School lunch and breakfast cost study summary of findings

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<Q Sr°' School Lunch and
w~- Breakfast Cost Study Food and
Nutrition
Service
Office of
Analysis and
Evaluation
Summary of Findings
October 1994
1
School Lunch and Breakfast
Cost Study
Summary of Findings
October 1794
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
Executive Summary
STUDY BACKGROUND
The School Lunch and Breakfast Cost Study was earned 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 540 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 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.
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.
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.
School Lunch and Breakfast Cost Study Summary Executive Summary i
1
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.
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:
School Lunch and Breakfast Cost Study Summary Executive Summary ii
•
•
•
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 Summary A Executive Summary Hi
1
Chapter One
Introduction
The National School Lunch Program (NSLP) and the School Breakfast
Program (SBP) are two of the "Child Nutrition Programs" administered by
USDA's Food and Nutrition Service (FNS). The NSLP and SBP provide
Federal subsidies for school lunches and breakfasts served to children at all
income levels. Eligible institutions include public schools, private non-profit
schools, and public or licensed residential child care institutions. Almost all
(99%) public schools and 83 percent of all public and private schools
participate in the NSLP. The SBP is available to about one half of all school
children.
Combined Federal support for the NSLP and SBP totaled $5.5 billion in Fiscal
Year 1992. This support is provided in the form of cash subsidies and donated
commodities. School districts receive a cash subsidy for every school lunch
and breakfast served, regardless of the income of the child's family.
Additional cash subsidies are provided for children qualifying for free or
reduced-price meals. Students eligible for free meals are those from families
with incomes below 130 percent of poverty. Reduced-price meals may be
served to children from families whose incomes fall between 130 and 185
percent of poverty. Exhibit 1 presents the Federal subsidies for the NSLP and
SBP in effect for School Year 1992-93. The Federal subsidy for NSLP
lunches includes cash reimbursements plus entitlement commodity assistance
of $0.14 per lunch.
Exhibit 1
Federal Subsidies for the NSLP and SBP,
School Year 1992-93
Eligibility Category NSLP' SBP
Paid $0.3025 $0.1875
Reduced-price 1.4350 0.6450
Free 1.8350 0.9450
'Includes $0.14 in entitlement commodities.
SFAs in which at least 60 percent of enrolled children qualify for free or
reduced-price meals receive an additional reimbursement of $0.02 per lunch.
Individual schools are eligible for "severe need" funding if at least 40 percent
School Lunch and Breakfast Cost Study Summary Chapter One: Introduction 1-1
of their lunches are claimed at the free or reduced-price rates and if
preparation costs exceed the regular breakfast reimbursement. Severe need
schools receive an additional reimbursement of $0.1775 per breakfast. In
addition to these cash subsidies, schools may receive entitlement commodities
for use in school meals. Entitlement assistance was $0.14 per lunch for School
Year 1992-93.
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.
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.
STUDY OBJECTIVES
The School Lunch and Breakfast Cost Study, conducted for 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 reported and full 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; and
• determine the composition of SFA revenues, including federal
reimbursements, cafeteria sales (student payments for NSLP and
i,A School Food Authority is "...the governing body which is respons-ble
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 Summary n Chapter One: Introduction 1-2
SBP reduced- and full-price meals, a la carte, and adult meals,
etc.), and State and local cash assistance.
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 are 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.
School Lunch and Breakfast Cost Study Summary m Chapter One: Introduction 1-3
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.
OVERVIEW OF THE MEAL COST METHODOLOGY
The primary objective of the School Lunch and Breakfast Cost Study was to
determine the cost of producing school lunches and breakfasts, including
indirect and local administrative costs. In contrast to the methods used by
SFAs and prior research studies, the methodology for this study relied on the
direct measurement of costs attributable to the various SFA activities rather
than the use of ad hoc allocation rules. Exhibit 2 presents an overview of the
study approach.
