Q&A Recipe Costing and Cost Accounting

rey said...

Hi Joe.
I hope I'm posting this in the correct blog.

In order to cover our waste, free bread, staff food, and complimentaries, we are planning to add a plate cost to our new recipes to cover these costs. We understand that this will push our selling prices up.

My question is as follows:
Do we add the plate cost to the recipe or do we simply raise the selling price by the respective plate cost?
Ray


Kurt_Woloch said...

@Rey:

I know I'm not Joe, but I wanted to chime in on this...

I would look at this differently. Let's look at each of the items you named:

Waste... should be attributed to the item that gets wasted. For instance, if you buy 5 potatoes, but regularly throw away one of them, the purchase price of the 5 potatoes has to be divided by the 4 potatoes that actually get used.

Free bread... free with what? Does every customer get this, even if only drinks are consumed? Or does the bread come with meals, or even only with some meals, but not all? In that case I would try to determine how much bread in average gets used for each meal on the menu and add the price of that average bread consumption to the recipe of that dish, respectively.

Staff food... should correctly be attributed to staff costs like wages. I would factor the cost of staff food into the wages, so the more time gets used on an item, the more staff food cost gets factored in.

Complimentaries... here I would ask myself what exactly causes them. There can be various reasons, and I don't know yours, but if the ordering of certain items typically leads to complimentaries being issued, I would factor the cost of complimentaries into those items that causes them.

Kurt has made several excellent points. On the terminology angle, I consider the "waste" example describes standard yield. Using the 4 usable potatoes out of 5 purchased example, we would expect to use 50 pounds of potatoes for each 40 pounds called by a standard recipe. Some people prefer to assume 100% usage and treat normal loss of weight to trim as shrinkage. The deli business uses the term shrinkage to describe all weight losses.

If they receive revenue for 20# of product they used 25# of product, we could say their shrinkage was 20%. They include standard yield, spoilage and other loss of weight in their calculation.

Should you charge for this "waste", "shrinkage", "standard yield", etc.?

I recommend allowing for expected trim loss in your recipe costing and menu item pricing formulas. The allowance for an acceptable level of spoilage may be added if your menu varies and your customers expect to pay a higher price. It is not as easy to pass along the cost of spoilage in this economy. Value conscious guests may look elsewhere if they feel your prices are too high.

Employee meals are related to direct labor costs and the food consumed is a component of your cost of goods sold. There are two ways to manage this activity. You can budget a cost of one meal per employee shift ($3.00 is used by many companies). Alternately, you can calculate the true cost of the food served to employees and deduct this from your overall food cost.

I have no strong opinion regarding the best way to handle employee meals cost. I strongly recommend setting a policy and adhering to the method in a consistent manner. Say you have no credit for employee meals today. You implement a new policy of charging $3 per shift. Any comparisons to previous food cost performance are erroneous. Don't go around patting yourself on the back because you began crediting employee meals.

Regarding free bread, I had a conversation with a friend the other day about a "best restaurants" cover in a local magazine. A prominent local TV celebrity was photographed with his wife dining at a popular restaurant. The table included a completely untouched bread basket, his burger plate and her salad plate. We were discussing why too many restaurants offer free bread at lunch to patrons who may be ordering a sandwich. Do you ask your guests if they would like some bread with their lunch?

I see lots of untouched bread baskets during the lunch service.

Some restaurants try to up-sell the freebies placed on the table before any orders are taken by the wait staff. Chips and salsa may be upgraded to guacamole and chips. Garlic bread may appeal to some of the free bread lovers. Some of your guests may make a meal of the preliminary course. You need to be careful.

A friend of mine milks the preliminary offerings to the max. If the restaurant serves olive oil, he'll ask for extra and sometimes they bring a bottle. One place we enjoy serves bruschetta. He requests extra topping and the servers always return with a generous amount in a small bowl.

You absolutely should charge for the complimentary items somewhere in your menu prices. One of my favorite Upstate New York restaurants offers access to a small salad bar along with a mini loaf of fresh baked bread once you place your order (half chicken is the most popular choice). If they didn't build the cost of the salad bar and bread in their prices, they would be in deep trouble. On my last visit, I paid below $10 for the meal.

Forecasts For Better Food Cost Results

Most restaurants have an automated ordering system (POS) which can be queried for menu item counts for any given data range. This data is quite helpful for the forecasting team in restaurants using a limited menu or a menu with a central focus (either by cuisine or main ingredient). Unwieldy menus do not allow a quick menu item count forecast (using historic POS data) to effectively buy most key items.

At the core, most forecasts begin with the cover count or number of guests expected to arrive in a given time period. Adding the check average to this cover forecast will provide the people designing a shift schedule with a target. Simply take the covers times the check average times the target labor percentage. This is the budget for the period.

Food cost control is not a percentage game in the planning phase. Although most use food cost percentage to measure results, the number won't help you predict what food to order, store, prep and bring to the line for any given period. Cover counts and check averages will provide a broad target. Making the target work is a tougher task.

