Pricing and Cost Control Flashcards

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1
Q

What are 6 pricing approaches?

A
1. non structured
2. factor method
3. prime-cost method
4. actual cost method
5. gross-profit method
6. stochastic-modelling approach
2
Q

Explain the non structured approach to pricing and real costs.

A

simplest
examine competition’s price
similar price for similar item
not recommended but used often

3
Q

What is the factor method?

A

aka fixed factor

• based on food cost
• calculation method:
a) calculate food cost of recipe
b) calculate factor: 100/x (x=food% from budget or other)
• multiply food cost by factor

eg. 100/25 = 4 -> factor
food cost: 0.43
selling price: 0.43*4 = 1.72

4
Q

What is the fixed factor for subsidized operations?

A
```food% = 40%
factor= 2.50```
5
Q

What are advantages and disadvantages of the factor method?

A

advantages: simple math
dis:
- real food cost known at end of a period = delay between start of operation and cost determination-factor is applied regardless whether it needs labor (uniform markup)
- disregards perception of value (is it worth it?)

6
Q

What is the prime cost method?

A

add cost of food and labour and multiply by the markup percentage to get final price

7
Q

What are (dis)advantages of prime cost method?

A

adv: markup determined by management
dis: requires accurate cost of food records, cost of labour (very hard), represents a huge task when menus are extensive (many options)

8
Q

What is the actual-cost method?

A

aka Recovery plus profit method

EP cost (edible portion) +

• labour costs
• variable cost (for hygiene items/paper…)
• fixed costs (to cover rent, power, franchise..)
• profit margin

How is it done?

1. labour cost + EP cost = 66% (based on previous financial reports)
2. variable coss + fixed costs + profit = 34%
3. if labour costs +EP costs = 66% or \$4.85 then \$4.85/66% = \$7.35
9
Q

What are advantages and disadvantages of actual-cost method?

A

adv: includes all costs, markup determined by management
dis: requires accurate cost records, time needed to collect data and do calculations

10
Q

What is the gross-profit method?

A

determines specific amount of money that should be made on the basis of number guests served

• previous experiences
• cannot account for last minute variations nor should it count on temporary variations
• not common
11
Q

Describe the stochastic-modeling approach.

A

the only method to integrate all internal and external variables
rarely used because complex

12
Q

What are factors that affect real costs?

A
• test kitchens
• purchasing (seasonal changes/trends, poor inventory management, last minute orders=more expensive)
• at production (sloppy standardization procedures, recipes not followed, uncontrolled production, food left in preparation pans)
• distribution/service (holding shrinkage/evaporation, spills, meals refused and substitutes, poor portion control, non adaptation to changes in customer rates)
• storage (spoilage due to inadequate temperature control/dating, equipment failure, inaccuracy in costing /bad yield)
• quality assurance activities(dummy trays/taste panels)
• theft