School lunch and breakfast cost study final report

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^.tr^x United Stotes ix$ sr,o' School Lunch and
Food and
Nutrition
Service
Office of
Analysis and
Evaluation
Breakfast Cost Study
Final Report
October 1994
y>
School Lunch and Breakfast
Cost Study
Final Repoi:
October 1994
Contract No. 53-3198-2-021
Submitted to: Submitted by:
John Endahl Frederic B. Glantz
Office of Analysis and Evaluation Christopher Logan
Food and Nutrition Service Hope M. Weiner
United States Department of Agriculture Michael Battaglia
3101 Park Center Drive Ellen Gorowitz
Alexandria, VA 22302
Table of Contents
Page
Acknowledgements i
Executive Summary iii
Chapter One: Introduction 1-1
Overview of the National School Lunch Program and the
School Breakfast Program 1-2
Defining Meal Costs 1-5
Chapter Two: Overview of the School Lunch and Breakfast Cost Study 2-1
Overview of the Meal Cost Methodology 2-1
Sample Design and Selection 2-11
Data Collection ? 14
Chapter Three: Estimates of Reported Costs 3-1
Reported Costs of Producing Reimbursable Meals 3-2
Composition of Reported Costs 3-6
Administrative Costs 3-10
Chapter Four: Estimates of Full Costs 4-1
Magnitude and Composition of Unreported Costs 4-2
Full Cost of Producing Reimbursable Meals 4-11
Composition of Full Costs 4-14
Chapter Five: Analysis of School District Indirect Costs 5 !
SFA Practices for Reporting Indirect Costs 5-3
Recovery of SFA Indirect Costs 5-6
Methods Used to Allocate Indirect Costs 5-9
Calculation and Recovery of Indirect Costs from Other Grants 5-13
Oi
Table of Contents
(continued)
Chapter Six: Composition of SFA Revenues and Revenue/Cost Comparisons .... 6-1
Composition of Revenues 6-2
Comparison of Revenue and Cost 6-8
Appendix A: Sample Design A-l
Introduction A-l
The Sample of SFAs A-2
The Sample of Schools and Kitchens Within SFAs A-3
Summary A-6
Appendix B: Weighting Methodology B-l
Introduction B-l
School/Kitchen Weights B-l
SFA Weights B-l
Appendix C: Estimates of Reported and Full Costs by Type of Meal
Production System C-l
Appendix D: Regression Models for Reported and Full Cost per Reimbursable
Meal D-l
Appendix E: Supplementary Tables E-l
\)
Acknowledgements
The School Lunch and Breakfast Cost Study represents the culmination of more than two years of effort
by many persons in several organizations. While it is not possible to thank every person who contributed
to the study, we want to acknowledge the support and contributions of several individuals.
Special thanks are due to the school districts that participated in the study. The cooperation of food
service directors and their staff was invaluable. Participating schools were most gracious in permitting
study staff to observe meal preparation and service over several days. Thanks too to the school district
administrators who opened their doors to the study staff and found time in their busy days to be
interviewed and provide school district financial records.
Staff of the Office of Analysis and evaluation, Food and Nutrition Service, U.S. Department of
Agriculture had responsibility for overseeing the project. John Endahl, the Project Officer, provided
valuable criticism and direction throughout the project.
Brown & Company of Arlington, Virginia was Abt Associates' subcontractor for part of the data
collection. Their staff conducted on-site reviews of financial records of each of the participating school
districts, and interviewed food service directors and other school district administrators. Milton Hatcher
and Tyrone Brown were responsible for the subcontract.
Several staff members at Abt Associates played important roles in the project. Marjorie Levin directed
the field operations. Michael Battaglia developed the sampling design. Ellen Lee managed the data base
and assisted in the analysis. Christopher Logan and Ellen Gorowitz helped analyze the data. Tracy
Olcott coordinated the production of all project reports. Special thanks to Hope Weiner who was
involved in all aspects of the study from beginning to end. The overall success of the project is in no
small measure the result of her tireless efforts.
Frederic B. Glantz
Project Director
Abt Associates Inc.
Of1' A School Lunch and Breakfast Cost Study Final Report ^ Acknowledgements i
Executive Summary
STUDY BACKGROUND
The School Lunch and Breakfast Cost Study was carried out by Abt Associates Inc. of Cambridge,
Massachusetts, under contract to the Food and Nutrition service (FNS) of the United States Department
of Agriculture (USDA). It provides a detailed examination of the cost of producing reimbursable meals
in the National School Lunch and Breakfast Programs (NSLP and SBP) during School Year (SY) 1992-
93. Information was collected information from a nationally-representative sample of 94 School Food
Authorities (SFAs). In each SFA, data were collected in a representative sample of schools and kitchens.
In total, data were collected in a sample of S40 schools.
The study examined the costs charged to SFAs (reported costs), as well as those costs incurred by the
school district in support of SFA operations, but not charged to the SFA (unreported costs). Together,
the reported costs and the unreported costs are the full cost of meal production.
NONPROFIT FOODSERVICE OPERATIONS
SFAs are required to be nonproiit and self-sufficient. Usually SFAs operate at the break-even level, i.e.,
costs should equal revenues from all sources. Nonprofit status is determined by the financial status of the
school food service as a whole rather than me financial status of each Federal program separately. SFAs
are not required to maintain separate cost and revenue records for the NSLP, SBP and other nonprofit
school food service activity. SFAs can use Federal lunch and non-severe need breakfast payments to
support their overall nonprofit school food service. Federal funds from NSLP can be used to support
SBP or non-program food service such as a la carte service.
Because SFAs are nonprofit, reported costs will generally equal revenues. Within this overall status
though, SFAs may shift costs between breakfast and lunch, or reimbursable and non-reimbursable meals.
If revenues from reimbursable meals exceed the cost of producing these meals, the SFA may use the
funds to support a la carte meals. Similarly, if revenues from reimbursable meals are less than the costs,
the SFA may use the a la carte revenues to support the cost of reimbursable meals.
U ■ 5
School Lunch and Breakfast Cos' Study Final Report Summary Hi
Major findings related to SFA revenues and reported costs include:
• On average, SFAs operate at the break-even level, with total revenues about
equal to total reported costs.
• Revenues from reimbursable meals exceed the cost of producing those meals.
Reimbursable lunches generate a revenue surplus that is used to offset losses
from reimbursable breakfasts.
• SFAs also subsidize non-program food service (e.g., a la carte) with surplus
revenues from reimbursable lunches.
• Revenues from reimbursable meals (including government subsidies and student
payments) accounted for an average of 85 percent of total SFA revenues.
REPORTED COSTS
From an SFA's perspective, reported costs are the costs of running the Child Nutrition programs. That
is, reported costs are the costs SFAs are expected to cover from revenues derived from food service sales
and government reimbursements. Major findings related to the reported cost of producing reimbursable
meals include:
• The combined Federal subsidy for free lunches and breakfasts covers the cost of
producing these meals. The combined median cost of producing NSLP and SBP
meals ($2.68) was less than the combined Federal subsidy for free meals ($2.79).
• The reported cost of producing a reimbursable lunch was less than the Federal
subsidy for a free lunch. The SFAs' median reported cost of producing a
reimbursable lunch was $1.63, compared with a Federal subsidy of $1.84 for a
free lunch. In 75% of the SFAs, the reported cost of producing reimbursable
lunches was less than the Federal subsidy.
• The reported cost of producing a reimbursable breakfast exceeded the Federal
subsidy for a free breakfast. The SFAs' median reported cost of producing a
reimbursable breakfast was $1.05, compared with a Federal subsidy of $0.95 for
a free breakfast ($1.12 for a "severe need" breakfast). In two-thirds of the
SFAs, reported costs exceeded the regular reimbursement rate for free breakfasts.
Federal meal subsidies are not intended to cover all costs for all SFAs. It is expected that some SFAs
will have reported costs above the subsidy while others will have costs below the subsidy. However, it
is intended that, on average, across all SFAs Federal subsidies will cover the costs of producing
reimbursable meals.
School Lunch and Breakfast Cost Study Final Report Of 6 Summary iv
UNREPORTED COSTS
Most school districts incur some costs in support of the food service operations that are not charged to
the SFA budget. In some cases, the school districts chose to bear these costs as a way to subsidize the
SFA, while in other cases, the districts carried the costs because the SFA had insufficient funds to cover
all expected costs. Major findings related to the unreported costs and the full cost of producing
reimbursable meals include:
• Across all SFAs, unreported costs accounted for an average of 17 percent of full
costs.
For the average SFA, the median full cost of producing a reimbursable lunch and
breakfast was $1.88 and $1.38, respectively.
Unreported costs are primarily labor, indirect costs, equipment depreciation, and
utilities.
Administrative labor costs accounted for 13 percent of the average SFA's full
cost (compared to eight percent of the average SFA's reprted cost).
School Lunch and Breakfast Cost Study Final Report Summary v
Chapter One
Introduction
The School Lunch and Breakfast Cost Study, conducted for USDA's Food and Nutrition Service (FNS),
was designed to "...determine the cost to produce school lunches and breakfasts, including indirect and
local administrative costs" (P.L. 101-624). Specifically, the study was intended to meet the following
objectives:
• determine the national average cost of producing reimbursable National School
Lunch Program (NSLP) and School Breakfast Program (SBP) meals during
School Year (SY) 1992-93;
• determine the value of local administrative costs used to produce reimbursable
meals;
• determine the composition of indirect costs, the extent to which they are charged
to School Food Authority (SFA)1 accounts, and the basis for these charges;
• determine the composition of SFA revenues, including federal reimbursements,
cafeteria sales (student payments for NSLP and SBP reduced- and full-price
meals, a la carte, and ad jit meals, etc.), and State and local cash assistance; and
• determine the extent to which meal production costs vary by the type of meal
production/distribution system used by SFAs.
While there have been several previous studies of school meal costs, these efforts have suffered from two
important methodological weaknesses:
• They have relied on costs as reported by SFAs and have therefore not reflected
the cost of all of the resources used by SFAs to produce school meals.
• Because there is no separate accounting of the costs attributable to the production
of different meals (e.g., breakfast vs. lunch, reimbursable vs. a la carte meals),
past studies have relied on indirect, econometric techniques to convert breakfasts,
adult meals, and a la carte sales into NSLP-lunch equivalents (LEQ) to estimate
'A school district is an educational entity recognized by the State, responsible for the administration
of one or more schools but does not necessarily have the legal authority to operate the NSLP and SBP.
A School Food Authority is "...the governing body which is responsible for the administration of one or
more schools and has the legal authority to operate the Program therein or be otherwise approved by FNS
to operate the program." (7CFR210.2).
School Lunch and Breakfast Cost Study Final Report Q Chapter One: Introduction 1-1
unit costs. Such indirect measurement techniques do not [ ovide a true measure
of the costs of producing reimbursable lunches and breakfasts.
To overcome these problems, the Meal Cost Methodology Study (MCM), conducted by Abt Associates
for FNS, developed a methodology to identify and measure the full cost of meal production (i.e.,
including costs that were not charged to the SFA account) and to allocate these costs to different SFA
activities.2 Abt Associates pilot tested this new direct measurement methodology in 18 SFAs during SY
1990-91 and determined that it is a feasible mechanism for measuring the per-mea) costs of reimbursable
meals in the NSLP and SBP. This study used the MCM approach (described in Chapter Two) in a
nationally-representative sample of SFAs to meet the previously described objectives.
The remainder of this chapter provides brief descriptions of the two programs that are the focus of the
study—the NSLP and the SBP—and discusses the issue of defining costs for meals produced and served
in these programs.
OVERVIEW OF THE NATIONAL SCHOOL LUNCH PROGRAM AND THE SCHOOL
BREAKFAST PROGRAM
The NSLP and the SBP are two of the "Child Nutrition Programs" administered by FNS that operate in
every State in the nation. Each program is briefly described below.
The National School Lunch Program
The NSLP is the largest and oldest Child Nutrition Program. The Federal contribution for School Year
(SY) 1991-92 was about $4.4 billion, including donated commodities.
The NSLP provides Federal subsidies for school lunches served to children at all income levels. Eligible
institutions include public schools, private non-profit schools, and public or licensed residential child care
institutions. Nationally, about 95 percent of all public schools and 29 percent of all private schools
participate in the NSLP.1 Any child in a participating school is eligible to purchase a school lunch.
About 60 percent of all children in schools regularly participate in the program.4
2Glantz, F. et al., Child Nutrition Meal Cost Methodology Study (U.S. Department of Agriculture,
Food and Nutrition Service, Office of Analysis and Evaluation, 1992).
'Committee on Agriculture, Nutrition, and Forestry, U.S. Senate. Child Nutrition Programs:
Description, History, Issues, and Options (Washington, D.C.: 1983).
4Burghardt, J. et al., The School Nutrition Dietary Assessment Study, School Food Service, Meals
Offered, and Dietary Intakes (Princeton, NJ: Mathematics Policy Research, Inc., 1993).
School Lunch and Breakfast Cost Study Final Report Chapter One: Introduction 1-2
Federal assistance takes two forms: cash and commodities. To be eligible for Federal subsidy, lunches
served must meet nutritional guidelines set forth by the Secretary of Agriculture designed to ensure that
the meal provides, on average, one-third of a student's daily nutritional requirements. Federal assistance
is performance-based—i.e., reimbursement is provided to States only for meals actually served to
students. Two kinds of cash assistance are provided. Under Section 4 of the National School Lunch Act,
a cash subsidy is provided for every lunch served, regardless of the income of the child's family. Under
Section 11 of the National School Lunch Act, additional cash subsidies are provided for children
qualifying for free or reduced-price lunches. Currently, students eligible for a free lunch are those from
families with incomes at or below 130 percent of poverty. Reduced-price lunches may oe served to
students from families whose incomes fall between 130 and 185 percent of poverty. These students may
be required to contribute an additional amount of their own money for the lunch—up to $0.40 per lunch.
An additional $0.02 per lunch is reimbursed for each meal served in schools in which 60 percent or more
of the lunches in the second preceding year were claimed as free or reduced-price meals. Total cash
reimbursements received by schools during Fiscal Year (FY) 1992 amounted to approximately $3.8
billion.
