Transcript Title of Chapter - Home Economics Careers and Technology

FOOD COST
Controlling
Foodservice
Costs
OBJECTIVES
Calculate
food cost.
Calculate
food cost percentage.
Explain
the effect that changes in
food cost and sales have on food
cost percentage.
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
CORRECTIVE ACTIONS FOR COST CONTROL

To reduce food cost
 Reduce
 Replace
portion size.
the item with a lower cost alternative.
 Feature
menu items with higher profit margins
(lower costs).
 Raise
menu prices.
CORRECTIVE ACTIONS FOR COST CONTROL CONTINUED

To reduce food waste
 Monitor
portion control.
 Monitor
food storage and rotation.
 Monitor
food purchasing (buy
appropriate amounts).
 Minimize
production errors.
FACTORS AFFECTING FOOD COST
 Waste
 Over
ordering
 Over production
 Theft
 Food
to Bar transfers
 Food transferred to other units
 Employee meals
THE FOOD COST FORMULA
Opening inventory
+
Purchases
Total food available
–
Closing inventory
Cost of food sold
THE FOOD COST FORMULA IN USE
Opening inventory
+
Purchases
$5,000
+
Total food available
–
Closing inventory
Cost of food sold
$30,000
$35,000
–
$4,000
$31,000
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
THE FOOD COST PERCENTAGE FORMULA
Food
cost
÷ Sales =
Food cost
percentage
THE FOOD COST PERCENTAGE FORMULA IN USE
Food cost ÷ Sales =
$7,000
÷
$25,000 =
Food cost
percentage
0.28 or 28.0%
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%
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

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.

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.
TEN PERCENT INCREASE IN SALES AND
COST 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%
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%
FOOD COST PERCENTAGE CONTINUED

If food cost
percentages are
allowed to drop below
the restaurant’s
standards, the
guests’ perceptions
of value may be
negatively affected.
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.
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)
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)

Step 6 – Add the cost of all ingredients.
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)
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
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)
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.
HOW WOULD YOU ANSWER THE FOLLOWING
QUESTIONS?
1.
2.
3.
4.
5.
The cost of employee meals should be (subtracted/added) to
the cost of food before computing a food cost percentage.
A restaurant’s food cost percentage should increase when
sales increase and decrease when sales decrease.
(True/False)
Which best describes food cost as an expense?
A.
It is fixed
B. It is semivariable
C.
It is variable
D. It is noncontrollable
A manager’s job is to reduce the food cost percentage as
much as possible. (True/False)
The formula to find a restaurant’s food cost percentage is
sales divided by food cost equals food cost percentages.
(True/False)