Determining Menu Item Prices

1.1 Raw food cost is calculated for every menu item.

Calculating Standard Portion Cost

Purchase price per unit DIVIDED by the number of portions per unit.

Example to determine the cost of a serving of canned green beans:

Step 1: Determine purchase price per unit:
Purchase price per case: 6-#10 cans = $16.95
$16.95 ÷ 6 = $2.82 per #10 can or per unit

Step 2: Determine number of portions per unit Number of portions per #10 can: 25, 4 oz portions

Step 3: Divide purchase price per unit by the number of portions per unit $2.82 ÷ 25 = $0.11 per 4 oz serving

Calculating Portion Cost with Yield Loss

Step 1: Look up the yield loss on red potatoes (81 percent).

Step 2: Look up the price per pound of red potatoes from the produce invoice: $.70/pound

Step 3: Determine the number of servings from one pound=4.7.

Step 4: Divide the original price per pound by the yield $.70 ÷ .81 = $.86. (Note: 81 percent is .81 as a decimal)

Step 5: Divide the new cost per pound of potato by the number of 1 oz (1/2 cup) servings of potato.
$.86 ÷ 4.7 = $.18 per serving of potato

Consider the following factors that vary yield loss:
✓ employee skill and experience (a skilled employee will waste less)
✓ size of the product (large potatoes will have less waste than small)
✓ freshness of your product (older potatoes will have more bruising and waste)

Calculating Standard Recipe Cost

List of each ingredient’s cost ADDED together DIVIDED by the recipe yield

Example: Egg Bake for 50 clients:
50 eggs @ 1.60/doz. ($.133/egg)
50 x $.133 = $6.67 for 50 eggs

2 cups milk @ $4.25/gallon (16 cups/$4.25 for 1 gallon= $.266/cup)
2 x $.266 = $.53 for 2 cups milk

2 cups croutons @ $4.25
4 cups cheese @ $11.80

$6.67+$.53 + $4.25 + $11.80 =$23.25

Total Cost per Client/Portion

1.2 Menu prices are set for each item, using a predetermined profit margin.

Method 1: Contribution Costs + Raw Food Costs

Option A
(for healthcare of other operations that do not have an actual sales amount each month)

To calculate contribution costs:
1. Monthly Foodservice department budget MINUS monthly cost of food = COSTS OTHER THAN FOOD
2. Determine TOTAL CUSTOMERS
3. Determine NUMBER OF MEALS SERVED (customers x number of meals)
4. Total costs other than food (#1) DIVIDED by Number of meals served (#3)
5. Determine raw portion cost (Criteria 1.1 above)
6. ADD #4 to #5

Example:

1.3 Consider price adjustments for employees, family, or other frequent customers.

Other programs to consider:
✓ Payroll deductions
✓ Prepaid meals (punch card, credit card, etc.)
✓ Free or reduced prices for foodservice staff
✓ Special guest meals
✓ Catering, meetings or special events

1.4 Prices and sales are monitored to maximize profits or balance costs with the department budget.

Consider:
✓ Menu complexity
✓ Use of convenience items
✓ Type of service
✓ Seasonal items
✓ Novelty/theme meals

1.5 Menu prices are compared to industry standards.

Compare:
✓ Similar operations/type of facility
✓ Local retail opportunities for customers

1.6 Department Policies & Procedures are maintained for menu item costs and adjustments.

✓ CDM, CFPP prepares a written procedure to determine menu item costs using either the Contribution Margin or Cost Percent method