Calculating Food Cost
3
OH 2-1
2-1
Chapter Learning Objectives
 Define food costs and explain how managers track and analyze food costs.
 Explain how to calculate the cost of sales, and how to calculate the actual cost of sales.
 Describe how to calculate the food cost percentage.
 Explain the importance of standardized recipes to cost control and product consistency.
 Contrast the three types of standardized recipe files.
 Describe why and how managers create recipe cost cards.
 Outline the process for calculating plate cost.
 Explain how managers calculate food costs for buffets.
OH 2-2
Food Cost
 The actual dollar value of the food used in a
foodservice operation
 Often referred to as “cost of food sold”
OH 2-3
Food Cost continued
 Includes the cost of food sold to customers
 Also includes the value of food that is given
away, wasted, or even stolen
OH 2-4
Theft Increases Food Cost
 Employee theft can
be difficult to
prevent, but its
control is vitally
important to
ensuring profitability.
OH 2-5
Adjustments to Food Cost
 Because the actual costs of food used in an
operation includes costs not related to the sales
generated many establishments adjust their food
cost
 When these adjustments are made the costs still
exist so they must be charged to some other
expense category
 Common categories would be:
 Labor cost (employee meals)
 Promotions or Marketing (comp meals)
OH 2-6
Reductions from Cost of Food
 Employee meals
 The actual cost of the food served to
employees is subtracted from cost of food.
 Complimentary (“Comp”) meals
 The actual cost of the food that is given away
(not its selling price) is subtracted from cost
of food.
OH 2-7
Reductions from Cost of Food continued
 Grease sales
 Payments from sales of used oil or grease, bones,
and fat scraps are subtracted from food cost.
 Transfers to other units
 If an operation has more than one unit, transfers
TO another unit are subtracted from food cost.
 Transfers INTO a unit are added to its food cost.
OH 2-8
Bar Transfers
 Food to Bar Transfers
 The value of items transferred to the bar for making
drinks is subtracted from food cost.
 Typical products transferred to the bar include
nonalcoholic beverages, fruits, vegetables, spices,
juices, and dairy products.
OH 2-9
Bar Transfers continued
 In a busy bar, the
amount of food that is
transferred from the
kitchen to the bar can
be significant.
OH 2-10
The Food Cost Formula
Opening inventory
+
Purchases
Total food available
–
Closing inventory
Cost of food sold
OH 2-11
The Food Cost Formula in Use
Opening inventory
+
Purchases
$5,000
+
Total food available
–
Closing inventory
Cost of food sold
OH 2-12
$30,000
$35,000
–
$4,000
$31,000
Physical Inventory
To accurately calculate cost of food sold, managers
must take a physical inventory.
OH 2-13
Food Cost Formula Definitions
 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
OH 2-14
Applying Adjustments to Food Cost
If cost of food sold = $31,000, and:
 $155 in sales was recorded as employee meals (at
30% food cost)
 $125 in sales was comped for an upset guest (at
30% food cost)
 $300 was transferred to the bar
Calculate the new adjusted cost of food sold
In which accounts would you reflect these
costs?
OH 2-15
The Food Cost Percentage Formula
Food cost ÷
OH 2-16
Sales
=
Food cost percentage
The Food Cost Percentage Formula in Use
Food cost ÷
$7,000
OH 2-17
÷
Sales =
$25,000 =
Food cost
percentage
0.28 or 28.0%
Two Ways to Make a Decimal Conversion
Method One
Method Two
 Move the decimal
 Multiply by 100.
 .35 = 35%
 0.35 x 100 = 35%
two places to the
right.
OH 2-18
Food Cost Percentage
 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
OH 2-19
Industry Standards
 Restaurants typically run in the low to mid 30%
 Italian - ~ 28%
 Multi Unit - ~ 32%
 American/Regional - ~35%
 Steak - ~ 40%
 Fine Dining
Labor
Food Cost
Vs.
 Fast Food
OH 2-20
Food Cost
Labor
Food Cost Percentage continued
 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
OH 2-21
Costs and Sales Affect Food Cost Percentage
 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!
OH 2-22
How Costs and Sales Affect
Food Cost Percentage
 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.
OH 2-23
Ten Percent Increase in Sales and
Cost of Food
 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
OH 2-24
33%
Ten Percent Decrease in Sales and
Cost of Food
 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
OH 2-25
33%
The ABCs of Food Cost Percentage (A/B = C)
 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.