The NSLP is the only Child Nutrition Program that requires a matching contribution by States. States
are required to provide matching funds equal to up to 30 percent of the amount of Section 4 assistance
they received during SY 1980. The actual percentage depends on the average per capita income in the
State as compared with the national average. States with average per capita incomes lower than the
national average are required to contribute less than 30 percent.
Under Sections 6 and 14 of the Natic ial School Lunch Act, schools also receive agricultural commodities
for use in school lunches. Entitlement commodity assistance, provided regardless of family income, is
available for each meal served (about $0.14 per lunch for SY 1992-93) and is provided to States based
on the estimated number of lunches to be served in the school year. In addition, the school lunch
program may receive "bonus commodities"—commodities that do not count against the State's entitlement
and which vary from year to year both in amount and the types of commodities provided.
School Lunch and Breakfast Cost Study Final Report i . j Chapter One: Introduction 1-3
In FY 1992, about 24.6 million lunches were served daily in the NSLP. The per meal lunch
reimbursement rates in effect for SY 1992-93 are as follows:
Paid
Reduced-price
Free
Regular
Reimbursement
Rates
$0.1625
1.2950
1.6950
Average
Entitlement
Commodities
$0.1400
0.1400
0.1400
Total
Subsidy
$0.3025
1.4350
1.8350
Federal law prohibits schools from charging students who qualify for free lunches, but allows them to
charge up to $0.40 for reduced-price lunches. There is no limit placed on what paying students may be
charged for lunch.
The School Breakfast Program
The SBP provides Federal funds for non-profit breakfast programs in eligible schools (i.e., public or
private non-profit) and other approved child care institutions. Initiated in 1967, the program is aimed
at "nutritionally needy" children1. Throughout its early history, legislation stressed the need to reach
children in poor areas, especially rural areas where children might have to travel great distances to
school, and children of working mothers.
The current cost of the breakfast program (FY 1992) is about $790 million. As with the NSLP, Federal
SBP reimbursement is based on the number of meals served. Per-meal reimbursement rates vary in two
ways. First, as in the NSLP, three categories of reimbursement are established according to family
income: paid reimbursement is provided for breakfasts served to those from families with incomes above
185 percent of poverty; reduced-price rates are established for breakfasts served to children from families
with incomes between 130 and 185 percent of poverty; and free rates are established for breakfast served
to children from families with incomes below 130 percent of poverty. Second, a "severe need" rate is
established for free and reduced-price breakfasts in schools that served 40 percent or more of their
lunches to children below 185 percent of poverty two years prior to the school year for which the rate
'Committee on Agriculture, Nutrition, and Forestry, U.S. Senate, 1983.
School Lunch and Breakfast Cost Study Final Report
0»
Chapter One: Introduction 1-4
11
is claimed.6 Schools must also demonstrate that unusually high preparation costs exceed the regular
reimbursement. The per meal breakfast reimbursement rates in effect for SY 1992-93 are as follows:
Regular Severe Need
Reimbursement Rates Reimbursement
Paid $0.1875 $0.1875
Reduced-price 0.6450 0.8225
Free 0.9450 1.1225
Federal law prohibits schools from charging students who qualify for free breakfasts, but allows them
to charge up to $0.30 for reduced-price breakfasts. There is no limit placed on what paying students may
be charged for breakfast.
Most subsidies are for meals served in elementary schools; not only do more elementary schools
participate in the program, but student participation is much greater in these schools. The gre«t majority
of children who participate in the program receive free breakfasts (i.e., have incomes below 130 percem
of poverty). In FY 1992, 88 percent of all breakfasts were served free or at a reduced-price rate.
Nonprofit Foodservice Operations
SFAs are required to be nonprofit and self-sufficient. Usually SFAs operate at the break-even level, i.e.,
costs should equal revenues from all sources. Nonprofit status is determined by the financial status of the
school food service as a whole rather than the financial status of each Federal program separately. SFAs
are not required to maintain separate cost and revenue records for the NSLP, SBP and other nonprofit
school food service activity. SFAs can use Federal lunch and non-severe need breakfast payments to
support their overall nonprofit school food service. Federal funds from NSLP can be used to support
SBP or non-program food service such as a la carte service.7
6Prior to the 1981 Omnibus Budget Reconciliation Act (OBRA), schools could be designated as severe
need if state law required them to operate a breakfast program.
77CFR Parts 210 and 220.
School Lunch and Breakfast Cost Study Final Report | 2 Chapter One: Introduction IS
DEFINING MEAL COSTS
In existing cost reporting systems, the definition and measurement of meal production costs depends on
the vantage point adopted and on how the information is to be used. At the local level, cost accounting
systems are designed to inform local managerial decisions. Most often, school districts expect their food
service authorities to operate at the break-even level, i.e., costs should equal revenues from all sources.
The cost elements included in the SFA's cost accounting system are, for the most part, limited to those
costs that the food service authority is expected to cover from revenues generated from food service sales
and government reimbursements. However, these costs may not reflect the full cost of meal production
in the school district. For example, the SFA costs may exclude the cost of school district resources used
to support SFA operations.
Conceptually, the full cost of meal production should include the current cost of all resources used in
meal production, including those charged to the SFA budget and those charged to other budgets or
donated to the SFA. These total costs include:
• Direct Meal Production Costs. Direct meal production costs are those directly
traceable to meal production and service. They include such items as food cost,
SFA food service labor costs, and other identifiable meal production costs (e.g.,
supplies).
• Non-meal Production Costs. These costs, which can be incurred at both the
SFA and school district level, are not directly traceable to the production of
meals in schools. At the SFA level, these costs include labor for food service
administration and other SFA support activities, the cost of the facilities occupied
by the SFA, storage and transportation of foods, and transportation of meals
within the district. At the school district level, examples include the time spent
by business managers who are often responsible for SFA as well as school
district purchases; school principals, custodians and secretaries who provide
administrative services that facilitate the operation of school cafeterias; and
cafeteria and kitchen utility costs that are often included in school district utility
bills. Other examples of school district costs include: school facilities used to
store and transport inventories of food (and other SFA supplies); district facilities
used to prepare and serve meals; and vehicles used to transport meals prepared
at central or base kitchens to satellite and receiving kitchens. Some or all of
these costs may be directly charged to the SFA and appear as line-items on the
SFA financial statement or they may be included as part of an indirect cost rate;
or they may be absorbed by the school district and not charged in any way to the
SFA.
• Costs of Other Resources. Examples of other resources (which may be meal
production or non-meal production costs) that do not appear in either SFA or
school district budgets are: volunteers and student aides who routinely assist in
the cafeteria; and depreciation of capital equipment.
<"■ 13
School Lunch and Breakfast Cost Study Final Report Chapter One: Introduction 1-6
The chapter that follows describes the study methodology, including the approach used to measure
reimbursable mea! costs, the selection of the study sample, and the data collection activities. Chapter
Three presents the estimates of reported costs. Chapter Four presents the estimates of full costs. Indirect
costs are discussed in Chapter Five. Chapter Six examines SFA revenues.
School Lunch and Breakfast Cost Study Final Report 1* 4*x Chapter One: Introduction 1-7
Chapter Two
Overview of the School Lunch and Breakfast Cost Study
This chapter provides a detailed description of the School Lunch and Breakfast Cost Study. First, the
methodology used to measure meal costs is described. Next, sample selection and recruitment are
discussed. The chapter concludes with a discussion of the data collection strategy.
OVERVIEW OF THE MEAL COST METHODOLOGY
The primary objective of the School Lunch and Breakfast Cost Study is to determine the average cost of
producing school lunches and breakfasts, including indirect and local administrative costs. In contrast
to the methods used by SFAs and in prior research studies, the methodology for this study relies on the
direct measurement of costs attributable to the various SFA activities rather than the use of indirect
allocation rules.1 Exhibit 2.1 presents an overview of the study approach.
The methodology consists of four elements:
1) measuring the full cost of SFA operations;
2) distributing the reported and full cost of SFA operations to the production of
lunches, the production of breakfasts, and non-meal production activities;
3) distributing a share of the cost of non-meal production activities to the production
of lunches and breakfasts to obtain the full cost of producing these meals; and
4) distributing the reported and full cost of meal production to the production of
reimbursable and non-reimbursable meals.
To complete these four processes requires a review of SFA financial statements, meal production records,
recipes, invoices, and other documentation. SFA and school district officials are interviewed to provide
data to impute the value of school district costs that are not charged to the SFA budget. Data needed to
allocate labor costs among SFA activities are obtained through a time study conducted with food service
'The methodology used in this study was developed and pilot tested as part of the Meal Cost
Methodology Study. See Glantz, F. et al, Child Nutrition Meal Cost Methodology Study (U.S.
Department of Agriculture, Food and Nutrition Service, Office of Analysis and Evaluation, 1992). The
methodology measures the average cost of producing lunch and breakfast. It is not intended to measure
the incremental cost of adding a breakfast program to an existing lunch program.
School Lunch aid Brtakfast Cost Study Final Report _ Chapter Two: Study Overview 2-1 15
Exhibit 2.1
Overview of Meal Cost Methodology Framework
Total Cost of Lunch
Production
Total direct cost of lunch
production
Lunch share of non-meal
production costs
Cost of SFA Operations
• Reported Costs
• Full Costs
- Reported costs
- Imputed value of
"non-reported costs"
I Distribution of Costs of
SFA Operations
• Total direct cost of lunch
production
• Total direct cost of
breakfast production
• Non-meal production costs
Total Cost of Breakfast
Production
• Total direct cost of
breakfast production
• Breakfast share of non-meal
production costs
NSLP Reimbursable
Lunch Cost
• Total cost of NSLP lunch
production
• Cost per NSLP lunch
Non-Reimbursable
Lunch Cost
Total cost of non-reimbursable
lunch items
SBP Reimbursable
Breakfast Cost
Total cost of SBP breakfast
production
Cost per SBP breakfast
16 "~
Non-Reimbursable
Breakfast Cost
• Total cost of non-reimbursable
breakfast
items
staff in a sample of schools. Finally, a sample of meals taken by students are observed to obtain data
on the distribution of menu items sold in reimbursable and non-reimbursable meals. The relationship
between these data collection activities and the four elements of the methodology are summarized in
Exhibit 2.2. Each element of the methodology is discussed below.
Exhibit 2.2
Data Collection Activities by Study Component
EEl<lement of Methodology Data Collection Activity
Measure the Full Cost of SFA Operation review the SFA's annual financial statement
with SFA and school district officials to verify
reported costs and to identify unreported costs;
and
obtain information needed to impute the value
of these unreported costs
Distribute the Reported and Full Costs of
SFA Operations Between Lunch
Production, Breakfast Production, and
Non-Meal Production Activities
review meal production records, recipes, and
invoices to directly measure the cost of food
used in lunch and breakfast production during a
sample time period; and
conduct a time study to identify the labor costs
attributable to lunch and breakfast production
and non-meal production activities
Distribute a Share of Non-Meal Production
Costs to Lunch and Breakfast Production
no separate data collection; allocation of non-meal
production costs based on distribution of
food and labor costs.
Distribute the Reported and Full Costs of
Producing Lunches and Breakfasts Between
Reimbursable and Non-Reimbursable
Meals
observe a sample of meals taken by studen s to
identify the quantity of each menu item sold that
is attributable to reimbursable and non-reimbursable
meals.
Measuring the Full Cost ofSFA Operations
Full-cost accounting requires that the cost of all resources used by the SFA be identified and attributed
to SFA operations. These include costs incurred by and charged to the SFA (reported costs), as well as
costs incurred by the school district for activities in support of SFA operations. These latter costs may
or may not be charged to the SFA. Full-cost accounting also requires that the value of in-kind
contributions (e.g., donated commodities and volunteer labor) be included as a cost of SFA operations.
School Lunch and Breakfast Cost Study Findf Report n 17 Chapter Two: Study Overview 2-3
Similarly, full cost accounting of SFA operations requires that a portion of these school district indirect
costs be assigned to SFA operations. Indirect costs are those costs that are incurred by the school district
in support of SFA and other school district operations, but are not directly traceable to specific activities.
The study approach measures the full cost of SFA operations including both those costs that are reported
on annual financial statements and unreported costs which must be identified and measured.
The process of identifying unreported costs involves reviewing the SFA's annual expense statement with
the SFA director and/or SFA business manager.2 Where applicable, the process also involves reviewing
the supporting documentation for the school district's indirect cost rate with the school district business
manager. The objective of this review is to determine the inclusiveness of each line item on the expense
statement-does the reported cost include all of the cost attributable to food service operations? For each
line item, this review also seeks to determine if unreported or under-reported costs are included in the
school district's indirect cost rate (e.g., if utilities were not included in the SFA's expense statement, this
review will determine if utilities were included in the school district's indirect cost rate).
The review of SFA expense statements and school district indirect cost documentation identifies those cost
elements for which costs have to be imputed. Respondents are also asked to provide (or identify sources
for) the information needed to impute the costs (e.g., to impute the cost of off-budget labor costs, it is
necessary to identify the off-budget staff, the amount of time they devote to food service activities, and
their wage rates). Principals in a sample of schools are interviewed to identify unreported costs incurred
at the school level (e.g., distributing and processing applications for school meal benefits). Exhibit 2.3
summarizes the sequence of activities used to identify and measure unreported costs.
Allocating Food Costs to Breakfast and Lunch
Annual food costs are distributed to breakfast, lunch and other meals using allocation percentages based
on the cost of food used during a 5-day study week. The process of identifying the cost of food used in
breakfast and lunch production includes the following activities:
• Prices and Commodities. Obtaining the average unit price paid for each
ingredient (or the USDA assigned value for donated commodities). SFAs
provide master price lists for all foods acquired. These prices are matched to the
ingredients used during the 5-day study week by study staff following the
completion of data collection.
2The study focused on the costs allowable under the program regulations. While efforts were made
to identify and exclude unallowable costs, the estimates of reported and full costs may nevertheless
include some unallowable costs that were not identified during the review of SFA expense reports. The
inclusion of unallowable costs would tend to overstate both reported and full costs.
^ 1$ School Lunch and Breakfast Cost Study Final Report Chapter Two: Study Overview 2-4
Exhibit 2.3
Flowchart for Analysis of Unreported Costs
I
lI
i
i.
Review Reported
Direct Costs to
Identify Possible
Unreported Costs
2.
Review Indirect
Costs to Determine
Which Costs They
Include
3.
Identify Off-Budget
Staff
r
5.
Conduct School
Interviews
4.
