following formula:
Item cost ÷ Selling price
Example: Our Chicken Cordon Bleu costs us $2.50 to make and we sell it for $11.75, what is our food cost percentage for that item?
$2.50 ÷ $11.75 = 21.28% food cost percentage
OH 2-34
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
OH 2-35
Benefits of Standardized Recipes
Consistency in Food Quality
Customer satisfaction
Predictable Yields
Preparation method consistent
Standard portion sizes (weight, volume or count)
Service method consistency
Food Cost Control
OH 2-36
What Difference Does It Make???
Mexi Beef Casserole Mexi Beef Casserole Difference in Cost
Cost/serving with 35l b Cost/serving with 40 lb Per Serving
$0.76 $0.85 +$0.09
Not a big deal right?
Annual impact for 3 times per week$0.09 per serving x 200 servings x 156 = $2,808
Mexi Beef Casserole: 35lb ground beef for 200 people 25 - 5 x 5 portions per ½ steam table pan.
OH 2-37
What Difference Does It Make???
What if the pan was cut 4 x 5?
Servings per pan Cost per serving
20 servings $0.95
25 servings $0.76
Difference $0.19
Annual impact for 3 times per week$0.19 per serving x 200 servings x 156 = $5,928
OH 2-38
Benefits of Standardized Recipes Accurate Purchasing
Quantities defined and controlled
Helps ensure compliance with “Truth In Menu” laws
Consistent nutrient content
Identification of food alergens
Assists in training new employees
OH 2-39
What Difference Does It Make???
Nutrient Facts 25 servings per pan 20 servings per pan
Serving size 6.5 oz 8.1 oz
Calories 255 318
Protein 12.7 g 15.9 g
Carbohydrate 22.5 g 28.2 g
Total Fat 12.5 g 15.6 g
Saturated Fat 5.0 g 6.2 g
Cholesterol 44.0 g 55.0 g
U. S. Department of Agriculture, Food and Nutrition Service, with the National Food Service Management Institute. (2002). Measuringsuccess with standardized recipes. University, MS: National Food Service Management Institute.
OH 2-40
Developing Standardized Recipes
OH 2-41
Recipe Standardization Process
Recipe verification
Prepare recipe, verify yields
Product evaluation
Recipe modification & quantity adjustments
Adjusting yields and/or ingredient amounts
Cost recipe based on final standardized recipe
OH 2-42
Standardized Recipes Identify
Recipe Title
Ingredient details (quality)
Volume (number) of portions (Recipe Yield)
Ingredient weights and measures
Necessary equipment and tools
Procedures
OH 2-43
Standardized Recipes also Include
Preparation time
Cooking method(s)
Cooking/baking time and temperature
Portioning, plating and garnishing
Storage and preparation information
OH 2-44
Sample Standardized Recipe
OH 2-45
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
OH 2-46
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
OH 2-47
Recipe Ingredient Costing Alternatives
As Purchased (AP) method
Price of an item before any trim or waste are considered
Example—unpeeled, whole potatoes
Edible Portion (EP) method
Price of an item after all trim and waste has been taken into account
Example—peeled, cubed potatoes
OH 2-48
AP and EP
As Purchased (AP) refers to products as the restaurant receives them.
Edible Portion (EP) refers to products as the guests receive them.
OH 2-49
Comparison of AP and EP Weights
OH 2-50
Managers Must
1. Determine if recipe ingredients are listed in AP or EP formats.
2. Apply the correct costing method to the ingredients.
3. Use the information to price menu items.
4. Periodically re-cost recipe ingredients.
OH 2-51
EP Amounts
Because many food items shrink when they are cooked, managers must know exactly how much cooking loss to expect.
