How to Calculate Food Costs

Select a start date for the weekly review. Just like you pay your rent, living expenses, etc. on a fixed day of the month, you need to calculate your food costs based on a regular cycle. ^[9] You should do your inventory analysis at the same time of week – be it on Sunday, before or after opening the kitchen.

• Always check stock outside of business hours, so no food is delivered or used for cooking.

Determine the “beginning inventory” date. On the start of the “fiscal week”—in this case, Sunday—check all the food in the kitchen. It’s important to be as accurate as possible, so look at the bill to see how much you paid for each food item. For example, you can pay 70,000 VND for 15 liters of frying oil, of which 2 liters are left on the first day of the financial week. ^[10] Calculate the exact price of 2 liters of oil on the first day of the warehouse opening period: (70,000 ÷ 15l) = (X ÷ 2l). Once you calculate X, you will find yourself with 9,000 VND worth of frying oil on the first day of the financial week. Repeat this calculation for each food you have.

• Add up all the amounts to determine the opening inventory – the cash value of the food in the kitchen on the first day of the financial week.

Monitor sales. During the week, you’ll order food as needed, based on what’s best-selling on the menu. Tidy up all your grocery receipts in your office so you can see exactly how much you spent on groceries for the day.

Continue to calculate opening inventory on the first day of the next financial week. Repeat the process in Step 2. This will give you a number that has two functions: one is next week’s opening inventory and the current week’s “ending inventory”. Now you know how much food was available at the beginning of the week, how much was purchased, and how much was left over at the end of the week.

Determine the amount of food used to prepare the dishes sold during the week. At the end of each shift, the restaurant manager needs to calculate the total revenue. Look at the sales report for each day of the week and add it up to calculate the weekly food sales.

Calculate actual food costs for the week. In Part 1 of this article, you calculated the maximum allowable food costs as part of your total budget. Now you need to calculate the percentage of your budget actually spent on food. By comparing these two ratios, you can tell if you are spending too much on food to keep your business running.

• To calculate the actual cost of food, complete the following expression: Food Cost % = (Starting Inventory + Purchases – Ending Inventory) ÷ Sales Revenue.
• In our example, let’s say Beginning Inventory = 14 million dong; Purchase Amount = 3 million VND; Ending inventory = 15 million dong; Sales = 7 million dong
• (14 million + 3 million – 15 million) 7 million = 0.30 = 30%

Compare maximum allowable food costs and actual food costs. In this example, we calculated the maximum allowable food cost of 25% in Part 1, and the actual food cost of 30% in the step above. Now we know we spent too much money on food to hit our 5% profit target.

• Adjust weekly food purchases to control inventory. You want to reduce your actual food costs to or below the maximum allowable food costs.
• Keep in mind that this calculation can be wrong if you count food items incorrectly when calculating inventory, counting and entering units that are different from the inventory valuation (like counting 10 boxes of tomatoes but the price is different). re-invoice), lose invoices for products counted in inventory, or bill non-existent products (such as returns).

Calculate total cost. For each item on the menu, determine how much it will cost to make it. For example, the cost of making a cheesecake would be divided as follows: 300 VND for the crust; 86 dong for 30g mayonnaise; 86 dong for 1 slice of onion; 200 VND for 2 slices of tomato; VND 1,100 for 250g of meat; 30 dong for 7g ketchup and mustard; 60 dong for 30 grams of lettuce; 260 VND for 2 slices of American cheese; and 330 VND for a bag of chips. ^[11] The cost of food to make cheesecake in the menu is 2,400 VND.

• Multiply the cost of food for each item by the number of items sold each week.
• Add it all up to get the total cost. In the example above, let’s say we have a total cost of 4.5 million. That’s how much you spend on making dishes this week.
• Ensure all items are strictly controlled by volume. This is to ensure that all chefs will serve each dish at the same price.

Calculate total revenue. Now that you have calculated the amount of money spent to make dishes for customers, you need to calculate the amount of money you collect for each dish. For each item on the menu, multiply the selling price of each item by the quantity sold for the week. Add up the sales for each item on the menu to get the total revenue.

• In the above example, let’s say you have 12 million in sales for the week.

Look for expected food costs. To calculate this cost, multiply the total cost by 100, and then divide it by the total revenue. In the example above, find the result of the following expression: (4.5 million X 100) ÷ 12 million = 37.5. Food costs are expected to account for 37.5% of our budget.