Eduqas Level 1/2 Hospitality and Catering (5409) · Spec 1.1.4
Costs, profit and VAT calculations
Read the notes, then try the questions. Each one is marked the moment you press Check, and shows the right answer and why.
Key ideas
- Costs come in three types. Labour is the cost of employing staff. Materials are food, drink and other goods used to make what is sold. Overheads are running costs such as rent, energy, insurance and cleaning.
- Gross profit = sales minus the cost of the food (materials). Net profit = gross profit minus labour and overheads.
- Gross profit percentage = gross profit divided by sales, times 100. Example: gross profit of £60 on sales of £200 is 60 / 200 x 100 = 30%.
- Cost per portion = total recipe cost divided by the number of portions. A £9.00 recipe for 6 costs £1.50 a portion.
- VAT is added to the price and paid by the customer. The standard rate is 20%, so price before VAT x 1.20. A £10.00 dish becomes £12.00.
- Higher costs, such as higher wages, can push menu prices up or cut profit.
Key terms
- Labour cost
- The cost of employing staff.
- Overheads
- Running costs, such as rent, energy, insurance and cleaning.
- Gross profit
- Sales minus the cost of the ingredients.
- Net profit
- Gross profit minus labour costs and overheads.
- Gross profit percentage
- Gross profit divided by sales, times 100.
- VAT
- A tax added to the price and paid by the customer. The standard rate is 20%.
Common mistakes
- Calling ingredients an overhead. Ingredients are material costs.
- Mixing up the two profits. Gross profit comes before wages and overheads are taken off. Net profit is after.
- Adding VAT by working out 20% and subtracting it. VAT is added.
- Dividing by the cost instead of by sales for gross profit percentage.
- Leaving out units. Put £ on amounts and % on percentages.
Exam tip
In a calculation, show each step and the formula. If you make a slip, a correct method still earns marks. For 'explain' questions about costs, say what the cost is and what it does to the price or the profit.
Free practice questions
8 questions, 13 marks. Answer, then press Check. The marking guide explains how the marks are worked out. Nothing is saved.
- Question 1 · Multiple choice[1 mark]
A recipe costs £6.00 in total and makes 4 portions. What is the cost per portion?
- Question 2 · Multiple choice[1 mark]
A dish is priced at £10.00 before VAT. VAT is 20%. What does the customer pay?
- Question 3 · Fill the gaps[1 mark]
Sales of £500 minus a food cost of £150 gives a gross profit of £___.
Word bank: 150 · 650 · 350 · 500
- Question 4 · Fill the gaps[1 mark]
A price of £8.00 before VAT has 20% VAT added. The customer pays £___.
Word bank: 8.20 · 9.60 · 6.40 · 1.60
- Question 5 · Fill the gaps[1 mark]
A gross profit of £60 on sales of £200 is a GP% of ___%.
Word bank: 70 · 300 · 60 · 30
- Question 6 · True or false[1 mark]
True or false: ingredients are an overhead.
- Question 7 · Sort into groups[6 marks]
Sort each cost into labour, materials or overheads.
Chefs' wages
Overtime pay for the cooks
Rent
Fresh fish
Cooking oil
Shop insurance
- Question 8 · Put in order[1 mark]
Put these steps for working out net profit in the correct order.
Use the arrows to put these in the right order, first at the top.
- 1Take off the cost of ingredients to find gross profit
- 2Add up the week's sales
- 3What is left is net profit
- 4Take off labour and overheads