{"id":348,"date":"2019-06-24T18:55:12","date_gmt":"2019-06-24T18:55:12","guid":{"rendered":"https:\/\/opentextbc.ca\/basickitchenandfoodservicemanagement\/chapter\/monthly-food-costs\/"},"modified":"2024-11-07T21:48:05","modified_gmt":"2024-11-07T21:48:05","slug":"monthly-food-costs","status":"publish","type":"chapter","link":"https:\/\/opentextbc.ca\/basickitchenandfoodservicemanagement\/chapter\/monthly-food-costs\/","title":{"raw":"Monthly Food Costs","rendered":"Monthly Food Costs"},"content":{"raw":"Monthly food costs are determined by taking a monthly physical inventory of food stock, evaluating the inventory, and then adjusting the valuation to more accurately reflect the cost of food consumed.\r\n\r\nThe basic formula to determine the cost of food in a month is:\r\n\r\ncost of food = opening inventory + purchases \u2212 closing inventory\r\n
\r\n

Example 25: Calculating food cost<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\nFor example, if opening inventory is $10 000 and purchases amount to $7500, and the closing inventory (which is also the beginning inventory for the next month) is $9000, then the basic cost of food is:\r\n\r\ncost of food = opening inventory + purchases \u2212 closing inventory\r\n\r\n= $10 000 + $7500 \u2212 $9000\r\n\r\n= $17 500 \u2212 $9000\r\n\r\n= $8500\r\n\r\nThe value of the inventory is the critical component in deriving an accurate cost figure from the basic formula given above.\r\n\r\n<\/div>\r\n<\/div>\r\nThe information needed to accurately assess the value of inventory is obtained from daily receiving reports (that is, purchases), perpetual inventory cards (that is, inventory records that indicate what is in storage and what supplies have been removed from storage at the request of the kitchen), and by doing a physical inventory.\r\n

Adjusting (Credits and Transfers) the Evaluation of Food Costs<\/h1>\r\nSome food inventory is used for purposes other than generating direct [pb_glossary id=\"400\"]sales[\/pb_glossary]<\/strong>. For example, if employees are fed or are given a significant discount, the food cost for these meals is usually subtracted from the total found by the basic food cost formula. The cost of employee meals should not be ignored, but it might better be considered a labour cost and not a true food cost.\r\n\r\nPromotional expenses are also subtracted from the basic cost of food figure. These include \u201c2 for 1 specials,\u201d coupon discounts, and other promotions. The deduction made, remember, is not the menu price but the actual cost of the food to the operation. Again, this expense cannot be ignored, but should be included as a different type of operating expense.\r\n\r\nIn some restaurant and hotel operations, food is transferred to the bar where it is served as as hors d\u2019oeuvre to promote the sale of alcoholic beverages. This is really an expense of the bar and should not be considered a kitchen expense. The cost of transferred food should be deducted from the basic food cost figure. This cost is best considered a promotional expense borne by the bar.\r\n\r\nOther adjustments might have to be made to the gross cost of food, depending on how the individual restaurant operates. For example, in some cases, the kitchen might acquire wine or liquor from the bar for cooking or flamb\u00e9ing, and that should be considered a food cost.\r\n
\r\n

Example 26: Net cost of food for an operation<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\nIn general, the net cost of food for an operation is summarized in the following equation:\r\n\r\nnet food cost = basic food cost \u2212 (employee meal cost + promotional expenses + transferred out food costs) + transferred in food costs\r\n\r\n<\/div>\r\n<\/div>\r\n

Food Cost Report<\/h1>\r\nA monthly food cost report is often required by management. The basic form of the food cost report tends to be a comparison of food cost percentages. Percentages are used instead of actual net food cost as such costs vary according to sales. Percentage food cost tends to remain constant regardless of sales.\r\n
\r\n

