A manager targets a 30% food cost on an entrée that costs $5.00 to produce. What selling price should be set?

A manager targets a 30% food cost on an entrée that costs $5.00 to produce. What selling price should be set?

• A. $15.00
• B. $16.00
• C. $16.67
• D. $17.50

Answer: (C)

When you price to hit a specific food-cost percentage, you want the cost of the entrée to be that percentage of the selling price. So the selling price equals the cost divided by the target percentage (in decimal). Here, the production cost is $5 and the target food cost percentage is 30%, or 0.30. So the price should be 5 ÷ 0.30 = 16.666..., which rounds to $16.67. At that price, the $5 cost is exactly about 30% of the revenue. Why the other options don’t fit: pricing at $15 would make 30% equal to $4.50, which is less than the $5 cost, so you wouldn’t cover cost at that rate. A price of $16 would yield 30% of $16 = $4.80, still short of $5. A price of $17.50 would push 30% to $5.25, meaning the cost would be more than 30% of the price. The $16.67 figure best achieves the 30% target.

When you price to hit a specific food-cost percentage, you want the cost of the entrée to be that percentage of the selling price. So the selling price equals the cost divided by the target percentage (in decimal). Here, the production cost is $5 and the target food cost percentage is 30%, or 0.30. So the price should be 5 ÷ 0.30 = 16.666..., which rounds to $16.67. At that price, the $5 cost is exactly about 30% of the revenue.

Why the other options don’t fit: pricing at $15 would make 30% equal to $4.50, which is less than the $5 cost, so you wouldn’t cover cost at that rate. A price of $16 would yield 30% of $16 = $4.80, still short of $5. A price of $17.50 would push 30% to $5.25, meaning the cost would be more than 30% of the price. The $16.67 figure best achieves the 30% target.