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A Closer Look at Food Cost

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Title: Title of Chapter Author: Leilani Last modified by: ROPJLM1 Created Date: 1/30/2006 5:52:17 AM Document presentation format: On-screen Show Other titles – PowerPoint PPT presentation

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Title: A Closer Look at Food Cost


1
A Closer Look at Food Cost
2
  • Controlling Foodservice Costs

OH 2-1
2
Chapter Learning Objectives
  • Calculate food cost.
  • Calculate food cost percentage.
  • Explain the effect that changes in food cost and
    sales have on food cost percentage.

3
Food Cost
  • The actual dollar value of the food used in a
    foodservice operation
  • Often referred to as cost of food sold

4
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

5
Theft Increases Food Cost
  • Employee theft can be difficult to prevent, but
    its control is vitally important to ensuring
    profitability.

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.

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.

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.

9
Bar Transfers continued
  • In a busy bar, the amount of food that is
    transferred from the kitchen to the bar can be
    significant.

10
The Food Cost Formula
Opening inventory
Purchases
Total food available
Closing inventory
Cost of food sold

11
The Food Cost Formula in Use

Opening inventory 5,000
Purchases 30,000
Total food available 35,000
Closing inventory 4,000
Cost of food sold 31,000
12
Physical Inventory
  • To accurately calculate cost of food sold,
    managers must take a physical inventory.

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

14
The Food Cost Percentage Formula

Food cost Sales Food cost percentage
15
The Food Cost Percentage Formula in Use

Food cost Sales Food cost percentage
7,000 25,000 7,000 25,000 7,000 25,000 0.28 or 28.0
16
Two Ways to Make a Decimal Conversion
  • Method One
  • Move the decimal two places to the right.
  • .35 35
  • Method Two
  • Multiply by 100.
  • 0.35 x 100 35

17
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 restaurants budgeted
    food cost percentage or other standard

18
Food Cost Percentage continued
  • Is the proportion of the restaurants 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

19
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!

20
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.

21
Ten Percent Increase in Sales and Cost of Food
Realigned numbers
  • 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 33

22
Ten Percent Decrease in Sales and Cost of Food
Realigned numbers
  • 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 33

23
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.

24
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.

25
Food Cost Percentage
  • Should be controlled
  • Should not be allowed to fall far below the
    restaurants standard

26
Food Cost Percentage continued
  • If food cost percentages are allowed to drop
    below the restaurants standards, the guests
    perceptions of value may be negatively affected.

27
How 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 restaurants 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 fixed
  • It is semivariable
  • It is variable
  • It is noncontrollable
  • A managers job is to reduce the food cost
    percentage as much a possible. (True/False)

28
Key Term Review
  • Closing inventory
  • Food cost
  • Food cost percentage
  • Inventory
  • Opening inventory
  • Purchases
  • Total food available

29
Chapter Learning Objectives What Did You Learn?
  • Calculate food cost
  • Calculate food cost percentage
  • Explain the effect that cost and sales have on
    food cost percentage
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