OH 2-52
Ways to Estimate Yields
Butcher’s tests
To measure loss from deboning, trimming, and portioning meats, fish, and poultry
Cooking loss tests
To measure loss from the actual cooking process
Conversion charts
Tell the expected or average loss of an item from (AP) to (EP)
OH 2-53
Yield and Loss %
AP Amount – Loss = Yield
Yield = % Yield AP total
Loss = % Loss AP total
25lb – 18lb = 7lb
18lb = 72% Yield 25lb
7lb = 28% Loss 25lb
OH 2-54
Butcher Test
Also known as “yield test”
Used to determine EP meat costs
Results vary, based upon the AP quality of meat purchased
Measures losses from
Fat removal
Bone removal
Trim and packaging removal
Portioning
OH 2-55
Butcher’s Yield Tests Determine actual costs associated with buying
larger cuts of meat and fabricating
Some will just calculate the cost based on the final end products and use that for pricing others factor value for each utilization
Utilization of byproducts (100% or less?)
Weigh each component
Determine market value for components used
OH 2-56
Butcher’s Yield Tests Total trim weight and value
Subtract trim weight from AP weight to determine yield of item (fabricated EP weight)
Subtract trim value from AP Cost to determine net price (fabricated EP cost)
Divide net price by yield of item to get Cost Per Pound EP
Also consider labor & cooking loss
OH 2-57
Work this Butcher’s Yield Problem A 19.50lb short loin breaks down as follows:
Fat - 2 lb @ $0.00/lb
Bone- 6lb @ $0.85/lb
Trim- 12oz @$2.15/lb
Other- 2oz @$0.00/lb The original AP price was $4.25/lb, then it goes up to $4.46/lb
this week Solve for the EP cost per pound based on the original and the
current price If cut into 8oz steaks how much would each cost?
OH 2-58
Butcher’s Yield Tests
Consider another example
Review the Butchers Yield Card under Learning Materials
Cost Factor When price of original product changes use
cost factor to determine new costs instead of repeating butcher yield test each time
EP cost per pound ÷ AP cost per pound Multiply new cost by cost factor to get new
EP cost/lb.
OH 2-59
Creating Recipe Cost Cards
Step 1 – Copy the ingredients from the standardized recipe card to the cost card.
Step 2 – List the amount of each ingredient used.
Step 3 – Indicate the cost of each ingredient as listed on the invoice.
OH 2-60
Creating Recipe Cost Cards continued
Step 4 – Convert the cost of the invoice unit to the cost of the recipe unit.
Example
Milk purchased by the gallon for $2.80
Yields eight recipe-ready (EP) pints at $0.35 each.($2.80 ÷ 8 pints = $0.35 per pint) or
sixteen recipe-ready (EP) cups at $0.175 each ($2.80 ÷ 16 cups = $0.175 per cup)
OH 2-61
Creating Recipe Cost Cards continued
Step 5 – Multiply the recipe unit cost by the amount required in the recipe.
Example
Recipe amount required—3 pints
Cost per pint—$0.35
Ingredient cost—$1.05(3 pints x $0.35 per pint = $1.05)
OH 2-62
Creating Recipe Cost Cards continued
Step 6 – Add the cost of all ingredients.
OH 2-63
Creating Recipe Cost Cards continued
Step 7 – Divide the total recipe cost by the number of portions produced.
Example
Total recipe cost—$145.50
Total recipe yield—50 portions
Cost per portion—$2.91($145.50 ÷ 50 portions = $2.91 per portion)
OH 2-64
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
OH 2-65
Spice Factor Can be used instead of costing out every spice,
herb and seasoning
A way to account for “to taste” spices in a recipe
Spreads the cost of spices, herbs and seasonings over all menu items so those that require a larger quantity do not bear the entire cost of the spices
Can also include garnishes or “lost” items as a result of chef error
OH 2-66
Spice Factor, continued Determining a spice factor
Consider which items to include
Calculate the value of all selected items over a period of time
After the value is calculated determine the spice factor as follows:
Spice factor = Value of spice factor items (over time) Value of total food purchases (over same time)
Adjust recipe’s cost by increasing the total cost by the spice factor percent - mulitplying by spice factor
Recipe Cost x (1 + Spice Factor)
OH 2-67
Spice Factor, continued
Example: If the spice factor items cost $2,000 for a six month
period and the total food purchases over the same period of time are $60,000, what is the spice factor?
$2,000/$60,000 = .0333 or 3.33%
If the total recipe cost for Chicken Parmesan which serves 12 people is $53.75, what is the spice-factor adjusted recipe cost?
