Calculating Period Cost
In calculating food cost as a percentage of sales for a specific period, there are a few pieces of information that are required. First, is the ending inventory from the prior week or period; this will become your new beginning inventory. Second, a total of all food purchases for the week or period that is being calculated. It is important to have all purchases from the week that is being calculated. Missing invoices may make food cost numbers look better for the current week, but will become a problem later when the invoices are processed in another week. You can find more information on this on the Inventory page
Next, the current week ending inventory amount is needed for the calculation. Ending inventory shows the dollar value of products for what is on-hand at the time inventory was taken. Inventory values are calculated by doing a physical inventory or counting and calculating its value or extension. Values are then totaled to show the total dollar amount of food product currently on-hand on the shelves in the operation. The week-end inventory for the period will then become the beginning inventory for the following week.
Lastly, a total of top-line sales for the week in which you are calculating food cost is needed for the equation. Top-line sales are all sales before any expenses and will include cash, credit, in-house sales, catering, and food and beverage revenue during the week period.
Calculating the weekly food cost percentage is done using the formula:
Food Cost Terminology:
Top Line Sales: All revenues before expenses
Flow Through: The measurement of profit on revenues over budgeted or target amounts.
Percentage of Sales: The percentage that expenses make up or reduce revenues by, that directly affect profit
Beginning Inventory: The beginning values for on-hand inventory at the start of a period. Typically the ending inventory from prior period
Product Usage: The cost of product used for a period. Calculated by Beginning Inventory plus Purchases minus Ending Inventory
(BI + WP) - EI = PU ÷ (WS) = FC%
(Beginning Inventory + Weekly Food Purchases) – Ending Inventory = Product Usage ÷( Weekly Sales) = Food Cost Percentage.
Remember, food cost as a percentage of sales shows the relationship between revenue and the dollar amount of product used. In this example, the product usage cost of $27,217 made up 30.4% of the weekly revenue. This means for every dollar in sales generated, $ .3038 was accounted for in products used.
The same formula will be used in calculating your Food Cost percentage for the Month.
(Prior Month Ending Inventory + Current Month Purchases) - Current Month Ending Inventory = Current Month Usage
Current Month Usage ÷ Monthly Sales = Monthly Food Cost %