Costing

1. Chapter 7
Standard Product Costs &
Pricing Strategies
Food and Beverage Operations
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2. Chapter Overview
• Standard recipes
• Standard food & beverage costs
• Menu pricing methods
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Essential knowledge for Food Service Professionals
The time to begin considering this information is during college.

3. Standard Recipes
• A standard recipe: a formula for
producing a food or beverage item
– Ingredients
– Quality of each ingredient
– Preparation procedures
– Portion size
– Portioning equipment
– Garnish
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The standardized recipe is commonplace in large hotels, restaurants and chain restaurants

4. Advantages of Standard Recipes
• Consistency of quality, flavor, portion
size
• Efficient purchasing practices
• Preparation of correct number of items
• Effective scheduling
• Less supervision required
• Elimination of guesswork
• Less reliance on employee memory
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Strict standards in the kitchen begin with accuracy, consistency and portion
control

5. Steps for Standardizing Recipes
Chaining Recipes – Including sub-recipes as ingredients for
a standard recipe.
1. Select time period for development
2. Have the chef or bartender describe
preparation
3. Double-check recipe by observation
4. Record the recipe
5. Share the recoded standard recipe with
staff
6. Test for quality and quantity (Exhibit 6 p.162)
7. Train employees in standard recipe use
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6. Adjustment Factor
• To accurately increase or decrease the yield
of a standard recipe
• Divide the desired yield by the original yield
Desired Portions (225)
Adjustment = (2.25)
Factor = Original Portions (100)
New Amount 8 oz 2.25
X =18 oz
= (original (adjustment
amount) factor)
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7. Cost Calculations
• Portion Cost: Divide the total cost of the item
by the number of portions the recipe yields.
Total Cost ($75)
Portion Cost =
Portions (50) =($1.50)
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Food cost typically range from
24-35%

8. Cost Calculations (cont.)
• Total Meal Cost: Add the portion costs of all
meal components
• Contribution Margin: Subtract food costs
from food revenue
Contribution Margin = Selling Price - Food Costs
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9. Standard Beverage Cost
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Usually
15-18%

10. Standard Beverage Cost (cont.)
Cost per Ounce: divide the cost of the bottle by
the number of ounces per bottle
e.g. per-ounce cost $1 = $25/25oz
Drink Cost Percentage: Divide drink cost by drink
selling price and multiple by 100
Drink Cost Percentage= (Drink Cost / Drink Selling Price) X 100
e.g. Drink Cost Percentage 25%=($1/$4) X 100
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11. Subjective Pricing Methods
• Reasonable
– Represent a value to guest
• Highest
– Guest will be willing to pay
• Loss-leader
– Draw in guests who will order more
expensive items once they are on
the premises
• Intuitive
– Will appeal to guests; trial-and-error
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12. Objective Pricing Methods (cont.)
• Desired food cost percent markup
Selling Price = item's standard food cost
divided by desired food cost percent
e.g. $1.5/33%= $4.55
Elasticity of demand
– Relationship between selling price and
volume sold
– Demand responds to price changes
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13. Objective Pricing Methods (cont.)
Is Lower Food Cost Percentage the Goal?
Menu Food Menu Selling Food cost Contribution
Item Cost Price Percent Margin
Chicken $2.50 8.25 30.3 $5.75
Steak $5.50 14.00 39.3 $8.50
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Although Pricing is crucial to make a profit
Variety and guest satisfaction needs to be considered for repeat business.

14. Objective Pricing Methods (cont.)
• Profit Pricing
– Allowable food cost
Forcasted Profit
Food - Nonfood - Requirement = Allowable Food
Expenses Costs
Revenue s
$800,000 - $415,000 - $75,000 = $310,000
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15. Objective Pricing Methods (cont.)
• Budget food cost percent: divide allowable
food costs by forecasted food sales.
Budgeted Food $310,000 (allowable food costs)
Cost Percent = = .388
$800,000 (allowable food costs) (39% rounded)
The resulting percentage is divided into an item's
standard food cost to arrive at a selling price.
e.g. $1.5 / .39 = $3.85
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