Which statement about the Factor Method is true?

Which statement about the Factor Method is true?

• A. It is primarily used for operations with no historical data
• B. It is a popular formula used to determine menu prices based on standard food cost percentage; also known as Simple Mark-Up
• C. It is used to calculate labor costs
• D. It is a method to forecast demand

Answer: (B)

Pricing with the Factor Method focuses on hitting a target food cost percentage by applying a single multiplier to each dish’s cost. You start with the cost to produce a menu item and multiply by a factor that reflects the desired food cost percentage. That factor is typically 100 divided by the target food cost percentage, so the selling price can be calculated as cost × factor (or cost ÷ the decimal form of the target percentage). This approach is often called Simple Mark-Up because one uniform markup is applied across items to achieve the overall food cost goal. It assumes a consistent food cost percentage across the menu, which is why a single factor can price all items effectively. It’s not about labor costs, nor about forecasting demand, and it relies on historical data to establish the target food cost percentage.

Pricing with the Factor Method focuses on hitting a target food cost percentage by applying a single multiplier to each dish’s cost. You start with the cost to produce a menu item and multiply by a factor that reflects the desired food cost percentage. That factor is typically 100 divided by the target food cost percentage, so the selling price can be calculated as cost × factor (or cost ÷ the decimal form of the target percentage). This approach is often called Simple Mark-Up because one uniform markup is applied across items to achieve the overall food cost goal. It assumes a consistent food cost percentage across the menu, which is why a single factor can price all items effectively. It’s not about labor costs, nor about forecasting demand, and it relies on historical data to establish the target food cost percentage.