Complete Off-Budget
Staff Roster
6.
Conduct Off-Budget
District Staff
Interviews
£
9.
Compute Unreported
Costs and Add to
Reported Costs to
Determine Full Costs
7.
Complete Equipment
Cost Worksheet
8.
Obtain Other
Unreported Costs
nr 19
Recipe Records. A review of recipes used in the production of each food item
with the kitchen manager to determine the quantity of the ingredients used in the
production of each food item. Study staff record the quantity of each ingredient
used, and whether the ingredient was a USDA donated commodity on a Recipe
Cost Form.
Menu Records. A review of menu and production records with kitchen
managers to identify all food items produced for breakfast and lunch during the
5-day study period. Serving size and number of servings produced, including
leftovers, are recorded by study staff "meal observers" on a Menu and
Production Record.3
Sampling Weights. Applying sampling weights to the food cost estimates for
each sample school to obtain district-level estimates.
Exhibit 2.4 summarizes the calculation of the allocation percentages that are used to distribute annual food
costs to breakfast, lunch, and other meals.
Identifying and Allocating Labor Costs to SFA Activities
The allocation of SFA labor costs among food service activities is based on the proportion of time
devoted to each activity. Two methods arc used for distributing staff time and costs among the various
food service activities:
• Daily Time Records for Direct Meal Production Staff. A time study is used
for kitchen staff and other school-based food service personnel. All food service
workers in a sample of schools/kitchens complete Daily Time Records for the 5-
day study week. These data are combined with information obtained from an
SFA salary schedule to obtain the labor costs attributable to each food service
activity. Labor costs for school-based SFA staff are then aggregated to the
school district level.
• Central Staff Rosters and Off-Budget Staff Rosters. Professional estimates
made by SFA and school district staff are used to obtain the distribution of time
across food service activities for staff not represented in the time study.
Professional estimates are made for three groups: central SFA staff; central
school district staff; and school staff.
• Sampling Weights. Sampling weights are applied to labor cost estimates for
each sample school to obtain district-level estimates of the labor cost of school-based
staff.
3Copies of the study instruments are included in Appendix E with a description of how each
instrument is used.
School Lunch and Brtakfiut Cost Study Final Report '£ (J Chapter Two: Study Overview 2-6
1
BLANK
PAGE
1
I
2
fr
^
Exhibit 2.4
Calculation of Allocation Percentages Used to Distribute Annual Food Costs to Breakfast, Lunch and
Other Meals
Information Sources
C Master List of Food Prices 1
f USDA-Assigned Value of A
^ Donated Commodities /
C Recipe Records
Menu Records
^———
Sampling Weights }
AW Associates Inc.
School Lunch and Breakfast Cost Study
t i 21
Worksheets
Compute Cost of
Food Served at
Breakfast & Lunch at
Each Sample School
District Food Cost Summary:
Allocation Percentages
• Breakfast
• Lunch
• Other Meals
i 1
Exhibit 2.5 summarizes the procedures used to estimate the percentage of total annual labor costs
attributable to each food service activity.
Allocating "Other" Costs Between Breakfast and Lunch Production
The study methodology directly measures the food and labor costs attributable to breakfast and lunch
production. However, a share of direct costs (e.g., supplies, equipment, etc.) must be distributed to
breakfast and lunch production to obtain the total reported cost of producing breakfasts and lunches. In
the MCM methodology, such costs are distributed between breakfast and lunch in relation to the
proportion total of labor and food costs used in breakfast and lunch production. In this way, meal
production activities that use a greater amount of labor and food are appropriately credited with a large
share of other direct costs.
Allocating Total Lunch and Breakfast Costs to Reimbursable and Non-Reimbursable Meals
The previous steps provide estimates of total annual lunch and breakfast costs. Total annual meal costs
(for each type of meal) are allocated to reimbursable and non-reimbursable meals based on the proportion
of food costs (for each type of meal) used to produce the food that students actually take as part of
reimbursable meals.4
To derive these estimates, meal observers record the food items selected by a sample of students taking
reimbursable meals in the sample schools. These data are combined with district records of the total
number of reimbursable meals served at sample schools during the study week and the previously
computed cost per serving (of each food item) to estimate the total food cost of reimbursable meals served
a. the sample schools. These estimates are then weighted to provide an aggregate district-level estimate
of reimbursable food costs. Exhibit 2.6 summarizes the estimation of the percentage of food costs that
are reimbursable.
*The methodology does not identify those costs that are restricted only to reimbursable meals (e.g.,
administrative functions related to the meal benefit application and approval process). This results in a
slight overstatement of the costs attributable to non-reimbursable meals. Similarly, some high cost foods
may require relatively little preparation labor and vice versa. While allocating other costs on the basis
of food costs is the best practical option, it is not a perfect measure.
School Lunch and Brtakfast Cost Study Final Report Chapter Two: Study Overview 2-8 22
BLANK
PAGE
)
I
I
f
{
E .
bNMU
Estimating tha Parcantaga at Labor Con* Attributable to Each Typa of
MonmUon Soureaa
Indvidual Daily Tims Records for
School-Based Food Servtea Staff c Salary Schedule
C
C
c
c
c
Sampling Weights
Central Staff Paid Staff Roster
Central Food Service
Staff Time Allocation
Grid
Off-Budget Time Allocation Grid:
Central School District Staff
Off-Budget Staff Roster
Central School District Staff
School Administrator Interviews:
School-Based Off-Budget Staff
Sampling Weights
AtH»MOC,a»llrnc
School Lunch and BMMMM Cart Study
WorfcthMte
Individual 5 • Day Summary
I
Summary for Sample Schools
i
District Summary for School-Based
Food Service Staff
District Summary for Central Food
Service Paid Staff
District Summary for Central School
District Off-Budget Staff
District Summary for
Off-Budget Staff
Labor Cost Allocation
Percentages
.' 23
8
f
I
Exhibit 2.6
Estimation of the Percentage of Food Costs that are Reimbursable
Information Sources
Meal Observation Forms
District Records of the Total
Number of Reimbursable
Meals Served at Sample
Schools During Study Week
Computed Cost Per Serving
(See Exhibit 2.4)
Sampling Weights
District Summary of Total
Food Costs
(See Exhibit 2.4)
Worksheets
Summary of Reimbursable
Food Costs at Each Sample
School
District Summary of
Reimbursable Food Costs
Percent of Food Costs that
are Reimbursable
AW Associate* Inc.
School Lunch and Breakfast Cost Study
(' ?4
SAMPLE DESIGN AND SELECTION
Sample Design
This section presents an overview of the sample design; a more detailed discussion is contained in
Appendix A. The School Lunch and Breakfast Cost Study involved the collection of data from a national
probability sample of school districts that participate in the NSLP. To select such a sample the study
constucted a national listing of SFAs that included information on the size of the lunch and breakfast
program and the type of meal production system used.
To construct this listing of SFAs, a telephone survey was conducted of a national probability sample of
public school districts in the continental United States to collect information on 1) participation in the
School Breakfast Program (SBP), 2) type of meal production system, and 3) total reimbursable lunches
and breakfasts served in SY 1991-92. This information was then used only to draw a stratified sample
of school districts from among the telephone survey respondents. Detailed meal production cost
information was collected on-site for this sample of school districts to calculate national estimates of the
mean cost of producing NSLP and SBP meals.
The first step in the overall study was the selection of a stratified national probability sample of 985
school districts to be included in the telephone survey. Interviews were completed with 924 districts for
a response rate of 97 percent.
The sample of 924 districts responding to the telephone survey was a large enough sample to allow for
the recruiting of a stratified sample of 100 districts for on-site data collection. The stratifiers were type
of meal production system, and whether the district participated in the SBP. Four types of meal
production systems were used in the stratification:
• On-site kitchens only. The SFA has only independent or on-site kitchens which
prepare and serve food for the school in which the kitchen is located.
• Base or central kitchens with satellites. The SFA uses base kitchens which
produce meals for service on-site and for delivery to satellite or receiving
schools, and/or central kitchens which prepare food and transport it to satellite
or receiving schools. This category ooes not include any independent kitchens.
• Combination: mostly on-site kitchens. The SFA uses a combination of
base/central kitchens with satellites and on-site kitchens. In this combination
system most of the schools in the SFA have on-site kitchens.
• Combination: mostly satellite kitchens. The SFA uses a combination of
kitchens, but in this category most of the schools in the SFA have satellite (i.e.,
receiving) kitchens.
The desired distribution of the second-phase sample by the eight strata is shown in Exhibit 2.7.
School Lunch and Breakfast Cost Study Final Report Chapter Two: Study Overview 2-U
?5
Exhibit 2.7
Desired Distribution of the Second-Phase Sample
Production System Sample Size of
NSLPand
SBP Districts
Sample Size of
NSLPOnly
Districts
Total SFA
Sample Size
Pure System Strata:
On-site kitchen only 26 8 34
Base or central kitchens with satellites only 26 8 34
1 Combination system strata:
1 Other combination - mostly on-site kitchens 12 4 16
Other combination - mostly satellite
kitchens
12 4 16
76 24 100
Recruiting School Districts
The 924 districts were sorted into the eight cells of the design by production system and presence of the
SB?. Within each cell, a target number of districts to be recruited was established. A stratified random
sample of 100 districts was selected, together with 64 backup districts to replace districts that refused or
could not participate in the study. As the number of refusals increased during the recruiting process,
several more backup samples were drawn, bringing the total number of districts contacted to 218. A total
of 98 SFAs agreed to participate in the study.
Of the 98 SFAs that were initially included in the study sample, a total of 94 were used in the analysis.9
Exhibits 2.8 and 2.9 show the distribution of the 94 SFAs that were used in the analysis. The final
sample reflects rectifications. Reel ass ification was necessary because in some instances districts had
been misclassified on the basis of telephone survey data.
'Data collection problems in three SFAs precluded the use of the data from these SFAs in the
analysis. In addition, one SFA dropped out of the study during the data collection.
School Lunch and Breakfast Cost Study Final Report n. 26 Chapter Two: Study Overview 2-12
Exhibit 2.8
Distribution of the Final Sample of 94 SFAs by Size and Meal Production System
Production
System
SFA Enrollment
Less than 1,000 1,000-'1,999 5,000 or more Total All SFAs
1 On-site kitchen
only
9 12 13 34
Base/Central only 1 9 13 23
Mostly on-site
1 kitchen
0 4 18 22
i Mostly satellite
kitchen
2 3 10 15
Total All SFAs 12 28 54 94
Exhibit 2.9
Distribution of the Final Sample of 94 SFAs by Participation in the SBP and
Meal Production System
Production System
Participation in the SBP
NSLP and SBP NSLP only Total All SFAs
On-site kitchen only 27 7 34
Base/Central only 19 4 23
Mostly on-site kitchen 18 4 22
Mostly satellite kitchen 14 1 15
Total All SFAs 78 16 94 I
In addition to the three stratifying variables that were used in site selection (SFA size,
participation in the SBP, and type of meal production system), the percentage of SFA revenues derived
from a la carte sales was used as a cross-cutting variable in the analysis. SFAs were divided into two
groups—those with relatively high a la carte revenues (at least ten percent of total revenue) and those with
relatively low a la carte revenues (less than ten percent of total revenues). Of the 94 SFAs used in the
School Lunch and Breakfast Cost Study Final Report
?7
Chapter Two: Study Overview 2-13
analysis, 79 were able to separate a la carte revenues from other cafeteria sales (e.g., student payments
for full and reduced-price meals, and adult meals). Twenty-nine of these 79 SFAs had a la carte sales
which accounted for less than ten percent of total SFA revenue and in SO SFAs a la carte sales accounted
for at least ten percent of total revenues.
DATA COLLECTION
The data collection activities for the School Lunch and Breakfast Cost Study were conducted in
Spring/Fall 1993. Study staff were sent to each of the 98 SFAs participating in the study and collected
data from 540 schools. During these on-site visits, study staff: 1) conducted unstructured in-person
interviews with SFA directors, school and kitchen personnel, and central school district personnel; 2)
reviewed financial statements, menus, and meal production records, invoices, and NSLP and SBP meal
count records; 3) conducted a time study for selected food service staff; and 4) observed food items
selected by students at breakfast and lunch. The data collection for the study involved three phases, each
of which is discussed below.
Phase 1: Spring 1993
In preparation for the on-site visits study staff conducted a brief pre-visit telephone nterview with SFA
directors. The questionnaires for this telephone interview were mailed to the SFA director in advance
of the interview to familiarize them with the questions and to allow them to review appropriate records.
The pre-visit interview obtained background information needed to plan for the on-site visits and
minimize the burden on SFA and school district personnel. Similarly, to prepare for the data collection
in each school, study staff conducted a brief telephone interview with kitchen managers.
Phase 2: Spring 1993
During Phase 2, study staff visited each of the 98 SFAs in the study sample. During this site visit study
staff obtained the information needed to allocate the SFAs' reported costs between lunch and breakfast
production and between reimbursable and non-reimbursable meals. This involved the following major
activities:
• Identified the cost of food used in breakfast and lunch production. Study
staff:
1. Reviewed menu and meal production records with kitchen
managers to identify the food items produced for breakfast and
lunch during the week of the visit. Serving size and number of
servings produced were recorded by study staff on a Menu
Record.
School Lunch and Breakfast Cost Study Final Report ?f 8O Chapter Two: Study Overview 2-14
fc^fc*
2. Reviewed recipes used in the production of each food item
produced with the food service manager (or kitchen manager as
appropriate) to determine the quantity of each of the ingredients
used in the production of each food item. Study staff recorded the
quantity of each ir gradient used and whether the ingredient was a
USDA donated commodity on a Recipe Record.
3. Reviewed selected invoices with the SFA business manager to
obtain the average unit price paid for each ingredient (or the
USDA assigned value for donated commodities). Study staff
recorded this information on the Recipe Record.
4. Obtained counts of the number of NSLP-lunches and SBP-breakfasts
served at a representative sample of schools during the
week of the visit. Study staff recorded these counts on a Meals
Served by School Grid.
Observed a sample of students at breakfast and lunch. Study staff recorded
the food items selected by a random sample of students in each school. This
permits the identification of reimbursable and non-reimbursable meals, and the
estimation of the number of servings of each food item selected as part of
reimbursable meals.
