Republic of the Philippines

University of Southeastern Philippines

Iñigo St., Bo. Obrero, Davao City 8000

“Monitoring Food and

Beverage Product Costs”

Reporters
Bernasol, Jan Shaira.
Bolotano, Jessamae Andrade.
Butron, Jharenz Flor B.
Caparoso, John Bryan.
Capundag, Trisha Mae L.
Eroy, Danielle Nicole.

Submitted to:
Kent Kevin P. Salido
Faculty

HAPE 114 - Food and Beverage Cost Control

WHAT IS THE COST OF SALES?
Also known as “Cost of Goods Sold” (COGS), refers to the direct costs incurred
in producing goods.

COMPUTING COST OF FOOD SOLD

What is Food Cost?
The ratio of a restaurant’s cost of ingredients (Food Inventory) and the revenue
that those ingredients generate when the menu items are sold (food sales).
Formula to use for computing the cost of food sold:
COGS = Beginning Inventory + Purchases - Ending Inventory
• BEGINNING INVENTORY - is the dollar value of all food on hand at the
beginning of an accounting period.
• PURCHASES - are the sum cost of all food bought during the accounting period.
• ENDING INVENTORY - refers to the dollar value of all food on hand at the end of
the accounting period. It also must be determined by completing an accurate
physical inventory.

COMPUTING THE COST OF BEVERAGE SOLD

What is the beverage cost?
Beverage cost, or “pour cost,” is the percentage of your bar’s overall revenue that
is going towards keeping your inventory stocked.
The formula of Cost of Beverage Sold:
Beginning Inventory + Purchases = (beverages available for sale) Ending Inventory =
(cost of beverage sold)
Formula of Beverage Cost Percentage:
Cost of Beverage Sold
__________________ = Beverage Cost %
Beverage Sales

COMPUTING COSTS WITH TRANSFERS

Transfer Pricing - are the prices used for transactions within a company.
Transfer Price Calculation Outlay Cost
The cost of making or obtaining the product.
Opportunity Cost - The profit the division could make by selling the product in the
marketplace, as opposed to selling the product internally.
How to calculate cost-based transfer price
Cost-based transfer pricing involves variable costs and fixed costs.
Variable cost transfer pricing - is the total cost of the varying production factors,
including:
• Direct raw materials
• Overhead costs
The additional fixed costs include:
 • Rent for the property.
• Depreciation of machinery and buildings
• Licenses
Cost-based transfer price = variable costs + fixed costs
Here are the steps to follow to use the formula:
1. Determine the variable costs of your production factors.
2. Determine the fixed costs of your company.
3. Add the variable costs and fixed costs to get the cost-based transfer price.
Actual full cost transfer price = total variable cost + total fixed cost

UTILIZING THE COST OF SALES FORMULA

Simplifying the calculations and breaking down the table step-by-step:
1. Goods Available: This is the total amount of each item that you started with and then
added to during the month. It's calculated as:
Goods Available = Beginning Inventory + Purchases

2. Cost of Food Consumed: This is the amount of each item that was used or
consumed during the month. It's calculated as:
Cost of Food Consumed = Goods Available - Ending Inventory

3. Cost of Food Sold: This is the actual cost of the food that was sold to customers
after subtracting any employee meals. It's calculated as:
Cost of Food Sold = Cost of Food Consumed - Employee meals

Why do we need to calculate the inventory by product category?

• This aids in accurate menu pricing to ensure profitability.
• Enables identification of the highest and Lowest profit margin items.
• Insights from month-to-month or year-to-year comparisons.
• Understand changing consumption trends.
• Facilitates better inventory management.

To determine the Restaurant’s Achieved Sales for the given month:

FORMULA:
Restaurant’s Sales = Total Cost of Food Sold ÷ Food Cost Percentage
To determine the profit:
Profit = Total Sales - Cost of Food Sold
Food Cost Category % Percentage and Proportion of Total
FORMULA:
1. FOOD COST % = (COST OF FOOD SOLD FOR THE CATEGORY / TOTAL
SALES) X 100
2. PROPORTION OF TOTAL PRODUCT COST % = (COST OF FOOD SOLD FOR
THE CATEGORY / TOTAL COST OF ALL CATEGORIES) X 100
Beverage Cost for Beverages
FORMULA:
Beverage Cost % = (Cost of Beverage Sold / Sales) x 100

Why is it important to calculate the beverage cost %?

