Hospitality Management
Menu Costing

Food cost may be defined as the cost of material used in producing the food sold. In other words, it is the cost of food consumed less the cost of staff meals. The main objects of food cost or material costing are:

  1. To ascertain the food cost of a particular item on the menu

  2. To ascertain the total expenditure on food over some time.

  3. To control cost, price, profit margins and provide information for formulating an effective pricing policy.

  4. To disclose faulty purchasing and inefficient storing.

  5. To prevent pilferage and wastage.

  6. To ensure customer satisfaction.

  7. To bring cost- consciousness among the employees.

  8. To reduce cost and improve quality.

  9. To provide cost estimates to the manager for developing budgets.

  10. To assist the manager in making control decision.

  11. To evaluate pricing and establish future pricing.

The usual method of food costing is summarized as follows:

  1. Calculate the food cost of each item on the menu

  2. Control labor and overhead without attempting to apportion them to the various item produced.

  3. The selling price of each dish is usually fixed by adding to its prime cost (food cost) a certain percentage to cover wages, overheads and net profit.

Labor cost and overheads are not usually apportioned to the individual cost of dish produced. It should be ensured that individual selling price of the dish will produce sufficient income to cover the labor and overhead costs and achieve the required net profit.

The formula for food cost:
 

FC = COST OF FOOD CONSUMED – STAFF MEALS
 

OR,
 

FC = OS + (P – PR) – CS

FC = FOOD COST;

OS = OPENING STOCK;

P = PURCHASE;

PR = PURCHASE RETURN;

CS = COST OF STAFF MEAL

Total Cost: the total cost of food items is composed of three basic elements known as an element of cost. The difference in sales price and total cost of a product is known as net profit. The opening cost may be classified as:

  1. Food Cost or Material Cost (MC)

  2. Labor cost (LC)

  • Overhead Cost (OH)

TOTAL COST = MC + LC + OH

Material Cost: material cost refers to the basic cost in food and beverage business. The cost of material which enters into and becomes a part of the product is known as direct material. For example, the use of ingredients in catering and flour in bread making each of these materials, are classified as direct if the costs can be identified with the product. In the food and beverage business material refers to four basic costs:

  1. Food Costs

  2. Beverage Costs

  3. Cost of Tobacco and Cigarettes

  4. Cost of Sunday sales.

 

Cost Sheet or Statement of Food Cost:

 

Cost sheet is a statement which provides for the assembly of detailed cost in respect to a cost of the unit. It is prepared to indicate detail cost of the total output or products. It gives the cost per unit. The main advantages of cost sheet are:

  • It discloses the food cost of a dish and cost per unit.

  • It enables the management to keep a close watch and control over the production

  • It provides a comparative study of the various ingredients.

  • It helps in formulating a usual production policy.

  • It helps in fixing up the selling price of the items produced.

Each establishment requires the calculation of food cost of dishes produced. A list of prepared of all ingredients along with the quality of each ingredient required for preparation of a dish for four covers. It is prepared in a food cost sheet. The value of each ingredient is calculated by checking the price from an invoice or price list. There may be two types of ingredients used. Firstly, those items purchased, the price of which is obtained from the supplier’ invoice or price list. Secondly, items which are made up in the kitchen such as stock, sauces, pastry, etc. It is necessary to prepare a costing of all the particular ingredients for dish costing purpose.

 

Once the cost of all the ingredients is calculated, the total will be the food cost for say four covers. Dividing the total food cost by four, we ascertain the cost per cover. These costing sheets are prepared in advance and afterward filed for reference purpose in future. Costing may be done for the particular dish which indicates the quality as so many portions or it may be done for a particular item such as potato chips, which may be expressed in term of its weight. In the latter case, if you want to calculate cost per portion, it will be necessary to specify the size of the portions to be costed.

There are some items in the costing sheet which are too small in quantity and cost to value individually. These items are costed at estimation for the whole; such items include parsley, bay leaves, etc.

 

On the bottom portion of the cost sheet following information is included:

  1. Total food cost.

  2. Cost per portion.

  3. Gross profit percentage.

  4. Selling price or charge per portion.