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Chapter 6
Calculating Costs and Menu Prices

Section 6-1: Identifying As-Purchased Costs

Section 6-2: Calculating Unit Costs
Section 6-3: Calculating As-Served Costs
Section 6-4: Calculating Food and Beverage Cost
Percentages
Section 6-5: Calculating Menu Prices
Section 6-6: Using Pricing Forms
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 Chapter 6 — Calculating Costs and Menu Prices

Section 6-1: Identifying As-Purchased Costs

Objective:
• Identify as-purchased costs on invoices.

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 Chapter 6 — Calculating Costs and Menu Prices

As-purchased costs are listed on invoices from suppliers.

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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-1
1. Define as-purchased cost.
2. Where can an as-purchased cost be found?
3. What is the as-purchased cost of a 25-pound bag of
rice that sells for $15 per bag?
4. What is the as-purchased cost of a case of 12 bottles
of mineral water that sells for $18 per case?

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 Chapter 6 — Calculating Costs and Menu Prices

Section 6-2: Calculating Unit Costs

Objectives:
• Calculate as-purchased unit costs.
• Calculate edible-portion unit costs.

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 Chapter 6 — Calculating Costs and Menu Prices

As-purchased unit costs can be calculated based on more

than one unit of measure.

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 Chapter 6 — Calculating Costs and Menu Prices

Calculating As-Purchased Unit Cost

AC = AT ÷ NU
where
AC = as-purchased unit cost
AT = as-purchased total cost
NU = number of units

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 Chapter 6 — Calculating Costs and Menu Prices

• The edible-portion unit cost is the unit cost of a food or

beverage item after taking into account the cost of the
unused parts generated by trimming.

• Unless a food item has a yield percentage (YP) of 100%,

the edible-portion unit cost will always be higher than the
as-purchased unit cost.

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 Chapter 6 — Calculating Costs and Menu Prices

Calculating Edible-Portion Unit Cost

EC = AC ÷ YP
where
EC = edible-portion unit cost (whole)
AC = as-purchased unit cost (part)
YP = yield percentage

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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-2
1. Define unit cost.
2. What is the as-purchased unit cost of coffee per pound
if a 5-pound bag of coffee costs $24.00?
3. Explain the difference between an as-purchased unit
cost and an edible-portion unit cost.
4. What is the edible-portion unit cost of bell peppers if
the as-purchased unit cost is $1.10 per pound and the
yield percent (YP) is 85%?

…continued on next slide

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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-2 (continued)

5. If a recipe calls for 12 pounds of celery, what is the total
cost of celery if the as-purchased unit cost of celery is
$0.80 per pound and the yield percentage (YP) is 70%?

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 Chapter 6 — Calculating Costs and Menu Prices

Section 6-3: Calculating As-Served Costs

Objective:
• Calculate as-served costs of menu items.

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 Chapter 6 — Calculating Costs and Menu Prices

As-served costs are the total costs of the ingredients and

the recipes that make up a menu item.

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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-3
1. Define as-served cost.
2. What is the as-served cost of a taco made with $0.75
of ground beef, $0.24 of grated cheese, $0.08 of
lettuce, $0.18 of tomatoes, and a $0.15 taco shell?
3. If the taco in Question 2 is served as part of a meal that
comes with black beans that costs $0.45 per serving
and yellow rice that costs $0.35 per serving, what is the
as-served cost of the meal?
4. What is the as-served cost of a serving of tomato soup
if the tomato soup recipe has a total ingredient cost of
$50.00 and yields 25 servings?
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 Chapter 6 — Calculating Costs and Menu Prices

Section 6-4: Calculating Food and Beverage

Cost Percentages
Objectives:
• Calculate cost percentages of menu items.
• Calculate overall cost percentages of foodservice
operations.

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 Chapter 6 — Calculating Costs and Menu Prices

• A cost percentage is a percentage that indicates

how the cost of food or beverages relates to the
menu prices and sales of a foodservice operation.

• A foodservice operation earns money by charging

more for the items on a menu than it costs to
prepare those items.

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 Chapter 6 — Calculating Costs and Menu Prices

Calculating Menu-Item Cost Percentage

I% = AS ÷ MP
where
I% = menu-item cost percentage
AS = as-served cost (part)
MP = menu price (whole)

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 Chapter 6 — Calculating Costs and Menu Prices

• An overall cost percentage is equal to the total amount

of money a foodservice operation spends on food and
beverages divided by its total food and beverage sales
over a defined period of time.

• When the overall cost percentage of a foodservice

operation is lower than the target cost percentage, the
operation has earned more money than planned.

