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Monday, November 29, 2010

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?

Kurt_Woloch said...


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.

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