How do you monitor and correct food cost variance?

1 Calculate standard food cost

Standard food cost is the expected cost of preparing a menu item based on the recipe, portion size, and current ingredient prices. You can calculate it by multiplying the quantity and price of each ingredient and adding them up. For example, if you need 200 grams of chicken, 100 grams of rice, and 50 grams of vegetables to make a dish, and the prices are $5 per kilo, $2 per kilo, and $1 per kilo respectively, your standard food cost is:

(200/1000 x 5) + (100/1000 x 2) + (50/1000 x 1) = $1.15

You should calculate the standard food cost for each menu item and update it regularly to reflect the market changes.

2 Calculate actual food cost

Actual food cost is the actual amount of money you spend on food for a given period. You can calculate it by subtracting the ending inventory value from the sum of the beginning inventory value and the food purchases. For example, if you start the month with $10,000 worth of food, buy $5,000 more during the month, and end the month with $8,000 worth of food, your actual food cost is:

(10,000 + 5,000) - 8,000 = $7,000

You should calculate the actual food cost for each period, such as weekly, monthly, or quarterly, depending on your business needs.

3 Calculate food cost percentage

Food cost percentage is the ratio of the actual food cost to the total food sales for a given period. It shows how much of your revenue goes to food expenses. You can calculate it by dividing the actual food cost by the total food sales and multiplying by 100. For example, if your actual food cost for the month is $7,000 and your total food sales are $20,000, your food cost percentage is:

(7,000 / 20,000) x 100 = 35%

You should calculate the food cost percentage for each period and compare it to your target or budgeted food cost percentage, which is usually around 25% to 35% depending on your menu and concept.

4 Identify food cost variance

Food cost variance is the difference between the actual and the standard food cost for a given period. It can be positive or negative, indicating that you are over- or under-spending on food. You can calculate it by subtracting the standard food cost from the actual food cost. For example, if your standard food cost for the month is $6,000 and your actual food cost is $7,000, your food cost variance is:

7,000 - 6,000 = $1,000

You should calculate the food cost variance for each period and analyze the causes and effects of it.

5 Monitor food cost variance

Monitoring food cost variance is the process of tracking and measuring changes in food cost over time, enabling you to identify trends, patterns, and anomalies. To do this, you can use a variety of tools and methods. Food cost reports document your food cost data, such as inventory, purchases, sales, and variance for a specific period. Food cost charts are visual representations of your food cost data, allowing you to see fluctuations, correlations, and deviations over time and across different categories. Food cost audits are inspections and reviews of your food cost records, processes, and practices; they verify the accuracy and reliability of your data and detect any errors, fraud, or waste. It is important to monitor food cost variance regularly and consistently to ensure that you are on track with your goals and standards.

6 Correct food cost variance

Correcting food cost variance is the process of taking actions to reduce or eliminate the gap between your actual and standard food cost. It involves finding and fixing the root causes of your food cost problems and implementing solutions to improve your food cost efficiency and effectiveness. You can do this by employing strategies such as menu engineering, inventory management, purchasing management, and production management. Menu engineering is the process of designing and optimizing your menu based on profitability and popularity of menu items, while inventory management is controlling and optimizing your food inventory levels, turnover, and quality. Purchasing management entails planning and executing food purchasing activities, such as sourcing, ordering, receiving, and storing. Finally, production management is organizing and executing food production activities, such as prepping, cooking, and serving. It is vital to correct food cost variance promptly and effectively to restore your food cost performance and profitability.

7 Here’s what else to consider

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