For many raw ingredients, the ability to use unsold product in future meal periods has a significant impact on your food cost results. Limited menus put a short list of ingredients in play every single day. They don't need to worry how to use any leftover cheese at Domino's Pizza. Pizza is on the menu tomorrow. In contrast, operators using menus relying on daily specials for a major share of sales will have a much more demanding job to use up leftover stock.

The purchasing forecast depends on par stock targets for many shelf stable items. In a typical kitchen, a much greater share of the food cost dollar is spent on perishable meat, fish and produce. The error penalty for over ordering a shelf stable condiment is minimal when compared to fresh white fleshed fish. You will often see seafood specialists with chalkboards. Late in the dinner shift on a busy night, they want to run out of fish if the next day's forecast is for a slow Sunday or Monday.

My favorite Italian restaurant in New York does not offer fish on days when the fish market is closed (Saturday and Sunday). Some chefs pay air freight to get fresh fish in the door as fresh as possible. You want to avoid over buying any highly perishable raw ingredient. Just ask your self a simple question: "If I order more than I can use today, will I be able to sell the leftovers tomorrow?"

Once you move away from fresh fish and poultry, dairy and produce are highly perishable and are frequently purchased by specialists. If your operation doesn't justify hiring a specialist, tracking produce waste can help you adjust your pars quickly. I favor either a two-tier or three-tier par stock model. Order more before busy days and less on slow days.

I believe using sophisticated software (with menu item counts, standard recipes, standard yields and other recipe model factors) are most useful for companies who have never explored these tools. Often, my clients tell me they wish they had analyzed their menu item costs years ago.

The knowledge gained from yield analysis really improves future forecast accuracy. If you learn to translate purchase units of measure into the number of standard portions, you will have a competitive advantage. Your forecast model can now go well beyond covers, check averages and percentages. Take your top 25 items and buy more precisely. The impact is huge.

Essential Food Cost Control - All You Can Eat Operations

Dear Sir,

I have recently joined as trainee accountant and been assigned to conduct an audit of a catering project. However, I am clueless on how to arrive at a food cost. Below are the three targets I was provided and while I was looking over internet I found your blogs to be helpful. Can you please provide me any formula or a table that can be of help?

Check cost per man day and whether it has been under control as foreseen in the costing.

Check the menu and cost whether it complies according to the contractual stipulations.

Fix budget for cost centers and follow up in the subsequent months whether the expenditures are under control or not.

Thanks in advance sir.

Regards,
R

The key to success for your operation is in a complete understanding of the cycle menu. Certain weeks will run higher food costs. You will find certain days of the week run high and other days much lower. Once you get a feel for your menu and the patron preferences, your cost data will help you track the actual results vs. the plan.

Cost center analysis is best accomplished through head counts by meal period. Track the number of patrons for each meal period and for each dining area.

A cost per man day is a composite number which depends on the total cost of all food consumed. Slicing and dicing the total cost requires tracking patron attendance and food production. You'll get on top of the formula quickly by tracking details of the patron attendance and the traditional food cost formula:

FOOD COST = BEGINNING INVENTORY + PURCHASES - ENDING INVENTORY

Count data should be gathered by day in the cycle, meal period, dining room and any special event details. Really, there is no specific pattern to follow. Your contract will have details which will guide your selection.

Quantity Food Production Skills

Hi Mr Dunbar,
How are you. Sorry to barge in like this but as a new entrant I need your help. I was a kitchen manager in an a-la-carte restaurant with my staff cooking for small tables.

I recently got a new job as production manager for banquets at [a major sports venue]. The issue here is that there is a sudden transition from line cooking to volume/bulk cooking. My Director of Operations asked me today if I can to make a changeover from line cooking to volume cooking. I am supposed to instruct and lead the cooks in what they do.

No more a la carte but 4 buffets serving 125 to 150 people who come to see the [sports events]. What do you think the issue is? I suddenly can’t cook bulk as a demi-chef since I don't have the experience. Are there any books which cater to this situation? How do you transition from a la carte cooking to bulk cooking, when you have the theory but no knowledge of volume cooking? Any help will be really appreciated.

Chef

Buffet food production in a sports arena requires accurate forecasts. The teams may go on the road and leave you with a walk-in cooler loaded with leftovers. On the other hand, you don't want to stock out on game day.

Unlike an a la carte menu, a buffet deals with a set layout. You know what to produce but you don't know exactly what will be most popular. Once you get some data, the puzzle will be easier to solve.

I prefer a matrix for tracking buffet results. The rows are the buffet components and the columns track the activity. The first column is my forecast and I try to relate the PRODUCTION forecast to the service line. For example, if an item is served in a pan I would forecast the number of pans. The next column SERVED is the number of pans consumed by guests. I finish the simple table with a WASTE column.

You may be able to use some of the food in a future event but be careful. Recently, I was sickened by a meal I had at a football game. The service style was buffet and the food was not uniformly hot. Bringing the temperature of full pans down below the danger zone for bacteria, reheating days later and sending the pan back on a serving line is risky business.

Imagine you are serving 100 people. Take the buffet layout and take each menu item separately. Guess how many ounces each patron will consume. Don't use 12 ounces or 8 ounces as you would in an a la carte operation. Try 3 or 4 ounces for popular items. Use a lower figure for less popular items. This is your forecast base.