Identified the labor costs of breakfast production, lunch production, and non-meal
production activities. Study staff:
1. Obtained a list of all central SFA and school district staff whose
salaries are charged to the SFA budget. Salary and work schedule
information were recorded by study staff on a Central Food
Service Paid Staff Roster. This list was reviewed with the SFA
director to identify whose staff who work on both meal production
and non-meal production activities.
2. Conducted a time study of school-based food service staff that
work on meal production activities (i.e., produce/serve breakfasts
and/or lunches). All food service staff in the sample schools were
included in the time study. Study staff reviewed the Daily Time
Record with the food service staff participating in the time study.
These staff completed a Daily Time Record for a 5-day period.
3. Obtained professional estimates of the time distribution by function
for those central SFA staff not included in the time study. These
estimates were obtained through brief discussion with the SFA
Director and/or appropriate SFA and school district staff.
Phase 3: Fall 1993
Phase 3 of the data collection focused on the unreported costs attributable to school food service
operations. During Phase 3, study staff interviewed SFA and school district staff in each of the SFAs
School Lunch and Breakfast Cost Study Final Report - Q Chapter Two: Study Overview 2-15
WA
that participated in Phase 2 of the study to identify the resources used by, but not charged to, the SFA.
Information was also obtained to estimate the value of these unreported costs. The Phase 3 data were
used to estimate the full cost of producing reimbursable lunches and breakfasts.
During the Phase 3 on-site visits, study staff conducted the following major activities:
• Reviewed the SFA'? annual financial statement with the SFA director and/or
the SFA business manager. During this review study staff discussed each of the
line items included on the SFA's expense statement with the respondents. The
objective of this review was to determine which cost elements had been under-reported
(or not reported at all). Study staff sought to identify SFA or school
district staff who could provide information regarding these under-reported costs.
• Reviewed the school district's indirect cost allocation with the school district
business manager. During this review study staff discussed each of the cost
elements that were included in the district's indirect cost pool. This review also
examined school district practices for charging these costs to food service and
other school district operations.
• Identified "off-budget" staff working on SFA activities. Through discussion
with the SFA director, study staff identified school district personnel that spend
some of their time working on food service activities. Study staff completed an
Off-Budget Staff Roster (which is identical to the Central Food Service Paid Staff
Roster). Professional estimates of time spent on SFA activities were recorded by
study staff on an Off-Budget Time Allocation Form.
• Completed worksheets necessary to impute unreported costs.
Study Instrumentation
A total of 21 data collection instruments were used in this study. Exhibit 2.10 summarizes the measures,
the data collection method, and the respondents. Brief descriptions and copies of all instruments used
are contained in Appendix F.
30
School Lunch and Breakfast Cost Study Final Report Chapter Two: Study Overview 2-16
Exhibit 2.10
Data Collection Instruments, Methods and R< spondents
Instrument Method of data collection Respondents)
Phase 1
1. Previsit Questionnaire
2. School Information Summary
3. State Child Nutrition (CN)
Director Questionnaire
4. State Distributing Agency
(SDA) Questionnaire
Phase 2
5. Menu Record
6. Recipe Record
7. Cost per Serving Worksheet
8. Meal Observation Form
9. Meal Served by School Grid
10. Daily Time Record
11. School Food Service Staff
Roster
12. Central Food Service Paid Staff
Roster
13. Central Paid Staff Time
Allocation Grid
Phase 3
14. Food Service Expense
Statement and Supplement
15. Food Service Revenue
Statement Review
16. Food Service Off-Budget Staff
Roster
17. Off-Budget Staff Time
Allocation Grid
18. School Administrator Interview
Guide
19. School District Indirect Cost
Review Guide
20. State Education Agency Finance
Officer Questionnaire
Worksheets for Study Staff
21. Equipment Cost Worksheet
Pre-mailed and telephone follow-up
Telephone interview
Pre-mailed and telephone follow-up
Pre-mailed and telephone follow-up
Record review and discussion
Record review and discussion
Invoice review
Observation
Record review and interview
Time-ladder
In-person interview
In-person interview
In-person interview
Record review and in-person
discussion
Record review and in-person
discussion
In-person interview
In-person interview
In-person interview
Pre-mailed and in-person discussion
Pre-mailed and telephone follow-up
Worksheet
Abt AstStfSJM lac.
School Lunch and Break/ad Cost i.i«dy
School Lunch and Breakfast Cost Study Final Report
SFA Director
Kitchen Manager
State CN Director
SDA Director
Kitchen Manager
Kitchen Manager and SFA
Business Manager
Kitchen Manager and/or
Business Manager
None
SFA Director
Kitchen workers
SFA Director
SFA Director
SFA Director and other
managers, if appropriate
SFA Director and/or Business
Manager
SFA Director and/or Business
Manager
Individuals identified by the
SFA Director
Individuals identified by the
SFA Director
School Principal
School District Business
Manager
SFA Finance Officer
None
31
Chapter Two: Study Overview 2-17
Chapter Three
Estimates of Reported Costs
This chapter presents an analysis of SFAs' reported costs for SY 1992-93. The research questions
addressed in this chapter include:
• What is the national average reported cost of producing a reimbursable lunch?
• What is the national average reported cost of producing a reimbursable breakfast?
• What is the composition of reported reimbursable meal costs, i.e., what
proportion of reported reimbursable meal costs are attributable to food costs? to
labor costs? to other costs?
• What proportion of reported costs are attributable to food service administration?
• How do reported reimbursable meal production costs vary by the type of meal
production/distribution system used by SFAs?
The analysis focuses on the costs of producing reimbursable meals and includes only those costs that were
charged to SFA budgets.' From the SFAs' perspective, reported costs are the costs of running the NSLP
and SBP. These are the costs that they are expected to cover. However, as noted earlier, many SFAs
use school district resources for which they are not charged. The magnitude and composition of these
unreported costs is examined in Chapter Four.
In considering the cost estimates discussed in this chapter, readers should recognize that reported costs
represent only part of the cost of producing reimbursable meals. The key findings with regard to
repoited food service costs include:
• The national median reported cost of producing a reimbursable lunch in SY
1992-93 was $1.63.
The national median reported cost of producing a reimbursable breakfast in SY
1992-93 was $1.05.
'Reported cost may exceed actual cash outlays. For example, some SFAs report indirect costs, but
do not actually transfer the funds to the school district's general fund (see Chapter Five). Similarly,
depreciation expenses do not involve cash outlays.
School lunch and Breakfast Cott Stud?. Final Report Chapter Three: Estimates of Reported Costs 3-1
-'■ y: • 32
• The Federal subsidy for free lunches appears to be sufficient to cover the
reported cost of producing reimbursable lunches. In three out of four SFAs (77
percent), the reported cost of producing a reimbursable lunch was less than the
total Federal subsidy for a free lunch. Similarly, 77 percent of all reimbursable
lunches were produced at a reported cost that was less than the total Federal
subsidy for a free lunch.
• The Federal subsidy for free breakfasts does not appear to be sufficient to cover
the cost of producing reimbursable breakfasts. The higher severe need
reimbursement rate was sufficient to cover reported costs in 60 percent of SFAs,
while the regular reimbursement rate for a free breakfast was sufficient to cover
reported costs in only 34 percent of SFAs. Fifty-nine percent of all reimbursable
breakfasts were produced at a reported cost that was less than the severe need
rate (and only 33 percent at a cost that was less than the regular Federal subsidy
for a free breakfast).
• On average, food costs accounted for 48 percent of SFAs' total reported costs;
labor costs accounted for 44 percent of reported costs; and other costs accounted
for the remaining 8 percent of reported costs.
• Administrative labor costs accounted for an average of 8 percent of the average
SFA's total reported cost.2
Again, it is important to caution the reader that reported costs do not account for all of the costs of
producing reimbursable meals.
REPORTED COSTS OF PRODUCING REIMBURSABLE MEALS
This section presents the national estimates of reported costs for reimbursable meals and provides
estimates for several subgroups, including districts that do and do not participate in the SBP; by SFA
size; and by the proportion of SFA revenues from a la carte sales.3
Cost per Reimbursable Lunch
The distribution of SFAs by the reported cost of producing a reimbursable lunch in SY 1992-93 is shown
in Appendix E (Exhibit E.l). Reported costs per reimbursable lunch ranged from $0.93 to $2.50.
Exhibit 3.1 summarizes the national mean reported cost of producing reimbursable lunches using both
SFAs and NSLP meals as the unit of analysis. Across all SFAs, the mean reported cost is $1.64 to
In this study administrative activities were defined quite broadly, and were not limited to those
activities that are associated with program regulations (e.g., application, verification, meal counting, etc.).
All non-meal production activities were included in "administration" for purposes of this study.
3Cost estimates by type of meal production system are discussed in Appendix C.
School Lunch and Breakfast Cost Study Final Report Chapter Three: Estimates of Reported Costs 3-2
G< 33
Exhibit 3.1
Total Reported Cost per Reimbursable Lunch
Unit of Analysis is
SFA
Unit of Analysis
NSLP Lunch
is SFA Sample Size
Mean Median STD Mean Median STD Weighted Unweighted
I Total $1.64 $1.63 .34 $1.69 $1.66 .30 12,937 94
Participation in SBP
NSLP and SBP 1.63 1.66 .34 1.69 1.66 .29 8,566 78
NSLP only 1.66 1.63 .34 1.69 1.63 .39 4,371 16
SFA Size
Small (1-999) 1.67 1.78 .34 1.69 1.78 .36 6,327 12
Medium (1,000-
4,999)
1.59 1.62 .36 1.56 1.56 .33 4,537 28
Large (5,000+) 1.64 1.58 .31 1.73 1.67 .27 2,073 54
A la Carte Revenues1
< 10% of Total
Revenue
1.61 1.54 .31 1.80 1.70 .34 3,673 29
^ 10% of Total
Revenue
1.57 1.61 .28 1.63 1.65 .24 6,311 50
'Excludes SFAs that did not separately report student payments for reimbursable meals from a la carte
sales.
produce a reimbursable lunch. None of the differences among the subgroups of SFAs examined in
Exhibit 3.1 is significant at the .05 level of confidence.4
When the unit of analysis is the NSLP meal, the mean reported cost of producing a reimbursable lunch
in SY 1992-93 was $1.69.5 This reflects the large number of reimbursable lunches served in the small
4Reported cost per reimbursable lunch and breakfast by meal production system is presented in
Appendix E, Exhibit E.3.
'Calculated as the mean cost per reimbursable lunch across all reimbursable lunches served in the
Nation, i.e., the NSLP meal is the unit of analysis. This analysis gives equal weight to each reimbursable
lunch, and since most reimbursable lunches are produced in large SFAs, the results are influenced by the
costs incurred in large SFAs.
School Lunch and Breakfast Cost Study final Report
f\ 34 Chapter Three: Estimates of Reported Costs 3-3
number of large SFAs where reported costs are high. Approximately 16 percent of SFAs have
enrollments over 5,000. Nearly 60 percent of the reimbursable lunches served in SY 1992-93 were
served in these large school districts.
Participation in the SBP and the percent SFA revenues derived from a la carte sales do not appear to
significantly affect the reported cost of producing a reimbursable lunch.
As noted in Chapter One, the Federal subsidy for free lunches in SY 1992-93 was about $' .84 ($1.70
in cash reimbursements plus $0.14 in entitlement commodities). This was considerably more than the
mean reported cost of producing a lunch ($1.69). The mean reported cost of producing a reimbursable
lunch was less than the total subsidy for a free lunch in three out of four SFAs (77 percent). Similarly,
77 percent of all reimbursable lunches served in SY 1992-93 were produced at a reported cost that was
less than the total subsidy for a free lunch
Cost per Reimbursable Breakfast
The distribution of SFAs by the reported cost per reimbursable breakfast is presented in Appendix E
(Exhibit E.2). In SY 1992-93, reported costs per reimbursable breakfast ranged from $0.58 to $2.93,
with a median cost of $1.05 and a mean cost of $1.27 (Exhibit 3.2). There was considerably more
variation among SFAs in reported breakfast costs than in reported lunch costs. The coefficient of
variation (the standard deviation divided by the mean) for breakfast was 0.47 compared to 0.21 for lunch.
The relatively greater variability in the cost per reimbursable breakfast may reflect the variability in unit
reported labor costs for breakfast. That is, total breakfast labor costs in a school may be viewed as
relatively fixed because of the small size of the breakfast program. Thus, as the number of breakfasts
served increases, the reported labor costs per breakfast may be expected to decrease.
When the unit of analysis is the SBP meal, the mean reported cost per reimbursable breakfast was $1.11.
Within each size class, the mean reported cost per reimbursable breakfast is lower when the unit of
analysis is the SBP meal. This may reflect the apparent economies of scale in breakfast production—
schools serving large numbers of reimbursable breakfasts tend to have lower unit reported costs.
While the reported cost per reimbursable breakfast appears to be higher in SFAs that derived at least ten
percent of total SFA revenue from a la carte sales, this difference is not statistically significant.
The regular reimbursement rate for free breakfasts in SY 1992-93 was $0.95, with a "severe need" rate
of $1.12. In contrast to lunch costs, where the reported cost of producing reimbursable lunches tended
School Lunch and Breakfast Cost Study Final Report Chapter Three: Estimates of Reported Costs 3-4
<; 35
Exhibit 3.2
Total Reported Cost per Reimbursable Breakfast
Unit of Analysis is
SFA1
Unit of
1
Analysis is SBP
Sreakfast
SFA Sample Size
Mean Median STD Mean Median STD Weighted Unweighted
1 Total SFAs $1.27 $1.05 .60 $1.11 $1.05 .29 8,516 78
SFASize
Small (1-999) 1.08 1.05 .20 1.06 1.03 .18 4,693 10
Medium (1,000-
4,999)
1.65 1.15 .84 1.12 1.03 .42 2,119 17
Large (5,000 +) 1.34 1.09 .71 1.13 1.10 .28 1,704 51
A la Carte Revenues2
< 10% of Total
Revenue
1.06 0.97 .29 1.01 0.92 .27 1,984 25
£ 10% of Total
Revenue
1.39 1.15 .68 1.16 1.17 .28 4,375 40
'The difference in reported costs between small and medium-size SFAs is significant at the .05 level of
confidence.
