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Methodology

Recipe Costing Planner methodology

This methodology converts purchase cost and usable yield into ingredient used cost, adds owner-entered batch labour and overhead, then divides the exact batch total across whole saleable portions.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Ingredient used cost
ICᵢ = PCᵢ ÷ (PQᵢ × Yᵢ) × QUᵢ

Where

PCᵢ
Purchased cost for ingredient i (currency units ex tax)Source: Business record
PQᵢ
Purchased quantity for ingredient i (ingredient units)Source: Business record
Yᵢ
Usable yield for ingredient i (decimal rate)Source: User assumption
QUᵢ
Quantity used for ingredient i (matching ingredient units)Source: Business record
ICᵢ
Used cost for ingredient i (currency units ex tax)Source: Calculated output
Total ingredient cost
IC = Σ ICᵢ

Where

ICᵢ
Used cost for ingredient i (currency units ex tax)Source: Calculated output
IC
Total ingredient cost (currency units ex tax)Source: Calculated output
Total batch cost
BC = IC + L + O

Where

IC
Total ingredient cost (currency units ex tax)Source: Calculated output
L
Batch labour allocation (currency units ex tax)Source: User assumption
O
Batch overhead allocation (currency units ex tax)Source: User assumption
BC
Total batch cost (currency units ex tax)Source: Calculated output
Cost per saleable portion
CP = BC ÷ Q

Where

Q
Saleable portions (positive whole portions)Source: Business record
BC
Total batch cost (currency units ex tax)Source: Calculated output
CP
Cost per saleable portion (currency units/portion ex tax)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

One ingredient has purchased quantity 10, purchased cost 100, quantity used 4 and 80% usable yield. The batch adds 20 labour, 10 overhead and produces 10 saleable portions.

Calculation and outputs

Example

One ingredient has purchased quantity 10, purchased cost 100, quantity used 4 and 80% usable yield. The batch adds 20 labour, 10 overhead and produces 10 saleable portions.

Ingredient cost
50.00
Total batch cost
80.00
Cost per saleable portion
8.00

The exact engine returns 50.00 ingredient cost, 80.00 batch cost and 8.00 per saleable portion.

Interpretation

Treat the result as an exact cost foundation; this calculator deliberately does not choose a markup or selling price.

3. Validation and boundary checks

  • At least one and at most eight ingredient rows are accepted by the public workflow.
  • Ingredient row IDs are generated locally and must remain non-empty and unique.
  • Purchased quantity and usable yield must be positive; yield cannot exceed 100%.
  • Purchased cost, quantity used, labour and overhead must be finite and non-negative.
  • Saleable portions must be a positive whole number.
  • Invalid or overflowed calculations fail closed rather than displaying NaN or Infinity.

4. Assumptions and source classification

  • Each ingredient row uses one matching quantity unit for purchase and recipe usage.
  • Usable yield reflects trim or preparation loss and is an owner-supplied assumption.
  • Labour and overhead allocations apply to the same batch represented by the ingredient rows.
  • All money inputs use one currency and consistent ex-tax treatment.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model does not estimate selling price, food-cost target, contribution margin or tax-inclusive display price.
  • Supplier price changes, production variance and unsold portions require separate scenarios.
  • Labour and overhead allocation methods remain the owner’s responsibility.
  • No wage rule, tax treatment, service charge, tip policy, supplier benchmark, food-safety rule or menu-labelling requirement is embedded.
  • The result is only as reliable as purchase units, yield and saleable-portion records.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the Recipe Costing planner and methodology.

Related reading

Guides to interpret the decision and its assumptions.

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