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Ins and outs of calculating food cost in the different establishments !

I am considering food cost calculations in this blog , can address the tricks that comes with calculating beverage cost at a later stage .


Food cost is a critical measure that every restaurateur / Operator do their best to control in order to ensure business profitability .


To Calculate food cost , there are many areas to consider in order to understand how to best control this area , here are some of the areas which should be considered before start calculating food cost :


1- Purchasing cost of ingredients ,

This is an area that can change and is not static , any operator / restaurateur should be looking continuously at the purchasing aspect and consider lower cost alternatives considering the same quality .


2-Receiving and recording of goods .

Deliveries "Should" always match the "Orders " but if not checked correctly - not only for quality - but also for quantities received and confirmed to be same as per orders & invoicing , this might lead to higher food cost calculations .


3-Wastage .

A big area that restaurateurs and operators don't really control to the maximum possible as it takes time and efforts and commitment from the people who should control this area ,simply any restaurateur or operator can observe how much food is going daily to wastage in order to understand the accumulation of the numbers that will become a big concern at the end of the financial period of calculating food cost (staff grapping food , unfollowing standard recipes , lack of attention which leads to overcooking food ,improper storage and unfollowing FIFO ...are just examples of wastage .


4- Inventory methods

Here also comes many schools for conducting inventories , some consider making inventories for the highest value items / main items that are sold in a business . some do a full inventory count for all items , many calculate inventories with some average estimations especially for opened packages , and some do not make monthly inventories at all , others make only year end inventory ! all of the different ways of conducting an inventory will affect the numbers and calculations of food cost end of the month .


5- The way of calculating R&D stock

As we all do , we continuously do development of new recipes and try many new items and invite people to do tasting sessions and give us their opinions , but the question or questions here are - Do we consider talking to suppliers to give us quantities for free for the new developments ? its an option , if not , do we consider the lost quantities in our food cost calculations ? if not this will be one of the elements that will impact food cost calculations .


6-Who calculates the food cost ?

Well here i refer to corporate companies such as hotels who have "Cost controllers" and these are asked in many cases by their superiors to consider increasing or decreasing a food cost in their calculations in order to meet budgeted numbers , in some cases cost controllers do consider the FOC (free of cost items that are normally given by supplies ) and they add them to the inventory or sales so that they decrease the food cost in order to look good . VS. in small restaurant operations , if the cost is calculated by the owner or accountant they simply have to consider all of the above in order to ensure they get an accurate way of calculation.


Ok, after listing some of the points that might have an impact on food cost calculations , it is time to discuss a big the formula of calculating food cost , but before that i have to mention that "Technology " plays an integral role in the cost calculations in our days but also we keep forgetting that this technology needs a human to keep updating and adjusting figures in the system in order to get an accurate way of cost calculation .


The formula for calculating food cost can go from simple to complicated as per the following :

Food cost = Opening inventory + purchases - closing inventory - this is the simple way that give the total cost , than to calculate cost of sale in % = food cost/net sales *100


This can be more complicated for operations that have many units such as in hotels F&B or for a business owner that have many restaurants and they do have transfers of products between these units during the moth , so the formula becomes :


Food cost = Opening inventory + purchases - transfer out +transfer in - closing inventory

cost of sale = food cost / net sales


but the above is also missing a factor , in hotels with developed systems they do consider that but in standalone restaurants it varies from operation to another , that is wastage and complimentary , how would you incorporate these into the formula of calculating food cost ?


Depending on company procedures and policies , we can either reduce these amounts from the closing inventory or if we put them in formula

Food cost = opening inventory + purchases - transfers out + transfers in - complimentary - wastage -closing inventory


At the end the more you control your wastage and complimentary give outs , your food cost will be higher , and this is the aim .


The Technology advanced and allowed for POS (POINT OF SALE ) to be integrated with inventory systems and all recipes for each item are built in the system , so that each time an item is sold it will reduce automatically from the inventory which is great , but this might work out for fast food operations where most of items are frozen or ready to cook , as the challenge is , if a chef doesn't follow the recipe means the system will no longer give the accurate figure and inventory , or even every time a recipe has been changed by chef and owner , it has to be updated in the system , each time a menu changed will need to do changes in the system which is also time and efforts demanding , but also following the system above means the manager has to input in the system accurately the daily wastage and should ensure punch complimentary in POS for all meals that are given out for free , here i question if a manager see all his staff at all times to ensure they record wastage accurately ? almost impossible ,


Still hoping that the above will help some restaurateurs and operators to ensure that they look at all sides of their operations in order to calculate the food cost using the most accurate and effective methods . Happy food cost calculations .


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