The methodology consists of four elements:
1) measuring the full cost (reported costs plus non-reported costs)
of SFA operations;
2) distributing the reported and full cost of SFA operations to the
production of lunches, tiie 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
reported and 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 required a review of SFA financial
statements, meal production records, recipes, invoices, and other
documentation. oFA and school district officials were 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 were
obtained through a time study conducted with food service staff in a sample of
schools. Finally, a sample of meals taken by students was observed to obtain
data on the distribution of menu items sold in reimbursable and non-reimbursable
meals.
SAMPLE SELECTION
The School Lunch and Breakfast Cost Study involved the collection of data
from a national sample of school districts that participate in the NSLP. To
select such a sample, staff first constructed a nationally-representative listing of
985 public school districts in the continental United States. Simple descriptive
information was then obtained from each of these school districts
8
School Lunch and Breakfast Cost Study Summary Chapter One: Introduction 1-4
BLANK
PAGE
Exhibit 2
Overview of Meal Cost Methodology Framework
r
i
i
ito
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"
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
Non-Reimbursable
Breakfast Cost
Total cost of non-reimbursable
breakfast
items
about their food service programs. This information included: 1) participation
in the SBP; 2) type of meal production system; and 3) total reimbursable
lunches and breakfasts served in SY 1991-92. This descriptive information on
the food service program was then used to select a stratified sample of 98
public 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. Of the 98 SFAs that were initially included in the
study sample, a total of 94 were used in the analysis.2
DATA COLLECTION
The data collection activities for the School Lunch and Breakfast Cost Study
were conducted in Spring/Fall 1993. In Spring 1993, study staff visited each
of the 98 SFAs in the study sample to obtain the information needed to
allocate the SFAs' reported costs between lunch and breakfast production and
between reimbursable and non-reimbursable meals. A second on-site visit was
conducted in Fall 1993 and focused on th°. unreported costs attributable to
school food service operations. During this site visit, study staff interviewed
SFA and school district staff to identify the resources used by, but not charged
to, the SFA. Information was also obtained to identify the amount of these
unreported costs. These data were used to estimate the full cost of producing
reimbursable lunches and breakfasts.
2Data 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. 1 Q
School Lunch and Breakfast Cost Study Summary Chapter One: Introduction i-6
Chapter Two
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?
The analysis focuses on the costs of producing reimbursable meals and
includes only those costs that were charged to SFA budgets. Reported costs
reflect what SFA directors envision as their operating costs and what NSLP
and SBP subsidies are expected to cover. 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 Three.
REPORTED COSTS OF PRODUCING REIMBURSABLE MEALS
This section presents national estimates of reported costs for reimbursable
meals. Costs are first examined using the SFA as the basis of analysis. This
analysis gives equal weight to each SFA, regardless of size. Estimated costs
represent the average cost for a "typical" SFA.
Costs are also examined using the meal as the basis of analysis. This analysis
gives equal weight to each reimbursable meal, and since most reimbursable
meals are produced in large SFAs, the results are dominated by the costs
incurred in large SFAs. Estimates represent the cost of an average
reimbursable meal.
Cost per Reimbursable Lunch In SY 1992-93 reported costs per reimbursable lunch ranged from $0.93 to
$2.50, with a median cost of $1.63 and a mean cost of $1.64 (Exhibit 3).
When the basis of analysis is the NSLP meal, the median reported cost of
producing a reimbursable lunch was $1.66 and the mean cost was $1.69. The
higher average cost when the NSLP meal is the basis of analysis reflects the
School Lunch and Breakfast Cost Study Summary Chapter Two: Reported Costs 2-1
Exhibit 3
Average Reported Cost of Producing Reimbursable Meals
Unit of Analysis
Lunch Breakfast
Mean Median Mean Median
SFA
Meal
$1.64
1.69
$1.63
1.66
$1.27
$1.11
$1.05
1.05
higher reported costs in large SFAs. Because only 16 percent of SFAs have
enrollments over 5,000, these large SFAs have a relatively small influence on
the average reported cost when the SFA is the basis of analysis. However,
because nearly 60 percent of reimbursable lunches served in SY 1992-93 were
served in these large SFAs, these large SFAs have a greater affect on the
average reported cost when the basis of analysis is the NSLP meal.
