26 Controlling Costs in Foodservice
Next, the prime cost is divided by the prime cost percentage to arrive at the
selling price.
Selling Price =
$6.15
0.50
The selling price would be $12.30.
Texas Restaurant Association (TRA) Markup Method
Another method used for pricing menu items is the Texas Restaurant Association
(TRA) markup method. This process takes into account labor expense, all other expenses
excluding labor and food, and profi t when assigning selling prices. This process basically
takes the sum of the nonfood expenses plus the percent profi t, and then subtracts that
from the sales to arrive at the food cost percentage. Therefore, the amounts used in the
TRA method are found in the operating budget, which is discussed in detail in another
chapter. The steps in the process are as follows:
1. Express budgeted labor cost as a percent of budgeted sales.
2. Add up all other budgeted expenses (excluding food and labor) and express
the sum as a percent of budgeted sales.
3. Express the budgeted profi t as a percent of budgeted sales. Usually, this percent
profi t will vary based on the menu category. Common targets for percent
profi t are:
• appetizers: 40%
• desserts: 25%
• beverages: 45%
• popular entrées: 10 to 20%
• high-cost menu items: 15%
• slower-moving entrées: 20 to 25%
4. Add the percentages from steps 1 through 3, and subtract this sum from 100%.
This number is the desired food cost percentage to use when calculating the
selling price.
To calculate the selling price, the actual cost of ingredients used to produce the
menu item is needed. This actual food cost is calculated during recipe development.
Then the following formula is used to calculate the menu price:
Actual Food Cost
= Selling Price
Desired Food Cost % (in decimal format)
For example, suppose a menu item had the following costs:
Budgeted labor cost = 20%
Other budgeted expenses (excluding labor and food) = 45%
As a slower-moving entrée, the percent profi t = 25%
45% + 20% + 25 % = 90% total cost without food
100% – 90% = 10% food cost percentage
If the actual food cost to produce the menu item is $1.50:
$1.50
= $15.00 selling price
0.10