If an entrée costs $5.00 to produce and the target food cost percentage is 40%, what selling price should be set to meet the target?

If an entrée costs $5.00 to produce and the target food cost percentage is 40%, what selling price should be set to meet the target?

• A. $11.00
• B. $12.00
• C. $13.50
• D. $12.50

Answer: (D)

Target food cost percentage means the cost to produce the entrée should represent that fraction of its selling price. To meet a 40% target with a $5 cost, set the selling price so that 40% of the price equals 5. So price = 5 ÷ 0.40 = 12.50, i.e., $12.50. This exactly makes the food cost 40% of sales. If you try other prices, you won’t hit that 40% target: for example, $12.00 would imply a 4.80 cost at 40%, and $13.50 would imply a 5.40 cost at 40%, both not matching the $5 cost. The $12.50 price is the one that aligns cost and target percentage.

Target food cost percentage means the cost to produce the entrée should represent that fraction of its selling price. To meet a 40% target with a $5 cost, set the selling price so that 40% of the price equals 5. So price = 5 ÷ 0.40 = 12.50, i.e., $12.50. This exactly makes the food cost 40% of sales. If you try other prices, you won’t hit that 40% target: for example, $12.00 would imply a 4.80 cost at 40%, and $13.50 would imply a 5.40 cost at 40%, both not matching the $5 cost. The $12.50 price is the one that aligns cost and target percentage.