Pricing Of Commodities


In a department, there must be a system established so that the department can be fairly charged for what it has requisitioned for its use. The method of pricing the food issued depends mainly on the type of commodities in question.

Perishables: In the case of perishable commodities as already stated they frequently go directly to the kitchen as direct issues and priced against the actual purchase price of the commodities. When however a perishable store system is operated the daily issues can be more effectively controlled and a much more accurate gross profit calculated for each day some discrepancy do occur under this method at times, e.g. the butchery department will draw food items from the stores, manufacture them into a processed item and returned it to the stores to be issued at a later date. The method of costing here must be clearly worked out, as often – central butchery departments are required to be self-supporting and also the purchasing officer and food and beverage manager having previously decided it was cheaper and more efficient to have a butchery department in the establishment, require to measure than previous make or buy decision at periodic intervals. Perishables food may be priced out of in any methods by which non-perishables and be priced in some instants the method used would be restricted to the large establishment because of a high degree of skill necessary to install and control.

Non-perishables: In this case, one of several different methods may be adopted.

  1. Actual Purchase Price: This may be applied to items, which are infrequent purchase, and of which only a small stock is held and also for slow-moving items e.g. items costing Rs. 5/- each is issued at Rs. 5/- each.
  1. Simple Average Price: This may be applied to items, which have a fluctuating market price. When a new purchase is made a new average price should be calculated e.g. 10 times are purchased in a week at Rs. 5/- each and a similar 12 items are purchased in week 2 at Rs. 4/- each. If any of the 22 items in stock were to issue they would be at Rs. 4.5/- each.
  1. Weighted Average Price: This is a more accurate method which is sometimes used, the quantities are taken into account as well as the price, thus giving a more accurate average price.

E.g.     10kg at Rs. 15/-                  =                      Rs. 150/-

20kg at Rs. 20/-                   =                      Rs. 400/-

Total        30kg                    =                      Rs. 550/-

WAP  550kg/30                   =                      Rs. 18.3/-

  1. Inflated Price: Here the goods are issued at cost plus, say 10 or 15 % to recover the cost of handling and storage charged.
  1. Standard Price: A Standard Price is to decide on for a given period, usually 3-6 months and the positive and negative variances recorded when purchases vary in price from the standard. This method of pricing will assist measuring the performance of the kitchen accurately by means of the kitchen gross profit, as the typical excuse for a poor kitchen performance, a loss gross profit because of high prices for commodities is no.1.
  1. Last In First Out (LIFO): This may be applied to items which have a fluctuating market price. This assumes that issues will be made with the normal rotation of stock, but priced out at the latest purchase price for the items.
  1. First In First Out (FIFO): This may also apply to items which do not have a fluctuating price. This assumes that issues will be from the earliest purchases and priced accordingly.