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


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


With a 10% decrease in sales and food cost

New cost of food $ 900

New sales $2,700


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 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


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


OH 2-46


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


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


Step 6 – Add the cost of all ingredients.

OH 2-63


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


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


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


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



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



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

calculating food cost

Documents