Chapter 4 Key Terms

The theory that an operation can set pricing based on demand for the product or service.

• Menu engineering

• Demand-driven pricing

• Market price

• Q factor

The connection between the selling price of an item and its worth to the customer.

• Value perception

• Markup

• Market price

• Price-value relationship

The quotient or cost of all other food items served with an entrée; the cost includes side dishes and garnishes as well as all complimentary items such as condiments, seasonings, coffee creamer, and sweetener.

• Q factor

• Ratio pricing method

• Contribution margin

• Markup differentiation

A method that requires managers to determine the amount of direct labor spent in preparing an item; this number is added to the food cost to arrive at the prime cost.

• Factor method

• Composite food cost percentage

• Prime cost method (pricing)

• Contribution margin method

A detailed analysis that shows the quantities sold of each menu item, along with their selling prices and standard portion costs.

• Menu product mix

• Markup

• Value perception

• Market-driven pricing

A ratio derived by taking the sum of all nonfood costs (including labor costs, other controllable costs, and noncontrollable costs), adding it to the target profit, and dividing the resulting number by the cost of food sold in dollars.

• Food cost percentage method

• Ratio pricing method

• Factor method

• Prime cost method

A customer’s opinion of a product’s value to him or her.

• Price-value relationship

• Value perception

• Markup differentiation

• Menu matrix

The weighted average food cost percentage for all items sold, weighted by the quantity of each item sold.

• Composite (potential) food cost percentage

• Value perception

• Q factor

• Market price

The amount left over after the food cost of a menu item is subtracted from the menu selling price.

• Contribution margin

• Markup differentiation

• Value perception

• Markup

Adding the contribution margin (CM) figure to the cost of a menu item to determine that item’s price.

• Contribution margin (CM)

• Markup

• Ratio pricing method

• Contribution margin method (pricing)