Optional Food Cost Formula

Hi Joe,

I am trying to help a colleague at another hotel in our chain.  He is F&B Controller at a new property.  They do not have a food store.  All purchased items are entered as direct purchases. 

At our property we calculate a weekly Flash (food & beverage cost check) and at the month end the food & beverage cost.

The weekly formula is:

Direct Purchase to Kitchen + Store Issues – (Complimentary Items + Employee Meals)= (Cost of Food/Total Sales)% = Food Cost %

The month end calculation is:

Opening Balance + Purchases – Closing Balance = Gross Consumption – (Complimentary Items + Employee Meals) = (Net Consumption/Total Sales)% = Food Cost %

In the case of my colleague's operation what should be his formula? Since he has no store all his purchases are direct to the kitchen.  So, unused items (that should be stored)  are included in the food cost calculation.  This resultant cost percentage does not represent actual consumption and a bloated food cost percentage is the result, I imagine. Am I correct?  I thought about it and it should be the same formula as a fast food operation that does not have a store.  I surfed the Net and could not find any such animal.  

I'd appreciate your feedback.

Thanks

Brian

Thanks for the question, Brian!

Actually, the food cost formula is straight forward:

Food Cost = Purchases - Inventory Change

I prefer to include the cost of complimentary items and employee meals in the calculation.

Your weekly report utilizes a perpetual inventory model with tight control over issues of stock.  Your friend would need to count inventory weekly.  His formula would be very similar to your month end calculation.

If he wants to allow credits for complimentary items and employee meals, these items would be deducted from the actual food cost.  The key issue is consistency.

Weekly inventories provide excellent feedback to management.  Operations benefit from this added control with lower cost of goods sold.  Problems are spotted quickly.