Catering Menu Pricing and Control

Catering Menu Pricing and Control - Objectives

• Students should demonstrate a deep understanding of menu pricing and cost control in catering.
• Students should demonstrate knowledge of recipe standardization.

Classification of Cost by Nature or Element

• Direct Cost: Costs directly tied to goods/services production, easily assigned to specific products or jobs.
• Indirect Cost: Costs not assignable to particular costs or items, incurred for the whole operation and divided among various cost units.

Direct Cost

• Includes direct materials, directly purchased or requisitioned for specific cost units, including primary packaging materials.
• Includes wages paid to workers directly involved in production, as well as supervisors and those maintaining the production process.
• Also known as chargeable expenses, directly charged to the specific unit of cost.

Indirect Cost

• Includes indirect materials, such as fuel, lubricating oil, small tools, and miscellaneous stores.
• Includes wages paid to general supervisors, inspectors, workshop cleaners, storekeepers, and timekeepers.
• Includes indirect expenses such as rent, lighting, insurance, canteen, hospital, and welfare expenses, etc.
• Indirect costs are also called 'overheads'.

Overhead Classifications

• Factory Overhead: Indirect expenses related to the manufacture of a product, such as lubricants, oil, consumable stores, works manager's salary, etc.
• Office and Administration Overhead: Indirect expenses related to administration, such as office rent, office lighting, insurance, clerical and executive staff salaries.
• Selling and Distribution Overhead: Indirect costs related to marketing and sales, such as advertising expenses, salesman salaries, and indirect packing material.

Functional Classification of Cost

• Prime Cost: Direct materials, direct labor, and direct expenses involved in the product.
• Factory Cost: Prime cost plus factory overhead (or works expenses). Also known as works cost, production cost, or manufacturing cost.
• Cost of Production: Factory cost plus office and administrative expenses. Also known as office cost, administration cost, or gross cost of production.
• Total Cost or Cost of Sales: Cost of production plus selling and distribution overhead.

Classification of Cost on the Basis of Behavior

• Variable Costs: Costs that change in direct proportion to production volume. Production increases, variable costs rise; production decreases, variable costs fall. Examples are raw materials costs.
• Fixed Costs: Costs that remain constant regardless of production volume. Examples are rent for kitchen space.
• Semi-variable Costs: Costs that have both fixed and variable components. Examples are utility bills.

Classification of Costs for Managerial Decisions and Control

• Controllable Costs: Costs that can be influenced or controlled by a person or management level in an undertaking.
• Uncontrollable Costs: Costs not influenced by a specified individual but are part of the undertaking.
• Normal Costs: Predictable and necessary costs of producing goods/services.
• Abnormal Costs: Unexpected or irregular expenses outside normal business operations; examples include accidents, spoilage, disasters.
• Avoidable Costs: Costs that can be eliminated if a specific business activity is discontinued.
• Unavoidable Costs: Costs that cannot be avoided or eliminated.
• Shut-Down Costs: Fixed costs that are incurred even if production/operations are temporarily discontinued due to reasons such as strikes or shortages.
• Sunk Costs: Costs already incurred that are irrelevant for determining current decisions; cannot be recovered.
• Product Costs: Costs associated with production that become part of the product cost (e.g., raw materials).
• Period Costs: Costs not directly tied to production, but related to a time period (e.g., administration costs, rent, insurance).
• Incremental Costs: Cost increases due to changes.
• Decremental Costs: Cost decreases due to changes.
• Opportunity Costs: Advantages foregone because of adopting a particular course of action.
• Conversion Costs: The cost of converting raw materials into finished products.

Break-even and Food Costing

• Break-even point: The sales level where costs equal revenue, neither loss nor gain. A business has covered all fixed and variable expenses but hasn't yet made any profit. It's the sales amount necessary for a business to start making profit.
• Food Costing: A method of determining the overall ingredient expenditure to make a dish. It helps businesses price menu items, covering costs, and generating profit. This includes monitoring ingredient costs, portion sizes, and waste to maintain profitability.

This quiz covers essential concepts in catering menu pricing and cost control. Students will explore topics such as direct and indirect costs, as well as the importance of recipe standardization in the catering industry. Test your knowledge and understanding of these fundamental principles.