Calculating Usage By Category
While it would be easier and more accurate for food and beverage sales to be calculated and recorded separately, typically the sales number will include all sales and is not broken out separately by food and beverage. For this reason, calculating inventory and usage amount by category such as Meats, Grocery, Dairy, Produce and Beverage is often done instead of rolling all cost into one number and calling it food.
Products are placed into categories or given a General Ledger (GL) code to identify what category each product will fall into within the inventory system. How products are broken out and categorized will depend on the operation
and the inventory system used. Typically, the user will have the ability to place products into a category of their choice along with number of categories used. For some operations, a smaller number of categories or groups will be used, while other operations may choose to breakout product into several different groups. Some operations may include bread and baked goods in the grocery category while others may breakout bakery into its own group. This is based on the preference and needs of the operation.
Calculating usage for specific categories is done using the same formula used for calculating overall usage.
(Beginning Inventory + Weekly Food Purchases – Ending Inventory = Product Usage
Using the weekly sales amount of $89,568 from our Food Cost as a Percentage of Sales example, you would calculate each category using the formula. Weekly Category Usage / Weekly Sales. This will show you how much of each category made up your overall weekly food cost.
By calculating usage for each category and then dividing the individual category usage amount by total sales for the period, you can see what percentage of each category made up the overall food cost for that period. Calculating food cost percentages for each individual category vs. as an overall percentage helps to more easily identify food cost problems. It is far easier to identify where food cost problems may be if it is known what product group was high in usage as a percentage of sales.
Since this percentage is based on usage, it will also make it easier to detect if the problem is caused by pricing; by either paying too much for a product or not charging enough for menu items. Additionally, high usage in a category may be a sign of other concerns such as over-ordering leading to spoilage, over usage of products, poor product yields or even theft.
Understanding the needs of the operation and what the target cost is for each category will enable you to better control your product’s usage, reduce waste and maximize profits. It will be easier to detect where the problem is by understanding what these numbers indicate. Controlling these numbers is the first step in increasing profit.