Adding labour to recipe costs: Why you shouldn't

Posted 2 years ago

I don’t like adding labour to recipe costing. Here’s a better way.


The issue

When incorporating labour costs into recipe pricing, you need to use an average wage rate (per hour) and the average time taken to produce a product to calculate the per unit direct labour cost.

This all sounds overly complicated... because it is.


The problems

1. The same (average) person is often making more than one product at a time, so it’s difficult to allocate labour costs to each product.

2. It treats labour costs as fully variable but, in reality, labour cost can be fixed for a range of output.

For example, casual workers need to be employed for a minimum number of hours. Also, a chef on a salary might produce 20 of a particular dish in an hour when it is busy or 5 dishes in an hour when it is slow. But, the chef gets paid the same regardless of the level of output.

3. What about indirect labour costs? Wait staff, ‘dishies’, etc.

4. It’s all based on guess work!


A better way

Why guess when you can use the actual amount? You know what your actual (direct & indirect) labour costs are; it’s on your roster! So why guess?!

The better way is to cost up your roster and keep your wages (incl. super) at or below a certain percent of your sales each week.

See how easy it is by downloading our FREE eBook.

This means you can leave recipe costing to focus on food (and packaging) costs only, which also makes it easier to compare the costings with actual figures from a P&L statement.