Premium PowerPoint ® Presentation © 2015 by American Technical Publishers, Inc. All rights reserved Chapter 6 Section 6-1:Identifying As-Purchased Costs

Premium PowerPoint® Presentation

© 2015 by American Technical Publishers, Inc.All rights reserved

Chapter 6

Section 6-1: Identifying As-Purchased Costs Section 6-2: Calculating Unit CostsSection 6-3: Calculating As-Served Costs Section 6-4: Calculating Food and Beverage Cost

Percentages Section 6-5: Calculating Menu Prices Section 6-6: Using Pricing Forms

Calculating Costs and Menu Prices

Chapter 6 — Calculating Costs and Menu Prices


Section 6-1: Identifying As-Purchased Costs

Objective:

• Identify as-purchased costs on invoices.



As-purchased costs are listed on invoices from suppliers.



Checkpoint 6-1

1. Define as-purchased cost.

2. Where can an as-purchased cost be found?

3. What is the as-purchased cost of a 25-pound bag of rice that sells for $15 per bag?

4. What is the as-purchased cost of a case of 12 bottles of mineral water that sells for $18 per case?



Section 6-2: Calculating Unit Costs

Objectives:

• Calculate as-purchased unit costs.

• Calculate edible-portion unit costs.



As-purchased unit costs can be calculated based on more than one unit of measure.



Calculating As-Purchased Unit Cost

AC = AT ÷ NU

where

AC = as-purchased unit cost

AT = as-purchased total cost

NU = number of units



• The edible-portion unit cost is the unit cost of a food or beverage item after taking into account the cost of the unused parts generated by trimming.

• Unless a food item has a yield percentage (YP) of 100%, the edible-portion unit cost will always be higher than the as-purchased unit cost.



Calculating Edible-Portion Unit Cost

EC = AC ÷ YP

where

EC = edible-portion unit cost (whole)

AC = as-purchased unit cost (part)

YP = yield percentage



Checkpoint 6-2

1. Define unit cost.

2. What is the as-purchased unit cost of coffee per pound if a 5-pound bag of coffee costs $24.00?

3. Explain the difference between an as-purchased unit cost and an edible-portion unit cost.

4. What is the edible-portion unit cost of bell peppers if the as-purchased unit cost is $1.10 per pound and the yield percent (YP) is 85%?

…continued on next slide



Checkpoint 6-2 (continued)

5. If a recipe calls for 12 pounds of celery, what is the total cost of celery if the as-purchased unit cost of celery is $0.80 per pound and the yield percentage (YP) is 70%?



Section 6-3: Calculating As-Served Costs

Objective:

• Calculate as-served costs of menu items.



As-served costs are the total costs of the ingredients and the recipes that make up a menu item.



Checkpoint 6-3

1. Define as-served cost.

2. What is the as-served cost of a taco made with $0.75 of ground beef, $0.24 of grated cheese, $0.08 of lettuce, $0.18 of tomatoes, and a $0.15 taco shell?

3. If the taco in Question 2 is served as part of a meal that comes with black beans that costs $0.45 per serving and yellow rice that costs $0.35 per serving, what is the as-served cost of the meal?

4. What is the as-served cost of a serving of tomato soup if the tomato soup recipe has a total ingredient cost of $50.00 and yields 25 servings?



Section 6-4: Calculating Food and Beverage Cost Percentages

Objectives:

• Calculate cost percentages of menu items.

• Calculate overall cost percentages of foodservice operations.



• A cost percentage is a percentage that indicates how the cost of food or beverages relates to the menu prices and sales of a foodservice operation.

• A foodservice operation earns money by charging more for the items on a menu than it costs to prepare those items.



Calculating Menu-Item Cost Percentage

I% = AS ÷ MP

where

I% = menu-item cost percentage

AS = as-served cost (part)

MP = menu price (whole)



• An overall cost percentage is equal to the total amount of money a foodservice operation spends on food and beverages divided by its total food and beverage sales over a defined period of time.

• When the overall cost percentage of a foodservice operation is lower than the target cost percentage, the operation has earned more money than planned.