The Federal subsidy for free lunches was about $1.84 ($1.70 in cash
reimbursements plus $0.14 in entitlement commodities). This was
considerably more than the median reported cost of producing a lunch in the
average SFA ($1.63). The median reported cost of producing a reimbursable
lunch was less than the total subsidy for a free lunch in 77 percent of SFAs
(Exhibit 4A). 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 (Exhibit 4B).
Cost per Reimbursable Breakfast In SY 1992-93, the 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). When the basis of analysis is the SBP meal, the median reported cost per
reimbursable breakfast was $1.05 and the mean cost was $1.11.' This may
reflect the apparent economies of scale in breakfast production. As the number
of breakfasts served in a school increases, the reported labor per meal costs
may be expected to decrease because fixed costs are being spread over a larger
number of meals. Schools serving large numbers of reimbursable breakfasts
tend to have lower reported costs per meal.
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 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
'Because of the relatively small sample size, atypical SFAs exert more
influence on the mean than the median. For this reason, the median is a better
i ~ dicator of average costs than the mean.
School Lunch and Breakfast Cost Study Suptmary 12 Chapter Two: Reported Costs 2-2
0%
BANTU
In 75% of SFAe, Reported Costs of Lunches
An Lees Than the Federal Subsidy
i*1 -0^ Federal Subsidy
for Free Lunches
Mm -11.84
Median-$1.63
$1.10-$1.30 I $1.5041.70 I $1.9042.10 I $2.304250
Loss than $1.10 $1.3041.50 $1.7041.00 $2.11*42.30
Reported Cost Per Reimbursable Lunch
[ Lunch©*, Reported Costs
i Then the Federal Subsidy
grws Federal Subsidy
* ' • • ffoorr FFre«e 1Luunncrthmes.
Meen -$1.W
Meoian-$i.ee
$1.1041-30 $1.5041.70 I $1.9042.10 $2.3042.50
Lass than $1.10 $1.3041.50 $1.7041.90 $2.1042.30
Reported Coet Per Reimbursable Lunch
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 (Exhibit 5A). Even when the unit of analysis
is the SBP meal (Exhibit 5B), 67 percent of all breakfasts served in SY 1992-
93 were produced at a reported cost that exceeded the regular reimbursement
13
School Lunch and Breakfast Cost Study Summary Chapter Two: Reported Costs 2-3
rate for a free breakfast (41 percent were produced at a reported cost that
exceeded the higher severe need rate).2
I 10.8041.00 I $1.204140 I $1.6041 JO I $2.0042.20 I $2.4042.60
LM*than$0J0 $1.0041.20 $1.4041.60 $1.8042.00 $2.2042.40 $2.60ormora
Reported Cost Per Reimbursable Breakfast
$0.8'*41.00 I $1.2041.40 I $1.604180 I $2.004220 I $2.4042.60
Lest than $0.f0 $1.004120 $1.404160 $1.8042.00 $2204240 $2.60or r
Reported Cost Per Reimbursable Breakfast
2Program 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 Summary Chapter Two: Reported Costs 2-4
COMPOSITION OF REPORTED COSTS
Food and labor costs accounted for the vast majority (92 percent) of the
average SFA's total reported cost of food service operations (Exhibit 6). 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,
represented 8 percent of the average SFA's reported costs.
Exhibit e
Food and Labor Account for the Vast Majority of tha
Avaraga SFA's Raportad Coats
Food
48%
Proportion of Food Costs
Attributable to Donated
Commodities
The value of USDA donated commodities accounted 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 15 percent of total food costs. It should be
noted that SFAs may use donated commodities for non-reimbursable as well as
reimbursable meals.
Cost Components of Reim-bursable
Meals
Reimbursable Lunch Costs. 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 (Exhibit 7). There was
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. 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.
