Chapter 12 – Analyzing and Managing Food & Beverage Expense
Chapter 12 – Analyzing and Managing Food & Beverage Expense
Learning Objectives:
- Determine the cost of food sold and the cost of food consumed (or used) and explain the difference between the two
- Describe and calculate the impact of free or reduced-cost employee meals and transfers on the cost of food sold calculations
- Calculate the food cost percentage – Cost of Food Sold / Food Sales or Cost of Food Portion/Menu Price
- Explain how errors in inventory will affect the cost of food used or sold calculations
- Calculate an operational efficiency ratio
- Explain the meaning of the operational efficiency ratio
- Identify acceptable and unacceptable variances in food cost
Key Terms:
- Food & Beverage Cost of Goods Sold
- Food & Beverage Cost of Goods Consumed (used)
- Beginning Inventory
- Ending Inventory
- Credits and transfers
- Food to beverage or beverage to food
- Standard food & beverage cost
- Attainable food & beverage cost
- Direct purchases
- Requisition voucher
- Adjustments
- Operational efficiency ratio
- Variance
Introduction
The effective manager has to manage and control all the various operating expenses in a foodservice operation. In the end, the goal is typically to make a profit. Food and beverage expenses combined are one of the largest expense categories for foodservice operations. One of the key figures needed each month (or even more often) is the cost of goods sold. The food & beverage cost of goods sold is the dollar amount spent on items actually used to provide the menu items sold to the guests. The amount may significantly differ from the total spent on food purchase since:
- Items purchased in bulk are not entirely used during the accounting period (refer to the section on inventory)
- Items are consumed but not always sold to guests (employee meals, complimentary meals served for promotion purposes, etc.)
The food & beverage cost of goods sold (usually referred to as Food & Beverage Cost in the industry) is expressed as both a dollar amount and a percentage of food & beverage revenues.
Determining Actual Food Expenses
Food & beverage inventory revisited
From an accounting and financial standpoint, a restaurant inventory is the dollar value of the food and beverage items that are held in storage. While in storage, the inventoried items are not considered a cost until used or sold. Just like cash, food and beverage inventory is a company asset. Unlike cash, however, inventory values may decrease since food and beverage items are perishable and subject to spoilage and theft.
Holding inventory has the potential to incur significant expenditures including operating expenses (such as spoilage, obsolescence, theft, and facility expenses) and capital investments (such as the construction of the premises and refrigeration equipment.) Additionally, operations immobilizing too much cash in inventory could eventually need to borrow money to pay for other expenses.
Accordingly, managers need to implement stringent inventory m