Excludes SFAs that did not separately report student payments for reimbursable meals from a la carte
sales.
to be less than the Federal subsidy for free lunches, in most SFAs, the reported cost of producing
reimbursable breakfasts exceeded the reimbursement rates. In 66 percent of SFAs, reported costs
exceeded the regular reimbursement rate for free breakfasts, and in 40 percent of SFAs, reported costs
exceeded the higher severe need reimbursement rate. Even when the unit of analysis is the SBP meal,
67 percent of all breakfasts served in SY 1992-93 were produced at a reported cost that exceeded the
regular reimbursement rate for a free breakfast (41 percent were produced at a reported cost that
exceeded the higher severe need rate).6 As noted above, reported costs do not include all of the costs
of producing reimbursable meals. On a full cost basis, the proportion of SFAs for which costs exceed
the reimbursement rate are even higher (see Chapter Four).
'Program administrative data show that in FY 1993, 65 percent of the free breakfasts were
reimbursed at the severe need rate and about 56 percent of all breakfasts were severe need.
School Lunch and Breakfast Cost Study Final Repm Chapter Three: Estimates of Reported Costs 3-5
Ot 36
COMPOSITION OF REPORTED COSTS
As one would expect, food and labor costs accounted for the vast majority (92 percent) of the average
SFA's reported costs (Exhibit 3.3). Food costs (including the assigned value of donated commodities)
accounted for just under one-half (48 percent) of reported costs, while labor costs accounted for 44
percent of reported costs. All other costs, including supplies, contract services, capital expenditures,
indirect charges by the school district, etc., represented only 8 percent of the average SFA's reported
costs.7
Proportion ofFood Costs Attributable to Donated Commodities
The value of USDA donated commodities accounts for a significant proportion of the total reported cost
of food used by SFAs. In SY 1992-93 commodities (including bonus commodities) accounted for 17
percent of the total cost of food used by the average SFA; in 70 percent of all SFAs donated commodities
accounted for at least IS percent of total food costs (Appendix E, Exhibit E.S). It should be noted that
SFAs may use donated commodities for non-reimbursable as well as reimbursable meals.
Proportion ofReported Costs that is Reimbursable
As discussed above, school meal production involves the preparation and service of a la carte items, adult
meals, and other food items in addition to the production of reimbursable meals. As there is no separate
accounting of the resources used in the production of non-reimbursable meals, the allocation of each
SFA's total reported breakfast and lunch costs to reimbursable and non-reimbursable meals was made on
the basis of the percentage of breakfast and lunch food costs that are reimbursable. The distribution of
SFAs by the percentage of reported costs attributable to the production of reimbursable meals is presented
in Appendix E, Exhibit E.6. On average, 89 percent of breakfast costs are attributable to reimbursable
breakfasts, while 77 percent of lunch costs are attributable to reimbursable lunches.
There is also very little variation among SFAs in the proportion of breakfast costs that are reimbursable.
In one-half of SFAs, reimbursable breakfasts accounted for at least 90 percent of breakfast costs; in
nearly all SFAs (95 percent) reimbursable breakfasts accounted for at least 80 percent of breakfast costs.
This reflects the fact that, for the most part, the breakfast program in schools consists of reimbursable
meals being served to children approved for free and reduced price meals.
The composition of reported costs by meal production system is presented in Appendix E, Exhibit
E.4.
School Lunch and Breakfast Cost Study Final Report l &&' Thru: Estimates of Reported Costs 3-4
BLANK
PAGE
I
•» *■ I
1
*
*
Exhibit 3.3
Composition of Food Service Reported Costs
Percent of SFA Reported Costs
SFASa
|
Food Costs Labor Costs Other Costs mple Size
Mean Median STD Mean Median STD Mean Median STD Weighted Unweighted
Total Sample 48.3% 45.5% 11.1% 43.8% 45.9% 11.9% 7.9% 7.0% 5.0% 12,937 94
Participation in SBP
NSLP and SBP 50.4 48.8 12.0 41.8 43.7 12.6 7.8 7.0 4.9 8,566 78
NSLP only 44.2 44.2 7.7 47.7 50.7 9.5 8.2 6.6 5.2 4,371 16
SFASize
Small (1-999) 52.9 49.4 12.9 40.7 45.9 14.3 6.4 6.7 3.4 6,327 12
Medium (1,000-4,999) 44.6 45.5 6.3 46.4 45.7 8.9 9.1 7.0 5.8 4.5J7 28
Large (5,000 +) 42.2 39.6 6.8 47.8 49.2 6.1 10.0 11.0 5.7 2,073 54
A la Carte Revenues1
< 10% of Total
Revenues
45.4 45.0 4.9 46.5 45.9 8.1 8.1 5.7 5.5 3,673 29
£ 10% of Total
Revenues
47.3 47.5 7.4 45.3 43.6 6.5 7.4 6.7 5.5 6,311 50
'Excludes SFAs that did not separately report student payments for reimbursable meals from a la carte sales.
38
While, on average, the sale of non-reimbursable meals (particularly a la carte food items) is considerably
greater at lunch than at breakfast, there is also more variation among SFAs in the relative magnitude of
a la carte and adult meals (Appendix E, Exhibit E.6).
Cost Components ofReimbursable Meals
Reimbursable Lunch Costs. Exhibit 3.4 presents the cost components of reimbursable lunches.1 For
the average SFA, reported food costs per reimbursable lunch were $0.79 in SY 1992-93, with mean
reported labor costs of $0.71, and other costs averaging $0.13. There was relatively little variation
among SFAs in food costs per reimbursable lunch-in almost half of all SFAs (45 percent) food costs per
reimbursable lunch were between $0.70 and $0.90 (Appendix E, Exhibit E.7). Similarly, there was
relatively little variation among SFAs in reported labor costs per reimbursable lunch, with 43 percent of
SFAs reporting labor costs per reimbursable lunch between $0.60 and $0.80.
Exhibit 3.4
Reported Cost Components of Reimbursable Lunches
Unit of
Analysis
Cost Component
Food
Costs
Labor
Costs
Other
Costs
SFA Sample Size
Mean Median STD Mean Median STD Mean Median STD Weighted Unweighted
SFA
Meal
$0.79 $0.77 0.25
$0.72 $0.70 0.14
$0.71 $0.70 0.27
$0.79 $0.77 0.22
$0.13 $0.12 0.09
$0.19 $0.18 0.10
12,937 94
12,937 94
Mean food costs per reimbursable lunch are lower using the meal as the unit of analysis ($0.72 vs.
$0.79), perhaps reflecting the greater buying power of the large SFAs that serve large numbers of meals.
However, it is interesting to note that mean labor costs per reimbursable lunch are higher using the meal
as the unit of analysis.
'Detailed tables by type of SFA are presented in Appendix E, Exhibits E.9 and E.10.
School Lunch and Breakfast Cost Study Final Report Chapter Three: Estimates of Reported Costs 3-8
'■: 39
Reimbursable Breakfast Costs. Exhibit 3.5 presents summary of the cost components of reimbursable
breakfasts.9 For the average SFA, reported food costs per reimbursable breakfast were $0.56 in SY
1992-93, with mean reported labor costs of $0.62, and other costs averaging $0.10. Labor costs per
reimbursable breakfast are considerably more variable than food costs-the coefficient of variation for
breakfast labor costs is 0.80 compared to 0.31 for food costs. It is interesting to note that there is
considerably more variability in labor costs for breakfast than for lunch (Appendix E, Exhibit E.8). This
may reflect the relative differences in the size of breakfast and lunch programs. As noted above, at most
schools the breakfast program is quite small with relatively fixed labor costs. Reported labor costs per
breakfast may be expected to decrease as the number of breakfasts served increases.
Exhibit 3.5
Reported Cost Components of Reimbursable Breakfasts
Unit of
Analysis
Cost Component I
Food
Costs
Labor
Costs
Other
Costs
SFA Sample Size
Mean Median STD Mean Median STD Mean Median STD Weighted Unweighted
SFA
Meal
$0.56 $0.55 0.17
$0.49 $0.48 0.12
$0.62 $0.49 0.51
$0.51 $0.48 0.23
$0.10 $0.09 0.07
$0.12 $0.11 0.06
8,516 78
8,516 78
The effects of potential economies of scale in breakfast production may also he seen in the mean labor
cost per meal. The mean labor cost per breakfast is considerably lower when the reimbursable breakfast
rather than SFA is used as the unit of analysis ($0.51 vs. $0.62), reflecting the lower breakfast labor
costs per meal in SFAs serving large numbers of reimbursable breakfasts.
ADMINISTRATIVE COSTS
Food service administrative costs include the cost of performing administrative activities in support of
food service operations, e.g., administrative tasks performed by central food service staff, school-based
food service staff (e.g., kitchen managers), central school district personnel, and school administrators
"Detailed tables by type of SFA are presented in Appendix E, Exhibit E. 11 and E. 12.
School Lunch and Breakfast Cost Study Final Report Chapter Three: Estimates of Reported Costs 3-9
40
(e.g., principals). Reported administrative costs include only those costs that are charged to the food
service budget. In addition to food service administrative labor costs, it also includes school district (i.e.,
non-food service) personnel that provide support to food service when the school district charges food
service directly for these services.10
This study has broadly defined food service administration to include regular administrative activities such
as planning, budgeting and management for the food service program, and other non-production activities
such as maintenance of food service equipment. Exhibit 3.6 examines administrative labor costs in
relation to total SFA reported labor costs. For the average SFA, administrative labor accounted for 17
percent of total reported labor costs. As one might expect, there was a good deal of variation among
SFAs in the proportion of reported labor costs devoted to administration. At one extreme, 31 percent
of SFAs devoted less than 10 percent of reported labor to administrative activities, while at the other
extreme 15 percent of SFAs devoted at least 30 percent of reported labor to administration (Appendix
E, Exhibit E.13). Some of this variation no doubt reflects differences among SFAs in what is, and what
is not, charged to the food service budget. For example, in some school districts, the food service
director is charged to the school district budget rather than the food service budget. In such school
districts, reported administrative labor costs would account for a relatively small proportion of total
reported SFA labor costs.
Exhibit 3.7 examines reported administrative labor costs in relation to total reported costs. Administrative
labor accounts for a relatively small proportion of total reported costs. For the average SFA, reported
administrative labor costs accounted for only eight percent of total reported costs in SY 1992-93. In nine
out of ten SFAs (89 percent), administrative labor accounted for less than IS percent of total reported
costs (Appendix E, Exhibit E. 14). As one would expect, administrative labor costs were relatively higher
in SFAs that participated in both the NSLP and SBP than in SFAs that only participated in the NSLP.
Similarly, administrative costs were relatively higher in large school districts (enrollment ^ 5,000) than
in small districts (enrollment <. 1,000)."
10As discussed in Chapter Five, only four percent of school districts charge food service directly for
support services provided by school district personnel. These costs may be charged to SFA budgets as
part of indirect costs. In such cases they would not be included in administrative costs.
"Reported administrative costs by meal production system is presented in Appendix E, Exhibit E. 15.
School Lunch and Breakfast Cost Study Final Report Chapter Three: Estimates of Reported Costs 3-10
0 41
Exhibit 3.6
Administrative Labor Costs as a Percent of Total Reported Labor Costs
Unit of Analysis is SFA Unit of Analysis is
NSLP Lunch
SFA Sample Size
Mean Median STD Mean Median STD Weighted Unweighted
Total 17.4% 14.8% 10.4 24.0% 23.4% 10.4 12,937 94
Participation in SBP
NSLP and SBP 18.9 18.1 10.8 25.1 24.1 9.9 8,566 78
NSLP only 14.6 10.9 9.1 14.5 11.7 9.9 4,371 16
ISFA Size
Small (1-999) 17.6 13.6 12.0 21.8 28.3 11.7 6,327 12
Medium (1,000-
4,999)
16.7 14.1 8.8 19.0 18.1 9.5 4,537 28
Large (5,000+) 18.7 17.6 8.3 25.6 24.1 10.0 2,073 54
U la Carte Revenues1
< 10% of Total
Revenues
17.2 10.9 11.1 23.9 23.9 10.2 3,673 29
£ 10% of Total
Revenues
17.5 14.1 8.5 21.2 19.6 8.4 6,311 50
..
'Excludes SFAs that did not separately report student payments for reimbursable meals from a la carte
sales.
School Lunch and Breakfast Cost Study Final Report
42
Chapter Three: Estimates of Reported Costs 3-11
Exhibit 3.7
Administrative Labor Costs as a Percent of Total Reported Costs
Unit of Analysis is
SFA
Unit of Analysis is
NSLP Lunch
SFA Sample Size
Mean Median STD Mean Median STD Weighted Unweighted
I Total 7.9% 7.1% 4.8 11.0% 10.4% 4.9 12,937 94
Participation in SBP
NSLP and SBP 8.3 8.3 4.7 11.4 10.6 4.6 8,566 78
NSLP only 6.9 5.8 4.9 7.1 5.8 5.4 4,371 16
SFA Size
Small (1-999) 7.6 5.8 5.2 9.4 11.1 5.1 6,327 12
Medium (1,000-
4,999)
7.8 6.5 4.6 8.3 8.0 4.1 4,537 28
Large (5,000+) 8.7 8.9 3.4 11.9 11.1 4.7 2,073 54
A la Carte Revenues*
< 1056 of Total
Revenues
7.7 6.2 4.7 10.4 9.7 4.6 3,673 29
£ 10% of Total
Revenues
7.9 7.1 4.1 10.0 10.4 3.9 6,311 50
'Excludes SFAs that did not separately report student payments for reimbursable meals from a la carte
sales.
f • 43
School Lunch and Breakfast Cost Study Final Report Chapter Three: Estimates of Reported Costs 3-12
Chapter Four
Estimates of Full Costs
As discussed in Chapter One, SFAs' reported costs include only those costs that SFAs are expected to
cover from revenues generated from food service sales and government reimbursements. However,
reported costs often do not reflect the cost of all resources attributable to food service operations. Nearly
all school districts incur some costs in support of food service operations that are not charged to the SFA
budget.
This chapter presents an analysis of SFAs' full costs for SY 1992-93. The research questions addressed
in this chapter, similar to thore addressed in Chapter Three, include:
• What is the magnitude and composition of unreported costs?
• What is the national average full cost of producing a reimbursable lunch?
• What is the national average full cost of producing a reimbursable breakfast?
• What is the composition of full costs for reimbursable meals, i.e., what
proportion is attributable to food costs? to labor costs? to other costs?
