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The Menu: The Foundation for Control

Step #$1$: Determine the average contribution margin required per guest.

This can be accomplished by using the following formula:

Non$-$Food Costs $+$ Required Profit

Number $of$ Expected Guests $=$ Average Contribution

Margin Required per Guest

$4\mathrm{.}89$

$\frac{\text{\$}695,000+\text{\$}74,000}{135,000}=$$$5\mathrm{.}70$

Step #$2$: Determine the base selling price for a menu item. This is done by

adding the average contribution margin required per guest to the menu item's

precosted food cost. The base selling price for a menu item with a $$4\mathrm{.}60$ food

cost in this example $($Step #$1)$ would be $$4\mathrm{.}60+$$$5\mathrm{.}70,$ or $$10\mathrm{.}30.$

Advantages of this method are its ease of use and practicality when reason$-$

ably accurate information is available from the operating budget. It is also useful in

those operations where costs associated with serving each guest are basically the

same, with the exception of varying food costs. Also, this method tends to reduce

the range of selling prices on the menu, since the only difference is reflected in the

precosted food cost incorporated in the selling price. This method also assumes

that each guest should pay the same share of the property's non$-$food costs and

profit requirements $($sometimes called the "seat tax"$).$

Ratio Pricing Method. The ratio pricing method determines the relationship

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