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.

Optimal Order Size Question

When creating a build to for food orders, what is the exact formula
used? I know it's units used divided by how many days and something to
do with how many deliveries a week.

James

Thanks for the question, James.

Use of the formula described depends on the shelf life of the product. For example, fresh picked raspberries have a rapid spoilage rate when compared to frozen raspberries. The average daily usage/number of deliveries per week model works well for high volume items with a shelf life of 7 days or more.

A twist on this method you may find interesting is to multiply your expected sales (in dollars) by the average consumption per dollar of sales. If you used 1 case for every $1,000 in sales and your sales forecast is for $20,000, you would require 20 cases. Simply check to see what the in stock level is and order the net amount. In our example, we would order 18 cases if we had 2 cases on hand.

Should we order extra in case our sales forecast is off? I think the answer depends on your number of deliveries per week, the day of the order, and your ability to adjust to actual sales volume.

If you are placing a Thursday order for a Friday delivery to handle a busy weekend and you can't get the next delivery until Monday, you would want to provide for a small cushion. On the other hand, a Monday order to replenish your inventory should not be inflated with a safety factor. Your suppliers are most likely in your area all week for any adjustments.

To utilize this method, ask your distributor for a quarterly tracking report. Next you should run a sales recap for the same quarter on your POS system. Divide the number of cases on the tracking report by the total food sales for the quarter. The result is the average usage in terms of sales.