OH 2-26
ABCs of Food Cost Percentage (A/B = C)
continued
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.
OH 2-27
Food Cost Percentage
 Should be controlled
 Should not be allowed to fall far below the
restaurant’s standard
OH 2-28
Food Cost Percentage continued
 If food cost
percentages are
allowed to drop too
far below the
restaurant’s
standards, the
guests’ perceptions of
value may be
negatively affected.
OH 2-29
Finding Cost , Sales, or Percentage
Cost
Sales
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X
%
Examples
OH 2-31
1.
Your Cost for a catered event is $610 and the
Sales were $2,000…………what is your Food
Cost Percentage?
2.
Sales for the day at the deli counter was $4,100
and your Food Cost % is 21%.......what was
your Food Cost?
3.
Cost for the rib eye for the event is $1,115 and
you run a 35% Food Cost……what should your
selling price (sales) be?
One more example:
 If food and beverage sales are $35,000 and
60% of that is food. You run at 30% food cost
and a 10% beverage cost, find:
 Food Cost _________
 Beverage Cost __________
OH 2-32
Another way to figure Food Cost Percentage
 If we know the cost of our menu item and we
know the selling price we can also determine the
food cost percentage using the following
formula:
 Item cost ÷ Selling price
 Example: Our Chicken Cordon Bleu costs us
$2.50 to make and we sell it for $11.75, what is
our food cost percentage for that item?
 $2.50 ÷ $11.75 = 21.28% food cost percentage
OH 2-33
Chapter 3 Calculating Food Cost
OH 2-34
Benefits of Standardized Recipes
 Consistency in Food Quality
 Customer satisfaction
 Predictable Yields
 Preparation method consistent
 Standard portion sizes (weight, volume or count)
 Service method consistency
 Food Cost Control
OH 2-35
What Difference Does It Make???
Mexi Beef Casserole: 35lb ground beef for 200 people
25 - 5 x 5 portions per ½ steam table pan.
Mexi Beef Casserole
Mexi Beef Casserole
Difference in Cost
Cost/serving with 35l b
Cost/serving with 40 lb
Per Serving
$0.76
$0.85
+$0.09
Not a big deal right?
Annual impact for 3 times per week
$0.09 per serving x 200 servings x 156 = $2,808
OH 2-36
What Difference Does It Make???
What if the pan was cut 4 x 5?
Servings per pan
Cost per serving
20 servings
$0.95
25 servings
$0.76
Difference
$0.19
Annual impact for 3 times per week
$0.19 per serving x 200 servings x 156 = $5,928
OH 2-37
Benefits of Standardized Recipes
 Accurate Purchasing
 Quantities defined and controlled
 Helps ensure compliance with “Truth In Menu”
laws
 Consistent nutrient content
 Identification of food alergens
 Assists in training new employees
OH 2-38
What Difference Does It Make???
Nutrient Facts
25 servings per pan
20 servings per pan
Serving size
6.5 oz
8.1 oz
Calories
255
318
Protein
12.7 g
15.9 g
Carbohydrate
22.5 g
28.2 g
Total Fat
12.5 g
15.6 g
Saturated Fat
5.0 g
6.2 g
Cholesterol
44.0 g
55.0 g
U. S. Department of Agriculture, Food and Nutrition Service, with the National Food Service Management Institute. (2002). Measuring
success with standardized recipes. University, MS: National Food Service Management Institute.
OH 2-39
Developing Standardized Recipes
OH 2-40
Recipe Standardization Process
 Recipe verification
 Prepare recipe, verify yields
 Product evaluation
 Recipe modification & quantity adjustments
 Adjusting yields and/or ingredient amounts
 Cost recipe based on final standardized recipe
OH 2-41
Standardized Recipes Identify
 Recipe Title
 Ingredient details (quality)
 Volume (number) of portions (Recipe Yield)
 Ingredient weights and measures
 Necessary equipment and tools
 Procedures
OH 2-42
Standardized Recipes also Include
 Preparation time
 Cooking method(s)
 Cooking/baking time and temperature
 Portioning, plating and garnishing
 Storage and preparation information
OH 2-43
Sample Standardized Recipe
OH 2-44
Chapter 3 Calculating Food Cost
OH 2-45
Chapter 3 Calculating Food Cost
OH 2-46
Recipe Ingredient Costing Alternatives
 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
OH 2-47
AP and EP
 As Purchased (AP) refers to products as the
restaurant receives them.