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 Chapter 6 — Calculating Costs and Menu Prices

Calculating Overall Cost Percentage

O% = TC ÷ TS
where
O% = overall cost percentage
TC = total food and beverage costs (part)
TS = total food and beverage sales (whole)

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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-4
1. Define cost percentage.
2. What is the menu-item cost percentage of a salad with
an as-served cost of $1.75 and a menu price of $5.95?
(Round answer to the tenths place.)
3. What is the overall cost percentage of a restaurant that
spends $400 a week on food and beverages when total
food and beverage sales are $1800? (Round answer to
the tenths place.)
4. Define target cost percentage.
…continued on next slide
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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-4 (continued)

5. What is the menu-item cost percentage of a beverage
with an as-served cost of $1.24 and a menu price of
$6.00? (Round answer to the tenths place.)

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 Chapter 6 — Calculating Costs and Menu Prices

Section 6-5: Calculating Menu Prices

Objectives:
• Calculate menu prices using the cost percentage pricing
method.
• Explain perceived value pricing.
• Calculate menu prices based on the contribution margin
pricing method.

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 Chapter 6 — Calculating Costs and Menu Prices

• A target price is the price that a foodservice operation

needs to charge for a menu item in order to meet its
target cost percentage.

• Most foodservice operations tend to consider target

prices as a starting point and then adjust the price up or
down based on how management thinks customers will
perceive the price.

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 Chapter 6 — Calculating Costs and Menu Prices

Calculating Target Price

TP = AS ÷ T%
where
TP = target price (whole)
AS = as-served cost (part)
T% = target cost percentage

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 Chapter 6 — Calculating Costs and Menu Prices

Many foodservice
operations use a
combination of cost
percentage pricing and
perceived value pricing
to calculate menu prices.

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 Chapter 6 — Calculating Costs and Menu Prices

As long as there is a proper balance on a menu between

items with lower cost percentages and items with higher cost
percentages, the foodservice operation can maintain an
overall cost percentage that is close or equal to its target
cost percentage.

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 Chapter 6 — Calculating Costs and Menu Prices

• A contribution margin is the amount added to the

as-served cost of a menu item to determine a menu price.

• This type of pricing is not common in restaurants but is

often used when calculating a price charged per person
for a special event.

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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-5
1. Define target price.
2. What is the target price of an appetizer with an as-served
cost of $2.30 and a target cost percentage of 26%?
3. How much money is earned from selling a dessert with
an as-served cost of $2.15 and a cost percentage of
32%?
4. Define perceived value pricing.
5. Explain what happens to the cost percentage of a menu
item when the price of the menu item is increased.
…continued on next slide
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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-5 (continued)

6. Define contribution margin.
7. If the total contribution margin for a catered event for
50 people is calculated to be $500 and the as-served
cost for the event is $10.00 per person, how much
should the catering department charge per person for
the event?
8. What is the target price for bottled water that has an
as-purchased unit cost of $0.34 per bottle if the target
cost percentage is 22%?

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 Chapter 6 — Calculating Costs and Menu Prices

Section 6-6: Using Pricing Forms

Objective:
• Use pricing forms to help establish menu prices.

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 Chapter 6 — Calculating Costs and Menu Prices

A pricing form is a tool often used to help calculate the as-

served cost of a menu item and establish a menu price.

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 Chapter 6 — Calculating Costs and Menu Prices

A target price is determined before setting a menu price and

calculating the menu-item cost percentage.

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 Chapter 6 — Calculating Costs and Menu Prices

Checkpoint 6-6
1. Define pricing form.
2. What are the two values that must be known in order to
calculate the total ingredient cost of each ingredient in
a menu item?
3. Explain the difference between the target price and the
menu price on a pricing form.

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 Chapter 6 — Calculating Costs and Menu Prices

Chapter 6 Summary
• The most fundamental food and beverage cost is the as-
purchased cost.
• As-purchased costs are then broken down into unit costs
to calculate the costs of ingredients in a recipe.
• For food products that are trimmed before being used in a
recipe, as-purchased unit costs are converted to edible
portion unit costs based on the yield percentage (YP) of
the product.

…continued on next slide

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 Chapter 6 — Calculating Costs and Menu Prices

Chapter 6 Summary (continued)

• The total cost of the ingredients required to prepare a
menu item is referred to as the as-served cost. After the
as-served cost of a menu item is calculated, menu prices
can be established.
• A menu-item cost percentage indicates how the cost of
preparing a menu item relates to the item’s menu price.
Most foodservice operations use target cost percentages
as tools to help calculate menu prices.
• Calculated menu prices are often adjusted based on
perceived customer value.
…continued on next slide
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 Chapter 6 — Calculating Costs and Menu Prices

Chapter 6 Summary (continued)

• Some foodservice operations calculate menu prices by
adding contribution margins to the costs of food and
beverages.
• Overall cost percentages are regularly compared to target
cost percentages. The comparison identifies increased
food and beverage costs to determine if menu prices
need to be adjusted.
• Food and beverage costs and menu pricing information
are documented on pricing forms and updated as costs
change.

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