Chef Robbie Lewis, corporate chef at the software company Oracle, shares his food cost formula and tips.
Food Cost % = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
Memorize this: FC% = (BI + P - EI) / S
Food cost is calculated by taking your beginning (AKA opening) inventory for the period (e.g. at Oracle it’s one week) and adding all of your purchases to that number. You then subtract the ending (AKA closing) inventory number. This gives you the theoretical value of what you used that week in product. That number is divided by your sales and a percentage of sales is calculated for the cost. So when we say you have a food cost of 40% that means you spent .40 for every dollar you took in sales.
Your data: $10,000 beginning inventory, $2,000 in purchases, $10,500 ending inventory, $5,000 in sales.
Your formula: FC% = (BI + P - EI) / S
(10,000 + 2,000 = 12,000) - 10,500 = 1,500
1,500/5,000 =.30 or 30% food cost
- It is absolutely necessary to use the same dates for sales and purchase activity
- You need to take the inventory after all sales activity has ceased (either late at night or early in the morning)
- There should be no deliveries during your inventory
- The value of the inventory is the most recent cost paid for each item
- The dollar amount of your inventory only matters as it relates to cash flow. For example: If you normally carry an inventory of $6,000 and this week is $7,000, but your food cost ends up the same, you’ve got $1,000 in cash tied up in inventory. If you need the product for some reason, so be it; if you don’t, then it’s just a waste. But if you counted the “extra” $1,000 you added into your inventory, then it will have zero affect on your costs.
Food cost dramatically too high or too low?
These are the usual suspects Lewis identifies for an out-of-whack food cost:
- You physically counted items incorrectly during inventory (too many or too few items)
- You counted and input units different than the inventory pricing (i.e. you counted 10 cans of San Marzano tomatoes, but you’re charged by the case for that item)
- You are missing the invoice for product you have counted into inventory (tip: you have to get the invoices in on time before closing the period)
- You got an invoice processed for product you do not have (e.g. returned product for which you do not have a credit processed)
- You have transfers that have not been credited to your costs