 Edible Portion (EP) refers to products as the
guests receive them.
OH 2-48
Comparison of AP and EP Weights
OH 2-49
Managers Must
1.
2.
OH 2-50
Determine if recipe
ingredients are
listed in AP or EP
formats.
Apply the correct
costing method to
the ingredients.
3.
Use the information
to price menu items.
4.
Periodically re-cost
recipe ingredients.
EP Amounts
 Because many food
items shrink when
they are cooked,
managers must know
exactly how much
cooking loss to
expect.
OH 2-51
Ways to Estimate Yields
 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)
OH 2-52
Yield and Loss %
 AP Amount – Loss = Yield
 25lb – 18lb = 7lb
 Yield
 18lb = 72% Yield
= % Yield
AP total
 Loss
AP total
OH 2-53
25lb
= % Loss

7lb = 28% Loss
25lb
Butcher Test
 Also known as “yield
test”
 Used to determine
EP meat costs
 Results vary, based
upon the AP quality
of meat purchased
Measures losses from
 Fat removal
 Bone removal
 Trim and packaging
removal
 Portioning
OH 2-54
Butcher’s Yield Tests
 Determine actual costs associated with buying
larger cuts of meat and fabricating
 Some will just calculate the cost based on the final
end products and use that for pricing others factor
value for each utilization
 Utilization of byproducts (100% or less?)
 Weigh each component
 Determine market value for components used
OH 2-55
Butcher’s Yield Tests
 Total trim weight and value
 Subtract trim weight from AP weight to
determine yield of item (fabricated EP weight)
 Subtract trim value from AP Cost to determine
net price (fabricated EP cost)
 Divide net price by yield of item to get
Cost Per Pound EP
 Also consider labor & cooking loss
OH 2-56
Work this Butcher’s Yield Problem
 A 19.50lb short loin breaks down as follows:
 Fat -
2 lb
@ $0.00/lb
 Bone- 6lb
@ $0.85/lb
 Trim-
12oz
@$2.15/lb
 Other-
2oz
@$0.00/lb
 The original AP price was $4.25/lb, then it goes up to
$4.46/lb this week
 Solve for the EP cost per pound based on the original
and the current price
OH 2-57
 If cut into 8oz steaks how much would each cost?
Butcher’s Yield Tests
 Consider another example
 Review the Butchers Yield Card under
OH 2-58
Learning Materials
 Cost Factor
 When price of original product changes
use cost factor to determine new costs
instead of repeating butcher yield test
each time
 EP cost per pound ÷ AP cost per pound
 Multiply new cost by cost factor to get
new EP cost/lb.
Creating Recipe Cost Cards
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.
OH 2-59
Creating Recipe Cost Cards continued
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) or
sixteen recipe-ready (EP) cups at $0.175 each
($2.80 ÷ 16 cups = $0.175 per cup)
OH 2-60
Creating Recipe Cost Cards continued
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)
OH 2-61
Creating Recipe Cost Cards continued
Step 6 – Add the cost of all ingredients.
OH 2-62
Creating Recipe Cost Cards continued
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)
OH 2-63
Chapter 3 Calculating Food Cost
OH 2-64
Spice Factor
 Can be used instead of costing out every spice,
herb and seasoning
 A way to account for “to taste” spices in a recipe
 Spreads the cost of spices, herbs and
seasonings over all menu items so those that
require a larger quantity do not bear the entire
cost of the spices
 Can also include garnishes or “lost” items as a
result of chef error
OH 2-65
Spice Factor, continued
 Determining a spice factor
 Consider which items to include
 Calculate the value of all selected items over a period of
time
 After the value is calculated determine the spice factor
as follows:
Spice factor = Value of spice factor items (over time)
Value of total food purchases (over same time)
 Adjust recipe’s cost by increasing the total cost by the
spice factor percent - mulitplying by spice factor
OH 2-66
Spice Factor, continued
 Example:
 If the spice factor items cost $2,000 for a six month
period and the total food purchases over the same
period of time are $60,000, what is the spice
factor?
$2,000/$60,000 = .0333 or 3.33%
 If the total recipe cost for Chicken Parmesan which
serves 12 people is $53.75, what is the spice-factor
adjusted recipe cost?