Example 27: Food cost percentages<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\nFood cost percentages are computed by using the following equation:\r\n\r\nfood cost percentage = net food cost \u00f7 food sales\r\n\r\nFor example, if net food costs are $5500 and food sales were $13 700, then food cost percentage = net food cost \u00f7 food sales\r\n= $5500\u00a0\u00f7 $13 700\r\n= 0.401\r\n= 40%\r\n\r\n<\/div>\r\n<\/div>\r\nThe food cost report often compares the current month\u2019s results with the food cost percentage of the previous month or the cost percentage of the same month a year ago (Figure 14). Management can then decide if monthly food costs are under control.\r\n
\r\n

Figure 14: Comparative monthly sales<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\n\r\n\r\n\r\n\r\n
Food Cost Report<\/caption>\r\n
Date<\/th>\r\nFood Costs<\/th>\r\nFood Sales<\/th>\r\nFood Cost Percentage<\/th>\r\n<\/tr>\r\n
Last month<\/th>\r\n$8000<\/td>\r\n$32 000<\/td>\r\n25.0%<\/td>\r\n<\/tr>\r\n
Previous month<\/th>\r\n$8500<\/td>\r\n$30 000<\/td>\r\n28.3%<\/td>\r\n<\/tr>\r\n
Same month last year<\/th>\r\n$9500<\/td>\r\n$31 000<\/td>\r\n30.6%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<\/div>\r\nOther costs must also be taken into account to properly understand where the food income dollar is going within the operation. In some restaurant businesses, the breakdown of expenses is recorded in a monthly percentage costing report on a form as shown in Figure 15.\r\n
\r\n

Figure 15: Percentage costing report<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\nYear:<\/strong>\r\n\r\nMonth:<\/strong>\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Percentage Costing Report<\/caption>\r\n
<\/td>\r\nAmount<\/th>\r\n%<\/th>\r\nRemarks<\/th>\r\n<\/tr>\r\n
Total sales<\/th>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Food costs<\/th>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Labour cost<\/th>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Rent\/Lease<\/th>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Other operating expenses<\/th>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Total cost<\/th>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Profit<\/th>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<\/div>\r\nThe cost percentages are determined by dividing the individual costs by the total sales. Near the beginning of each month, the percentage costing form of the previous month is completed and compared to the results on past forms.\r\n\r\nFood costs can be further analyzed by investigating the costs and percentage of total food cost of individual categories of food items, as shown in the example in Figure 16.\r\n
\r\n

Figure 16: Food cost analysis report<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Food cost analysis report<\/caption>\r\n
Item<\/th>\r\nCost (October)<\/th>\r\n% of Total Cost (October)<\/th>\r\nCost (November)<\/th>\r\n% of Total Cost (November)<\/th>\r\n<\/tr>\r\n
Meat<\/th>\r\n$ 874.70<\/td>\r\n27.1%<\/td>\r\n$ 811.12<\/td>\r\n28.2%<\/td>\r\n<\/tr>\r\n
Fish<\/th>\r\n$ 264.67<\/td>\r\n8.2%<\/td>\r\n$ 184.08<\/td>\r\n6.4%<\/td>\r\n<\/tr>\r\n
Poultry<\/th>\r\n$ 390.55<\/td>\r\n12.1%<\/td>\r\n$ 330.77<\/td>\r\n11.5%<\/td>\r\n<\/tr>\r\n
Dairy<\/th>\r\n$ 532.56<\/td>\r\n16.5%<\/td>\r\n$ 440.07<\/td>\r\n15.3%<\/td>\r\n<\/tr>\r\n
Eggs<\/th>\r\n$ 203.34<\/td>\r\n6.3%<\/td>\r\n$ 212.85<\/td>\r\n7.4%<\/td>\r\n<\/tr>\r\n
Bakery<\/th>\r\n$ 129.11<\/td>\r\n4.0%<\/td>\r\n$ 143.82<\/td>\r\n5.0%<\/td>\r\n<\/tr>\r\n
Produce<\/th>\r\n$ 254.99<\/td>\r\n7.0%<\/td>\r\n$ 238.73<\/td>\r\n8.3%<\/td>\r\n<\/tr>\r\n
Dry goods<\/th>\r\n$ 490.60<\/td>\r\n15.2%<\/td>\r\n$ 414.19<\/td>\r\n14.4%<\/td>\r\n<\/tr>\r\n
Beverages<\/th>\r\n$\u00a0\u00a0 87.15<\/td>\r\n2.7%<\/td>\r\n$ 100.67<\/td>\r\n3.5%<\/td>\r\n<\/tr>\r\n
Total cost<\/th>\r\n$3227.67<\/td>\r\n100%<\/td>\r\n$2876.30<\/td>\r\n100%<\/td>\r\n<\/tr>\r\n
Total sales<\/th>\r\n$9143.50<\/td>\r\n<\/td>\r\n$8560.35<\/td>\r\n<\/td>\r\n<\/tr>\r\n
Food cost %<\/th>\r\n35.3%<\/td>\r\n<\/td>\r\n33.6%<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<\/div>\r\nAn important line in the chart shown in Figure 16 is the last one, \"Food cost %.\" In the example, total sales have dropped in November, but the food cost percentage has also decreased. As long as labour costs have not changed markedly from October, the food cost percentages suggest that this operation copes well with changing sales and is probably in a strong financial position even though demand is down. Sales have dropped by 6.4%, but food costs have decreased by 10.9%.\r\n

