PRESENTATION

ON
FOOD COST
CONCEPT

FOOD COST DEFINITION

Food cost is defined as the percentage
of total sales spent on food products in
a restaurant.
A normal restaurant's food cost is 2830% while that of a steakhouse is
35%.

ASPECTS OF FOOD COST

Essentially, there are three aspects of
food cost that must be individually
calculated for each operation:
Maximum allowable food cost percentage
Actual Food Cost percentage - calculated
for income statement
Potential
Food
Cost
percentage
determined by the menu sales mix

MAXIMUM ALLOWABLE FOOD COST

It determines the food cost percentage an operation
needs in order to achieve its profit objectives.
To calculate the maximum allowable food cost
percentage, select a representative accounting
period and determine the amounts for:
Payroll related expenses (Salaries, wages, taxes, and
fringe benefit)
Overhead
expenses
(advertising,
utilities,
maintenance, other supplies excluding food costs)

Calculate the operating budget and determine

the amounts for the following:
Payroll and related expenses (e.g. wages, salaries,
taxes, fringe benefits).
Overhead expenses (e.g. utilities, maintenance,
advertising, supplies excluding= food costs).
Target figure for profit minus tax.

For example, if your budget is 26% payroll, 20%

overhead and 15% profit, it's a total of 61%.
Subtract that number by 100 to get your
maximum allowable food cost. In this example,
it's 39%.

ACTUAL FOOD COST

The actual food cost percentage appears on the
monthly income statement.
This is the cost of the food consumed by your
customers, and does not include employee
meals or spoilage.
Although the actual food cost indicates what
the food cost is currently running, it has little
value unless the operator knows what the
target percentage should be.

 Food Cost% = (Beginning Inventory + Purchases

- Ending Inventory) / Food Sales

 For example, last week you ended up with a

$10,000 inventory. This will be this week's
opening inventory. (Beginning Inventory =
$10,000)
Add all purchases for the period.
In this example, let's say this week you bought
$3,000 worth of products. Add that amount to the
beginning inventory. That will give you a total of
$13,000. ($10,000 + $3,000 = $13,000)

 For instance, you end up with inventory of

$10,500 after selling your products. You will
subtract that amount from $13,000. That gives
you a theoretical value $2,500 in product for the
week. ($13,000 - 10,500 = $2,500)

For example, you sold $6,500 this week. You divide

$2,500 by your sale of $6,500. A percentage of that sale
is calculated for food cost. That gives you 0.38 or 38%.
That means you spent 0.38 cents for every dollar in
sales or 38% cost of food. ($2,500 / $6,500 = 0.38 or
38%)

POTENTIAL FOOD COST

Potential food cost is a theoretical or ideal percentage
which indicates what the food cost should be in a
perfectly run restaurant, given the sales mix.
To calculate the food cost percentage of each dish:
Multiply the food cost per item with the number of
portions sold
Multiply the sales price by the number of portions sold
Add both columns and then multiply the total cost by
100 and divide it by the total of the sales column.

Figure out your potential food cost with these

formulas:
Cost per item multiplied by the number of items sold =
total cost
Sales price multiplied by the number of items sold =
total sales
Multiply the total cost by 100, the divide that number
by the total sales.

 Cost per item multiplied by the number of items

sold = total cost
Sales price multiplied by the number of items sold
= total sales
Multiply the total cost by 100, the divide that
number by the total sales.