Food cost %
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This document provides an introduction to the concept of food cost. It defines food cost as the cost incurred to produce the food to be sold, expressed as a percentage of total sales. The formula for calculating food cost percentage is presented. Higher food costs or lower total sales will increase the percentage. Practical examples are provided to illustrate how higher food cost percentages leave less profit. The next class will discuss methods for controlling food cost percentage to maximize profits.
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- 1. Food CostAn Introduction to the ConceptBhavin Parekh1
- 2. ContentsUnderstanding Food CostThe PizzaWhat does it mean to you and your restaurant?Basic Definition of Food CostThe MathInterpreting the FormulaUsing Food Cost Applying Food Cost in day to day operationsPractical Example2
- 3. ObjectivesTo be able to define Food Cost and express the same mathematically.To be able to compute Food Cost %.To be able to interpret Food Cost %.To be able to apply Food Cost % in day to day operations to maximize profits.3
- 4. Understanding Food Cost –The Pizza4
- 5. Understanding Food Cost – The Pizza – cont’d…51 person gets the whole pizza i.e. 1 person = 100%Pizza50%50%2 persons get half a pizza each. i.e. 2 person = 50%25%25%4 persons get only a quarter pizza each. i.e. 4 person = 25%25%25%
- 6. Understanding Food Cost – The Pizza – cont’d…6Assume that your total sale for the day is Rs. 1000/-Rs. 1000Your product is food.Rs. 300In order to produce the food to sell, you incurred a cost of Rs. 300.Your net saving at the end of the day will be Rs. 700 (Rs. 1000 – Rs. 300). This can also be referred to as PROFIT.In order to increase your profit, you will have to reduce the food cost, given that the total sale is a constant.
- 7. Food Cost – A Definition7Food Cost is defined as the cost incurred to produce the food to be sold.This is expressed in percentage (%).Hence, Food Cost % is mathematically defined as the ratio of the cost of food to the total sales. It is mathematically expressed as:Food Cost % = Cost of Food x 100 Total Sale
- 8. Food Cost – An InterpretationThe food cost is directly proportional to the cost of food.This implies that the higher the cost of ingredients, the higher will be the Food Cost %.The higher the Food Cost %, the lower is your profit.8
- 9. Food Cost – An Interpretation cont’d…The food cost is indirectly proportional to the total sales.This implies that higher the sale, the lower is the cost of Food Cost % and vice versa.What is the impact of Food Cost % on your restaurant’s profit ?9
- 10. Food Cost – Understanding impact on Profit10The higher the cost of ingredients used to prepare the dish, the higher is the Food Cost %.PizzaThe higher the total sale, the lower is the Food Cost % and vice versa.A higher Food Cost % will eat into a larger share of your pizza, leaving you with a smaller piece and vice – versa.
- 11. Food Cost – Application and Practical ExampleBaked Beans in Tomato Sauce – Heinz and Maggi.Computing Food Cost %.11
- 12. SummaryThe formula.The independent and dependent variables.The impact of Food Cost % on profit.12
- 13. Linking to next classMethods to control food cost %13