Mean food costs per reimbursable lunch are lower using the meal as the basis
of analysis ($0.72 vs. $0.79), perhaps reflecting the greater buying power of
School Lunch and Breakfast Cost Study Summary Chapter Two: Reported Costs 2-5
15
1
ExNUt7
Coat Componanta of Rdmbursabla Lunehoa
$1.60
*1.M
.Ljitj
■
•
« Food ►
L3fl
* Labor ► '
-« Othar ►
|S0.1fl|
t 1 '
SFA
Basis of Analysis
Meal
Administrative Costs
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 basis of analysis. As shown below, this may reflect higher administrative
labor costs incurred by larger SFAs.
Reimbursable Breakfast Costs. 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 effects of potential economies of scale in breakfast production may be
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 basis of analysis ($0.51 vs. $0.62), reflecting the lower breakfast labor
costs per meal in SFAs serving large numbers of reimbursable breakfasts.
Food service administrative costs include the cost of performing administrative
activities in support of food service operations (e.g., budgeting, menu planning,
food purchasing, and application processing). These administrative tasks may
performed by central food service staff, school-based food service staff (e.g.,
kitchen managers), central school district personnel, and school administrators
(e.g., principals). Reported administrative costs include only those costs that
are charged to the food service budget. They include all, or part, of central
and school-based food service labor costs. It also includes school district
School Lunch and Breakfast Cost Study Summary
16
Chapter Two: Reported Costs 2-6
1
personnel and school administrators that provide support to food service only
if food service is directly charged for these services.3
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. For the average SFA, administrative labor
accounted for 17 percent of total reported labor costs (Exhibit 8). However,
administrative labor accounts for a relatively small proportion of total reported
costs. For the average SFA, reported administrative labor costs accounted for
only 8 | ;rcent of total reported costs in SY 1992-93. In nine out of ten SFAs,
administrative labor accounted for less than 15 percent of total reported costs.
Exhibit 8
Administrative Labor Is a Larga Percent of Labor Costs
But a Small Percent of Total Reported Costs
Percent of Labor Costs
24%
17%
Percent of Total Costs
11%
8%
SFA Mflfll Qa-l. nl AnakoU SFA Meal
Administrative labor accounts for a larger percentage of reported costs when
the basis of analysis is the NSLP lunch. This reflects the fact that
administrative costs were relatively higher in large school districts (enrollment
>5,000) than in small districts (enrollment €1,000).
3Only 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.
School Lunch and Breakfast Cost Study Summary Chapter Two: Reported Costs 2-7
17
Chapter Three
SFA Revenues
SFAs receive revenues from a variety of sources. Some of these revenues are
related to the sale of reimbursable meals (Federal reimbursements. State and
local reimbursements, and student payments for reduced-price and full-price
meals), while other revenues are not. This chapter presents an analysis of
SFAs' revenues for SY 1992-93. The research questions addressed in this
chapter include the following:
• What is the composition of SFA revenues? What proportion of
SFA revenues come from various sources, including Federal
reimbursements. State and local reimbursements, income from
the sale of reimbursable meals, income from a la carte sales, and
income from sales to adults?
• What is the difference between SFA reported costs and SFA
revenues? Are SFAs able to operate at the break-even level?
COMPOSITION OF REVENUES
The largest source of revenues, accounting for 47 percent of the average SFA's
revenues was USDA subsidies, including meal reimbursements (39%) and the
assigned value of USDA donated commodities (8%). Student payments for
reimbursable meals (i.e., payments for reduced-price and full-price meals)
accounted for another 33 percent of total revenues. State and local meal
subsidies accounted for four percent of total revenues. Taken together, these
three sources, which represent all revenues related to the sale of reimbursable
meals, accounted for more than four-fifths of total SFA revenues (Exhibit 9).1
A la carte sales (including adult meals and other non-reimbursable meals)
represented 14 percent of the average SFA's total revenues. Other cash
revenues (including such sources as interest on deposits, sale of equipment,
and sales tax receipts) accounted for an average of two percent of total SFA
revenues.
'Fifteen SFAs in the study sample did not separately report student
payments for reimbursable meals from a la carte sales. These figures were
imputed from information provided for all other revenue sources combined that
was available for the full sample of 94 SFAs and information available for the
79 SFAs that reported student payments for reimbursable meals and a la carte
sales separately.
