Cha7 Costing
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Transcript of Cha7 Costing
Chapter 7
Standard Product Costs &
Pricing Strategies
Food and Beverage Operations
1Tuesday, May 19, 2009
Chapter Overview
• Standard recipes• Standard food & beverage costs• Menu pricing methods
2Tuesday, May 19, 2009Essential knowledge for Food Service Professionals
The time to begin considering this information is during college.
Standard Recipes
• A standard recipe: a formula for producing a food or beverage item– Ingredients– Quality of each ingredient– Preparation procedures– Portion size– Portioning equipment– Garnish
3Tuesday, May 19, 2009The standardized recipe is commonplace in large hotels, restaurants and chain restaurants
Advantages of Standard Recipes
• Consistency of quality, flavor, portion size
• Efficient purchasing practices• Preparation of correct number of items• Effective scheduling• Less supervision required• Elimination of guesswork• Less reliance on employee memory
4Tuesday, May 19, 2009Strict standards in the kitchen begin with accuracy, consistency and portion control
Steps for Standardizing Recipes
1. Select time period for development2. Have the chef or bartender describe
preparation3. Double-check recipe by observation4. Record the recipe5. Share the recoded standard recipe with
staff6. Test for quality and quantity (Exhibit 6 p.162)
7. Train employees in standard recipe use
Chaining Recipes – Including sub-recipes as ingredients for a standard recipe.
5Tuesday, May 19, 2009
Adjustment Factor
• To accurately increase or decrease the yield of a standard recipe
• Divide the desired yield by the original yield
Adjustment Factor =
Desired Portions (225)
Original Portions (100)= (2.25)
New Amount =
8 oz(original amount)
X2.25
(adjustment factor)
=18 oz
6Tuesday, May 19, 2009
Cost Calculations
• Portion Cost: Divide the total cost of the item by the number of portions the recipe yields.
Portion Cost = Total Cost ($75)
Portions (50) =($1.50)
7Tuesday, May 19, 2009Food cost typically range from 24-35%
Cost Calculations (cont.)
• Total Meal Cost: Add the portion costs of all meal components
• Contribution Margin: Subtract food costs from food revenue
Contribution Margin = Selling Price - Food Costs
8Tuesday, May 19, 2009
Standard Beverage Cost
9Tuesday, May 19, 2009Usually 15-18%
Standard Beverage Cost (cont.)
Cost per Ounce: divide the cost of the bottle by the number of ounces per bottle e.g. per-ounce cost $1 = $25/25oz
Drink Cost Percentage: Divide drink cost by drink selling price and multiple by 100
Drink Cost Percentage= (Drink Cost / Drink Selling Price) X 100
e.g. Drink Cost Percentage 25%=($1/$4) X 100
10Tuesday, May 19, 2009
Subjective Pricing Methods• Reasonable
– Represent a value to guest• Highest
– Guest will be willing to pay• Loss-leader
– Draw in guests who will order more expensive items once they are on the premises
• Intuitive– Will appeal to guests; trial-and-error
11Tuesday, May 19, 2009
Objective Pricing Methods (cont.)
• Desired food cost percent markupSelling Price = item's standard food cost
divided by desired food cost percente.g. $1.5/33%= $4.55
Elasticity of demand– Relationship between selling price and
volume sold– Demand responds to price changes
12Tuesday, May 19, 2009
Objective Pricing Methods (cont.)
Is Lower Food Cost Percentage the Goal?
MenuItem
Food Cost
Menu SellingPrice
Food costPercent
ContributionMargin
Chicken $2.50 8.25 30.3 $5.75
Steak $5.50 14.00 39.3 $8.50
13Tuesday, May 19, 2009Although Pricing is crucial to make a profit
Variety and guest satisfaction needs to be considered for repeat business.
Objective Pricing Methods (cont.)
• Profit Pricing– Allowable food cost
ForcastedFood
Revenue- Nonfood
Expenses -Profit
Requirements
= Allowable FoodCosts
$800,000 - $415,000 - $75,000 = $310,000
14Tuesday, May 19, 2009
Objective Pricing Methods (cont.)
• Budget food cost percent: divide allowable food costs by forecasted food sales.
Budgeted FoodCost Percent =
$310,000 (allowable food costs)
$800,000 (allowable food costs) = .388
(39% rounded)
The resulting percentage is divided into an item's standard food cost to arrive at a selling price. e.g. $1.5 / .39 = $3.85
15Tuesday, May 19, 2009