Calculating Food Cost 3 OH 2-1
Food Cost • The actual dollar value of the food used in a foodservice operation • Often referred to as “cost of food sold”
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
Employee theft can be difficult to prevent, but its control is vitally important to ensuring profitability. Theft Increases 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) Adjustments to Food Cost
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. Reductions from Cost of Food
Grease sales Payments from sales ofused 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. Reductions from Cost of Food continued
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.
Bar Transfers continued • In a busy bar, the amount of food that is transferred from the kitchen to the bar can be significant.
Physical Inventory To accurately calculate cost of food sold, managers must take a physical inventory.
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
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?
Method One Move the decimal two places to the right. .35 = 35% Method Two Multiply by 100. 0.35 x 100 = 35% Two Ways to Make a Decimal Conversion
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
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
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
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!
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.
Realigned numbers 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 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%
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.
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.
Food Cost Percentage • Should be controlled • Should not be allowed to fall far below the restaurant’s standard
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.
Examples • Your Cost for a catered event is $610 and the Sales were $2,000…………what is your Food Cost Percentage? • Sales for the day at the deli counter was $4,100 and your Food Cost % is 21%.......what was your Food Cost? • 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?
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 __________
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
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
What Difference Does It Make??? Mexi Beef Casserole: 35lb ground beef for 200 people 25 - 5 x 5 portions per ½ steam table pan. Not a big deal right? Annual impact for 3 times per week $0.09 per serving x 200 servings x 156 = $2,808
What Difference Does It Make??? What if the pan was cut 4 x 5? Annual impact for 3 times per week $0.19 per serving x 200 servings x 156 = $5,928
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
What Difference Does It Make??? U. S. Department of Agriculture, Food and Nutrition Service, with the National Food Service Management Institute. (2002). Measuring success with standardized recipes. University, MS: National Food Service Management Institute.
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
Standardized Recipes Identify • Recipe Title • Ingredient details (quality) • Volume (number) of portions (Recipe Yield) • Ingredient weights and measures • Necessary equipment and tools • Procedures
Standardized Recipes also Include • Preparation time • Cooking method(s) • Cooking/baking time and temperature • Portioning, plating and garnishing • Storage and preparation information
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
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.
Determine if recipe ingredients are listed in AP or EP formats. Apply the correct costing method to the ingredients. Use the information to price menu items. Periodically re-cost recipe ingredients. Managers Must