$53.75 x (1 + .0333) = $55.54
OH 2-68
Q Factor A method to account for side dishes, add-ons or
other freebies that come with entrée dishes.
Only factor for the entrées offered by the business
Determine cost of each of the side or add-on possibilities
Identify the most expensive options that could be selected
Add this cost to every entrée
OH 2-69
Q Factor, continued
Example:A business offers entrées that include a choice of soup
or salad, choice of vegetable or starch, bread and butter. What is the Q factor if the costs are: Tomato soup $0.85 French onion soup $0.65 House salad $0.92 Caesar salad $1.35 Broccoli side $0.43 Carrot side $0.16 Green bean side $0.25 Smashed potato $0.53 Angel hair pasta $0.35 Bread $0.11 Butter $0.08
OH 2-70
Q Factor, continued
Q Factor of $2.07 should be added to all entrées for this business that offer the same add-ons
If a business uses both Spice Factor and Q Factor, the spice factor should only be added once for each entrée. Add the Q factor and then add the spice factor
So, for our Chicken Parmesan what is the cost per portion using both the Spice factor and the Q factor?
OH 2-71
Spice Factor & Q Factor
Chicken Parmesan serving 12 people cost of recipe = $53.75
Spice Factor = 3.33%
Q Factor = $2.07
$53.75 x 1.0333 = $55.54 recipe cost with spice factorCost per portion: $55.54/12 = $4.63Add Q factor: $4.63 + $2.07 = $6.70 cost of entree
OH 2-72
How Would You Answer the Following Questions?
1. The cost of employee meals should be (subtracted/added) to the cost of food before computing a food cost percentage.
2. A restaurant’s food cost percentage should increase when sales increase and decrease when sales decrease. (True/False)
3. Which best describes food cost as an expense?A. It is fixedB. It is semivariableC. It is variableD. It is noncontrollable
4. A manager’s job is to reduce the food cost percentage as much a possible. (True/False)
OH 2-73
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
Key Terms:As purchased (AP) method A method used to cost an ingredient at the purchase price prior to any trim or waste being taken into account.Butcher’s yield test A method used to measure the amount of shrinkage that occurs during the trimming of a meat product.Closing inventory The value of how much food product exists at the end of a given period.Cooking loss test A way to measure the amount of product shrinkage during the cooking or roasting process.Credits to cost of sales A category of credits including such items as employee meals, complimentary meals served to guests, or grease sales sold to rendering companies.Edible portion (EP) cost A method used to cost an ingredient after it has been trimmed and waste has been removed so that only the usable portion of the item is reflected.
OH 2-74
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
Key Terms continued:
Ideal food cost The target cost an operation is aiming for.Opening inventory The value of how much food product exists at the start of a given period.Plate cost The total sum of product costs included in a single meal, or plate, served to a guest.
Price-per-person model Pricing determined by calculating the food cost for all the items included on a buffet and the backup inventory used toreplenish the buffet during the service period.
Portion size The size of an item’s individual serving, such as “six ounces of fish fillet.”
Product specifications Descriptions of the quality requirements of the products that are purchased.
Productivity The quality and quantity of output compared to the amount of input, such as labor hours, needed to generate it.
OH 2-75
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
Key Terms continued:
Purchases The value of how much an operation spent on food products in a given period.Recipe cost card A tool used to calculate the standard portion cost for a menu item, or the exact amount that one serving or portion of a food item should cost when prepared according to the item’s standardized recipe.Sales mix The percentage of sales volume each menu item contributes to total sales.
Standardized recipe form A set of directions for preparing a food or beverage item, along with a list of ingredients.
Standardized recipe A formalized, consistent guide to preparing menu items, which lists the ingredients and quantities needed for a menu item, the methods used to produce it, and its appropriate portion size.
Standard portion cost The exact amount that one serving or portion of a food item should cost when prepared according to the item’s standardized recipe.
OH 2-76
Chapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food CostChapter 3 Calculating Food Cost
Key Terms continued:
Yield test A test used to measure the amount of shrinkage that occurs during trimming and cutting products that are not cooked, such asproduce.