Principle of Food Preparation Page 1 of 10

The Importance of Counting Costs

The Importance of Counting Costs

Welcome Notes:

WELCOME MY STUDENTS.

This module is all about the goal of any business in order for them to be profitable. This applies just as much to a food
service business. In this module, we’ll discuss ways to control costs and maximize profitability through better
management of manpower and ingredients.

II. OBJECTIVES:

At the end of this module, you should be able to:

 Understand ways on how food business will become profitable.

 Create food business that will succeed.

 Value the importance of counting the cost profit or loses in food business.

III. PRELIMINARY ACTIVITIES:

Before you proceed to the main lesson, test yourself in this activity.

In your own opinion what is the importance of Costing?

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The Importance of Counting Costs

GREAT!!!
You may now proceed to the main lesson.

IV. DEVELOPMENT OF THE LESSON

THE IMPORTANCE OF COUNTING COSTS

Maximize your profitability with better cost control

The goal of any business is to be profitable. This applies just as much to a food service business. In this module,
we’ll discuss ways to control costs and maximize profitability through better management of manpower and ingredients.

THE IMPORTANCE OF BASIC COSTING

Why do we need to understand how much things cost in the running of our food service business?

If we don’t control costs, it will eat into our margins. Even if we have a high volume of traffic, that doesn’t necessarily
mean we’re profitable.

UNDERSTAND THE TERMS

 Income – Derived from selling products and services

 Cost – All spending used to generate income

 Profit – What operators get when income exceeds cost

The goal of any business is to earn a good profit, so keeping costs at a minimum while selling at the right price and
providing a good product is what we should aim for as operators.

3 MAJOR COSTS INCURRED IN A RESTAURANT

Labor Costs

 Labor costs comprise salary, allowances and fringe benefits for employees.

Fringe benefits include health insurance, education reimbursement, childcare and assistance reimbursement,
cafeteria plans, employee discounts, personal use of company owned vehicles and other similar benefits.
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The Importance of Counting Costs

Overhead Costs

 Overhead costs, on the other hand, refer to costs that are not classified under labour and food cost.

 This includes rent, utilities, taxes, marketing and advertising, office supplies, equipment, training, etc.

Food Costs

 Food cost is the cost of all edible ingredients served or sold to customers.

 This comprises the costs for fruit, vegetables, meat and all ingredients used in food preparation.

 Food cost is also known as your direct cost and refers to the cost of an actual product being sold.

 Because the quantity of dishes which are sold may vary and the cost of buying ingredients may fluctuate in
comparison to a forecast, your direct cost will also change from time to time.
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The Importance of Counting Costs

The Challenges of Minimizing Food Costs

1. Food is highly perishable

Imagine ordering enough fresh seafood to prepare 100 servings but only having 50 diners in the following two
days. The other 50 portions will be wasted. It’s therefore important to be conscious of the quantity of food you
purchase and produce to avoid unnecessary food costs.

2. Food is seasonal

The price and quality of ingredients will vary throughout the year. Purchase ingredients that are in season to take
advantage of fresh produce and better prices because of the increased supply.

3. Food is subject to pilferage

Theft occasionally happens in some kitchens and therefore adds to food cost. Control this by monitoring your staff
and consider your current employee benefits to discourage stealing.

4. Food changes form through preparation

Just as dry pasta absorbs water and increases weight when it’s boiled, all ingredients change form during
processing and cooking. By monitoring these changes and finding the best way of handling and processing the
food, you can maximize yield.

5. Food may be purchased in different forms

A chef often has many options as to what form of food to buy. These decisions have to be made carefully to make
the smartest choice. An example would be buying a whole fish as compared to just a fillet. While the latter would
cost more because it has been prepared, less time would have to be spent preparing the dish for use in the
kitchen.

Achieving Quality and Low Cost

Set targets for the food you produce, considering both the quality and the preparation cost.

 Quality refers to the characteristics of the food served such as flavor, consistency, texture, etc.

 Cost relates to the monetary value of the food you prepare.

 Create a target cost. This is usually at 30 – 45% of food selling price.

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 If cost The Importance
targets of Counting
are not met Costs prices are high, customers may not come to your restaurant.
and the selling

It is important for every kitchen staff member to be cost-conscious and know the basics of food costing.

Tips on Reducing Costs

 Use ingredients that are in season

 Learn from your suppliers about market conditions, supplies and cost-effective suggestions

 Make the most of regional dishes as locally sourced ingredients are usually cheaper

 Be a smart buyer and consider the quality and amount of ingredients you buy

 Explore the use of common ingredients across several dishes as an ingredient used only in one dish can be a loss
maker

Standard Recipe

 This is a recipe or formulation that has been tried and tested and has been found to be consistently good.

