Cha7 Costing

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Costing

Cha7 Costing

  1. 1. Chapter 7 Standard Product Costs & Pricing Strategies Food and Beverage Operations Tuesday, May 19, 2009 1
  2. 2. Chapter Overview • Standard recipes • Standard food & beverage costs • Menu pricing methods Tuesday, May 19, 2009 2 Essential knowledge for Food Service Professionals The time to begin considering this information is during college.
  3. 3. 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 Tuesday, May 19, 2009 3 The standardized recipe is commonplace in large hotels, restaurants and chain restaurants
  4. 4. 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 Tuesday, May 19, 2009 4 Strict standards in the kitchen begin with accuracy, consistency and portion control
  5. 5. Steps for Standardizing Recipes Chaining Recipes – Including sub-recipes as ingredients for a standard recipe. 1. Select time period for development 2. Have the chef or bartender describe preparation 3. Double-check recipe by observation 4. Record the recipe 5. Share the recoded standard recipe with staff 6. Test for quality and quantity (Exhibit 6 p.162) 7. Train employees in standard recipe use Tuesday, May 19, 2009 5
  6. 6. Adjustment Factor • To accurately increase or decrease the yield of a standard recipe • Divide the desired yield by the original yield Desired Portions (225) Adjustment = (2.25) Factor = Original Portions (100) New Amount 8 oz 2.25 X =18 oz = (original (adjustment amount) factor) Tuesday, May 19, 2009 6
  7. 7. Cost Calculations • Portion Cost: Divide the total cost of the item by the number of portions the recipe yields. Total Cost ($75) Portion Cost = Portions (50) =($1.50) Tuesday, May 19, 2009 7 Food cost typically range from 24-35%
  8. 8. 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 Tuesday, May 19, 2009 8
  9. 9. Standard Beverage Cost Tuesday, May 19, 2009 9 Usually 15-18%
  10. 10. 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 Tuesday, May 19, 2009 10
  11. 11. 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 Tuesday, May 19, 2009 11
  12. 12. Objective Pricing Methods (cont.) • Desired food cost percent markup Selling Price = item's standard food cost divided by desired food cost percent e.g. $1.5/33%= $4.55 Elasticity of demand – Relationship between selling price and volume sold – Demand responds to price changes Tuesday, May 19, 2009 12
  13. 13. Objective Pricing Methods (cont.) Is Lower Food Cost Percentage the Goal? Menu Food Menu Selling Food cost Contribution Item Cost Price Percent Margin Chicken $2.50 8.25 30.3 $5.75 Steak $5.50 14.00 39.3 $8.50 Tuesday, May 19, 2009 13 Although Pricing is crucial to make a profit Variety and guest satisfaction needs to be considered for repeat business.
  14. 14. Objective Pricing Methods (cont.) • Profit Pricing – Allowable food cost Forcasted Profit Food - Nonfood - Requirement = Allowable Food Expenses Costs Revenue s $800,000 - $415,000 - $75,000 = $310,000 Tuesday, May 19, 2009 14
  15. 15. Objective Pricing Methods (cont.) • Budget food cost percent: divide allowable food costs by forecasted food sales. Budgeted Food $310,000 (allowable food costs) Cost Percent = = .388 $800,000 (allowable food costs) (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 Tuesday, May 19, 2009 15

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