Calculating Overall Cost Percentage

O% = TC ÷ TS

where

O% = overall cost percentage

TC = total food and beverage costs (part)

TS = total food and beverage sales (whole)



Checkpoint 6-4

1. Define cost percentage.

2. What is the menu-item cost percentage of a salad with an as-served cost of $1.75 and a menu price of $5.95? (Round answer to the tenths place.)

3. What is the overall cost percentage of a restaurant that spends $400 a week on food and beverages when total food and beverage sales are $1800? (Round answer to the tenths place.)

4. Define target cost percentage.





5. What is the menu-item cost percentage of a beverage with an as-served cost of $1.24 and a menu price of $6.00? (Round answer to the tenths place.)



Section 6-5: Calculating Menu Prices

Objectives:

• Calculate menu prices using the cost percentage pricing method.

• Explain perceived value pricing.

• Calculate menu prices based on the contribution margin pricing method.



• A target price is the price that a foodservice operation needs to charge for a menu item in order to meet its target cost percentage.

• Most foodservice operations tend to consider target prices as a starting point and then adjust the price up or down based on how management thinks customers will perceive the price.



Calculating Target Price

TP = AS ÷ T%

where

TP = target price (whole)

AS = as-served cost (part)

T% = target cost percentage



Many foodservice operations use a combination of cost percentage pricing and perceived value pricing to calculate menu prices.



As long as there is a proper balance on a menu between items with lower cost percentages and items with higher cost percentages, the foodservice operation can maintain an overall cost percentage that is close or equal to its target cost percentage.



• A contribution margin is the amount added to the as-served cost of a menu item to determine a menu price.

• This type of pricing is not common in restaurants but is often used when calculating a price charged per person for a special event.



Checkpoint 6-5

1. Define target price.

2. What is the target price of an appetizer with an as-served cost of $2.30 and a target cost percentage of 26%?

3. How much money is earned from selling a dessert with an as-served cost of $2.15 and a cost percentage of 32%?

4. Define perceived value pricing.

5. Explain what happens to the cost percentage of a menu item when the price of the menu item is increased.





6. Define contribution margin.

7. If the total contribution margin for a catered event for 50 people is calculated to be $500 and the as-served cost for the event is $10.00 per person, how much should the catering department charge per person for the event?

8. What is the target price for bottled water that has an as-purchased unit cost of $0.34 per bottle if the target cost percentage is 22%?



Section 6-6: Using Pricing Forms

Objective:

• Use pricing forms to help establish menu prices.



A pricing form is a tool often used to help calculate the as-served cost of a menu item and establish a menu price.



A target price is determined before setting a menu price and calculating the menu-item cost percentage.



Checkpoint 6-6

1. Define pricing form.

2. What are the two values that must be known in order to calculate the total ingredient cost of each ingredient in a menu item?

3. Explain the difference between the target price and the menu price on a pricing form.



Chapter 6 Summary

• The most fundamental food and beverage cost is the as-purchased cost.

• As-purchased costs are then broken down into unit costs to calculate the costs of ingredients in a recipe.

• For food products that are trimmed before being used in a recipe, as-purchased unit costs are converted to edible portion unit costs based on the yield percentage (YP) of the product.




Chapter 6 Summary (continued)

• The total cost of the ingredients required to prepare a menu item is referred to as the as-served cost. After the as-served cost of a menu item is calculated, menu prices can be established.

• A menu-item cost percentage indicates how the cost of preparing a menu item relates to the item’s menu price. Most foodservice operations use target cost percentages as tools to help calculate menu prices.

• Calculated menu prices are often adjusted based on perceived customer value.




Chapter 6 Summary (continued)

• Some foodservice operations calculate menu prices by adding contribution margins to the costs of food and beverages.

• Overall cost percentages are regularly compared to target cost percentages. The comparison identifies increased food and beverage costs to determine if menu prices need to be adjusted.

• Food and beverage costs and menu pricing information are documented on pricing forms and updated as costs change.

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Premium PowerPoint ® Presentation © 2015 by American Technical Publishers, Inc. All rights reserved Chapter 6 Section 6-1:Identifying As-Purchased Costs