1. Profitability Analysis
2. Inventory Management
3. Pricing Strategy
4. Performance Tracking
5. Decision Making

Estimating Daily Cost of Sales

Top managers prefer daily or weekly cost tracking, not just monthly.
Regular monitoring helps address issues promptly.
• Daily sales are recorded under "Sales Today".
• Daily purchases are noted under "Purchases Today".
• "Cost % Today" is computed as Purchases Today ÷ Sales Today.
• Cumulative sales and purchases help calculate "Cost % to Date".
• Can adapt to operations with an issuing system by substituting “Issues” for
“Purchases”.
Comparing Actual Costs to Attainable Costs
Step-by-step of creating a standardized recipe cost sheet:
1. Name and Details of the Dish
Identify the unit (restaurant/kiosk) name, menu item, and any special notes, like
portion sizes and recipe yield. In this case, let's say our unit’s name is "Pinoy Delights"
and the menu item is "Adobong Manok".
2. List Ingredients:
For every ingredient required for the dish, list down:
• The ingredient name.
• Amount used.
• Cost per unit
• Total cost for the ingredient

3. Calculate Ingredient Costs:

Multiply the amount used by the cost per unit to find the total cost for each
ingredient.
4. Summarize Costs:
Sum up the total cost of all ingredients to get the "Total Recipe Cost".
Divide the total recipe cost by the number of servings (or portions) the recipe yields
to get the "Portion Cost".
5. Note Any Changes or Previous Costs:
It's beneficial to track any changes in ingredient costs or portion costs over time.
6. Date and Save:
 Always mark the date when the cost sheet was updated or created. This helps in
tracking ingredient cost fluctuations and menu pricing decisions over time.

Product Yield
Product Yield Calculation: A Simplified Step-by-Step Guide
1. Know the Terms:
AP (As Purchased): Weight or count of the product as delivered.
EP (Edible Portion): Weight after cleaning, trimming, cooking, and portioning.
2. Conduct a Yield Test:
Determine the weight of the product in its EP form from its original AP form.
3. Use the Formula:
Product Yield = AP weight - Preparation losses
4. Calculate Waste & Yield Percentage:
Waste Percentage: (Product loss ÷ AP weight) × 100
Yield Percentage: 100% - Waste Percentage
5. Calculate EP Costs:
EP Cost = AP Price ÷ Yield Percentage

REDUCING THE COST OF SALES PERCENTAGE

1. Minimizing product loss in the kitchen
Losses of food goods can occur when control systems fail to stop theft by
employees, losses brought on by overcooking or over-portioning, and losses sustained
while products are in storage.
Product Security Tips
• Keep all storage areas locked and secure.
• Issue food only with proper authorization and management approval.
• Maintain an active inventory management system.

2. Minimizing Product Loss in the Bar

Activities you should watch for to help ensure the opportunities for product theft in a
bar are minimized:
• Order Filled but Not Rung Up
The drink is delivered as requested by the customer or server, but the sale of the
drink is never registered in the POS system, thus the bartender just keeps the money.
• Over- and Underpouring
The required use of jiggers, metered devices, or other mechanical or electronic
equipment ensures proper portion size in the spirit area.
• Dilution of Product
To make up for spirits that have either been stolen or given away, this type of bar or
storeroom theft includes adding water to the product.
 • Product Substitution
It's crucial to specify the glassware to be used as well as the portion size for
controlling drink production. This means that the drink is served in an amount that is
suitable and compatible with the customer's expectation of a full glass.
• Direct Theft
Problem areas related to beverage product control include:

1. In-room minibars
2. Bottle sales
3. Open bars
4. Banquet operations

3. Optimizing Overall Cost of Sales Percentage

FORMULA:

A/B = C

where:

A = Cost of products sold

B = Sales
C = Cost Percentage

Rules of Algebra

• If A is unchanged and B increases, C decreases.

• If A is unchanged and B decreases, C increases.
• If A increases at the same proportional rate B increases, C remains
unchanged.
• If A decreases and B is unchanged, C decreases.
• If A increases and B is unchanged, C increases.

How to Reduce Overall Product Cost Percentage?

1. Ensure that all products purchased are sold.

2. Decrease portion size relative to price.
3. Vary recipe composition.
4. Alter product quality.
5. Achieve a more favorable sales mix.