THE PRINCIPLES OF COSTING

• Food Costing is important to know as it has a

direct effect on the profitability of any product. It
is the cost of ingredients and does not include
other costs such as labor and overheads. Food
costing is an essential tool in determining whether
food costs targets are being met.
THE PRINCIPLES OF COSTING
• Ina food industry or business, you need to be
acquainted with the total cost of the product before
you will sell it. To calculate the cost of food
production, you need to know the total cost of your
ingredients along with how much each ingredient
is used in a recipe. This is important to know how
much a product cost.
Consideration in Calculating
the Cost of the Product
Mark up
•isthe difference between the selling price
of a product and its cost in production. It
is often expressed as a percentage over
the cost. It is added into the total cost
incurred by the maker of a product in
order to cover the costs of doing business
and create a profit
Selling Price
•is
defined as the price of the product
being sold
Purchase cost
•all
the expenses for purchasing the
material and make the material to become
salable
Yield
•is
the amount of usable product after it
has been processed
Total cost
•Is the total cost of food production
HOW TO CALCULATE
MARK UP PERCENTAGE
1. Calculate your peso mark up. This is
done by subtracting your buying price
from your selling price.
Selling price 15.00
Purchase cost/buying price -10.00
Peso mark up 5.00
2. Decide whether you calculate your
percentage mark up based on cost or selling
price. Once you choose which you will be
using to calculate, it is important you stick to
the method you choose throughout all your
calculations, or you will end up with faulty
data. If you decide to calculate your percent
mark up based on cost, go on Step 3. If you
decide to calculate your percent mark up
based on selling price, go on with Step 4.
3. Calculate percent mark up based on
cost. This is done by dividing the peso
mark up by the cost.
EXAMPLE:
Peso mark up 5.00
Purchase cost/buying price ÷10.00
Percentage mark up .5 or 50%
4. Calculate your percent mark up based
on selling price. This is done by dividing
the peso mark up by the selling price.
EXAMPLE:
Peso mark up 5.00
Selling price ÷15.00
Percentage mark up .33 or 33%
5. Make sure you consistently use either
cost of the product or selling price to find
the percent mark up on an item. Even
though the cost, selling price and peso mark
up will always be the same, the percentage
mark up will be drastically different
depending on if you calculate it using
selling price or cost.
Using selling price will give you a lower
percentage mark up (assuming you are
making a profit). While using cost will give
you a higher percentage mark up.