Food Cost Formula Questions

Regardless of your business model, the food cost calculation is the same:

Food Cost = Beginning Inventory + Purchases - Ending Inventory

If you look closely at the formula, you will find your cost is closely related to purchases.  The purchase cycle involves purchase orders, competitive bids, packing lists, invoices, par stock levels, shopping lists, etc.  Only invoices should be included in the purchases each month.

Finding the inventory value is simple and complex.  The simple part involves an accurate count.  We have two levels of complexity in our industry.  The perishable nature of food guarantees a declining value as product ages.  The most costly event in a kitchen involves freezing a protein item with a high cost per pound.  It's better to buy it frozen at the start if portion control is a challenge in your operation.

The second level of complexity involves the preliminary preparation of meat, seafood and produce.  Trimming and butchering activities need to be standardized.  Using a standard yield %, it is possible to assign the correct value to prepped items.  For example, a prime steak purchased for $10/pound may have a yield of 80%.  The cost per servable pound is $12.50.  This is the cost to use on the inventory sheet in calculating the extension.