Managing Fluctuations and Price Volatility

University:
Stanford University
Course:
ECON 1 | Principles of Economics
Academic year:

2024
Views:

300

Pages:

2
Author:

Waktu S.

Significance of Precosting Too frequently, this is the first question from a nervous bride or her parents. There are numerous potential clients whose main concern is cost. Smart caterers do not directly answer the cost-related questions until they ask their own qualifying questions (as discussed in Chapter 9), such as date, number of guests, location, entertainment goals, and other questions that reveal the client's true conception of the event. Prices should not be given until these questions are answered to the satisfaction of the caterer, and the precost of the party has been computed. It is bad policy to quote erroneous prices, only to later advise clients that there are additional charges not originally estimated. Clients will question caterers' credibility, and some may even refuse to pay, leaving the caterer with the decision of whether to "absorb" or "eat" the difference, or decline the party. Precosting parties involves accurately estimating all expenses that are incurred in order to produce the event. These include: • Commissary labor cost to produce the food • All costs to deliver, set up, serve, and clean up • Equipment costs (rental and owned) • Other costs (flowers, decor, music, misc.) The first step is to accurately estimate the actual cost of the food necessary to produce the event. Off-premise caterers should maintain accurate, up-to-date cost records for most menu items. Costs for major items such as meat and seafood are volatile and can change dramatically in a matter of days. Beef prices always increase prior to and during the Christmas holidays, and seafood prices change depending on the weather and fishing conditions. Standard recipe cards must be maintained and updated frequently. Costs must be computed for each recipe ingredient. Exhibit 10-1 shows this procedure. Costs are obtained from recent invoices and supplier price quotes. In the following example, the cost for each item on the menu was computed on the standard recipe card, and the total food cost is computed by adding the cost of each menu item as follows: MENU ITEM FOOD COST Shrimp raw bar $3.00 Caesar salad .55 Beef tenderloin 4.00 Baked rice 11 Stir fry vegetables .45 Garnish and sauce .50 Rolls and butter .30 Coffee, decaffeinated, cream, sugar .25 Chocolate pecan torte .90 Total dinner price $10.06