Calculating Break Even Points and sale price
Factor Pricing Method
Also called: Traditional method, markup method Choose what % you want to be the % profit or the food cost %. Then 100/food cost% = the mark up factor mark up factor x raw food cost = selling price A "hidden cost" of 10% may be added to food cost to cover unproductive costs like losses in preparation, cooking, serving, unavoidable waste.
Breakeven point
responsibility of food service manager This is the point at which sales revenue (income) will exactly cover fixed and variable costs
What is a hidden cost in mark ups?
10% may be added to food cost to cover unproductive costs like losses in preparation, cooking, serving, unavoidable waste.
IF the food cost percentage is 30 and the raw food cost of the item is $0.18, what is the selling price using the factor method?
100/30 = 3.3 (markup factor) 3.3 x $0.18 = $0.59 (selling price) If including hidden costs: 3.3 x (.18 + .018) = $0.65 selling price
Determine the BEP using the following information: FC= $25,000 VC = $60,000 Sales = $100,000
BE = 25,000/[1-(60,000/100,000)] = $62,500 in sales to break even
Determine the BEP using the following info If the fixed costs are $50,000, Selling price is $5 Variable costs are $3.25
BE = FC/(SP-VC) 50,000/(5.00 - 3.25) = 28572 average priced meals to break even
What is the formula for BEP in sales volume (i.e. $ you need to break even)?
BE = FC/[1- (VC/Sales)] FC = fixed costs VC = variable costs Basically: 1- VC/Sales is the proportion of income that will be profit per item sold.
What is the formula for the BEP in # of units sold?
Be = FC/(SP - VC) FC = fixed costs SP = sale price VC = variable costs
Determine selling price using prime cost method: Raw food cost = 1.80 Labor cost: 5 minutes at 12/hr Food cost percentage = 33.3% Labor cost percentage = 46.7%
Raw food cost + Labor cost = 1.80 + 1 = $2.80 Raw food % + Labor % = .333 + .467 = 80% 100/80 = 1.25 = markup price factor selling price = 2.80 x 1.25 = $3.50
What is the prime cost method
This creates a price based on the raw food cost AND the labor involved in making the item. Determine the prime cost: raw food + labor cost Determine the price factor (markup) Add desired food cost percentage to percentage of direct labor cost. Divide into 100. Selling price = prime cost x price factor (markup factor)
