2Calculate food cost percentage. ObjectivesCalculate food cost.Calculate food cost percentage.Explain the effect that changes in food cost and sales have on food cost percentage.Instructor’s NotesIndicate that these objectives (competencies) drive the information in the chapter and in this session.Ask the following questions, “What is food cost?” “Why is food cost so important to restaurant managers?”
3The actual dollar value of the food used in a foodservice operation Food CostThe actual dollar value of the food used in a foodservice operationOften referred to as “cost of food sold”Instructor’s NotesAsk students the following question, “How often do you think managers should calculate their food cost?”Remind students that “food” is one of the two “prime” costs for which managers are responsible. Ask them to identify the other. (Answer: Labor)
4Includes the cost of food sold to customers Food Cost continuedIncludes the cost of food sold to customersAlso includes the value of food that is given away, wasted, or even stolenInstructor’s NotesMake the following statement, “If managers are not careful, the cost of food given away, wasted, and stolen can be greater than the cost of food sold.”Ask students for examples of waste and theft.
5Corrective Actions for Cost Control To reduce food costReduce portion size.Replace the item with a lower cost alternative.Feature menu items with higher profit margins (lower costs).Raise menu prices.
6Corrective Actions for Cost Control continued To reduce food wasteMonitor portion control.Monitor food storage and rotation.Monitor food purchasing (buy appropriate amounts).Minimize production errors.
7Factors Affecting Food Cost WasteOver orderingOver productionTheftFood to Bar transfersFood transferred to other unitsEmployee mealsInstructor’s NotesAsk students to give an example of each of the commonly transferred items mentioned on this slide, as well as the drink in which it is used as an ingredient (examples: Coffee for Irish Coffee and limes to garnish Gin and Tonic).
8The Food Cost Formula Opening inventory + Purchases Total food available–Closing inventoryCost of food soldInstructor’s NotesExplain that managers must have good math skills to do their jobs properly. Mention the appendix in the back of this text for those students who need a quick “brush up.”
9The Food Cost Formula in Use Opening inventory$5,000+Purchases$30,000Total food available$35,000–Closing inventory$4,000Cost of food sold$31,000Instructor’s NotesAsk students, “How often did managers where you have worked take inventory?”Ask students, “ If taking inventory is so important to determining food cost, why not do it every day?”
10Physical InventoryTo accurately calculate cost of food sold, managers must take a physical inventory.Instructor’s NotesExplain the difference between a physical inventory and an inventory “estimate.” Ask students which they believe would be most accurate.Ask students to identify three reasons (in addition to calculating food cost) why it is important to take periodic food inventories. Potential answers could includeA. Identify spoiled or damaged inventory itemsB. Check storage area conditions for temperatureC. Check storage areas for cleanliness
11Food Cost Formula Definitions Opening inventoryDollar value of the physical inventory at the beginning of an accounting periodPurchasesDollar value of all food purchased (less any appropriate subtractions) during the accounting periodClosing inventoryDollar value of the physical inventory counted at end of the accounting periodInstructor’s NotesAsk students to identify some common accounting periods; i.e. day, week, month.Explain that the term “beginning inventory,” is used interchangeably with the term “opening inventory.”Point out that the closing inventory for an accounting period becomes the opening inventory for the following period.
12The Food Cost Percentage Formula ÷Sales=Food cost percentageInstructor’s NotesWhen computing food cost percentage, the term “food cost” is often used interchangeably with the term “cost of food sold.”In this computation, the term “sales” means the same as the term “revenue.”
13The Food Cost Percentage Formula in Use ÷Sales=Food cost percentage$7, ÷ $25,0000.28 or 28.0%
14Two Ways to Make a Decimal Conversion Method OneMove the decimal two places to the right..35 = 35%Method TwoMultiply by 100.0.35 x 100 = 35%Instructor’s NotesAsk students to indicate one advantage to each method.
15Food Cost PercentageAllows managers in one restaurant to compare their food usage efficiency to that of previous time periodsCan be used to compare the food usage efficiency of one restaurant to anotherAllows comparison to the restaurant’s budgeted food cost percentage or other standardInstructor’s NotesAsk students to suggest why there could be weekly or monthly variations in a restaurant’s food cost percentage.Ask what would make the percentage go down.Ask what would make the percentage go up.Point out that managers are often evaluated on the basis of their ability to achieve targeted food cost percentages.
