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Friday, May 14, 2010

Accounting Question

Hi Joe,

I've been reading your FoodCostWhiz blog and have to say I really enjoy and find it very informative, particularly as the bulk of my experience is in QSR. I'm hoping you can settle a disagreement I am having.
A back of house software vendor that I have been dealing with for a long time has decided to rename their "Food Cost" calculations and reports as "Cost of Goods". They tell me that the two names are interchangeable, but I am not sure if I agree.
In my experience, Food Cost is based on working out the cost of a recipe, whereas Cost of Goods is simply the value of purchases. They go hand in hand, but are not the same. Am I off base here?

How would define the terms Food Cost and Cost of Goods?



Thanks for the question Brett. Simply stated, Food Cost is part of Cost of Goods Sold. I consider the Cost of Goods Sold category as all items which go into the production of menu items and beverages. In a QSR operation, the Cost of Goods Sold would logically include paper used to wrap the menu items. All items on the table in a sit down restaurant would be included in Cost of Goods Sold.

To recap Cost of Goods Sold, I would include food, beverages, table supplies and packaging supplies for take out and delivery. I would exclude linen, cleaning supplies, and other supplies which do not vary directly with sales. The proper category for these items would be Direct Operating Expenses.

Food Cost is a part of Cost of Goods Sold but it is NOT the same as Cost of Goods Sold.

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