• What proportion of full costs are attributable to food service administration?
• How do full costs for reimbursable meals vary by the type of meal
production/distribution system used by SFAs?
The key findings with regard to the full cost of food service operations include:
• Unreported costs accounted for an average of 19 percent of the full cost of food
service operations in SY 1992-93.
• Three line items-labor (44%), "unreported" indirect costs (27%), and equipment
depreciation (16%)-accounted for an average of nearly 90 percent of unreported
costs in SY 1992-93.
• The national median full cost of producing a reimbursable lunch in SY 1992-93
was $1.88. This compares with a median reported cost of $1.63. Unreported
costs accounted for 13 percent of the full cost of a reimbursable lunch.
• The national median full cost of producing a reimbursable breakfast in SY 1992-
93 was $1.38. This compares with a median reported cost of $1.05. Unreported
costs accounted for 24 percent of the full cost of a reimbursable breakfast.
School Lunch and Breakfast Cost Study Final Report ,'-' 4 4 ChapUr Four: Estimates of Full Costs 4-1
The Federal subsidy for free lunches appears to be comparable to the full cost of
producing reimbursable lunches. In 39 percent of SFAs, the full cost of
producing a reimbursable lunch was less than the total Federal subsidy for a free
lunch. Approximately 46 percent of all reimbursable lunches were produced at
a cost that was less than the total Federal subsidy for a free lunch.
The Federal subsidy for free breakfasts is not sufficient to cover the cost of
producing reimbursable breakfasts. The regular reimbursement rate for a free
breakfast was sufficient to cover full costs in less than one out of ten SFAs (7%),
and the higher severe need reimbursement rate was sufficient to cover full costs
in only one out of five SFAs ('8%). Only 11 percent of all reimbursable
breakfasts were produced at a full cost that was less than the Federal subsidy for
a free breakfast, and 39 percent at a full cost that was less than the severe need
rate.
On a full cost basis, food costs accounted for an average of 38 percent of food
service costs; labor costs accounted for 46 percent of food service costs; and
other costs accounted for the remaining 16 percent of food service costs.
Administrative labor costs accounted for 14 percent of the average SFA's full
cost.
MAGNITUDE AND COMPOSITION OF UNREPORTED COSTS
Magnitude of Unreported Costs
Exhibit 4.1 examines the magnitude of unreported costs in relation to the full cost of food service
operations.1 On average, unreported costs accounted for 19 percent of full costs in SY 1992-93. In
more than nine out of ten SFAs (94%), unreported costs accounted for less than 30 percent of full costs
(Appendix E, Exhibit E.16).2 It should be noted that not all unreported costs are attributable to
reimbursable meals. As one would expect, unreported costs were higher in small SFAs. Among small
SFAs unreported costs accounted for an average of 24 percent of full costs, compared to an average of
approximately 14 percent in medium and large SFAs. As discussed below, small SFAs are more likely
to rely on school district personnel for administrative support of food service operations. Since SFAs
are rarely charged (either directly or indirectly) for such support from school district personnel, small
SFAs are likely to have relatively higher unreported labor costs than medium and large SFAs.3
'Total unreported costs in relation to full cost by meal production system is presented in Appendix
E, Exhibit E. 17.
^mponents of unreported costs to full costs by size and type of production system is presented in
Exhibits E.18-E.21.
'Since school administrative staff salaries are higher than food service staff salaries, on a full cost
basis food service activities performed by school administrative staff will cost more than if performed by
food service staff.
School Lunch and Ertakjast Cost Study Final Report 4 Q Chapter Four: Estimates of Full Costs 4-2
Exhibit 4.1
Total Unreported Costs as a Percent of Full Costs
Unreported Costs as a
of Full Costs
Percent
SFA Sample Size
Mean Median STD Weighted Unweighted
Total 18.6% 17.1% 11.7% 12,934 93
SFASize
Small (1-999) 23.6 21.4 13.6 6,327 12
Medium (1,000-4,999) 13.3 12.4 6.2 4,537 28
Large (5,000+) 15.0 13.1 7.3 2,070 53
Composition of Unreported Costs
Exhibit 4.2 presents the distribution of unreported costs by line item. The four largest categories of
unreported costs are labor (which includes salaries and fringe benefits), indirect costs, equipment
depreciation, and utilities. Unreported labor represented 44 percent of total unreported costs, unreported
indirect costs represented 27 percent, equipment depreciation represented 16 percent and unreported
utilities represented 11 percent. Other unreported costs - supplies and other direct costs ~ represented
less than two percent of total unreported costs. The discussion below examines each of the four major
categories of unreported costs.
Unreported Labor Costs. As noted above, school district personnel often provide support for food
service activities. This support is almost always administrative support (school district personnel are
rarely involved in food production activities). In some cases, SFAs are charged directly for the time that
school district personnel devote to food service activities; in other cases, the cost of this labor is included
in the school district's indirect cost rate; while in other cases, these costs are absorbed by the school
district (i.e., not charged to the SFA budget). Unreported labor costs include personnel that are not
School Lunch and Brtakfast Cost Study Final Report 46 »..
Chapter Four: Estimates of Full Costs 4-3
Exhibit 4.2
Distribution of Unreported Costs by Line Item to Total Unreported Costs
Item Mean Median STD
Labor 43.9% 38.2% 26.9%
Food 0.0 0.0 0.0
Supplies 0.1 0.0 1.2
Utilities 11.3 4.1 13.2
Equipment Depreciation 16.3 13.6 15.6
Other Direct Costs 1.3 0.0 2.4
Indirect Costs 27.1 24.3 23.5
Grand Total 100.0%
Unweighted N « 93. Weighted N = 12,934. [|
CM—f■*—U MM* *m to 11 n fcg
charged directly or indirectly to the food service budget.4 Unreported labor includes both school district
central staff and school-based personnel (e.g., principals, secretaries, etc.) that spend some portion of
their time working on food service activities. SFA directors identified school district central staff that
provided support for food service and estimated the amount of time that each person spent on food service
activities. Similarly, school principals identified and estimated the amount of time that school personnel
spent on food service activities. These time-use estimates were combined with salary data to estimate
unreported labor costs.
Exhibit 4.3 examines unreported labor costs as a percentage of total unreported costs. Unreported labor
represented 44 percent of total unreported costs in SY 1992-1993. For one out of four SFAs (24%),
unreported labor represented less than 20 percent of total unreported costs (Appendix E, Exhibit E.22).
At the other extreme, unreported labor accounted for at least 70 percent of total unreported costs in one-quarter
(24%) of all SFAs. Unreported labor was a larger component of total unreported costs for large
'School districts may or may not charge indirect costs to the SFA budget. In cases where a school
district does not charge food service for indirect costs, school district personnel that are included in the
district's indirect cost rate are included in "uncharged indirect costs" rather than unreported labor costs.
School Lunch and Breakfast Cost Study Final Report Chapter Four: Estimates of Full Costs 4-4
Exhibit 4.3
Unreported Labor1 as a Percent of Total Unreported Costs
Mean Median STD
SFA Sample Size
Weighted Unweighted
Total 43.9% 38.2% 26.9% 12,934 93
SFASiu
Small (1-999) 40.6 34.3 23.1 6,327 12
Medium (1,000-4,999) 40.8 42.0 27.1 4,537 28
Large (5,000+) 60.6 63.1 30.9 2,070 53
'Labor represents both salary and fringe benefit costs.
SFAs than for small or medium-size SFAs.5 This results not from the use of relatively more unreported
labor, but rather because in large SFAs other cost elements (such as indirect costs and equipment
depreciation) are more likely to be reported than in small SFAs.
Exhibit 4.4 examines unreported labor costs as a percentage of total labor costs. In three out of four
SFAs (74%), unreported labor represented less than 20 percent of total labor costs (Appendix E. Exhibit
E.24). However, for five percent of SFAs. unreported labor accounted for at least 40 percent of total
labor costs. SFAs where unreported labor accounts for a relatively high proportion of total labor costs
tend to be small SFAs where food service labor is heavily subsidized by the school district. In general,
unreported labor was a higher proportion of total labor for small SFAs than for medium-size or large
SFAs, indicating that small SFAs rely more heavily on the school district for support services (for which
they are not charged) than larger SFAs.*
'Additional detail by type of meal production system is presented in Appendix E, Exhibit E.23.
"Additional detail by type of meal production system is presented in Appendix E, Exhibit E.25.
School Lunch and Breakfast Cost Study Final Report
48
Chapur Four: Estimates of Full Costs 4-5
Exhibit 4.4
Unreported Labor as a Percent of Total Labor
Mean Median STD
SFA Sample Size
Weighted Unweighted
Total 18.4% 14.1% 19.7% 12,934 93
SFASize
Small (1-999) 24.2 19.3 25.3 6,327 12
Medium (1,000-4,999) 11.1 11.2 7.7 4,537 28
Large (5,000+) 16.6 13.4 10.4 2,070 53
Exhibit 4.5 examines unreported school-based labor as a percent of total unreported labor. As mentioned
above, unreported labor consists of personnel at the school district level and personnel at the individual
school level (school administrative labor). The distribution is essentially bimodal - for 44 percent of
SFAs, less than 10 percent of unreported labor consists of school administrative labor, while for 21
percent of SFA , more than 90 percent of unreported labor consists of school-based personnel (Appendix
E, Exhibit L.26).7 This appears to reflect the influence of three factors:
• use of non-food service central school district personnel for support services for
the SFA;
• the locus of responsibility for processing applications for school meal benefits
and conducting income verifications; and
• the degree to which non-food service school personnel are involved in the
distribution of meal tickets.
Exhibit 4.5 shows that school-based personnel account for a much smaller proportion of unreported labor
costs in small SFAs (21 %) than in medium-size SFAs (57%) and large SFAs (59%). As discussed above,
small SFAs are more likely to rely on central school district personnel for support services. However,
activities such as processing applications and income verification are more likely to be carried out
'Additional detail by type of meal production system is presented in Appendix E, Exhibit E.27.
School Lunch and Breakfast Cost Study Final Report *Q Chapter Four: Estimates of Full Costs 44
Exhibit 4.5
School Administrative Labor as a Percent of Total Unreported Labor
Mean Median STD
SFA Sample Size
Weighted Unweighted
Total 39.6% 23.1% 39.6% 12,934 93
SFASize
Small (1-999) 20.8 4.6 31.1 6,327 12
Medium (1,000-4,999) 56.7 69.6 38.4 4,537 28
Large (5,000+) 59.3 84.2 38.5 2,070 53
centrally (by SFA personnel) in small SFAs than in larger SFAs, where those same activities are more
likely to be carried out by (non SFA) school personnel.
Unreported Indirect Costs. Nearly all State Education Agencies review school districts' cost information
and provide each school district with an approved indirect cost rate. However, school districts are not
obligated to apply the approved indirect cost rate to food service (or other grant programs). Some school
districts have indirect costs that are attributable to food service, but do not report these costs on the food
service budget. In some districts food service reports some, but not all, of the indirect costs. Exhibit
4.6 presents the distribution of SFAs by whether they report all indirect costs, some indirect costs, or no
indirect costs. In nine out of ten SFAs where the school district has indirect costs that could be applied
to food service, the SFA does not report for any indirect costs. However, large SFAs are more likely
to report indirect costs than small or medium-size SFAs.'
'As discussed in Chapter Five, even in cases where the SFA reports indirect costs, the school district
might not recover these costs (i.e., funds are not transferred from the food service account to the school
district general fund).
School UiAck Brtak/att Coa Study Flmd Ripen Fmr. tt ■ I tfAMCmm 4-7
50
Exhibit 4.6
Proportion of Calculated Indirect Costs Reported by the SFA:
Distribution of SFAs by Size Class
Size Class Report None Report Some Report All All SFAs1
Small SFAs
Medium SFAs
Large SFAs
All SFAs
100.0%
89.2
52.5
89.3
0.0%
2.4
5.2
1.6
0.0%
8.4
42.4
9.0
100.0%
100.0
100.0
100.0
Unweighted N = 81 Weighted N = 11,608
'lauudM only 8FA1 wbort tfa* school dbtrfct hat Indlnct ccaU thai coald bo apnaod to food writ..
Unreported indirect costs represent school district resources used by food service and account for 5
percent of the full cost of food service (Appendix E, Exhibit E.20). Unreported indirect costs account
for 27 percent of total unreported costs for the average SFA. Exhibit 4.7 examines unreported indirect
costs as a percent of total unreported costs.* For almost one-third of all SFAs (32%), unreported indirect
costs accounted for less than 10 percent of total unreported costs (Appendix E, Exhibit E.28). At the
other extreme, in 17 percent of SFAs unreported indirect costs accounted for at least half of total
unreported costs. Unreported indirect costs accounted for an average of about 28 percent of total
unreported costs in small SFAs and medium-size SFAs, compared to only 18 percent in large SFAs. This
reflects the fact that relatively few small or medium-size SFAs report indirect costs. Indirect costs are
described in more detail in Chapter Five.
Unreported Equipment Depreciation. SFAs rarely include equipment depreciation as a reported cost.
In SY 1992-93, only 16 percent of SFAs reported depreciation costs.10 Consequently, an Equipment
Cost Inventory for each school in the district was completed for those districts that did not report
"Additional detail by type of meal production system is presented in Appendix E, Exhibit E.29.
'"Depreciation was more likely to be reported by large SFAs (40%) than small (0%) or medium-size
SFAs (28%).
School Lunch and Breakfast Cost Study Final Report Chapter Four. Estimates of Full Costs 4-8
51
■ •
Exhibit 4.7
Unreported Indirect Costs as a Percent of Total Unreported Costs
Mean Median STD
SFA Sample Size
Weighted Unweigh ed
Total 27.1% 24.3% 23.5% 12,934 93
SFASize
Small (1-999) 28.2 24.3 21.8 6,327 12
Medium (1,000-4,999) 29.7 23.9 24.7 4,537 28
Large (5,000+) 17.9 0.0 23.7 2,070 53
depreciation expense. Equipment costs were then amortized over a 12-year lifcspan to estimate
depreciation costs.
Exhibit 4.8 examines unreported depreciation as a percentage of total unreported costs." Unreported
depreciation represented, on average, 16 percent of total unreported costs, and in only one-third of SFAs
(32%) did unreported depreciation account for as much as 20 percent of total unreported costs (Appendix
E, Exhibit E.31).12
Unreported Utilities. Utilities include electricity, gas, and any other energy costs used in food
production.