$53.75 x (1 + .0333) = $55.54
OH 2-67
Q Factor
 A method to account for side dishes, add-ons or
other freebies that come with entrée dishes.
 Only factor for the entrées offered by the
business
 Determine cost of each of the side or add-on
possibilities
 Identify the most expensive options that could
be selected
 Add this cost to every entrée
OH 2-68
Q Factor, continued
 Example:
A business offers entrées that include a choice of soup
or salad, choice of vegetable or starch, bread and
butter. What is the Q factor if the costs are:











OH 2-69
Tomato soup
French onion soup
House salad
Caesar salad
Broccoli side
Carrot side
Green bean side
Smashed potato
Angel hair pasta
Bread
Butter
$0.85
$0.65
$0.92
$1.35
$0.43
$0.16
$0.25
$0.53
$0.35
$0.11
$0.08
Q Factor, continued
 Q Factor of $2.07 should be added to all entrées
for this business that offer the same add-ons
 If a business uses both Spice Factor and Q
Factor, the spice factor should only be added
once for each entrée. Add the Q factor and
then add the spice factor
 So, for our Chicken Parmesan what is the cost
per portion using both the Spice factor and the
Q factor?
OH 2-70
Spice Factor & Q Factor
 Chicken Parmesan serving 12 people cost of recipe =
$53.75
 Spice Factor = 3.33%
 Q Factor = $2.07
$53.75 x 1.0333 = $55.54 recipe cost with spice factor
Cost per portion: $55.54/12 = $4.63
Add Q factor: $4.63 + $2.07 = $6.70 cost of entree
OH 2-71
How Would You Answer
the Following Questions?
OH 2-72
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 fixed
B. It is semivariable
C. It is variable
D. It is noncontrollable
4.
A manager’s job is to reduce the food cost
percentage as much a possible. (True/False)
Chapter 3 Calculating Food Cost
Key Terms:
As purchased (AP) method A method used to cost an ingredient
at the purchase price prior to any trim or waste being taken into
account.
Butcher’s yield test A method used to measure the amount of
shrinkage that occurs during the trimming of a meat product.
Closing inventory The value of how much food product exists at
the end of a given period.
Cooking loss test A way to measure the amount of product
shrinkage during the cooking or roasting process.
Credits to cost of sales A category of credits including such items
as employee meals, complimentary meals served to guests, or
grease sales sold to rendering companies.
Edible portion (EP) cost A method used to cost an ingredient
after it has been trimmed and waste has been removed so that
only the usable portion of the item is reflected.
OH 2-73
Chapter 3 Calculating Food Cost
Key Terms continued:
Ideal food cost The target cost an operation is aiming for.
Opening inventory The value of how much food product exists at
the start of a given period.
Plate cost The total sum of product costs included in a single
meal, or plate, served to a guest.
Portion size The size of an item’s individual serving, such as “six
ounces of fish fillet.”
Price-per-person model Pricing determined by calculating the
food cost for all the items included on a buffet and the backup
inventory used to
replenish theThe
buffet
during
serviceofperiod.
Productivity
quality
andthe
quantity
output compared to the
amount of input, such as labor hours, needed to generate it.
Product specifications Descriptions of the quality requirements of
the products that are purchased.
OH 2-74
Chapter 3 Calculating Food Cost
Key Terms continued:
OH
Purchases The value of how much an operation spent on food
products in a given period.
Recipe cost card A tool used to calculate the standard portion
cost for a menu item, or the exact amount that one serving or
portion of a food item should cost when prepared according to
the item’s standardized recipe.
Sales mix The percentage of sales volume each menu item
contributes to total sales.
Standardized recipe A formalized, consistent guide to preparing
menu items, which lists the ingredients and quantities needed for
a menu item, the methods used to produce it, and its
appropriate
Standardizedportion
recipe size.
form A set of directions for preparing a food
or beverage item, along with a list of ingredients.
Standard portion cost The exact amount that one serving or
portion of a food item should cost when prepared according to
2-75
the item’s standardized recipe.
Chapter 3 Calculating Food Cost
Key Terms continued:
Yield test A test used to measure the amount of shrinkage that
occurs during trimming and cutting products that are not
cooked, such as
produce.
OH 2-76