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Module 2: The Importance of Counting Costs

Food costing is important to know as it has a direct effect on the profitability of a restaurant. It is the cost of your ingredients and does not include other costs, such as labour and overheads. Food costing is an essential tool in determining whether food costs targets are being met.

On Basic Recipe Costing

Understanding the basics of recipe costing is important so that you can:

  • Know how much food cost is incurred on each recipe. This gives you a clear view of how much you can earn per dish.
  • Understand how to properly price your dishes to achieve a target profit.
  • Study the way your competitor price their dishes against an industry benchmark.
  • Know when to reduce a recipe cost. If you keep up-to-date with your costing, and see that you are going beyond your target cost percentage, you can easily plan how to reduce the costs.
  • Find out each menu item’s profit margin and decide which ones to promote through suggestive selling and promotions.

Food Costing Tools

The following tools and calculations are important in deriving your food costs:

  • Standard Recipe: Costing based on a standard recipe makes it easy to compute food costs based on the servings that are needed
  • Up-to-Date Ingredient Costs: Current prices should be the basis of costing, thus the need to do a price check from time to time
  • Recipe Cost Sheet: For recording data and all information about the recipe such as current unit cost, actual ingredient cost and cost per portion
     

Calculating Recipe Cost

How do we apply numbers and costs to each Standard Recipe?

  • Step 1. Fill up the Recipe Costing Sheet with information based on the standard recipe to be based on a current price list.
  • Step 2. Indicate the latest purchase cost of each ingredient based on a current price list.
  • Step 3. Compute the actual cost of each ingredient
  • Step 4. Add actual cost of each ingredient to get the total recipe cost
  • Step 5. Divide the total recipe cost by number of portions to get the cost per portion
     

Recipe Cost Sheet

For recording purposes, create a recipe cost sheet for each of your dishes. Here is an example.


As you can see, it’s an extension of the Standard Recipe, providing costing details. 
 

Selling Price

Once you have your food costs, you can figure out the selling price of your dishes. The basic formula is:

Selling Price = (Food Cost + Labour Cost + Overhead Cost) + Profit

Your selling price should include all costs plus the profit you would like to earn.


What Should the Food Cost Percentage of Your Selling Price Be?

To compute the selling price, we need the food cost to only be a certain percentage of the selling price.

The amount varies from one restaurant section to another, and is influenced by other costs, such as labour, overhead, and target profit. It generally falls within the profit of 30 to 45%.
 

Food Costing in Practice

Here is an example to show how to find the selling price of a dish:

  • A restaurant has a target food cost percentage of 33%.
  • Their newest recipe was calculated to have a food cost of $25 per portion.
  • Applying the 33% rule, the target selling price = $25 divided by 0.33 = $75.75

Given this number, the restaurant can decide on the final selling price considering other factors such as competition, volume and labour costs.

Congratulations, you’ve completed the Food Costing topic!

Continue on to the next topic or pick a related topic from the Importance of Counting Costs module, or go back to the Chefmanship Academy modules page.

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