The manager of a cafeteria wishes to ascertain the best price at which he can sell a table d'hote menu for maximum profits. He expects that over an accounting period, the number of covers will vary with the price charged. He wishes to operate at an average gross profit of 60 per cent. His estimates for labour and overheads for upto 1,600 menus is Rs. 2,000, but for additional sales, he expects they would increase by Rs. 250. He therefore analyses his kitchen statement and prepares the profitability statement by determining the gross profit and then the net profit . For purposes of determining the price of a dish the costs may be calculated according to the distribution indicated below as shown in terms of the percentage of sales.
Food costs 40%
Labour costs 25%
Overheads 22%
Net profit 13%
------Gross profit 60%-----
---------------Sale 100 %--------------
Distribution of various costs as a percentage of sales Assuming that the selling price of a snack or food item is Rs. 2 per portion, the above cost percentages can be used to calculate the relationship of all costs to the selling price, as follows: Rs. Food cost at 40% (2.00 x 0.4) = 0.80 Labour cost at 25% (2 x 0.25) = 0.50 Overheads at 22% (2 x 0.22) = 0.44 Net profit 13% (2 x 0.13) = 0.26 Sales 100% (Selling price) 2.00
It is quite clear from the above figures that if there is a change in the first three costs, the net profit will be affected. For instance, if the food cost is reduced by buying at wholesale prices or using cheaper substitutes for expensive ingredients; or labour costs are reduced because labour saving devices have been installed; or overhead expenses are reduced through saving of fuel, the net profit can be increased without changing prices them vice versa.
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