Exhibit 4.9 examines other unreported utility costs as a percentage of total unreported costs.13 On
average, unreported utility costs represented 11 percent of total unrepored costs. In three out of four
SFAs (77%), unreported utility costs accounted for less than 20 percent of total unreported costs
(Appendix E, Exhibit E.33).
"Additional detail by type of meal production system is presented in Appendix E, Exhibit E.30.
''Depreciation was more likely to be reported by large SFAs (40%) than small (0%) or medium-size
SFAs (28%).
"Additional detail by type of meal production system is presented in Appendix E, Exhibit E.32.
School Lunch and Breakfast Cost Study Final Report 52 Chapter Four: Estimates of Full Costs 4-9
Exhibit 4.8
Unreported Depreciation as a Percent
of Total Unreported Costs
Mean Median STD
SFA Sample Size
Weighted Unweighted
I Total 16.3% 13.6% 15.6% 12,934 93
SFASize
Small (1-999) 18.3 13.6 14.7 6,327 12
Medium (1,000-4,999) 16.3 15.6 16.7 4,537 28
Large (5,000+) 10.1 7.7 14.1 2,070 53
Exhibit 4.9
Unreported Utility Costs as a Percent
of Total Unreported Costs
Mean Median STD
SFA Sample Size
Weighted Unweighted
i Total 11.3% 4.1% 13.2% 12,934 93
SFASize
Small (1-999) 11.0 11.7 9.7 6,327 12
Medium (1,000-4,999) 12.2 0.0 16.9 4,537 28
Large (5,000+) 10.2 3.7 13.2 2,070 53
53
School Lunch and Breakfast Cost Study Final Report Chapter Four: Estimates of Full Costs 4-1'M
FULL COST OF PRODUCING REIMBURSABLE MEALS
Full Cost per Reimbursable Lunch
Full costs per reimbursable lunch in SY 1992-93 ranged from $1.14 to over $3.00. In 41 percent of all
SFAs, the full cost per reimbursable lunch was at least $2.00 (Appendix E, Exhibit E.34). By contrast,
in only 12 percent of SFAs was the reported cost per reimbursable lunch this high.
Exhibit 4.10 summarizes the full cost of producing reimbursable lunches using both the SFA and the
NSLP meal as the unit of analysis. Across all SFAs, the mean full cost of a reimbursable lunch was
$2.14. This estimate reflects the influence of small SFAs with very small, high cost lunch programs.14
The very small, high cost SFAs exert less influence on the median than the mean. Therefore, the median
full cost per reimbursable lunch ($1.88) is probably a better indicator of the full cost of producing
reimbursable lunches in the average SFA. For the average SFA the full cost of producing a reimbursable
lunch is IS percent higher than the reported cost (median full cost of $1.88 vs. median reported cost of
$1.63). None of the subgroup differences is significant at the .05 level of confidence.15
The total Federal subsidy for free lunches in SY 1992-93 ($1.84) was slightly less than the median full
cost of producing a lunch ($1.88). The full cost of producing a reimbursable lunch was less than the total
subsidy for a free lunch in 39 percent of SFAs. Similarly, 46 percent of all reimbursable lunches served
in SY 1992-93 were produced at a full cost that was less than the total subsidy for a free lunch.
Full Cost per Reimbursable Breakfast
In SY 1992-93 full costs per reimbursable breakfast ranged from $0.62 to $3.60 (Appendix E, Exhibit
E.3S), with a median cost of $1.38 and a mean cost of $1.67 (Exhibit 4.11). Unreported costs had a
greater effect on breakfast costs than lunch costs. For the average SFA, the full cost of a breakfast was
31 percent higher than the reported cost of a breakfast (median full cost of $ 1.38 vs. median reported cost
MIn the unweighted sample of 93 SFAs, one SFA with a weight of 585 had a full cost per
reimbursable lunch of $6.00. This SFA had extremely high labor costs. With two schools producing
a combined total of less than 20,000 lunches per year (an average of only 108 per day) and less than
9,000 breakfasts per year (an average of only 51 per day), it employed two full-time kitchen
manager/cooks.
"Full cost per reimbursable lunch and breakfast by meal production system is presented in Appendix
E, Exhibit E.36.
r 54 School Lunch and Brtakfast Cost Study Final Report Chapter Four: Estimates of Full Costs 4-11
Exhibit 4.10
Total Full Cost per Reimbursable Lunch
Total Full Cost per IReimbursable Lunch
SFA!
1
Unit of Analysis is
SFA
Unit of Analysis
NSLP Lunch
is Sample Size
Mean Median STD Mean Median STD Weighted Unweighted
Total $2.14 $1.88 .95 $1.95 $1.88 .47 12,934 93
NSLP and SBP 2.22 1.88 1.12 1.95 1.88 .46 8,563 77
NSLP only 1.99 1.85 .44 2.04 2.08 .51 4,371 16
SFASize
Small (1-999) 2.43 2.08 1.21 2.26 2.08 .83 6,327 12
Medium (1,000-
4,999)
1.85 1.81 .51 1.80 1.74 .47 4,537 28
Large (5,000+) 1.91 1.88 .35 1.96 1.88 .37 2,070 53
A la Carte Revenues1
< 10% of Total
Revenue
2.02 1.76 .52 2.05 1.94 .51 3,673 29
£ 10% of Total
Revenue
1.88 1.88 .35 1.86 1.87 .31 6,308 49
EidudM SFAi that did not MparaUh/ report rtudanl pmymrtt tor raanbunabit mak from ■ la art* I
of $1.05). None of the subgroup differences in the full cost per reimbursable breakfast are significant
at the .05 level of confidence.
There is some evidence of economies of scale in the production of reimbursable breakfasts. Total
breakfast labor costs in a school may be viewed as relatively fixed because of the small size of the
breakfast program. Thus as the number of breakfasts served increases, labor cost per breakfast decreases.
When the unit of analysis is the SBP meal, the median full cost per reimbursable breakfast was $1.20.
This reflects the effect of schools serving large numbers of reimbursable breakfasts which tend to have
lower unit costs.
55
School Lunch and BrtukfoM Cost Study Final Report Chapter Four: Estimates of Full Costs 4-12
Exhibit 4.11
Total Full Cost per Reimbursable Breakfast
Total Full Cost per Reimbursable Breakfast
Unit of Analys
SFA
is is Unit of Analysis is SBP
Breakfast SFA Sample Size
Mean Median STD Mean Median STD Weighted Unweighted
Total SFAs $1.67 $1.38 .75 $1.28 $1.20 .37 8,514 77
SFASize
Small (1-999) 1.59 1.38 .49 1.32 1.10 .38 4,693 10
Medium (1,000-
4,999)
1.89 1.28 1.00 1.25 1.25 .48 2,7119 17
Large (5,000 +) 1.60 1.24 .90 1.27 1.20 .33 1,702 50
A la Carte Revenues1
< 10% of Total
Revenue
£ 10% of Total
Revenue
1.31 1.34 .32 1.15 1.02 .31 1,984 25
1.70 1.38 .85 1.31 1.35 .34 4,373 39
'Eidud« SFA. that did ad Mpantoly nport «ud«« payimaU for rafadxraMt mmk torn * hi art* mtm.
The regular reimbursement rate for free breakfasts in SY 1992-93 was $0.95, with a "severe need" rate
of $1.12. These rates were almost always insufficient to cover the full cost of producing a reimbursable
breakfast. In nine out of ten SFAs (93%), the full cost exceeded the regular reimbursement rate for free
breakfasts, and in eight out of ten SFAs (82%), the full cost exceeded the higher severe need rate. Even
when the unit of analysis is the SBP meal, 89 percent of all breakfasts served in SY 1992-93 were
produced at a full cost that exceeded the regular reimbursement rate for a free breakfast (61 percent were
produced at a full cost that exceeded the higher severe need rate). This contrasts sharply with lunch
costs.
School Lunch and Breakfast Cost Study Final Report 5 tyapter Four: Estimates of Full Costs 4-13
COMPOSITION OF FULL COSTS
The composition of full costs differed somewhat from the composition of reported costs. As one would
expect, food and labor costs accounted for the vast majority (84%) of the full cost of food service
operations for the average SFA (Exhibit 4.12).'* However, food costs (including the assigned value of
donated commodities) accounted for 38 percent of full costs, compared to 48 percent of reported costs.
This reflects the fact that all food costs are included in reported costs, but some labor and other costs are
not included in reported costs. Labor costs accounted for 46 percent of full costs (44 percent of reported
costs). All other costs, including supplies, contract services, depreciation, indirect charges by the school
district etc., represented 16 percent of the average SFA's full costs (8 percent of reported costs).
Cost Components ofReimbursable Lunches
Exhibit 4.13 presents a summary of the components of the full cost of reimbursable lunches.17 For the
average SFA, food costs per reimbursable lunch were $0.79 in SY 1992-93, with mean labor costs of
$1.00, and other costs averaging $0.35. There was considerably more variation among SFAs in labor
costs than food costs (Appendix E, Exhibit E.38). The coefficient of variation for labor cost per lunch
was 0.54 compared to 0.32 for food costs. The greater variability in labor costs reflects the variation
in the proportion of labor costs that are unreported (Appendix E, Exhibit E.24). While all food costs are
reported, on average 18 percent of labor costs are unreported.
Mean food costs per reimbursable lunch are lower using the meal as the unit of analysis ($0.72 vs.
$0.79), perhaps reflecting the greater buying power of the large SFAs. Mean labor costs per lunch are
also somewhat lower using the meal as the unit of analysis ($0.90 vs. $1.00).
57
16Additional detail by type of meal production system is presented in Appendix E, Exhibit E.37.
"Appendix E, Exhibits E.40 and E.41 present this information by type of SFA.
School Lunch and Breakfast Cost Study Final Report Chapter Four: Estimates of Full Costs 4-14
BLANK
PAGE
a
Exhibit 4.12
Composition of Food Service Full Costs
Percent of SFA Full Costs SFA Sample Size
Food Costs Labor Costs Other Costs
Mean Median STD Mean Median STD Mean Median STD Weighted Unweighted
Total Sample 38.2% 38.8% 6.5% 45.8% 46.0% 7.5% 16.0% 15.5% 4.3% 12,934 93
Participation in SBP
NSLP and SBP 38.7 40.9 5.3 45.2 44.1 6.4 16.0 15.5 4.6 8,563 77
NSLP only 37.3 35.4 8.2 46.9 48.6 9.3 15.8 16.0 3.7 4,371 16
SFA Size
Small (1-999) 38.3 37.0 6.1 44.5 47.3 7.4 17.2 16.0 3.7 6,327 12
Medium (1,000-4,999) 39.0 40.8 6.5 45.9 45.8 7.4 15.1 13.7 4.2 4,537 28
Large (5,000 +) 36.4 35.9 7.1 49.5 49.1 7.0 14.1 13.7 5.1 2,070 53
A la Carte Revenues1
< 10% of Total
Revenues
37.0 35.4 6.0 46.8 48.6 7.1 16.2 16.0 3.3 3,673 29
2: 10% of Total
Revenues
39.7 42.0 6.8 45.4 44.1 7.6 14.8 14.9 3.7 6,308 49
•5,
'Excludes SFAs that did not separately report student payments for reimbursable meals from a k carte sales.
|
«*
r, 58
Exhibit 4.13
Full Cost Components of Reimbursable Lunches
Unit of
[ Analysis
Cost Component
Food Costs
Mean Median STD
Labor Costs
Mean Median STD
Other Costs
Mean Median STD
SFA Sample Size
Weighted Unweighted
SFA
Meal
$0.79 $0.77 0.25
$0.72 $0.70 0.14
$1.00 $0.82 0.54
$0.90 $0.90 0.30
$0.35 $0.30 0.22
$0.33 $0.30 0.18
12,934
12,934
93
93
Cost Components ofReimbursable Breakfasts
Exhibit 4.14 examines the components of the full cost of reimbursable breakfasts.18 For the average
SFA, food costs per reimbursable breakfast were $0.56 in SY 1992-92, with mean labor costs of $0.84,
and other costs averaging $0.27. As in the case of lunch costs, there is considerably more variation in
breakfast labor costs than breakfast food costs (Appendix E, Exhibit E.39). The coefficient of variation
for labor cost per breakfast was 0.65 compared to 0.30 for food. As discussed above, the greater
,<
variability in labor costs in part reflects the variability in unreported labor costs.
While food costs per reimbursable breakfast are somewhat lower using the meal as the unit of analysis
($0.49 vs. $0.56), mean labor costs are considerably lower using the meal as the unit of analysis ($0.57
vs. $0.84). This reflects the economies of scale in breakfast production-schools that serve large numbers
of reimbursable breakfasts tend to have much lower labor costs per meal than schools that serve relatively
few reimbursable breakfasts.
Administrative Costs
Food service administrative costs include the cost of performing administrative activities in support of
food service operations, e.g., administrative tasks performed by central food service staff, school-based
food service staff (e.g., kitchen managers), central school district personnel, and school administrators
"Appendix E, Exhibit E.42 and E.43 present this information by type of SFA.
School Lunch and Breakfast Cost Study Final Report 59Chapter Four: Estimates of Full Costs 4-16
Exhibit 4.14
Full Cost Components of Reimbursable Breakfasts
Unit of
Analysis
Cost Component
SFA Sample Size
Food Costs Labor Costs Other Costs
Mean Median STD Mean Median STD Mean Median STD Weighted Unweighted
SFA
Meal
$0.56 $0.55 0.17
$0.49 $0.48 0.12
$0.84 $0.64 0.55
$0.57 $0.53 0.26
$0.27 $0.21 0.14
$0.22 $0.21 0.10
8,514 77
8,514 77
(e.g., principals). This study has broadly defined food service administration to include regular
administrative activities such as planning, budgeting and management for the food service program, and
other non-production activities such as maintenance of food service equipment.
Exhibit 4.15 examines total administrative costs (including unreported costs) in relation to total labor
costs.19 Because virtually all unreported labor performs administrative and other non-production
activities in support of food service, on a full-cost basis administrative labor accounts for a much higher
percentage of labor costs than on a reported-cost basis. On a full-cost basis, administrative labor
accounted for an average of 30 percent of total labor costs. This compares to an average of 17 percent
on a reported-cost basis. As one would expect based on the differences among SFAs in what is and what
is not charged to the food service budget, there is also less variation in the administrative share of total
costs on a full-cost basis than on a reported-cost basis (coefficient of variation of 0.38 vs. 0.60, Appendix
E, Exhibit E.45).
