Fundamentals of Food Costing
Food costing is the process by which the material or physical assets owned by an
establishment are safe guarded, as the property needs these assets in order to make a
profit. To ensure that a kitchen is operated in the most profitable way, and to control
expenses, there need to be established procedures that have to be strictly followed. It is
important that each member of staff understand these procedures so a food cost can be
achieved. Standardised recipes and procedures are put into place to guarantee
Key points to consider when purchasing
The purchasing department needs to know all the requirements of the kitchen or any
other department in the establishment. There are certain factors that need to be
· Understocking – the dangers of understocking lead to shortages which can break
up flow of production, and lead to dissatisfaction for the customer.
· Overstocking – wastage occurs, too much money is tied up in stock which is an
added risk to the establishment.
· Items out of stock – this refers to food that may be out of season, which may
necessitate buying imported products (usually more expensive).
· Items in season – products are usually cheaper when in season, so should be
used in promotions.
The purchasing department needs to bear the following in mind:
· Always buy at the right price – it may be necessary to use more than one
supplier and get a range of quotes.
· Buy the right sizes and weights – it is not always an advantage to buy in bulk, if
there is a chance it won’t be used.
· Bargain for credits and discounts – most suppliers will negotiate a discount.
Payment options sometimes allow 30, 60 or 90 days of credit (which means the
supplier bears the interest).
· A system of order forms and numbers should be used to avoid fraud and
mistakes – you should know which supplier is delivering what, when it was
ordered, what quantity was ordered, etc.
Personnel working at the receiving bay must always check the following:
· Correct items as per order form
Controlling the storeroom
The storeroom manager must check the following:
· Deliveries and issuing – there must be a system of tracking what goes in and out
of the storeroom at all times.
· Stock rotation – the first item to come in, must be the first item to go out (FIFO).
· Proper documentation must be in place to create a paper trail that is needed to
follow up any discrepancies.
· Wastage – this needs to be kept to a minimum.
Controlling the kitchen
· Kitchen staff need to fill in proper requisitions
· Authorised staff must check and sign any requisitions
· The storeman must sign for any shortages or items not issued, goods need to be rotated
· Kitchen staff must not over or under cater, portion control must be adhered to
· All function sheets should be displayed to the staff for effective planning
· Standardised recipes should be used, and available/displayed to staff
· Staff should be reprimanded/ penalised for wastages
· Leftovers should be re-used if possible
To ensure that the food cost is stable, the management need to take into account all the
factors that contribute to the proper costing of a menu item. All the overheads need to be considered, as well as other factors, such as complimentary meals, staff discounts, bar issues, etc.
CALCULATING FOOD COST
The food cost indicates to you what gross profit or loss you have achieved in relation to
your given budget. Various costs need to be known in order to make all our calculations.
Cost of raw materials – all the amounts of ingredients used in the preparation of a dish
Overheads – these include salaries, water, electricity, maintenance, advertising,
breakages, promotions, laundry, etc.
Pre-determined net profit, as decided by management or shareholders
Elements of sale
1) Material costs – basic food costs (ingredient costs)
2) Labour costs – wages, staff meals and staff accommodation
3) Overheads – fuel, electricity, heating, stationary, rates
4) Net profit – the amount of cash left over after all the expenses have been paid
Elements of cost
1) Material costs
2) Labour costs
SALES = COSTS + PROFIT, therefore 100% = COSTS % + PROFIT %
Gross profit is the difference between the price at which goods were sold (selling price
excluding VAT), and the price at which the goods were bought (cost price).
Costing of a dish
The reason for costing a dish is to determine how much a business has to spend to
prepare a dish. The ingredients, quantities and cost of raw materials need to be known
to calculate the cost of a dish.
Calculating selling price
All catering establishments add a mark up to the cost of the dishes they sell. This mark
up is to cover the costs of the overheads and to generate a profit for the establishment.
In any business the flow of money into and out of the organisation is determined through
calculations. If you are a chef you do food costing, if you are a restaurant manager you
calculate the total of the customers’ bill before handing it to him, if you are a storeman
you calculate the quantities of stock items in your store, etc.
Before we start looking at the equipment we use to do calculations it is important to
understand the terminology used when working figures.
Selling Price (incl. VAT) = selling price (excl. VAT) x 14%
= selling price (excl. VAT) x 1.14
= selling price (excl. VAT) x 14 / 100
Selling Price (excl. VAT) = selling price (incl. VAT) / 1.14
= cost of sales + gross profit
= cost of sales / food cost%
= cost of sales / food cost x 100
VAT Amount = selling price (incl. VAT) – selling price (excl. VAT)
VAT Amount = selling price (excl. VAT) x 14%
Food Cost Percentage:
Food Cost Percentage = cost of sales / sales (excl. VAT) x 100
Cost of Sales (Food Cost):
Cost of Sales = selling price (excl. VAT) x food cost %
= selling price (excl. VAT) x food cost / 100