Chapter 2 Menu Planning as a Control Tool
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Some operations establish a standard food cost percentage and use it to price
all of their menu items. Others vary the food cost percentage based on the type of
menu item. For example, an operation might use a 25 percent food cost to calculate
appetizer prices, but 40 percent to price entrées. The food cost percentage can also be
taken from the average used in the industry or estimates of the percentage used by
competitive operations.
Using the food cost percentage method, the selling price of a menu item can be
calculated in two ways. First, it can be found by dividing the food cost by the standard
or desired food cost percentage.
Food Cost
= Selling Price
Desired Food Cost %
For example, suppose a restaurant manager has a goal, or desired food cost
percentage, of 40 percent food cost for an entrée. In other words, the cost of the food
purchased for the item should represent 40 percent of the item’s selling price. If the
food cost is $4, it is divided by 40 percent. The selling price of the menu item would
be $10.
$4.00
= selling price
40%
The manager would then convert percent to decimal and divide.
$4.00
= $10 selling price
0.40
There is a second way the food cost percentage method is used to calculate the
selling price. It uses a factor to calculate a selling price which yields the desired food
cost percentage. The menu item’s food cost is multiplied by the pricing factor to
determine the selling price.
Food Cost × Pricing Factor = Selling Price
The pricing factor is derived from the desired food cost percentage. The pricing
factor is determined by dividing 100 percent by the desired food cost percentage.
100%
= 2.5 pricing factor
40%
If a menu item has a food cost of $4.00, the manager can use the pricing factor 2.5 to
calculate a price that yields a 40 percent food cost.
$4.00 × 2.5 = $10.00 selling price
What if the manager then decides to lower the desired food cost percentage from
40 percent to 30 percent? The same process is used.
100%
= 3.33 pricing factor
30%
$4.00 × 3.33 = $13.32 selling price
To confi rm that the food cost does indeed represent 30 percent of the selling price,
the manager can perform the following check:
$4.00
× 100 = 30%
$13.32
The disadvantage to using the food cost percentage method is that it only considers
food cost in setting menu prices. Other factors—labor costs, overhead costs, or the
market value of menu items—are not considered. Market value is the amount a customer
is willing to pay for an item based on what other operations are charging.