School Lunch and Breakfast Coil Study Summary Chapter Three: SFA Revenues 3-1
18
ExNbHO
Student Payments and USOA Subsidies Make Up
MM Matortty of Total SFA Revenues
Student
Payments for
\ USDAMeal
V-— Reimbursements
Y 30%
Reimbursable
Meals
33%
A La
Cane
Sale*
14%
^ USDA Donated
^ Commodities
8%
Other
Revenue —
2%
State*. Local
Subsidies
4%
Participation in the SBP has a pronounced effect on the composition of SFA
revenues. SFAs that participate in the SBP derive more of the revenue from
USDA subsidies and less from student meal payments than NSLP-only SFAs
(Exhibit 10).
ExNbttW
Sources of Revenue Differ for SFAs that Participate In the SBP
and NSLP and SFAs that Psittclpats In tht NSLP Only
44% 43%
| NSLP and SBP
] NSLP-only
16%
USOA
-Is- ■>" 3% !—mn Jin
USOA Dswaj Ommmmm < AUCM•SSaNmI OOMMrRDMMnHua*
MMRMuwn StulmPiyrmno kx Mmbun UM SSMSI
School Lunch and Breakfast Cost Study Summary
19
Chapter Three: SFA Revenues 3-2
USDA Subsidies USDA subsidies represented 47 percent of total SFA revenues in SY 1992-93.
Most of the USDA subsidies consist of cash subsidies for reimbursable meals.
These cash subsidies accounted for an average of 39 percent of total SFA
revenues compared to an average of 8 percent for donated commodities.
Student Payments for
Reimbursable Meals
SFAs that participate in the SBP derive more of their revenue from USDA
subsidies than SFAs that only participate in the NSLP. On average, SFAs
participating in the SBP derive 52 percent of their revenue from USDA
subsidies compared to only 36 percent for SFAs that only participate in the
NSLP. SFAs that participate in the SBP derived considerably more of their
total revenue from USDA cash subsidies (44%) than did SFAs that only
participate in the NSLP (27%). This reflects the additional cash subsidies
derived from the breakfast program. It might also reflect the fact that free and
reduced-price meals have substantially higher reimbursement rates than full-price
meals (see Chapter One). SFAs that participate in the SBP tend to have
higher concentrations of low-income children than SFAs that only participate
in the NSLP.2 There was no meaningful difference in the proportion of total
revenues derived from donated commodities (8-9%) between SFAs that
participate in the SBP and NSLP-only SFAs. This probably reflects the fact
that commodity entitlements are tied to participation in the lunch program.
Student payments for reduced-price and full-price meals were the second
largest source of SFA revenues, accounting for an average of 33 percent of
total SFA revenues. SFAs that participate in the SBP on average derived a
smaller percentage of their total revenues from student payments for
reimbursable meals (28%) than NSLP-only SFAs (43%). This may reflect the
higher concentration of low-income children in SFAs that participate in the
SBP. Students paying the full price for reimbursable meals pay higher prices
for these meals than students getting these meals at a reduced price.
COMPARISON OF REVENUES AND REPORTED COSTS
On average, SFAs are operating at the break-even level, with total revenues
about equal to total reported costs (Exhibit 11). However, for the average
SFA, revenues from reimbursable meals exceeded the reported cost of
producing those meals. The mean revenuexost ratio for reimbursable meals
was 113 percent in SY 1992-93.3 As noted in Chapter Two, the average
2Data from FNS' Child Nutrition Program Operations Study indicate
that SFAs that participate in the SBP have a much higher proportion of
children approved for free and reducjd-price meals than SFAs that only
participate in the NSLP. In SY 1989-90, 38 percent of SFAs that participated
in the SBP were classified as "high poverty" SFAs (i.e., had at least 60 percent
of their enrollment approved for free or reduced-price meals) compared to only
6 percent of SFAs that did not participate in the SBP.
'This analysis includes only those SFAs that separately report student
payments for reimbursable meals from a la carte sales.