 It is based on the standards of the restaurant both in quality and yield.

 It is documented on a piece of paper or card for easy access by chefs. This recipe card should be laminated or
placed in a clear book for protection.

AP (As Purchased)

 This is the condition of a food item or ingredient when it was purchased or delivered. AP may refer to the form, cost,
weight, or volume. Hence the terms: AP form, AP cost: AP weight, or AP volume.

 For example, the vegetable you bought with stalk, roots, and leaves are in AP form. It costs 1 Euro when you
bought it. That’s the AP cost. It weighs 3 kilos when you bought it; that’s the AP weight. It can fit in 6 measuring
cups; that is the AP volume.
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The Importance of Counting Costs

EP (Edible Portion)

 EP is the amount of usable food/ingredients that can be used in food preparation after removing trimmings or waste
from the original AP form.

 Let’s refer to the vegetable example in AP. Let us assume that only the leaves can be used and the stalks and roots
have to be discarded.  The remaining leaves are what we call EP.

RTS (Ready to serve)

This is different from EP and refers to the amount of food served to guests after cooking. There are two types of RTS
weights:

1. RTS weight is lower than EP weight when moisture from food is lost during cooking. For example, roast beef losing
moisture after roasting.
2. RTS weight is higher than EP weight when water is absorbed during cooking. For example, dry pasta absorbing
water after boiling.
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The Importance of Counting Costs

Standard Recipes and How to Scale Them

 Learn what makes up a Standard Recipe and determine the best way to scale it.

A Standard Recipe is a tried and tested formula that consistently meets a restaurant’s standards of quality and yield. This
provides:

 The best guide in food preparation

 A valuable tool for training kitchen staff

 A basis for purchasing ingredients

A basis for food costing

Components of a Standard Recipe

 When creating the Standard Recipe format, include the following information:

1. Name of recipe

2. Yield: includes total yield (weight, volume, count), number of portions and portion size

3. Equipment needed: measuring equipment, pan sizes, table top etc

4. Ingredients: exact amount, listed in order of use

5. Procedure: should be clear, brief and precise

6. Preparation and cooking time: in minutes

7. Procedures for portioning, plating and garnishing: organized in order

8. Directions: cooling, storing and storage time if it will not be served right away

9. Directions: for reheating (if applicable)

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- The Importance
Notes on substitutions: suchofas
Counting Costs
ingredient substitutions in case certain ones are unavailable, which should be
carefully studied in terms of delivering the same taste and quality as the original ingredients

- Food shots (optional): so that the staff will know the dish should look in terms of portion and presentation

Examples of a Well-Written Recipe

- Note the ingredients exactly, stating how they are budgeted and outlined in a clear flow, including the presentation
and cooking time. This allows kitchen staff to ensure that a dish is always prepared consistently

Weight and Volume Measurements

- To compute the cost of a recipe, it’s important to know the cost of each ingredient based on the amount used. The
amount of ingredients is usually measured in:

 Weight: How heavy an ingredient is, measured in grams or kilograms

 Volume: How much physical space is taken up by an ingredient, measured in cups, teaspoons, litres, pints

 Count: How many units of the ingredient you require, measured in pieces

Measurement Conversions

- There are two methods of measurements, the metric and imperial (US systems). Reference the formula below for
converting metric measurements to the US system:
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The
 1 litre = 1,000 Importance
millilitre = 2.11ofpints
Counting Costs

 1kg = 1,000 grams = 2.2 pounds = 4 cups

Chinese Measurements

- This guide is useful for Chinese Kitchens:

Scaling Recipes

- Recipe Scaling is also known as Recipe Conversion. It is defined as changing the amount of ingredients used in a
standard recipe to produce a different yield based on the number of portions that need to be prepared.

Why are Scaling Recipes Important?

- The number of portions of each recipe to be prepared each day varies depending on forecasted needs. Scaling
recipes prevents wasteful overproduction or embarrassing underproduction, which is a potential source of lost
income.

How to Scale Recipes

 Compute the Conversion Factor (CF) by dividing your desired yield by the original yield (number of portions in the
Standard Recipe)

 CF = Desired Yield divided by Original Yield

 To scale up, multiply all ingredients in the Standard Recipe by the CF

 To scale down, divide all ingredients in the Standard Recipe by the CF

Scaling Calculator

Use our scaling calculator to decide how much of each ingredient you require.

