06012021 CoGS (Cost of Goods Sold)/Food cost

Do you know how to calculate food cost? For that matter, do you even know what food costs mean? If you don't know do not despair because today I'm going to explain exactly what food cost is and how you calculate it for your restaurant.

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So first, what exactly do we mean when we say food cost? it's really pretty simple. Food cost is simply a number usually represented as a percentage although it can be thought of as a dollar amount as well. In short, food cost is the dollar amount of food used in a certain time period in relation to the amount of food sold in the same time period. Here are the five simple steps we use to calculate food cost

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The first step in determining your food cost is to take an inventory. This involves counting all the food on your shelves and then assigning a dollar value to that food. To determine food cost you have to have two inventories, one from the end of last month and one from the end of this month. You can take an inventory weekly or monthly just always take it on the same day if you're taking it monthly. For instance, always take on the last day of the month.

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The second step is to find out how much you spent on food for the month. Let's pretend we're working on the month of March. Starting with March 1st, add up all the food purchases for the month. Now you have your total food purchases for March. Let's pretend you spent about $30,000 for the month.

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In step three, you're going to calculate what is known as your cost of goods. Abbreviated as CoGS. This is a really important number that tells you how much food in dollars you used in the month, not how much you spent. Remember we did that in the last step-step 2 but how much you use. The formula for determining cost of goods is last month's inventory plus your food purchases minus this month's inventory. This number represents the dollar figure of food used in the month. Here's an example. You can see here that the inventory dollar amount for the end of February is $8,500.

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Remember the and of February's inventory is the same as the 1st of March. At the end of March you took your inventory and it was $9,900. So following the formula, we add $30,000 of your food purchases to the begining inventory of $8,500 and we get $38,500. Now subtract the end inventory of $9,900 and you get your CoGS which is $28,600.

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To calculate food costs, we need to know how much food you sold in the month of March. Remember food cost is simply a ratio of food sold to food use. We know how much food you use that's your cost of goods. To get the food sold, you'll need to get a food sales report from your POS system or your accountant.

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Let's pretend that you sold a $100,000 in food in the month of March. So now we can calculate food cost.

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The fifth or last step in calculating your food cost is to devide your cost of goods. The food used by your food sales. Then you apply the percent style to this number to see it as a percentage. Now you know your food cost. Our cost of goods number is $28,600 divided by our food sales of $100,000 is 0.86. When we apply the % style key we get our food costs of 28.6%.

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So there you have it five simple steps to determine your food cost. Here is the total formula again.

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Take your begining inventory plus food purchases minus your ending inventory and that gives you your CoGS. Now take your CoGS and divide that number by your food sales. Apply the percent key. There you have it food cost.