Ideal Food Cost Calculation in Food Cost Control Management
[Pages:3]IdealFoodCostCalculationinFoodCostControl Management
Almosteveryrestaurantandfoodserviceoperatorinthecountrysharesasimilar monthlyroutine--thecompletionofaproductinventoryandthesubsequent generationofafoodcostpercentage.Thisprocessnotonlyenablesthecreationofa restaurantprofitandlossstatementthatillustratesthefinancialhealthofthe business,butcanalsouncoveremergingoperationalperformanceissues. Unfortunately,notascommonamongrestaurantoperatorsistheroutinegeneration ofatheoreticalfoodcostthatcansupplementanactualfoodcostpercentageby providingafoodcosttarget,orbaseline.Thisarticlewillexaminethepracticeand benefitsofroutinelygeneratinganidealfoodcostaspartofaholisticapproachto foodcostcontrolmanagement.
IfyoustoodonthefloorofChicago'sMcCormickPlaceduringtheNational RestaurantAssociationshowandpolledattendeestouncovertheuniversalideal foodcost,youwouldprobablygetamyriadofresponses,quicklydiscoveringthat thereisnouniversalidealfoodcostconsensus.This,ofcourse,isbecausea theoreticalfoodcost,alsoknownasanidealfoodcost,isdeterminedbythe particularperformancecharacteristicsofabusiness;specifically,themenupricing, productcostsandmenusalesmixofagivenrestaurant.Notonlyisitimpossibleto pinpointanindustry-wideuniversalidealfoodcost,butitisalsoequallyimpossible todeterminearestaurant-specific,consistentidealfoodcostpercentage.Ifthis werenotthecase,theprocessofevaluatingactualmonthlyfoodcostfigureswould bequiteeasy,asonecouldsimplycomparetheactualfoodcosttotherestaurant's establishedidealfoodcostpolicy.Achievingthis,however,wouldrequirean operatortoestablishtheirdesiredidealfoodcostpercentageandthenpriceevery menuitemaccordingly.Stateddifferently,everyitemsoldwouldneedtohavethe samemark-upmarginthatwouldproducetheidealfoodcostpercentagegoal.This isbothanunrealisticandundesirablepricingstrategy,asitdoesnottakeinto considerationmarketpressures,competitionandmenuitemcontributionprofit. Further,itwouldalsorequiretheconstantre-pricingofmenuitemstocompensate fortheslightestshiftinspecificmenuitemproductcosts.Sincedoingsois obviouslynotadvantageousorrealistic,itshouldbeunderstoodthataparticular restaurant'sidealfoodcostwillcontinuouslyfluctuate,andthatroutinere- calculationoftheidealfoodcostmustoccurifanaccurateperformanceevaluation oftheactualfoodcostistobeestablished.Armedwiththeincreasedknowledge andvisibilityprovidedbythisinformation,anoperatorcanefficientlytargetcost controleffortsintheproperdirection.Specifically,asignificantvariancebetween thesetwonumberswillindicateabehavioralandperformanceissue,whileaslim variancewillindicateachangeintheproductcostsormenuitemsalesmix.
Ratherthanroutinelygeneratinganidealfoodcostpercentagetoserveasa baseline,aspreviouslydescribed,restaurantmanagersandoperatorsoftenlookat historicalfoodcostpercentagetrendstoevaluatecurrentmonthlyfoodcost performance.Whileusinghistoricaldatatogenerateactionabletrending
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informationishighlyvaluableinbothfoodcostcontrolandrestaurantprofitand lossmanagement,itcanalsoleadtomisleadingresultsifthispracticeisnot supplementedbytheuseofatheoreticalfoodcost.Whilehistoricaldatadoes serveasanindicatoroffoodcostperformance,thisindicatorcanbemisleading,as usinghistoricaldataasabenchmark,oridealtarget,doesnotaddressapossible shiftintheproductcost,menupricingormenusalesmix,aswepreviously illustrated.Ifanyofthesevariableschange,thenusingapastfoodcostpercentage, asameasureofcurrentemployeefoodcostcontrolperformance,wouldbe misleading.Itwould,likewise,bejustasmisleadingtousethesameinformationto writeoffanincreaseintheactualfoodcostpercentageassimplyaresultofrising productcosts.
Inadditiontousinghistoricaltrends,managerswilloftenalsorelyontheir operationalexperience,awarenessandknowledgewhenevaluatinganactualfood costpercentage.Whileoperationalfamiliarityiscriticalinuncoveringrestaurant costcontrolissues,ourexperiencehasshownthattherearetoomanyvariables involvedforgut-reactionmanagementtobeeffectiveingaugingfoodcostcontrol performance.Thealgorithmusedtodetermineanidealfoodcostlooksatthree variables,eachofwhichisdeterminedbyamultitudeoffactors.Quitefrankly, attemptingtodeterminethecauseofarising,orlowering,foodcostpercentage withoutthebaselineprovidedbyatheoreticalfoodcostis,atbest,aneducated guess.