Food Costing

Determine your food costs to figure out your selling price of your dishes.
 Principle of Food Preparation Page 10 of 10
- Food costingThe Importance
is important of Counting
to know Costs
as it has a direct effect on the profitability of a restaurant. It is the cost of your
ingredients and does not include other costs, such as labour and overheads. Food costing is an essential tool in
determining whether food costs targets are being met.

On Basic Recipe Costing

Understanding the basics of recipe costing is important so that you can:

 Know how much food cost is incurred on each recipe. This gives you a clear view of how much you can earn per
dish.

 Understand how to properly price your dishes to achieve a target profit.

 Study the way your competitor price their dishes against an industry benchmark.

 Know when to reduce a recipe cost. If you keep up-to-date with your costing, and see that you are going beyond
your target cost percentage, you can easily plan how to reduce the costs.

 Find out each menu item’s profit margin and decide which ones to promote through suggestive selling and
promotions.

Food Costing Tools

- The following tools and calculations are important in deriving your food costs:

 Standard Recipe: Costing based on a standard recipe makes it easy to compute food costs based on the servings
that are needed

 Up-to-Date Ingredient Costs: Current prices should be the basis of costing, thus the need to do a price check from
time to time
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 Recipe CostThe Importance
Sheet: For of Counting
recording Costs
data and all information about the recipe such as current unit cost, actual
ingredient cost and cost per portion

Calculating Recipe Cost

 Step 1. Fill up the Recipe Costing Sheet with information based on the standard recipe to be based on a current
price list.

 Step 2. Indicate the latest purchase cost of each ingredient based on a current price list.

 Step 3. Compute the actual cost of each ingredient

 Step 4. Add actual cost of each ingredient to get the total recipe cost

 Step 5. Divide the total recipe cost by number of portions to get the cost per portion
 

Recipe Cost Sheet

For recording purposes, create a recipe cost sheet for each of your dishes. Here is an example.

Selling Price

- Once you have your food costs, you can figure out the selling price of your dishes. The basic formula is:

Selling Price = (Food Cost + Labor Cost + Overhead Cost) + Profit

Your selling price should include all costs plus the profit you would like to earn.

What Should the Food Cost Percentage of Your Selling Price Be?

- To compute the selling price, we need the food cost to only be a certain percentage of the selling price.
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The amountThe Importance
varies from oneofrestaurant
Counting Costs
section to another, and is influenced by other costs, such as labor,
overhead, and target profit. It generally falls within the profit of 30 to 45%.

Food Costing in Practice

Here is an example to show how to find the selling price of a dish:

 A restaurant has a target food cost percentage of 33%.

 Their newest recipe was calculated to have a food cost of $25 per portion.

 Applying the 33% rule, the target selling price = $25 divided by 0.33 = $75.75

Given this number, the restaurant can decide on the final selling price considering other factors such as
competition, volume and labor costs.

Yield Management

Learn how you can manage yield to reduce costs and increase profits.

- Yield is the serving portion served or sold to diners. The terms that affect yield are AP, EP and RTS, as discussed
in Topic 2. Managing these factors will help you maximize yield percentage, thus lessening costs and increasing
profits.

Yield is:

 What remains after the entire cooking process

 What is served to guests

 What is sold in the dining room that generates income

 What brings about profits 

Yield Management

- Under yield management are three topics. Mastering these will help you manage yield effectively:

 Factors Affecting Yield Percentage

 Yield Test

 Cooking Loss Test

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The Importance of Counting Costs
Calculating Yield Percentage

- Yield percentage is also known as YP%. It’s the amount of usable food left divided by the original weight of the food
when purchased. To find the YP%, it’s important to know which form or cooking method will give you a higher yield. 

Yield Percentage Formula 1

Yield Percentage = EP/AP

AP - Original weight of food As Purchased

EP - Weight of food after removing waste, trimmings and bones

 Factors Affecting Yield Percentage

Yield Percentage (YP%) is the percentage of sellable or servable food after waste, trimmings and cooking reactions are
considered. YP% is affected by:

 The food itself

 The size of the ingredient

 The original form and end form of the ingredient 

Maximizing Efficiency: Human Resource

Maximizing efficiency in human resources is not just about hiring the right number of staff. It’s about hiring the right people,
training them and retaining staff. 

Recruiting

 While personality is important, quantifiable skills and experiences are also vital to know if the person can lead and
transfer skills.

 Check references to know more about the person you’re hiring.

 Understand what the market rate for salaries for different job roles is before you make a job offer.

