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How to Calculate Food Costs

January 25, 2024 by admin Category: How To

You are viewing the article How to Calculate Food Costs  at Tnhelearning.edu.vn you can quickly access the necessary information in the table of contents of the article below.

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This article was co-written by Jill Newman, CPA. Jill Newman is a Certified Public Accountant (CPA) in Ohio with over 20 years of accounting experience. She received her CPA from the Ohio Board of Accountants in 1994 and holds a Bachelor of Business Administration/Accounting degree.

There are 11 references cited in this article that you can view at the bottom of the page.

This article has been viewed 25,796 times.

Managing a restaurant, caterer, or cooking school can be an expensive and complicated task. To ensure your business runs smoothly, you must calculate your food costs regularly and accurately. There are three main calculations you need to pay attention to: maximum allowable food costs (costs that you can afford); projected food costs (i.e. how much the menu will cost); and actual food costs (the amount of food you need to buy for your business). Comparing these three numbers will help you make adjustments and cut costs to ensure a successful long-term business.

Table of Contents

  • Steps
    • Calculate Maximum Allowable Food Costs
    • Calculate Actual Food Costs
    • Calculate Estimated Food Costs
  • Advice

Steps

Calculate Maximum Allowable Food Costs

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Image titled Calculate Food Cost Step 1

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Find out why you need to charge this. [1] X Maximum Cost Research Source tells you the percentage of your business’s operating budget that can be allocated to food that ensures it remains profitable. Without knowing this number, you can’t tell if the actual food costs (calculated in the next section) are as expected to generate the desired net profit.
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Image titled Calculate Food Cost Step 2

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Let’s start by calculating an operating budget. A company’s operating budget is the sum of current and projected expenses, and expected profits. To calculate your monthly operating budget, you need to keep the following figures in mind: [2] X Research Sources

  • Target profit
  • Hourly labor (waiter, dishwasher, etc.)
  • Monthly labor (manager, company owner, chef, etc.)
  • Living expenses (gas, electricity, water, wireless, etc.)
  • Fixed costs (rent, mortgage payments, insurance, etc.)
  • Fees and permits (taxes, liquor licenses, business licenses, food sales permits, etc.)
  • Supply (cleaning supplies, non-food cookware, plates, takeout bags)
  • Marketing
  • Maintenance
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Image titled Calculate Food Cost Step 3

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Determine how much you need to spend each month. Opening a small restaurant is a big risk, even for experienced restaurateurs. To create a competitive opportunity for your restaurant or supply company, you need to be willing to invest in it – but you also have to protect your own interests to make sure you don’t bankrupt yourself. Take advantage of small business loans and assistance from both private banks and national programs. [3] X Research Sources[4] X Research Sources[5] X Credible Sources US Small Business Administration Go to Sources[6] X Research Sources Consider choosing a business partner to increase investment; partners can directly engage in business with you or simply make financial investments and earn profits.

  • Assess your finances: create a monthly household budget that includes: rent/mortgage, transportation, food, personal insurance, and all other personal expenses. [7] X Trusted Source US Small Business Administration Go to the source Don’t sacrifice personal stability for business.
  • Calculate debt payment options. In addition to a simple understanding of interest rates, you also need to know if you plan to pay the minimum installment, or pay off your debt as quickly as possible. How much personal money do you have and how much business income will be used to pay off debt? How much is left?
  • After weighing your personal finances and paying off debt, decide how much money to invest in your business each month.
  • Compare that amount to your operating budget. If you can’t meet it, you need to adjust your operating budget instead of putting pressure on your finances.
  • Consider enlisting the help of an accountant or banker to figure out how safe you can stretch your finances.
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Image titled Calculate Food Cost Step 4

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Calculate the budget percentage for each type of expense. Once you’ve determined your costs per month, determine the percentage of your budget to allocate to each type of monthly expense calculated in Step 2.

  • For example, let’s say you can spend 100 million VND per month on your restaurant.
  • You and your manager receive a salary of 5 million VND per month. In general, the monthly salary to be paid is 10 million, or 10% of the budget.
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Image titled Calculate Food Cost Step 5

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Calculate the maximum allowable food costs per month. [8] X Research Sources Once you have the percentages of each expense category, add them up. The percentage remaining in the budget is the maximum amount you can use to buy food to reach your target profit.

