1. THE FOOD COST PERCENTAGE  The Food Cost Percentage is the operational tool used to assess the financial health and cost efficiency of a food-operation for a given period of time;  The Food Cost Percentage compares the cost of a given food item (or group of food items) with its selling price (or sales revenue) for a given period;  Universally, the Food Cost Percentage of an item (or group of items) should never exceed more than 40% of an item’s selling price (or sales revenue) in a given period.

2. THE FOOD COST PERCENTAGE  The Food Cost Percentage can be looked at from two (2) perspectives: (a)The Micro-Approach; and (b)The Macro-Approach.  The Micro-Approach: this is a “unit approach” since it looks at the Food Cost Percentage for a given food item on the menu for a given period. This approach compares the cost (recipe cost) of an item with the item’s selling price. Ideally the recipe cost of an item should never exceed more than 40% of the item’s selling price.

3. THE FOOD COST PERCENTAGE  The Macro-Approach: this is a “group approach” since it looks at the Food Cost Percentage for a number of food items on the menu for a given period. This approach compares the cost of all menu items sold in the period (ie. COGS/COS) with all cash inflows(sales revenue) earned by the sale of those items in a given period. Ideally, the cost of all menu items sold in a given period (COGS/COS), should never exceed more than 40% of all sales revenue earned in that period.

4. THE FOOD COST PERCENTAGE  The Food Cost Percentage can be found by the following formulas: (a)The Micro-Approach: recipe cost of item/selling price of item; ideally the recipe cost of the item < than 40% of the item’s selling price: (cp/sp x 100); (b)The Macro Approach: the COGS or COS for the period/Sales Revenue in that period; ideally the COGS/COS in the period < than 40% of sales revenue in that period: (COGS or COS/Sales Revenue x 100).

5. THE FOOD COST PERCENTAGE  The Food Cost Perspective can be looked at from four (4) macro-based perspectives: (1)The Daily Food Cost Percentage; (2)The Accumulated Food Cost Percentage; (3)The Standard Food Cost Percentage; and (4)The Actual Food Cost Percentage. Each macro-based perspective provides management with the means necessary to efficiently ensure that the COGS or COS never exceeds 40% of sales revenue in a given period.

6. THE DAILY FOOD COST PERSPECTIVE  The Daily Food Cost Percentage compares the COGS/COS for a given day, with the sales revenue derived for a given day;  Formula: COGS/COS (for a given day)/sales revenue (for that day) x 100; ideally the COGS/COS for a given day < 40% of sales revenue in that day.  Remember: (a)COGS/COS (for a given day) = Opening Stock (for that day) + Purchases (for that day) – Closing Stock (for that day); (b)Sales Revenue (for a given day) = Inventory Turnover Rate (for that day) x respective selling prices for all items that comprising the inventory turnover rate (sold on that day).

7. THE DAILY FOOD COST PERCENTAGE  A more “refined” approach when calculating the Daily Food Cost Percentage is: DAILY COGS/COS: Daily Opening Stock + Daily Store- room issues + Daily Direct Purchases + Daily Transfers In – (Daily Inventory used in employee meals + Daily transfers out+ Daily Closing Stock + Daily wastage/spoilage/theft of inventory); DAILY SALES REVENUE: Inventory Turnover Rate for the day x The respective selling prices of inventories sold on that day – (sales revenue stolen + value of incorrect billing on that day).

8. THE DAILY FOOD COST PERCENTAGE  IMPORTANCE OF THE DAILY FOOD COST PERCENTAGE (1)Ensures standardized recipes are followed on a given day; (2)It is an impartial indicator of what is happening with inventory on a given day with regards wastage, spoilage and theft; (3)Provides information with regards the cost effectiveness of procuring inventories (ie the supplier portfolio) on a given day; (4)Is a good indicator with regards the inventory turnover rate on a given day; (5)Highlights the extent of maximization of sales revenue on a given day, and the extent of pilferage of cash or incorrect billing; (6)Provides information with regards the compatibility of selling prices of menu items with the elasticity of demand for a given day. (7)Has implications with regards changes in the external environment for a given day.

9. THE DAILY FOOD COST PERCENTAGE  DANGER OF THE DAILY FOOD COST PERCENTAGE The Daily Food Cost Percentage should be treated with caution since: (1) It fluctuates erratically each day due to changes in the inventory turnover rate; (2)Each item would have its own sales mix each day; (3)The wastage, spoilage and theft of inventories change each day; (4)Pilferage of sales revenue and incorrect billing fluctuates daily; (5)Changes in exogenous factors are highly unpredictable.

10. THE ACCUMULATED FOOD COST PERCENTAGE  The Accumulated Food Cost Percentage compares the COGS/COS for a given period, (normally a month), with sales revenue derived in that period;  Formula: COGS/COS (for a given period)/sales revenue (for that period) x 100; ideally the COGS/COS for a given period < 40% of sales revenue in that period;  Remember: (a)COGS/COS (for a given period) = Opening Stock (for that period) + Purchases (for that period) – Closing Stock (for that period); (b)Sales Revenue (for a given period) = Inventory Turnover Rate (for that period) x respective selling prices for all items that comprising the inventory turnover rate (sold in that period).

11. THE ACCUMULATED FOOD COST PERCENTAGE  The Accumulated Food Cost Percentage is more superior (and accurate) than the Daily Food Cost Percentage since it evens out all the daily peaks and slumps of the Daily Food Cost Percentages in that period AND takes it into account a broader sales mix for all food items in that period.

12. THE ACCUMULATED FOOD COST PERCENTAGE  The Accumulated Food Cost Percentage is not without error and adjustments would have to be made at the end of the period/month to ensure its accuracy;  Two (2) adjustments would normally have to be made to the Accumulated Cost of Goods Sold/Cost of Sales figure at the end of the period: (1)The first adjustment is for differences between book and actual closing stock figures between periods; and (2)Changes in the Opening Stock figures between periods.

13. THE ACCUMULATED FOOD COST PERCENTAGE ADJUSTING THE ACCUMULATED FOOD COST PERCENATGE: (1)If the actual value of closing stock is greater (less) than the book value of closing stock, the differences between these figures is subtracted (added) from the current period’s Accumulated Cost of Goods Sold; (2)If the current period’s Opening Stock is higher (less) than the previous period’s Opening Stock, the difference between these figures is subtracted from (added to) the current period’s Accumulated Cost of Goods Sold;