Itisworthnotingthatarisingfoodcostpercentageisnotalwayscauseforalarm.If bothactualandidealfoodcoststrendupward,thenfurtherinvestigationmay uncoverthatthisupwardtrendisduetoashiftinthemenusalesmix,ratherthan productcostincreasesorbehavioralissues.Becauseproductswithahigherfood costpercentageoftenhaveahighercontributionprofit,arisingfoodcostduetoa shiftinthemenusalesmixcouldbeapositivetrend,asitmayresultinhigher profits.Forexample,whileasignificantincreaseinthenumberoflobsterorfilet mignondishessoldmayincreasetheoverallfoodcostpercentage,itmayalsoresult inincreasedbottomlineprofit,astheseitemsprovidehighercontributionprofits despitetheirhigherfoodcostpercentages.Uncoveringsuchintricacies,however,is verydifficultifidealfoodcostsarenotcalculatedandusedasabaselinewhen evaluatingcurrentfoodcost.Imaginethetimewastedandthemoraleissues createdifanoperatorreactednegativelytoarisingfoodcostthatwassimplythe resultofdifferentguestchoices,creatingadditionalprofitforthebusiness.This issueisverycommonamongbusinessesthathavefrequentlychangingmenu offeringsandproductmixes,suchashotels,caterersandconferencecenters.
Theactualprocessofcalculatingatheoreticalfoodcostisnotoverlycomplicated andcanberoutinelyexecutedwithsomeminorpreparatorywork.Thefirststepin creatinganidealfoodcostistocollectthedatanecessarytocompletethe theoreticalfoodcostequation;specifically,themenuitemrecipecosts,menuitem pricesandmenuitemsalesmix.Formostoperatorsandrestaurantmanagers,the menuitempricesandmenuitemsalesmixinformationisrelativelyeasytoacquire,
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asalmostallrestaurantPOScomputersystemsofferadetailedreportingofmenu itemssold.Menuitemrecipecosts,however,arenotalwaysaseasytocomeby. Accesstothisdatarequiresroutinerecipecostingthatincludestheongoing maintenanceandupdatingofmenuitemrecipecards.Itisimportanttonotethat calculatinganidealfoodcostusingmenuitemcoststhatareoutdatedwillproduce significantlyskewedresultsthatmaynotreflectthetrueidealfoodcost.While completingandmaintainingrecipecardsdoesrequireatimeinvestment,itis absolutelycriticaltocompleterecipecostingtoensurethatmenuitemcosttrends aretracked.Onceallofthisdataiscollected,calculatingtheidealfoodcostiseasy. Thetheoreticalfoodcostformulaissimplythetotalidealfoodexpense,dividedby totalidealrevenue,whichiseasilycalculatedusingthedatapreviouslymentioned. Togreatlysimplifythisprocess,werecommendthatyoueithercreateyourown spreadsheettoperformthecalculations,ordownloadourfreeidealfoodcost calculatorfromtheFoodBuyersNetworkwebsite.
Asafinalnote,operatorsshouldberealisticintheirattempttoexecutethiscritical foodcostcontrolpractice.Determiningaperfectlyaccurateidealfoodcostisvery time-intensive,asitisnecessarytocosteverysingleitemsold.Asyoucanimagine, thiswouldbeaverydifficultprocess,asanoperatorwouldneedtotrackandcost everyside-item,add-onandspecialordersoldduringagivenperiod.Fortunately,a highlyaccurateidealfoodcostcanbegeneratedbyfocusingeffortssolelyonthe itemslistedonthemenu,includingfrequentspecials.Whilenotcompletely accurate,theaggregatevolumeoftheseitemswillrarelybeaffectedbytheideal foodcostofthoseitemsthatyoudidnottrack.Justkeepinmindthattheideal revenuefigurethatisusedinthecalculationistheidealrevenueofonlytheitems beingtracked,andnotthetotalfoodrevenue,asonewouldfindonarestaurant incomestatement.Theendresultofthisprocessisanidealfoodcostthatis sufficientlyaccuratetogaugefoodcostperformance,withoutspendingtoomuch timeoncalculatinganexactnumber.
Hopefully,thisarticlehaseffectivelycommunicatedtheneedtoroutinelycalculate theoreticalfoodcostsaspartofalargerfoodcostcontrolmanagementprogram. Again,werecommendthatyoudownloadourfreespreadsheettomakethese calculationseasier.
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