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Bhavin Parekh
1
 Understanding Food Cost
› The Pizza
› What does it mean to you and your
restaurant?
 Basic Definition of Food Cost
› The Math
› Interpreting the Formula
 Using Food Cost
› Applying Food Cost in day to day operations
› Practical Example
2
 To be able to define Food Cost and
express the same mathematically.
 To be able to compute Food Cost %.
 To be able to interpret Food Cost %.
 To be able to apply Food Cost % in day
to day operations to maximize profits.
3
4
Pizza
1 person gets the whole pizza
i.e. 1 person = 100%
2 persons get half a pizza each.
i.e. 2 person = 50%
4 persons get only a quarter
pizza each. i.e. 4 person = 25%
50%
5
50%
25% 25%
25%
25%
Rs. 300 Rs. 1000
6
Assume that your total sale for the day is
Rs. 1000/-
Your product is food.
In order to produce the food to sell, you
incurred a cost of Rs. 300.
Your net saving at the end of the day
will be Rs. 700 (Rs. 1000 – Rs. 300). This
can also be referred to as PROFIT.
In order to increase your profit, you will
have to reduce the food cost, given
that the total sale is a constant.
Food Cost is defined as the cost
incurred to produce the food to be
sold.
This is expressed in percentage (%).
Hence, Food Cost % is
mathematically defined as the
ratio of the cost of food to the
total sales.
It is mathematically expressed as: Food Cost % = Cost of Food x 100
Total Sale
7
 The food cost is directly proportional to
the cost of food.
› This implies that the higher the cost of
ingredients, the higher will be the Food Cost
%.
› The higher the Food Cost %, the lower is your
profit.
8
 The food cost is indirectly proportional to
the total sales.
› This implies that higher the sale, the lower is
the cost of Food Cost % and vice versa.
 What is the impact of Food Cost % on
your restaurant’s profit ?
9
Pizza
The higher the cost of ingredients used
to prepare the dish, the higher is the
Food Cost %.
The higher the total sale, the lower is
the Food Cost % and vice versa.
A higher Food Cost % will eat into a
larger share of your pizza, leaving
you with a smaller piece and vice –
versa.
10
 The formula.
 The independent and dependent
variables.
 The impact of Food Cost % on profit.
11
Objective Pricing Methods
 If you want to keep your Food Cost as 40% then:
 Multiplier = 1 / 40%
= 1 / .40
= 2.5
Assume that a Seafood Platter has a
Standard Food Cost . Portion of a Seafood
Platter is $ 5.32
 If a Food Cost % of 40% is desired:
 Base Selling Price (B.S.P.) = $ 5.32 x 2.5
= $ 13.30
Assume that a Seafood Platter has a Standard Food
Cost / Portion of a Seafood Platter is $ 5.32
 If a Food Cost % of 40% is desired:
 Base Selling Price (B.S.P.) = $ 5.32 x 2.5
= $ 13.30
14

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FOOD COSTING.pptx

  • 2.  Understanding Food Cost › The Pizza › What does it mean to you and your restaurant?  Basic Definition of Food Cost › The Math › Interpreting the Formula  Using Food Cost › Applying Food Cost in day to day operations › Practical Example 2
  • 3.  To be able to define Food Cost and express the same mathematically.  To be able to compute Food Cost %.  To be able to interpret Food Cost %.  To be able to apply Food Cost % in day to day operations to maximize profits. 3
  • 4. 4
  • 5. Pizza 1 person gets the whole pizza i.e. 1 person = 100% 2 persons get half a pizza each. i.e. 2 person = 50% 4 persons get only a quarter pizza each. i.e. 4 person = 25% 50% 5 50% 25% 25% 25% 25%
  • 6. Rs. 300 Rs. 1000 6 Assume that your total sale for the day is Rs. 1000/- Your product is food. In order to produce the food to sell, you incurred a cost of Rs. 300. Your net saving at the end of the day will be Rs. 700 (Rs. 1000 – Rs. 300). This can also be referred to as PROFIT. In order to increase your profit, you will have to reduce the food cost, given that the total sale is a constant.
  • 7. Food Cost is defined as the cost incurred to produce the food to be sold. This is expressed in percentage (%). Hence, Food Cost % is mathematically defined as the ratio of the cost of food to the total sales. It is mathematically expressed as: Food Cost % = Cost of Food x 100 Total Sale 7
  • 8.  The food cost is directly proportional to the cost of food. › This implies that the higher the cost of ingredients, the higher will be the Food Cost %. › The higher the Food Cost %, the lower is your profit. 8
  • 9.  The food cost is indirectly proportional to the total sales. › This implies that higher the sale, the lower is the cost of Food Cost % and vice versa.  What is the impact of Food Cost % on your restaurant’s profit ? 9
  • 10. Pizza The higher the cost of ingredients used to prepare the dish, the higher is the Food Cost %. The higher the total sale, the lower is the Food Cost % and vice versa. A higher Food Cost % will eat into a larger share of your pizza, leaving you with a smaller piece and vice – versa. 10
  • 11.  The formula.  The independent and dependent variables.  The impact of Food Cost % on profit. 11
  • 12. Objective Pricing Methods  If you want to keep your Food Cost as 40% then:  Multiplier = 1 / 40% = 1 / .40 = 2.5 Assume that a Seafood Platter has a Standard Food Cost . Portion of a Seafood Platter is $ 5.32  If a Food Cost % of 40% is desired:  Base Selling Price (B.S.P.) = $ 5.32 x 2.5 = $ 13.30
  • 13. Assume that a Seafood Platter has a Standard Food Cost / Portion of a Seafood Platter is $ 5.32  If a Food Cost % of 40% is desired:  Base Selling Price (B.S.P.) = $ 5.32 x 2.5 = $ 13.30
  • 14. 14