APPENDIX A | Focus on Formulas MAKE OR BUY COMPARISON FORMULA
When deciding whether to produce a food item from scratch or purchase a convenience item, compare the cost and quality difference. To calculate the cost to produce a food item from scratch, consider the food and labor costs. Food cost = cost of recipe ingredients Labor cost = number of hours needed to prepare food item x hourly wage (including benefits)
Example
The manager is deciding whether to produce the cookies needed for the menu or purchase them frozen. Food cost for scratch cookies = $15.00
Labor cost for scratch cookies Takes one cook 1.5 hours to prepare cookies. Hourly wage = $26/ hour and Benefits = 30%
Hourly wage including benefits = $26/hour x 1.3 = $33.80/hour $33.80 / hour x 1.5 hours = $50.70
Total cost to make cookies from scratch = $15.00 + $50.70 = $65.70 Total cost for equivalent amount of frozen cookies = $61.00 If the quality of the frozen cookies is acceptable, the convenience item is a good choice.