Chapter 2 Menu Planning as a Control Tool
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is $1.98, and employee benefi ts and taxes equal 20 percent of wages, or $0.40, then the
prime cost would be calculated as follows:
Prime cost = $0.65 + $1.98 + $0.40 = $3.03
The prime cost is divided by the operation’s prime cost percentage to arrive at a
selling price for the hamburger.
Prime Cost
= Selling Price
Prime Cost %
In another example, suppose it costs $3.75 in food and $2.00 in wages to produce
a salmon fi llet. An additional 20 percent, or $0.40, is paid out in payroll taxes and
employee benefi ts. If the operation uses a prime cost percentage of 50 percent for entrées,
what is the selling price of the salmon using the prime cost method? First, the prime
cost is determined using the formula given earlier:
Prime Cost = $3.75 + $2.00 + $0.40
Prime Cost = $6.15
Menu Item: Mexican Hamburger
Component Cost Total
Recipe Cost
Hamburger Patty $0.43
Bun $0.19
Fire Roasted Salsa $0.03
$0.65
Payroll Cost
Cook
Time 10 minutes
Hourly wage $10.00
$1.67
Server
Time 3 minutes
Hourly wage $3.50
$0.18
Dishwasher
Time 1 minute
Hourly wage $8.00
$0.13
Supply Cost
Wrapper $0.02
Bag $0.03
Napkin $0.01
$0.06
TOTAL VARIABLE COST $2.69
Figure 2-2. Contribution margin is the difference between sales and variable costs. Variable costs include
food, labor, and supplies.