Question on Food Cost Basics

Joe,

My name is Steve and I am starting a new job as a Sous Chef but haven't learned anything about food costs or labor costs and I am afraid to not be able to be a team player on this important situation, that I am final realizing that its part of my job. Can you please teach me how to do all of this or point me in the right direction. I have read your basics on food cost but still I am having trouble understanding it all. Thank you for your time.

Sincerely
Steve

The goal of food purchasing is to place the food in inventory as close to actual production as possible. People who are pros know delivery dates and times, par stock levels, minimum drops, shelf life, and most important, the forecast for the order period.

The food cost formula is really a report card on how well you forecasted for the orders. Most food service companies have several backup suppliers they can use if they experience sales far beyond the forecast. Typically, these last minute purchases are made at cash and carry stores with much higher prices.

The heart of the food cost formula is purchases. You simply divide net purchases by sales. If you forecast your sales carefully, you will make better purchase decisions.

As a learning tool, you may want to take a look at 4 or 5 weeks of invoices to see past purchases. You can discuss spoilage and waste with the chef. Ordering is most important before busy periods. You need to have adequate supply without creating excessive waste. If you keep score, you will rapidly improve.

Question on Batch Recipe Costing

Hello Joe

My name is Tay. I just purchased a bakery in Minnesota and I would like to know if you can teach me how to estimate the cost of a croissant. Without knowing the formula, I'm afraid not to place the right price. Please give a example. Is there any software on the market?

Thank you very much!

Tay

Thanks for the question Tay.

Gather all the ingredients you need to make a batch of croissants. Write down the amounts of each ingredient required for the batch. This is your recipe.

Using purchase data (use invoices or go to a store if necessary), calculate the cost of each ingredient. You need the cost of the amount used in the recipe not the cost of the entire purchase unit (for example, pound vs. case). Add all the costs to find the batch cost. Once you complete this analysis, you are done with the cost of the batch.

[NOTE: The step above is the trickiest and the most important. For each ingredient, you are asking yourself how many batches you could produce from the common purchase unit of measure (for example, a bag of flour). In the long run, this data is used the most. Prices will change over time but the ingredient quantities will remain the same. Don't rush this exercise. Most recipe software programs call the answer to this question the "Conversion Factor" and it is very important.]

Carefully portion the croissants. Count the croissants. You now have the recipe yield. The formula follows:

Portion Cost = Batch Cost divided by Batch Yield. For example, if you had a batch cost of $45 and you were able to produce 100 croissants, your cost per croissant is $0.45. If you charge $1.50 per croissant, your cost % is 30%.

Mid-Year Look Back - Outlook 2010

My most popular blog post this year is by far the Outlook 2010 which was published in early January 2010. I thought it would be interesting to see how well my predictions have fared during the first half of 2010.

We can expect the Federal Reserve to leave rates low until the job market turns the corner.

The Federal Reserve Board has cooperated with business borrowers leaving the over night federal funds rate at record low rates (zero to 1/4%).

I expect oil to remain below $100 per barrel.

Despite the BP debacle, the crude oil markets have remained in check and well below the $100 per barrel threshold.



Source: ino.com

Stocks should continue the up and down motion as the Dow Jones seeks higher ground. Any increase in consumer confidence will translate into profit since companies have reigned in their fixed costs.

Both the Dow Jones Industrial average and the broader S&P 500 index have seesawed back and forth in the search for direction. Corporate profits are definitely higher than 2009.



Source: finance.yahoo.com

Look to travel indicators for signs of increased mid-week business. When airlines and hotels begin to see increased volumes, restaurants will find business travelers in their seats. Don't expect many $100 bottles of wine on business expense accounts this year. Frugal is in vogue.

There was a short clip on CNBC today regarding higher occupancy rates at the Starwood Hotels group. Many of my clients who have a significant business expense account clientele report a gradually improving climate. Guests are reviewing check totals quite carefully.