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Food Cost

Controlling Foodservice Costs. Food Cost. Calculate food cost. Calculate food cost percentage. Explain the effect that changes in food cost and sales have on food cost percentage. Objectives. The actual dollar value of the food used in a foodservice operation

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Food Cost

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  1. Controlling Foodservice Costs Food Cost

  2. Calculate food cost. Calculate food cost percentage. Explain the effect that changes in food cost and sales have on food cost percentage. Objectives

  3. The actual dollar value of the food used in a foodservice operation Often referred to as “cost of food sold” Food Cost

  4. Includes the cost of food sold to customers Also includes the value of food that is given away, wasted, or even stolen Food Cost continued

  5. To reduce food cost • Reduce portion size. • Replace the item with a lower cost alternative. • Feature menu items with higher profit margins (lower costs). • Raise menu prices. Corrective Actions for Cost Control

  6. To reduce food waste • Monitor portion control. • Monitor food storage and rotation. • Monitor food purchasing (buy appropriate amounts). • Minimize production errors. Corrective Actions for Cost Control continued

  7. Waste • Over ordering • Over production • Theft • Food to Bar transfers • Food transferred to other units • Employee meals Factors Affecting Food Cost

  8. The Food Cost Formula

  9. The Food Cost Formula in Use

  10. To accurately calculate cost of food sold, managers must take a physical inventory. Physical Inventory

  11. 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 Food Cost Formula Definitions

  12. The Food Cost Percentage Formula

  13. The Food Cost Percentage Formula in Use

  14. 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%

  15. 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

  16. 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 Food Cost Percentage continued

  17. 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! Costs and Sales Affect Food Cost Percentage

  18. 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. How Costs and Sales Affect Food Cost Percentage

  19. 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. The ABCs of Food Cost Percentage (A/B = C)

  20. 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. ABCs of Food Cost Percentage (A/B = C) continued

  21. 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 Increase in Sales andCost of Food

  22. 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% Ten Percent Decrease in Sales and Cost of Food

  23. If food cost percentages are allowed to drop below the restaurant’s standards, the guests’ perceptions of value may be negatively affected. Food Cost Percentage continued

  24. 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

  25. 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

  26. 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

  27. 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) Creating Recipe Cost Cards continued

  28. 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 Recipe Ingredient Costing Alternatives

  29. 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) Ways to Estimate Yields

  30. As Purchased (AP) refers to products as the restaurant receives them. Edible Portion (EP) refers to products as the guests receive them. AP and EP

  31. 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? • It is fixed • It is semivariable • It is variable • 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) How Would You Answer the Following Questions?

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