School Lunch and Breakfast Cost Study Summary Chapter Three: SFA Revenues 3-3
• i 20
1
ExhMH
SFAs Operate at the Break-Even Laval But
Ravanuaa Excaad Coata for Ralmburaabla Maals
113%
100% HflMU
Brsak-Evan
Laval
7114
Total SFA Operations Reimbursable Maals Non-Reimbursable Meals
reported cost of producing a reimbursable lunch was less than the Federal
subsidy for a free lunch, while the average reported cost of producing a
reimbursable breakfast exceeded the Federal subsidy for a free breakfast.
Because total revenues derived from reimbursable meals exceed the cost of
producing those meals, it appears that reimbursable lunches generate a surplus
that can be used to offset losses generated from reimbursable breakfasts.4
Although reimbursable meals generate a small surplus, on average, revenues
from a la carte sales fall short of the reported cost of non-reimbursable meal
costs. The mean revenuexost ratio for non-reimbursable meals was 71 percent
in SY 1992-93. Since, overall SFAs are operating at the break-even level, it
appears that the surplus generated from reimbursable lunches not only offsets
losses from reimbursable breakfasts, but also offsets losses from non-reimbursable
meals.
'Since most SFAs serve substantially more reimbursable lunches than
reimbursable breakfasts, a small surplus on each reimbursable lunch can offset
a much larger loss on each reimbursable breakfast.
School Lunch and Breakfast Cost Study Summary Chapter Three: SFA Revenues 3-4
21
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 those 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?
MAGNITUDE AND COMPOSITION OF UNREPORTED COSTS
Across all SFAs, unreported costs accounted for an average of 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. Unreported
costs were relatively higher in small SFAs (Exhibit 12). 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 higher unreported labor
costs than medium and large SFAs.
School Lunch and Breakfast Cost Study Summary 2%^C,hapter Four: Full Costs 4-1
1
Exhibit 12
Coata are Higher In Small SFA.
24S
13%
15%
Last than 1,000 1.000-4.090
SFA Enrollment
5,000 or mora
Unreported costs are labor (which includes salaries and fringe benefits),
indirect costs, equipment depreciation, and utilities (Exhibit 13). Unreported
labor represented 44 percent of total unreported costs, unreported indirect costs
represented 27 percent, equipment depreciation represented 16 percent, and
utilities represented 11 percent. Other unreported costs together represented 2
percent of total unreported costs.
ExhUt13
Unreported Labor Coata An Almoat Half
of All Unraportad Coat*
Labor44% ^M j^^
M W\--"omof ^^Costs 2%
Utilities 11%
in^C^zH^^^^ Equ^^r^.ctattonieS
School Lunch and Breakfast Cost Study Summary 2$hapter Four: Full Costs 4-2
Unreported Labor Costs Unreported labor costs include personnel that are not charged directly or
indirectly to the food service budget' and include both school district central
staff and school-based personnel (e.g., principals, secretaries) that spend some
portion of their time working on food service 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).
There is considerable variation among SFAs in the amount of total labor costs
that are not charged to the SFA budget. In three out of four SFAs (74%),
unreported labor represented less than 20 percent of total labor costs.
However, for five percent of SFAs, unreported labor accounted for at least 40
percent of total labor costs. SFAs with relatively high unreported labor costs
tend to be small SFAs in which food service is heavily subsidized by the
school district. In general, small SFAs rely more heavily on the school district
for support services (for which they are not charged) than larger SFAs.
As discussed above, unreported labor consists of personnel at the school
district level and personnel at the individual school level (school administrative
labor). School-based personnel account for a much smaller proportion of
unreported labor costs in small SFAs than in medium-size SFAs and large
SFAs (Exhibit 14). Small SFAs are more likely to rely on central school
district personnel for support services. In addition, activities such as
processing applications and income verification are more likely to be carried
out 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 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 other districts food service reports some, but not all, of the
indirect costs.
In nine out of ten SFAs where the school district has an indirect cost rate that
could be applied to food service, the SFA does not report any indirect costs
(Exhibit 15). Such unreported indirect costs represent school district resources
used by food service and account for 27 percent of total unreported costs for
the average SFA.
