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The food is great, the service fabulous and the restaurant is busier than ever - but are
you wondering why the bottom line isn't all it should be? Check your FOOD COST. A vital ratio - key to the success of any restaurant as it directly impacts profitability. A profitable restaurant typically generates a 28%-35% food cost. Coupled with labor costs, these expenses consume 50%-75% of total sales. Because of the impact food cost makes on an operation, food cost is one of the first things we examine at a troubled property. Beyond the bottom line, food cost also reflects an operation's food quality, value provided to the customer, and management skill level. Despite its importance, we find many restaurant managers do not calculate food cost correctly, or if they do, they do not fully understand the process. To be useful, food cost percentages must be determined accurately. Then the ratio can be compared to industry averages and previous performance. With an accurate food cost, steps can be taken to improve the operation and ultimately improve the bottom line. The following is a step-by-step method for calculating food cost including an example and a worksheet to figure your own food cost.
GENERAL GUIDELINES
Establish a specific time period for analysis. The food sales and costs should be generated during a set accounting time period of at least two weeks or more typically, every 28 days.
Juices, coffee, soda supplies and other non-alcoholic beverage sales are included in food cost calculations.
is prohibitive to including inventory in food cost calculations, we recommend estimating a production inventory level. Conduct the inventory of the dining room, service and production areas a few times, average the inventory levels and use that constant figure each time period. Add the estimated figure to the physically counted storeroom inventories each period for your ending inventory. It is important to update the production inventory level at least once a year. Now that you have your ending period inventory level, look at the change from your beginning (start of time period) inventories (kitchen and storerooms). The key to accurate cost determination is understanding the role inventory levels play. For example, if the beginning inventory level is valued at $100 and four weeks later the ending inventory for the period is valued at $75, the inventory adjustment is the $25 difference - an increase in cost of food sales because you used $25 worth of inventory and did not replace it with new purchases. Considering this change and its effect on cost of food sales, apply the difference to the total purchases for the time period, giving you the total cost of food sales. Cost of Food Sales = Purchases +/- Inventory Adjustment (ADD if Beginning Inventory > Ending Inventory, SUBTRACT if Beginning Inventory < Ending Inventory) Example: Purchases $500 Beginning Inventory $750 Ending Inventory $625 = $500 + $125 = $625 Cost of Food Sales 4. FOOD COST PERCENTAGE The final step - putting the numbers together! Food Cost = Cost of Food Sales / Food Sales Example Food Cost = $625 /$1,850 = 33.8%
Now you have the basic steps to complete your own food cost accurately and consistently with industry practices. Following is a form to assist you in the calculation.
COST OF FOOD SALES: Food Purchases (including non-alcoholic beverages):_______ Inventory Adjustment: Beginning Inventory_______ Ending Inventory_______ Difference_______B._______
Food Cost = Cost of Food Sales / Food Sales FOOD COST = Line B / Line A =_______=_______%