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?

Regards,

Brett

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.