Cooking Loss Test

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- Theitself,
From the term Importance of Counting
the Cooking Costs
Loss Test details how cooking affects yield. This is connected to RTS. Wherein
food loses weight or adds weight after it is cooked. It tells us how much weight is lost during cooking for a fixed
quantity of a certain ingredient. Again, this relates to RTS where some food loses moisture when cooked, making it
“shrink” or if it absorbs liquid, making it weigh more. We will also know which cooking method gives greater yield?
Some cooking methods remove a lot of moisture from food whereas some add liquid to food. Learning these will
help you determine which cooking method can meet the yield you need for recipes. The cooking loss is inevitable.
However, you can choose a cooking method that does not significantly increase the price of ingredients after
cooking.

We had just finished the discussion on ________________.

Let’s move on to the next higher level of activity/ies or exercise/s
that demonstrate your potential skills/knowledge of what you have
learned.

V. ANALYSIS, APPLICATION AND EXPLORATION

Direction: Write true if the statement is correct and false otherwise.

1. _____________ the goal of any business is to be profitable.

2. _____________ Income is derived from selling products and services

3. ____________ Cost is spending used to generate income

4. ____________ Profit is what operators get when income exceeds cost

5. ___________Labor costs does not comprise salary, allowances and fringe benefits for employees.

6. ____________ Overhead costs, on the other hand, refer to costs that are classified under labor and food cost.

7. ___________ Food cost is the cost of all edible ingredients served or sold to customers.

8. ___________ Theft occasionally happens in some kitchens and therefore adds to food cost.
 Principle of Food Preparation Page 15 of 10
The Importance
9. ___________ of has
Chef often Counting
manyCosts
options as to what form of food to buy.

10. ___________ Quantity refers to the characteristics of the food served such as flavor, consistency, texture, etc.

Finally, let us summarize the lesson of what we had discussed today.

VI. GENERALIZATION

- Make a reflection about the topic in not less than one hundred words.

KUDOS!

OOPS! Don’t forget that you have still an

assignment to do.

VII. ASSIGNMENT

Name: ________________________ Grade & Section: __________________

Direction/Instruction:

Filling the blank

1. _________ it tells how heavy an ingredient is, measured in grams or kilograms

2. ____________ it tells how much physical space is taken up by an ingredient, measured in cups,
teaspoons, liters, pints

3. _____________ cites us how many units of the ingredient you require, measured in pieces.
 Principle of Food Preparation Page 16 of 10
4. The Importance
____________ of Counting
is also known asCosts
Recipe Conversion. It is defined as changing the amount of ingredients
used in a standard recipe to produce a different yield based on the number of portions that need to be
prepared

5. _____________ is important to know as it has a direct effect on the profitability of a restaurant

6. _____________ costing based on a standard recipe makes it easy to compute food costs based on the
servings that are needed

7. _____________ current prices should be the basis of costing, thus the need to do a price check from time
to time

8. _____________ for recording data and all information about the recipe such as current unit cost, actual
ingredient cost and cost per portion

9. ____________ it includes all costs plus the profit you would like to earn.

10. ____________ is the serving portion served or sold to diners.

After your long journey of reading and accomplishing the

module, let us now challenge your mind by answering the evaluation
part of this module.

VIII. EVALUATION

Name: ____________________________ Year & Section: __________________

Direction: Write true if the statement is correct and false otherwise.

1. ____________ Yield percentage is also known as YP%. It’s the amount of usable food left divided by the original
weight of the food when purchased. To find the YP%, it’s important to know which form or cooking method will
give you a higher yield.

2. ___________ Maximizing efficiency in human resources is not just about hiring the right number of staff. It’s
about hiring the right people, training them and retaining staff.

3. __________you don’t have to understand what the market rate for salaries for different job roles is before you
make a job offer.

4. ___________ A yield test will tell us three things:

 Principle of Food Preparation Page 17 of 10
TheThe
5. ___________ Importance
CookingofLoss
Counting Costs how cooking affects yield. This is connected to RTS. Wherein food
Test details
loses weight or adds weight after it is cooked.

6. ___________ to compute the selling price, we need the food cost to only be a certain percentage of the selling
price.

7. __________ Selling Price = (Food Cost + Labor Cost + Overhead Cost) + Profit

8. __________ the number of portions of each recipe to be prepared each day does not vary on forecasted needs.

9. _________ Recipe Scaling is also known as Recipe Conversion. It is defined as changing the amount of
ingredients used in a standard recipe to produce a different yield based on the number of portions that need to be
prepared.

10. _________ To compute the cost of a recipe, it’s important to know the cost of each ingredient based on the
amount used. The amount of ingredients is usually measured in:

CONGRATULATIONS on reaching the end of this module!

You may now proceed to the next module.
Don’t forget to submit all the exercises, activities and portfolio
On ___________________.