Describe Daily Food Cost Controls<\/h1>\r\nA month is a long time between reports, particularly if the reports are financial in nature and will determine if the operation is keeping costs under control. If costs are not controlled, the business is likely to fail.\r\n\r\nDaily food costs are calculated much the same way as the basic monthly food costs and the monthly net food costs. However, the inventory used is the actual amount of money that is spent daily on direct supplies or [pb_glossary id=\"390\"]directs[\/pb_glossary]<\/strong> (that is, supplies that are purchased and used that day, such as breads and dairy products in many operations) and the value of [pb_glossary id=\"398\"]stores[\/pb_glossary]<\/strong> used (that is, the value of the materials already on hand that have been requested and received from the storage area).\r\n
\r\n

Example 28: Basic daily food costs<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\nBasic daily food costs can be expressed as:\r\n\r\ndaily food costs = cost of direct supplies + cost of stores\r\n\r\nThe daily food costs found by using the basic formula can be adjusted in much the same way as the basic monthly food cost. That is,\r\n\r\nnet daily food costs = daily food cost \u2212 (employee meal costs + promotional expenses + transferred out food costs) + transferred in food costs\r\n\r\n<\/div>\r\n<\/div>\r\n

Cumulative Cost Records<\/h1>\r\nThe easiest way to keep track of daily food costs is to use a form like the one shown in Figure 17. On this form, the cost of direct supplies, the cost of stores, total costs today, cumulative cost for the month, sales for the day, cumulative sales for the month, cost percentages for the day, and cost percentages for the month can be entered. Note that the form does not take into account transfers.\r\n\r\nSome POS systems have this feature and can be used to track daily food costs.\r\n
\r\n

Figure 17: Daily cumulative food cost record<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\n\r\n\r\n\r\n\r\n\r\n\r\n
Daily cumulative food cost record<\/caption>\r\n
Date<\/th>\r\nStores<\/th>\r\nDirects<\/th>\r\nCost Today<\/th>\r\nCost to Date<\/th>\r\nSales Today<\/th>\r\nSales to Date<\/th>\r\nCost % Today<\/th>\r\nCost % to Date<\/th>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n
<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<\/div>\r\nA new form is started each month. Nothing is carried forward from month to month. The month-end totals should be close to the figures obtained using other monthly food cost procedures, such as those calculated after doing a physical inventory.\r\n\r\nThe information needed to fill in the food cost record are the daily food purchase reports for direct costs, copies of requisitions for stores, and the daily sales figures.\r\n\r\nThe following example explains how to fill out the form.\r\n
\r\n

Example 29<\/p>\r\n\r\n<\/header>\r\n

\r\n\r\nOn the first day of the month, $35.00 was spent on directs, $102.00 on stores, and total sales were $360.00. On the second day of the month, $12.50 was spent on directs, $95.00 on stores, and sales were $345.00. On the third day, $30.00 was spent on directs, $99.50 on stores, and total sales for the day were $310.50.\r\n