Exhibit 4.16 examines total administrative labor costs in relation to total full costs. Administrative labor
accounts for a relatively small proportion of total full costs. For the average SFA, total administrative
labor cost accounted for 14 percent of total full costs in SY 1992-93. In eight out of ten SFAs,
administrative (and other non-production) labor accounted for less than 20 percent of total full costs
(Appendix E, Exhibit E.46).
"Additional detail by type of meal production system is presented in Appendix E, Exhibit E.44.
School Lunch and Breakfast Cost Study Final Report
0-
Chapter Four: Estimates of Full Costs 4-17
r>o
Exhibit 4.15
Total Administrative Labor Costs as a Percent of Total Labor Costs
Total Full Cost per Reimbursable Lunch
SFA Sample Size
Unit of Analysis is SFA Unit of.\nalysis is
Lunch
NSLP
Mean Median STD Mean Median STD Weighted Unweighted
Total 29.5% 28.3% 8.9 32.2% 30.2% 10.4 12,934 93
INSLP and SBP 29.2 27.9 9.4 32.3 29.5 10.6 8,563
INSLP only 30.1 28.8 7.7 31.5 30.8 8.7 4,371
16
SFASize
Small (1-999) 29.7 28.2 8.5 31.2 28.6 10.3 6,327 12
Medium (1,000-
4,999)
27.7 28.8 9.0 28.0 28.8 9.7 4,537 28
Large (5,000+) 32.7 33.2 8.7 33.4 30.2 10.3 2,070
53
A la Carte Revenues1
< 10% of Total
Revenues
30.3 28.2 8.6 32.1 32.2 10.6 3,673 29
S 10% of Total
Revenues
28.4 28.6 7.4 29.5 27.8 8.6 6,308 49
'Excludes SFAs that did not separately report student payments for reimbursable meals from a la carte
sales.
School Lunch and Breakfast Cost Study Final Report gl Chapter Four: Estimates of Full Costs 4-18
Exhibit 4.16
Administrative Labor Costs as a Percent of Total Full Costs
Total Full Cost per Reimbursable Lunch
SFA Sample Size
Unit of Analysis is
SFA
Unit of Analysis
NSLP Lunch
is
Mean Median STD Mean Median STD Weighted Unweighted
Total 13.6% 13.4% 5.1 14.7% 14.0% 5.0 12,934 93
NSLP and SBP 13.2 13.0 4.7 14.5 14.0 4.9 8,563 77
NSLP only 14.5 13.7 5.6 16.0 14.6 6.1 4,371 16
SFA Size
Small (1-999) 13.2 13.4 4.3 13.6 13.7 5.1 6,327 12
Medium (1,000-
4,999)
13.0 11.8 5.4 12.9 13.0 5.1 4,537 28
Large (5,000+) 16.3 14.5 5.4 15.3 14.2 4.9 2,070 53
A la Carte
Revenues1
< 10% of Total
Revenues
14.5 13.7 5.4 14.6 14.5 5.0 3,673 29
^ 10% of Total
Revenues
13.0 12.1 4.7 13.9 12.2 4.9 6,308 49
'Excludes SFAs that did not separately report student payments for reimbursable meals from a la carte
sales.
School Lunch and Breakfast Cost Study Final Report 62
Chapter Four: Estimates of Full Costs 4-19
Chapter Five
Analysis of School District Indirect Costs
As discussed in Chapter Four, SFAs often use a variety of resources that are provided or paid for by the
school district, including:
• administrative or support functions performed by school district personnel,
(including accounting, data processing, payroll, personnel, purchasing, storage,
and transportation);
• facilities, equipment, supplies, and services (including energy, communications
and transportation) provided or paid for by the school district; and
• employee benefits, payroll taxes and insurance.
School districts account for these resources in one of three ways.
1. Costs which the school district can and wants to identify are treated as direct
food service costs.
2. Costs which can not practically be identified as direct costs are, in some school
districts, allocated to the food service program as reported indirect costs.
3. Costs of school district support for food service operations are often left
unreported and are included as part of the general operating costs of the school
district.
In this study, costs incurred by school districts in support of food service operations have been estimated
in two ways. If the school district has a method that can be used to allocate indirect costs to the food
service program, but does not report these costs, the unreported food service indirect cost has been
calculated. In some SFAs, no indirect cost allocation method is available; in others, the indirect cost does
not include all support functions or cost objects attributable to food service. For these SFAs, school
district resources used in support of food service that were not included in the unreported indirect cost
(if any) were calculated as unreported direct costs.
This chapter presents an analysis of school district indirect costs. The objective of this analysis is to
determine the amount of indirect cost allocated to food service, the basis for the indirect cost allocation,
and the amount of indirect cost actually transferred from the food service fund to the school district's
general fund.
School Lunch and Brtakfast Cost Study Final Report Chapter Five: Analysis of School District Indirect Costs 5-1
Ut 63
The research questions addressed include:
What proportion of SFAs report indirect food service costs? How much of the
actual food service indirect cost is reported and recovered?
How does each school district allocate indirect cost to food service?
To what extent do school districts calculate and charge indirect costs to other
state and Federal grants?
To address these questions, a review of indirect cost allocation practices in SY 1992-1993 was conducted
for each SFA in the study sample. This review was generally completed with the school district's
business manager or other senior administrative officer. The data from the indirect cost review were
combined with SFA cost reports and results from a telephone survey of state education finance officers.
For the purposes of the study, the calculated food service indirect cost was based on the most inclusive
available rate or method. As discussed later in this chapter, most school districts have more than one
indirect cost rate or other allocation method. This approach minimized the need to estimate unreported
direct costs.
The key findings with regard to indirect costs include:
• SFAs rarely report indirect costs. In 80 percent of SFAs, the school district has
indirect costs in support of food service, but these costs are not reported on SFA
financial statements. Unreported indirect costs are nearly 8 percei c total SFA
reported costs.
• School districts rarely recover indirect costs from food service. Only 4 percent
of school districts with food service indirect costs report and recover the full
amount of those indirect costs.
• School districts often choose to absorb the indirect costs attributable to food
service as a means of subsidizing the SFA. More than half (53%) of school
districts that did not recover indirect costs from food service chose to bear these
costs rather than charge the SFA.
• Nearly all school districts with food service indirect costs (94%) have a
percentage rate (i.e., the ratio of school district indirect costs to all school district
direct costs) available for allocating indirect costs to food service and other
grants. All such indirect cost percentage rates are calcuated or approved by the
State Education Agency on the basis of a standard cost allocation plan.
• School districts are more likely to calculate and recover indirect costs from other
grants and programs than from food service. One third of school districts with
indirect cost methods calculate and recover the full indirect costs for at least
some of their other grants and programs.
School Lunch and Breakfast Cost Study Final Report Chapter Five: Analysis of School District Indirect Costs 5-2
i 64
SFA PRACTICES FOR REPORTING INDIRECT COSTS
It is important to distinguish between reporting indirect costs attributable to food service, and recovering
these costs from the SFA. Some school districts have an indirect cost rate, but do not apply this rate to
food service. In such cases, the indirect costs attributable to food service are not reported on the SFA's
annual cost report or financial statement. However, in other SFAs, the school district calculates the
indirect costs attributable to food service and these costs are reported on the SFA's financial statement,
but the school district does not charge the SFA for the full indirect cost (i.e., reported indirect costs are
not recovered by the school district). This section examines SFA practices for reporting indirect costs.
The recovery of indirect costs from food service (and other school district programs) is discussed in the
next section.
Any SFA that has an applicable indirect cost rate and does not charge all SFA costs directly is considered
to have indirect costs, even if the school district does not apply the rate to food service costs.1 As shown
in Exhibit 5.1, the great majority of SFAs (80%) have indirect costs but do not report them. Only eight
percent report all of the indirect costs attributable to food service, and even fewer (1 %) report some, but
not all, indirect costs attributable to food service. About 10 percent have no indirect costs, either because
all support costs are billed directly to food service (4%) or because the school district has no indirect cost
rate or other method of estimating the cost of support services provided to food service (6%).2
As noted in Chapter Four, the percent of SFAs reporting indirect costs varies considerably by SFA size.
Small and medium-size SFAs rarely report indirect costs. Approximately 92 percent of small SFAs have
food service indirect costs but do not report any indirect costs on their annual financial statements. A
very small proportion of small school districts (4%) charge food service directly for support services
provided; the rest have no method for determining food service indirect costs. Similarly, 81 percent of
medium-size districts have food service indirect costs but do not report them; only 10 percent of all
medium-size SFAs report any indirect costs. By contrast, 34 percent of large school districts report all
'District support costs may be billed directly to the SFA on the basis of individual employees' time
and salaries or standard rates for services. Because the billing in these instances is considered direct by
the district, we do not treat these costs as indirect. The study design did not include analysis of the
methods and procedures (e.g., cost allocation plans) for such direct billing of food service support costs.
Every school district that billed food service support costs directly used at least one available indirect cost
method but did not use that method in determining SFA costs.
2In cases where a school district had no method for estimating the cost of support services provided
to food service (or not all support services were included in indirect costs) this study identified and
estimated the cost of these services. These costs were included as unreported direct costs in Chapter Four.
School Lunch and Breakfast Cost Study Final Report Chapter Five: Analysis of School District Indirect Costs 5-3
65
BLANK
PAGE
I
t
f
a-
Exhibit 5.1
SFA Practices for Reporting Indirect Costs
District Has Food Service Indirect
Costs'
School District
Support
Services
Treated as
Direct Costs
No Method
for Estimating
Cost of School
District
Support
Services
Total
All SFAs
SFA Sample Size
SFA
Reports2
all
Indirect
Costs
SFA
Reports1
Some
Indirect
Costs
SFA
Reports
No
Indirect
Costs Weighted Unweighted
Total 8.1% 1.4% 80.2% 3.7% 6.5% 100.0% 12,934 93
SFA Size
Small (1-999) 0.0 0.0 92.1 4.3 3.6 100.0 6,327 12
Medium (1,000-
4,999)
7.7 2.2 81.4 0.0 8.7 100.0 4,537 28
Large (5,000+) 33.6 4.1 41.6 10.3 10.5 100.0 2,070 53
1 School district has a method for calculating indirect costs for food service and does not treat all support services as direct costs. Some districts do not
actually calculate the indirect costs attributable to food service (e.g., a district might have an indirect cost rate, but not apply it to food service).
2 School districts may calculate and report indirect costs attributable to food service, but not recover these costs. See Exhibit 5.6
66
the indirect costs attributable to food service, and another 4 percent of large SFAs report a portion of the
calculated indirect cost. Only 42 percent of large SFAs do not report any part of calculated indirect
costs. Another 10 percent of large SFAs do not report any indirect costs because all school district
support services are directly charged to the SFA; the remaining 10 percent have no rates or other methods
off allocating indirect costs.
Among school districts with food service indirect costs, SFAs report an average of 10 percent of the food
service indirect costs as calculated for this study (Exhibit 5.2). The mean proportion of indirect costs
reported by large SFAs is 45 percent; medium-size SFAs report an average of 11 percent of indirect
costs; small SFAs do not report any indirect costs. These statistics reflect the essentially bimodal
distribution of SFAs. For the most part, SFAs report all indirect costs attributable to food service, or
do not report any indirect costs.
Exhibit 5.2
Percent of Indirect Cost Reported by
SFAs With Indirect Costs
Percent of Indirect Cost
Reported
by SFAs With Indirect Costs'
SFA Sample
Size1
Mean Median STD Weighted Unweighted
1 Total 10.2% 0.0% 29.9 11,608 81
SFA Size
Small (1-999) 0.0 0.0 0.0 5,826 10
Medium (1,000-
4,999)
10.8 0.0 31.0 4,142 25
Large (5,000+) 44.7 0.0 48.5 1,640 46
'Excludes weighted total of 1,326 SFAs (12 unweighted) that do not have indirect costs because (a) they have no
indirect cost rate or other method, or (b) all costs are billed as direct costs.
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School Lunch and Breakfast Cost Study Final Report Chapter Five: Analysis of School District Indirect Costs S-S
RECOVERY OF SFA INDIRECT COSTS
The actual financial impact of indirect cost allocation on SFAs depends on whether these costs are both
reported and recovered. The SFA or school district may compute the food service indirect cost for
reporting purposes without actually transferring the full calculated amount from the food service fund to
the school district's general fund. Some States require SFAs to report food service indirect costs as part
of their NSLP and SBP reimbursement claims, but do not require the recovery of the reported indirect
cost. Recovery of indirect costs may also depend on whether an SFA has sufficient revenues after
covering its direct costs.
School districts rarely recover food service indirect costs. Exhibit 5.3 shows that 89 percent of school
districts with food service indirect costs do not report or recover these indirect costs. In about 7 percent
of districts with food service indirect costs the SFA reports at least some of these costs, but the school
district does not recover the entire food service indirect costs. Only 4 percent of school districts recover
all of the food service indirect costs attributable to food service.
As noted above, small school districts do not report (or recover) indirect cost for food service. Even
though large SFAs are far more likely to report indirect costs than small and medium-size SFAs, most
large school districts still do not recover these reported indirect costs. While 47 percent of large SFAs
reported indirect costs, only 7 percent actually transferred the reported indirect costs to the school
district's general fund.
Exhibit 5.4 presents the reasons why school districts did not recover indirect costs from food service; in
some cases, multiple reasons apply, so the percentages sum to more than 100 percent. More than half
(52%) of the school districts that did not recover all of the food service indirect costs chose to bear the
cost as a way of subsidizing the SFA. One-quarter of the districts were unable to recover all of the food
service indirect costs because the SFA had insufficient funds. Five percent of school districts were
directed by a local authority (such as a town council) not to charge food service for indirect costs. About
one-third (30%) of school districts could not provide any specific reason why the district did not recover
indirect costs from food service. (These districts typically did not report any food service indirect costs
and may not have even considered this possibility.)
Only 11 percent of large school districts did not recover indirect costs from food service because the SFA
had insufficient funds, but about one quarter of small and medium-siz