Calculate Cost of Production: Background Information For Learners

LEARNING ACTIVITY SHEET
COOKERY 7/8
First Quarter, Week 7
Calculate Cost of Production

BACKGROUND INFORMATION FOR LEARNERS
Food costing is important to know as it has a direct effect on the profitability of the food businesses
like restaurant. It is the cost of your 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.
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 achieve a target profit.
• Study the way your competitor price their dishes against an industry benchmark.
• Know how 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.
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 Ingredients Costs: Current prices should be the basis of costing, thus the need to do a
price check from time to time.
• Recipe Cost Sheet: For recording data and all information about the recipe such as current unit cost,
actual ingredient cost and cost per portion.
How to Calculate Markup Percentage?
Markup is the difference between how much an item costs you, and how much you sell that
item for--it's your profit per item. Any person working in business or retail will find the skill of being
able to calculate markup percentage very valuable.
Instructions
1. Calculate your peso markup. This is done by subtracting your buying price from your selling
price.
Example
Selling price 30.00
Purchase cost/buying price - 20.00
Peso markup 10.00
2. Decide whether you want to calculate your percentage markup 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 markup based on cost, go on to Step 3. If you decide to calculate your percent
markup based on selling price, go on to Step 4.
3. Calculate percent markup based on cost. This is done by dividing the peso markup by the
cost.
Example
Peso markup 10.00
Purchase cost/buying price ÷20.00
Percentage mark up .5 or 50%
4. Calculate your percent markup based on selling price. This is done by dividing the peso
markup by the selling price.
Example
Peso markup 10.00
Selling price ÷ 30.00
Percentage mark up .33 or 33%
5. Make sure you consistently use either cost of the product or selling price to find the percent
markup on an item. Even though the cost, selling price, and peso markup will always be the same,
the percentage markup will be drastically different depending on if you calculate it using selling
price or cost. Using selling price will give you a lower percentage markup (assuming you are making
a profit), while using cost will give you a higher percentage markup.
Selling Price – the selling price of the product or service is the seller’s final
price, it is the amount that the costumers pay for something. The
exchange can be for a product or service in a certain quantity, weight, or
measure.
Selling Price = Total cost + Peso mark-up
No. of yield
Purchase Cost/ Buying Price – is the amount of materials or items that

you will be going to use in a certain product, it is also a basis for calculating gain
loss when selling your product.
LEARNING COMPETENCIES
Discuss Principles of Costing

Compute Cost of Production
ACTIVITIES
ACTIVITY 1
Directions: Given the following recipe and its estimated cost, compute for the total purchase cost and
impose a 50% mark up to determine the selling price of your product. Yield=24 servings. Write your
answer on a separate sheet of paper.
Items Total Cost

2 kls. chicken 240.00
1 head of garlic 5.00
5 Tbsp soy sauce 2.75
1 tsp ground black pepper 2.00
1/2 cup vinegar 3.75
2 Tbsp cooking oil 2.50
Total: ________
Selling Price = Total cost + Peso mark-up SP= __________
No. of yield
ACTIVITY 2. Compute the Percentage Markup.
Direction: Complete the following table with the necessary information.
Purchase cost/ Selling Price Peso Markup Percentage

Items buying price Markup
Chicken sandwich 35.00 60.00
Mango Shake 42.00 65.00
Coco balls 4.00 7.00
Banana Cake 45.00 65.00
Chocolate Mouse 35.00 52.00
REFLECTION
What is the importance of computing cost of production in a business?
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REFERENCES
Cookery 7/8 Exploratory Course
Commercial Cooking 7/8 Exploratory Course
Prepared by: JOLLYBE P. VERCAZA

Name of Writer
Noted by: CATALINA S. PATIAG, Ph.D.

EPS, TLE/EPP-HE

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LEARNING ACTIVITY SHEET

Calculate Cost of Production

How to Calculate Markup Percentage?

Purchase Cost/ Buying Price – is the amount of materials or items that

Discuss Principles of Costing

Items Total Cost

Purchase cost/ Selling Price Peso Markup Percentage

Cookery 7/8 Exploratory Course

Commercial Cooking 7/8 Exploratory Course

Prepared by: JOLLYBE P. VERCAZA

Noted by: CATALINA S. PATIAG, Ph.D.

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