Controlling Foodservice Costs

Calculate food cost.

Calculate food cost percentage.

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

The actual dollar value of the food used in a foodservice operation

Often referred to as “cost of food sold”

Includes the cost of food sold to customers

Also includes the value of food that is given away, wasted, or even stolen

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.

To reduce food waste

Monitor portion control.

Monitor food storage and rotation.

Monitor food purchasing (buy appropriate amounts).

Minimize production errors.

Waste Over ordering Over production

Theft Food to Bar transfers Food transferred to other units Employee meals

Opening inventory

+ Purchases

Total food available

– Closing inventory

Cost of food sold

Opening inventory $5,000

+ Purchases + $30,000

Total food available $35,000

– Closing inventory – $4,000

Cost of food sold $31,000

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

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 ÷ Sales = Food cost

percentage

Food cost ÷ Sales = Food cost percentage

$7,000 ÷ $25,000 = 0.28 or 28.0%

Method One Move the

decimal two places to the right.

.35 = 35%

Method Two Multiply by

100.

0.35 x 100 = 35%

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

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 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!

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.

Where: A = Food Cost

B = Sales

C = Food Cost Percentage1. If A stays the same, and B increases,

C decreases.2. If A stays the same and B decreases,

C increases.

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.

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%

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%

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

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.

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)

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.

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)

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

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)

As Purchased (AP) refers to products as the restaurant receives them.

Edible Portion (EP) refers to products as the guests receive them.

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 as possible. (True/False)

5. The formula to find a restaurant’s food cost percentage is sales divided by food cost equals food cost percentages. (True/False)