# How to Calculate Food Costs

Making a financial plan image by Allen Stoner from Fotolia.com
Share It

It's the principal cost of doing business for U.S. restaurateurs. Exceeding the cost of labor, taxes and benefits, food cost consumes up to 35 percent of every dollar made in restaurant sales. Restaurant managers that maintain careful control of the food cost, favorably contribute to a healthier bottom-line. Once an accurate food cost is established, managers can make decisions about food quality, menu pricing and customer value.

Conduct an initial physical inventory of your food, beverages and ingredients after all sales have ended for the day. Using your most recent purchasing invoices or vendor price list, assign a dollar value to each item by multiplying the price of each unit by the number of units on hand. Sub-total your beginning inventory, represented as a dollar value. This is known as a beginning inventory.

Add to the beginning inventory, the dollar value of any food and beverage purchases you have made since the last inventory period. The span of time between inventory periods is typically once a month but many restaurants conduct a physical inventory once a week.

Conduct another physical inventory at the established time period. This is called the ending inventory. Take the beginning inventory plus purchases then subtract the ending inventory. You are left with a dollar value that represents the theoretical value of food for that time period.

Calculate the restaurant sales for the same time period as the inventory. Take the theoretical value of food you previously calculated and divide it by the restaurant sales. Represented as a percentage of sales, this number becomes your food cost percentage.

Refer to this example for understanding, when you do your own food cost calculations. (Beginning Inventory \$20,000 + Purchases \$5,000) - Ending Inventory \$15,000 = \$10,000 \$10,000/ Restaurant Sales \$40,000 = 25% Food Cost

#### Tips

• Whether you choose to conduct inventory once a week or once a month, the most important thing is to be consistent and always keep the time period exactly the same.

Don't accept deliveries during the inventory as the new products will become co-mingled into the inventory calculation prematurely.

Chuck Douros is a writer, journalist, copywriter and editor. He specializes in writing SEO optimized website content for business enterprise. He writes web-based news, personal profiles and product reviews. Douros’s writing credits include articles for the Boy Scouts of America. He is the chief Mad Gab writer for Mad Gab Online and studied broadcast communication at San Francisco State University.

#### Photo Credits

• Making a financial plan image by Allen Stoner from Fotolia.com