2. 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%.
3. 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
4. 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)
5. 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.
6. 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%.
7. 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.
9. • 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)
10. • 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)
11. 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%)
12. 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.
13. 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.
14. • 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.
