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Thursday, January 30, 2014

How to Calculate Food Waste in Production

Dear Joe,
Good day to you.

I would like to know how to calculate the food wastage percentage in any food production area.  Also, how it is calculated as a deduction from gross sales to determine gross profit in the Profit and Loss statement?

Thank you in anticipation 

In the production area, the loss in fabrication is a factor in the standard yield calculation.  When you develop a standard yield, it is best to use a large sample.  Keep accurate records of the purchased weight, cost and the net weight.  The standard yield formula is used to properly cost the usable food.

If we buy 10 kg of meat with the bone-in for $10/kg, your cost is $100.  After the meat has been trimmed and portioned,  we have 8 kg of product.  The cost is $12.50 per kg trimmed.  When we count our inventory, the raw, untrimmed meat should use $10/kg and the trimmed meat should use $12.50/kg.

Our cost of goods sold would be calculated as follows:

COGS = BI A.P. + BI E.P. + Purchases - EI A.P. - EI E.P.

COGS is Cost of Goods Sold
BI A.P. is Beginning inventory as purchased (before trim)
BI E.P. is Beginning inventory trimmed (edible portion)
EI is Ending inventory

The gross profit calculation uses the cost of goods sold total as a reduction.

Gross Profit = Revenue - COGS  

If you follow the steps in our meat example for all trimmed items, you will properly account for the standard waste experienced in the process.

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