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 28-30% 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.