'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 have been defined for the purposes of this study as "uncharged indirect
costs" rather than unreported labor costs.
School Lunch and Breakfast Cost Study Summary ?A Chapter Four: Full Costs 4-3
ExHMM
SchoolMMPacaonnel Are a Much MMMf Proportion
of Unreported Labor Costa In Small SFAa
21%
57%
58%
Lass than 1,000 1.000-4.990
SFA Enrollment
5,000 or mora
Raport and Recover
Allndiracts
Raport All. But Do Not
RooovarAlllndlracts
Raport Some, But Do
Not Recover All
Indlrects Reported
Do Not Raport or
Recover Any Indlrects
>
4%
SAMte
SFAa Rarely Raport and School District* Rarely
Recover Food Service Indirect Costs
19%
Percent of SFAs with Indirect Costs
?5
School Lunch and Breakfast Cost Study Summary Chapter Four: Full Costs 4-4
Even in cases where the SFA reports indirect costs for food service, the school
district rarely recovers all of these costs. That is, even when indirect costs are
calculated, the computed amount is not transferred from the food service fund
to the school district's general fund. In about seven percent of districts with
food service indirect costs the SFA reports at least so.ne of these indirect costs,
but the school district does not recover all the indirect costs attributable to
food service. Only four percent of school districts recover all of the indirect
costs attributable to food service.
Most often, school districts do not recover all of the food service indirect costs
because the district chose to bear the cost as a way of subsidizing the SFA
(53%) or because the SFA had insufficient funds (25%).
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 one-third of all SFAs, the full cost per reimbursable lunch was at
least $2.10. The median full cost of a reimbursable lunch was $1.88 and the
mean full cost was $2.14. This estimated mean full cost reflects the influence
of small SFAs with very small, high cost lunch programs. 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.
Full Cost per Reimbursable
Breakfast
The total Federal subsidy for free lunches in SY 1992-93 ($1.84) was very
close to the median full cost of producing a lunch ($1.88). However, 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.
In SY 1992-93 full costs per reimbursable breakfast ranged from $0.62 to
$3.60, with a median cost of $1.38 and a mean cost of $1.67. When the basis
of analysis is the SBP meal, the median full cost per reimbursable breakfast
was $1.20 and the mean was $1.28. This reflects the effect of schools serving
large numbers of reimbursable breakfasts which tend to have lower unit costs.
In nine out of ten SFAs (93%), the full cost exceeded the regular
reimbursement rate for free breakfasts, and in four out of five SFAs (82%), the
full cost exceeded the higher severe need rate. Even when the basis 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 reported above.
School IMHCH and Breakfast Cost Study Summary
?6
Chapter Four: Full Costs 4-5
COMPOSITION OF FULL COSTS
The full cost of SFA operations includes costs that are charged to the SFA
budget and costs that are not currently charged to the SFA budget. While
these latter costs could potentially be recovered, they are currently not being
recovered.
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 16). However, food costs (including the assigned value of
Exhibit 16
Composition of MM FUH Coat of Food Sorvkso
Labor Costs 46.0%
Costs 16.0%
Food Costs 38.0%
Components of the Full Cost
of Reimbursable Meals
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. All other costs, including supplies, contract services, equipment,
depreciation, and indirect charges by the school district, represented 16 percent
of the average SFA's full costs.
Reimbursable Lunches. 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. The greater variability in labor costs reflects the
variation in the proportion of labor costs that are unreported. 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
School lunch and Breakfast Cost Study Summary ? ( Chapter Four: Full Costs <-6
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).
Reimbursable Breakfasts. For the average SFA, food costs per reimbursable
breakfast were $0.56 in SY 1992-93, 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 in breakfast food costs. 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
significantly 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 serving relatively few reimbursable breakfasts.
Administrative Costs Because virtually all of the unreported labor is used to perform 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.
However, administrative labor accounts for a relatively small proportion of
total full costs. For the average SFA, total administrative labor cost accounted
for only 14 percent of total full costs in SY 1992-93.
?8
School Lunch and Breakfast Cost Study Summary Chapter Four: Full Costs 4-7