  • Monthly Salary (10%) + Hourly Rate (17%) + Supply (5%) + Cost of Living (6%) + Marketing (4%) + Fees and Permits (3%) + Maintenance ( 4%) + Fixed Cost (21%) + Target Profit (5%) = 75%
  • In this example, 75% of the maximum budget is spent on everything but food.
  • To calculate the maximum allowable food cost, subtract 100% from the above rate.
  • 100% – 75% = 25%
  • If your monthly budget is VND 100 million, you can spend up to VND 100 million x 0.25 = VND 25 million on food for a profit of 5% (100 million x 0.05 = VND 5 million) per month .

Calculate Actual Food Costs

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Image titled Calculate Food Cost Step 6

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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] X Source of Research 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.
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Image titled Calculate Food Cost Step 7

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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] X Research Source 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.
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Image titled Calculate Food Cost Step 8

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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.
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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.
Image titled Calculate Food Cost Step 10

Image titled Calculate Food Cost Step 10

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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.
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Image titled Calculate Food Cost Step 11

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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%
Image titled Calculate Food Cost Step 12

Image titled Calculate Food Cost Step 12

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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 Estimated Food Costs

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Image titled Calculate Food Cost Step 13

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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] X Research Source 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.
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Image titled Calculate Food Cost Step 14

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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.
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Image title Part3Step3version2

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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.
  • Image titled Calculate Food Cost Step 16

    Image titled Calculate Food Cost Step 16

    {“smallUrl”:”https://www.wikihow.com/images_en/thumb/e/e6/Calculate-Food-Cost-Step-16-Version-4.jpg/v4-728px-Calculate-Food-Cost- Step-16-Version-4.jpg”,”bigUrl”:”https://www.wikihow.com/images/thumb/e/e6/Calculate-Food-Cost-Step-16-Version-4.jpg/ v4-728px-Calculate-Food-Cost-Step-16-Version-4.jpg”,”smallWidth”:460,”smallHeight”:259,”bigWidth”:728,”bigHeight”:410,”licensing”:” <div class=”mw-parser-output”></div>”}
    Analyze projected food costs. Now you know how much profit you make from the catering business in a week. Compare that number with your maximum allowable food costs to determine if menu item prices need an adjustment. In the above case, the maximum allowable food cost in Part 1 is 25%, and the projected food cost is 37.5%. We have a big problem! Total sales would need to be increased for the projected food cost ratio to drop, reaching the target level of 25%. We can adjust by increasing the price of dishes on the menu.

    • You can increase the price of all the dishes on the menu a bit – maybe 5,000 VND if the price of the dish is quite cheap, or 40,000-60,000 VND if the cost of making the dish is higher.
    • Look at sales to see which dishes are most loved by customers. You can increase the price of your favorites more than your less-loved ones – people will be willing to pay even if the price goes up.
    • Consider getting rid of items that aren’t selling well. They are unlikely to generate much revenue. Continually re-evaluate the menu to make sure you use all the food in stock.
  • Advice

    • You can do both buying and selling on the same day.
    • The closest you’ll pay for each food item will be the price of your inventory.
    • You should not deliver the goods during the inventory.
    X

    This article was co-written by Jill Newman, CPA. Jill Newman is a Certified Public Accountant (CPA) in Ohio with over 20 years of accounting experience. She received her CPA from the Ohio Board of Accountants in 1994 and holds a Bachelor of Business Administration/Accounting degree.

    There are 11 references cited in this article that you can view at the bottom of the page.

    This article has been viewed 25,796 times.

    Managing a restaurant, caterer, or cooking school can be an expensive and complicated task. To ensure your business runs smoothly, you must calculate your food costs regularly and accurately. There are three main calculations you need to pay attention to: maximum allowable food costs (costs that you can afford); projected food costs (i.e. how much the menu will cost); and actual food costs (the amount of food you need to buy for your business). Comparing these three numbers will help you make adjustments and cut costs to ensure a successful long-term business.

    Thank you for reading this post How to Calculate Food Costs at Tnhelearning.edu.vn You can comment, see more related articles below and hope to help you with interesting information.

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