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ControllingFoodservice Costs

Calculating Food Cost

Chapter 3

Learning ObjectivesAfter completing this chapter, you should be able to:

• 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 costcontrol and product consistency.

Learning Objectives continued:After completing this chapter, you should be able to:

• 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.

Chapter 3 Calculating Food Cost

WHAT IS FOOD COST?


CALCULATING BASIC FOOD COSTInventory


Purchases


Cost of Sales Formula

Calculating Actual Cost of Sales


Purchases and CreditsCredits to Cost of Sales


TransfersFood-to-Bar Transfers

Cost Transfers from Other Units


Why Managers Care about Cost of Sales


CALCULATING FOOD COST PERCENTAGEHow Costs and Sales Affect Food Cost Percentage


Manager’s MathAnswer the Questions:

1.30.3%

2.33.7%


STANDARDIZED RECIPESDeveloping Standardized Recipes

Advantages of Using Standardized Recipes

Product Specifications


STANDARDIZED RECIPE FILES


COSTING STANDARDIZED RECIPES


Portion SizeWeight

Volume

Count


Determining Standard Portion CostAs Purchased (AP) Cost

Edible Portion (EP) Cost

Converting AP Quantities into EP Quantities


Updating Recipe Cost CardsHandling Customer Substitutions and Additions


Recipe Cost Card Software


CALCULATING PLATE COSTS


CALCULATING BUFFET AND SALAD BAR COSTSPrice-per-Person Model

Chapter 3 Calculating Food Cost - Summary

1. Define food costs and explain how managers track and analyze food costs.

• Food cost is the actual dollar value of the food used by an operation during a certain period.

• It includes the expenses incurred when food is consumed for any reason.

• Food cost includes the cost of food sold, given away, wasted, or even stolen.

• Controlling food cost requires analyzing an operation’s income statement to highlight any spending issues and compare current results with previous periods and the budget.

• Food cost is normally considered to be in good shape if the current percentage-to-sales ratio is consistent or in line with past periods.


2. Explain how to calculate the cost of sales and how to calculate the actual cost of sales.• The formula for calculating cost of sales starts with adding the

opening inventory plus purchases, which is all of the food and beverages purchased during that period.

• The total of these two numbers equals the total food available, or the dollar amount of all food available for sale.

• The closing inventory is then subtracted from the total food available.

• This results in the cost of sales.

• Most operations inventory and figure food cost monthly, but some quick-service operations conduct inventory on a weekly basis.

• In addition to purchases, there are several other factors that should be considered in calculating the actual cost of goods sold.

• These factors include credits such as employee meals, comps, and grease sales.

• Transfers to and from other units also impact the cost of sales.


3. Describe how to calculate the food cost percentage.

• Food cost percentage is the relationship between sales and the cost of sales.

• To calculate the food cost percentage, managers divide the food cost by the sales revenue.

• Food cost percentage is often the standard against which food cost is judged.

• Food cost percentage is generally analyzed by comparing it to company standards, historical cost percentage, or even industry standards.


4. Explain the importance of standardized recipes to cost control and product consistency.

• The standardized recipe is one of the key tools used in the control process.

• A standardized recipe is a written format used for consistently preparing and serving a given menu item.

• It includes a complete list of ingredients, their quantities, and the procedures to be followed each time that recipe is produced.

• Since a standardized recipe is so important, it must be clearly written and very detailed so that different cooks using the recipe will produce an identical product time after time.


5. Contrast the three types of standardized recipe files.

• The standardized form includes all ingredients at the top, with numbered procedural steps listed below.

• This form requires the user to shift attention between two spots on the recipe.

• The narrative form presents procedures and ingredients as needed in the recipe.

• Finally, the block form lists ingredients on the left side of the recipe, and the procedures associated with each ingredient are written directly across from them on the right side.

• The block form is often the preferred form because many chefs find it easier to read.


6. Describe why and how managers create recipe cost cards.• Managers create recipe cost cards to understand the costs for each

menu item.

• They create a recipe cost card by listing each ingredient and its associated cost for a given recipe, then dividing by the total number of portions to determine the per portion cost.

• Managers must understand as purchased (AP) and edible portion (EP) units, sometimes translating between the two, when arriving at recipe costs.


7. Outline the process for calculating plate cost.

• Plate cost is the total cost included in a single meal (or “plate”) served to a guest.

• A menu item worksheet calculates each menu item’s ideal food cost based on ingredients, portions, and current cost.

• Managers can use individual plate costs to come up with forecasts of overall cost of sales.


8. Explain how managers calculate food costs for buffets.

• Buffet and salad bar service creates a challenge for managers because the customers can eat as much of any food on the buffet as they want.

• The most common method for determining food cost for this style of service is the price-per-person method, with operations charging one price for all that a single person can eat.

• To calculate the price-per-person, the total cost of food served during a period is divided by the number of customers served during that period.

• The result is the average food cost per customer.


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.


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.



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.



Yield test A test used to measure the amount of shrinkage that occurs during trimming and cutting products that are not cooked, such asproduce.


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