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Thursday, June 28, 2007

Effective Food Cost Control

It is very important to use clear, properly prepared reports to analyse food cost results. Often, the reports become the focal point due to errors and omissions. Once the report has lost credibility, a meaningful discussion of operational issues is difficult.

A properly prepared food cost report should have a brief summary at the top of the page. Basic operating statistics should be highlighted. We need to know the period of time (week, month, quarter or year) and the ending date. Operating results should include the period sales and purchases, beginning and ending inventory values, food cost and the food cost percentage.

Supporting the summary information, you should include a recap of purchases, inventories and cost of sales by category (e.g. meat, seafood, produce, etc.). I prefer to show these category totals as a percentage of total food cost rather than as a percentage of sales. This report section should highlight how we spend our purchase dollar.

Finally, a comparison with previous periods is very helpful. Budget comparisons are useful as well if the budgets were thoughtfully prepared. Try to put the current period in context. Show how well the performance was compared to other benchmark periods (e.g. previous month, last year, current year budget, etc.). The comparison section should show in which direction the operation is headed.

Supporting the management summary page, insights and concerns regarding specific components need to be reported. For example, if there was significant waste due to spoilage of produce, the purchasing manager can concentrate on ordering fewer cases (or splitting cases if necessary). Rising prices of gas and corn has impacted the cost of many commodities. Calculate the impact of your meat and dairy price increases on net profits. Bring any other significant findings to management's attention.

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