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Thursday, May 10, 2012

Include Disposables in Food Cost?

Respected sir,

Just wanted to know whether paper plates, plastic items, glasses and cups should be included in the food cost calculation. I am working as chef for a chain of restaurants with actual food cost around 26% to 28%. But after including plastic purchases, my cost goes beyond 36 to 37 percent. Is it correct to include this as part of my food cost? What can be done to reduce that cost?

Warm regards and many thanks,

Hiren, Chef, Lebmex Restaurants

Thanks for the question Chef. Accounting for cost of goods sold should definitely include all disposables, linen, dish washing chemicals and other items which vary with sales volume. In your operation, the impact of disposable paper and plastic items is very significant. Quick service operators have been closely tracking these costs for years. As the take out food sales increase steadily, many more operators will see the impact on cost of goods sold increase.

So should we include these costs as part of the food cost formula? No. My reasoning involves the natural tendency to allocate costs to major activities. Most operations separate food sales and beverage sales. It is common to spend considerable time and effort on the cross over items like lemons, limes, olives, cherries, juices, and wine and liquor used in the kitchen. Every company has a policy (either formal or informal) regarding inclusion of coffee and tea sales in either the food or beverage category. I believe any attempt to build disposables cost directly in the food cost figure is a mistake because of the potential for allocation confusion.

There is usually a profit and loss statement section to handle direct operating expenses. Are disposables a part of cost of goods sold or direct operating expenses? I favor the inclusion of these costs in the cost of goods sold section (used in the gross margin calculation). If a restaurant uses paper napkins, I would include the napkins in cost of goods sold as Disposables Cost.

Your second question is at the heart of this issue. "What can be done to reduce that cost?"

Disposable items may be related to a specific menu item (e.g. a sandwich wrapper), or per cover (e.g. napkins and utensils), or per table (e.g. disposable table covers). Take out bags are used to pack multiple items for any number of guests. Should these costs be included in standard recipes? Fortunately, the software available for our industry allows multiple recipes for the same menu item. You can use an all inclusive recipe model to control all your cost of goods sold items including food, beverages and disposables. Wrappers and other menu specific items can be included in individual menu item recipes.

Take out bags can be tagged to the take out count from your POS report. You can make recipes which track the costs to open each day including any napkins on the tables, paper table covers, plastic utensils used on the tables, etc. If you track table turns, these "recipes" can be built to track each turn. Use your vision of the operation to guide you in this process. Once you have a model built, you simply compare standard usage and actual usage. You may find napkins are over used. Proper training can significantly lower napkin usage.

Paper towels, toilet paper and other high volume items can be tracked by patron counts. The goal is to understand the consumption pattern and develop a system to monitor variances. In your company, a 10% drop in disposables usage represents 1% of sales. This is an achievable objective in most organizations.

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