Food Cost Management and Profitability

Controlling Total Food Cost and Sales

• Tracking actual food cost as a percentage of sales helps managers identify unexpected losses.

• Food and beverage purchases are tracked separately.

• Inventory in storage is valued by physical count at the start and end of each period.

Further Considerations for Food Cost Control

• Employee meals are valued and shifted to labor costs, as they are considered employee perks.

• Promotions involving free food for marketing are assigned to marketing costs, not food costs.

• Transfers: These involve moving ingredients between departments.

  • Transfer In: Adds to the food cost.

  • Transfer Out: Deducts value from the food cost.

• Transfers can occur:

  • Between restaurants within a larger entity like a hotel or campus (intra-).

  • Within a restaurant between departments like the kitchen and bar (inter-).

Additional Revenue Streams

• Grease Sales: Revenue generated from selling grease or animal fat to external companies.

• Steward Sales: Sales of ingredients from a purveyor to an employee, facilitated by the restaurant.

Cost of Food Sold (COFS) Formula

• Preliminary Cost of Food Sold = Opening Inventory + Purchases – Closing Inventory

• Cost of Food Sold = Preliminary Cost of Food + Transfers In And/or - Transfers Out - Employee Meals - Promotions and Write-Offs - Steward Sales - Grease Sales

Detailed Breakdown of the COFS Formula

• Preliminary Cost of Food Sales: Opening/Starting Inventory + Purchases – Closing Inventory = Preliminary Cost of Food Sold

• The Cost of Food Sales: Preliminary Cost of Food Sold + Transfers In And/or - Transfers Out - Employee Meals - Promotions and Write-Offs - Steward Sales - Grease Sales = Cost of Food Sold

Example Calculation

• Given Data:

  • Food purchases = $73,000.00

  • Opening inventory = $41,000.00

  • Closing inventory = $44,000.00

  • Transfers in = $1,200.00

  • Transfers out = $250.00

  • Employee meals = $2,850.00

  • Promotions and write-offs = $460.00

  • Steward sales = $180.00

  • Grease sales = $30.00

• Calculations:

  • Preliminary Cost of Food: $41,000.00 + 73,000.00 - 44,000.00 = 70,000.00$

  • Cost of Food Sold: $70,000.00 + 1,200.00 - 250.00 - 2,850.00 - 460.00 - 180.00 - 30.00 = 67,430.00$

Total Sales and Food Cost Percentage

• Total Sales (food sales): Total money received from customers for their food purchases (beverage sales are tracked separately).

• Standard Food Cost Percent: The budgeted food cost percentage used to determine menu prices.

• Actual Food Cost Percent: The actual food cost percentage calculated from the cost of food sold and sales.

• Variance: Differences often exist between actual and standard food cost percentages due to:

  • Menu price rounding

  • Theft

  • Waste

  • Spoilage

  • Fluctuations in purveyor pricing

  • Guests leaving without paying

FC-FC%-Sales Graphic Formula

• Relationship Formula:

$FC = FC\% \times Sales$