Food Cost Calculation

Hi Fellow Pizza Men and Women,
I am hoping that somebody can help me with verifying my calculations. I am trying to calculate exact food costs and I am using a formula from a book I bought, the Restraurante Manageers Handbook… The formula is as follows
Beginning Inventory

  • Purchases during period
    = Food on hand available for sale
  • Ending Inventory
    = Dollar value of Food used during period
  • Food used in promotion, eaten by management, tossed out, stolen
    = Dollar value of Food used during period adjusted for non charged food

This figure is then divided by the net sales figure for the period and this is the Food Cost for the period.

However, I find that if I have no promotional food given away, no management consumed, or stolen, my food cost increases, when I think it should decrease. WHAT AM I MISSING HERE??? Any ideas??
Jay from Fortunatos in Quito

Jay

You must be doing something wrong when your working this out. If the adjusted value is smaller (which it should be) than the $value of food used then it can’t be a higher %'ge.

Give us a simple breakdown to show us how the food cost gets higher.

Wiz

A couple of thoughts:

  1. Food “purchased” is not going to be the amount of the checks you wrote, it means the food that was delivered, picked up at the store, whatever… A lot of new operators use the checks they wrote for “purchased” and come up with wierd numbers due to unpaid invoices either at the start or end of the period.

  2. While it is important to track food tossed, used for promo, emp meals, theft etc I do not find it productive to get very obessed about it. Waste, promo, emp meals etc are part of the business, you might as well not bother subtracting them. Make a note for yourself about any unusual amount that takes place (like somebody drops 20lbs of cheese that has to be tossed) or a large donation, but for the most part, I consider waste to be PART of food cost and controlled, and not something to be deducted from it.

You are not missing anything. When you deduct a bunch of stuff, you artificially lower your food cost % compared to leaving everything in. The tendancy is to overstate your deductions which make the numbers just so much voodoo.

In the end, your cost is the stuff you use up, regardless of how you use it. Week to week these factors may make your numbers look high or low, but month to month and certainly on an annual basis, they just become part of the flow.

Sorry I mis read your post. bodegahwy is spot on (as usual).

Thanks guys, Bodegahwy, I think you are right, while it is important to keep track of promo and non charged items it is all cost. I have calculated ideal costs, based on a detail breakdown of all my pizzas, pastas, salads, sandwiches, etc. but I rarely hit it and when I do, I suspect there is a mistake in inventory count or purchases. With regards, to purchases, in my calculations I am using the total of the product received during the week, regardless if some of it is in inventory come the next week. I may hit 35% one week and two weeks later I hit 27%! Too much variation. My target is 30%. Where is the variation coming from. Bad portion control, theft, what else is there?

Bad portion control, theft, what else is there?

Bad inventory count?

27 to 35 represents a swing of more than 20% in the amount of food used. That is very improbable as a portion control issue. Not that portion control can not be part of the issue… but I have never seen portion create a swing this large from month to month.

I would be looking at count, recorded price and missed purchases.

In count, make sure you are counting the same thing each time, ie case vs pound vs each. One time a number of years ago, I had set up my cost for bottled water as a per case price and was entering each bottle for the count. My inventory value for a stack of cases of water on hand came in at $2,000 when it should have been under $100. I did not notice it for a few months…

Recorded price: If you have a decimal moved by a point on a key item the value could come in pretty far off… (10X)

Missed purchase is my guess… If you missed a sizable purchase one period and recorded it the next, the first period would be low and the second would be high. It could easily be the size you are describing if the period was just a week.

Theft is probably not the answer. That is too big a swing and most pizza stores do not have the kinds of things that employees are going to take an amount of that would equal a 20% bump in cost.

Not sure if I understand what you’re saying here?

Purchases should be the value of items received. If some of it doesn’t come in until the next week that might be causing some of your problems.

If you rarely hit your ideal costs then something is up. Probably a combination of all of the things that you have mentioned but as said above the variation of 27 to 35% is huge.