16Food Cost Percentage continued Is the proportion of the restaurant’s sales that is used to pay for foodMeans “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 managementInstructor’s NotesAsk students to compute their housing costs as a percentage of their monthly income.Ask what could cause the percentage to go down? (Answers—less costly housing or more income)
17Costs 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!
18How 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.Instructor’s NotesInform students that the next slides will show why this is so.
19The ABCs of Food Cost Percentage (A/B = C) Where: A = Food CostB = SalesC = Food Cost Percentage1. If A stays the same, and B increases, C decreases.2. If A stays the same and B decreases, C increases.Instructor’s NotesAsk students to restate these concepts in a manager’s terms. For example, the first of these statements can be restated as, “If costs can be kept constant, when sales increase, the food cost percentage will decrease.” The second can be restated as, “If food costs remain the same, but sales go down, the food cost percentage will increase.”
20ABCs 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.Instructor’s NotesAsk students to restate these concepts in a manager’s terms. For example, the first of these statements can be restated as, “If food costs are reduced, and sales stay constant, the food cost percentage will go down.”Focus the major emphasis of the class on item #5 on this slide. Ask students to restate this in their own words.
21Ten Percent Increase in Sales and Cost of Food Original cost of food $1,000Original sales $3,000Food cost percentage 33%With 10% increase in sales and food costNew cost of food $1,100New sales $3,300Instructor’s NotesAsk students for logical reasons about why the food cost percentage might not stay the same under varying sales conditions.
22Ten Percent Decrease in Sales and Cost of Food Original cost of food $1,000Original sales $3,000Food cost percentage 33%With a 10% decrease in sales and food costNew cost of food $ 900New sales $2,700Instructor’s NotesAsk students about logical reasons why the food cost percentage might not stay the same if sales decreased significantly.
23Food Cost Percentage continued If food cost percentages are allowed to drop below the restaurant’s standards, the guests’ perceptions of value may be negatively affected.
24Creating 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.
25Creating Recipe Cost Cards continued Step 4 – Convert the cost of the invoice unit to the cost of the recipe unit.ExampleMilk purchased by the gallon for $2.80Yields eight recipe-ready (EP) pints at $0.35 each. ($2.80 ÷ 8 pints = $0.35 per pint)
26Creating Recipe Cost Cards continued Step 5 – Multiply the recipe unit cost by the amount required in the recipe.ExampleRecipe amount required—3 pintsCost per pint—$0.35Ingredient cost—$1.05 (3 pints x $0.35 per pint = $1.05)Step 6 – Add the cost of all ingredients.
27Creating Recipe Cost Cards continued Step 7 – Divide the total recipe cost by the number of portions produced.ExampleTotal recipe cost—$145.50Total recipe yield—50 portionsCost per portion—$2.91 ($ ÷ 50 portions = $2.91 per portion)
28Recipe Ingredient Costing Alternatives As Purchased (AP) methodPrice of an item before any trim or waste are consideredExample—unpeeled, whole potatoesEdible Portion (EP) methodPrice of an item after all trim and waste has been taken into accountExample—peeled, cubed potatoes
29Ways to Estimate Yields Butcher’s testsTo measure loss from deboning, trimming, and portioning meats, fish, and poultryCooking loss testsTo measure loss from the actual cooking processConversion chartsTell the expected or average loss of an item from (AP) to (EP)
30AP and EPAs Purchased (AP) refers to products as the restaurant receives them.Edible Portion (EP) refers to products as the guests receive them.
31How Would You Answer the Following Questions? The cost of employee meals should be (subtracted/added) to the cost of food before computing a food cost percentage.A restaurant’s food cost percentage should increase when sales increase and decrease when sales decrease. (True/False)Which best describes food cost as an expense?It is fixedIt is semivariableIt is variableIt is noncontrollableA manager’s job is to reduce the food cost percentage as much as possible. (True/False)The formula to find a restaurant’s food cost percentage is sales divided by food cost equals food cost percentages. (True/False)