Hotel F&B Observer Blog

Hotel food and beverage professionals share experience, skills and commentary. These hotelier blogs reflect a variety of unique career perspectives and real-life workplace stories, observations and opinions.

Essential Food Cost Control

Most hotel food cost control revolves around a transfer model. Inventory is counted monthly in every venue including one or more restaurants, banquets, room service, mini-bars, and possibly vending machines. Goods are typically received centrally, and movement to various profit centers is tracked on transfer sheets. It is very likely the buffets and banquets contribute a huge percentage of total sales volume (often over 50 percent). I’d like to shine a light on the time and effort expended completing these transfer sheets including the cost calculations involved.

Let’s start with the basic food cost percentage formula:
FC% = (BI+P-EI)/S

FC%: Food Cost Percentage
BI: Beginning Food Inventory
P: Purchases
EI: Ending Food Inventory
S: Food Sales

To handle hotel operations, the formula for each outlet or activity should be modified as follows:

FC% = (BI+P+XFRIN-XFROUT-EI)/S

XFRIN: Transfers In

XFROUT: Transfers Out
It is absolutely necessary to use the same dates for sales and purchase activity. You need to take the inventory after all sales activity has ceased (either late at night or early in the morning). There should be no deliveries during your inventory.

Most hotel food cost reports use FIFO for valuing the inventory.

At the heart of the cost formula you will find the simple food cost calculation: FC=(BI+P+XFRIN-XFROUT-EI). Twisting this formula slightly, we find food cost equal to our purchases plus net transfers plus the change in inventory value:
FC=P+(XFRIN-XFROUT)+(BI-EI).

With a month between inventories, the purchases and transfers will be more dominant than the inventory change.
Let’s examine the formula in finer detail. The total food cost is equal to the sum of the individual item food costs. If you have 800 items to count, the food cost formula could be expressed as follows:

FC=∑n=1800 (BIn+Pn+XFRINn-XFROUTn-EIn)

So for each item in your inventory, you add beginning inventory, purchases and transfers in and subtract transfers out and ending inventory. Your total food cost figure is the sum of all these numbers.

If you run these numbers on a spreadsheet, I recommend you sort the matrix in descending order using the net cost column. Count the inventory every day for the top 25 items on the page. Calculate the cost of these 25 items each day. I believe you will find the cost of these 25 items (as a percent of sales) will provide you with answers to many of your food cost issues. You may want to increase the number of items tracked to 50 if you have a very diverse menu.

Have a serious debate regarding the inclusion of minor items on transfer sheets. Toothpicks, pre-portioned condiments, spices and many other low cost items could be controlled tightly without expending the time and effort needed to complete transfer sheet entries. Take the time saved and start tracking pans of food sent to buffet stations.



Share:
Digg Facebook LinkedIn Stumble Upon Twitter Email Print
  • Don Duma posted: 03 Jul at 6:19 am

    Joe:
    What is your opinion to include soda sales generated in a restaurnat area as part of the food revenue.

    The cost of the product as well as the ending inventory being box or can would be reflected in the cost of sales number.

    I have experienced some properties that reflect such sales as food and some as beverage.

    Regards,
    Don

  • Joe Dunbar posted: 03 Jul at 4:21 pm

    Don,
    My preference is to be consistent and somewhat flexible (some worry too much about limes in the bar and cooking wine in the kitchen). Soda is always going to be treated differently depending on the tradition and the manner of budget preparation used for reports.

    Joe

  • KHALED posted: 13 Jul at 5:40 am

    Joe:
    What is your opinion to include soda sales generated in a restaurnat area as part of the food revenue.

    The cost of the product as well as the ending inventory being box or can would be reflected in the cost of sales number.

    I have experienced some properties that reflect such sales as food and some as beverage.

    Regards,
    Don

  • Joe Dunbar posted: 13 Jul at 11:26 am

    Don,
    Generally, I like soda, coffee, tea, juice, etc. in food sales. If you have a full bar and all these n/a beverages are served directly from the bartenders, you’ll need to setup your POS system to differentiate between using soda in a mixed drink and typical fountain sales.

    Above all, be consistent. This is a preference not an iron rule.

    Joe

  • abuma posted: 09 Aug at 3:29 am

    Dear Mr Joe,
    Something I dont understand , Why you are
    not subtracting total credits ( staff meal a & g , s & p etc )
    thanks
    abuma

  • Joe Dunbar posted: 10 Aug at 7:34 am

    Abuma,
    If you have setup your books to include employee meal credits in payroll, go ahead and charge this account for a portion of food cost.

    My preference is to avoid this activity if possible.

    Joe

  • Fadi Yousef posted: 21 Sep at 3:22 pm

    hi
    aim asst.cost controller in 5 star hotel ,regarding for any soft drink with meal we add it to cost center named beverage to food to deduct the consumption from beverage add it to food cost we do that daily in flash cost report.each outlet in hotel send to me in morning the transfare sheet regarding for each item soft drink .i have my own simple sheet to make culculation .
    regards
    Fadi

  • Upul posted: 28 Sep at 12:03 pm

    I am functioning as an accountant at a city hotel.The hotel system has been messed up by the former accountant & Chef.Now I have a prolem to calculate the Food cost of our out side catering.We are providing large volume of meal packets to various functions.My problem if when we are making the costing our chef said we have to consider about variable cost such as ingredients cost.He he costing for the 10 units & multiplied by total order Qty.Our F&B contrlloers also in the same mind.But our F&B manager says when we making bulk costing the unit price will go down.Can we apply marginal costing theory inthis situation.Could you please advice me the correct way to calculate the food cost.

  • Joe Dunbar posted: 01 Oct at 9:14 am

    In response to Upul’s question, I am a HUGE fan of marginal analysis. Does the off-premise catering operation offer the exact same items as the on-premise menu? If you produce these menu items in quantity for the on-prem operation and simply add packaging costs for off-prem, I would use the cost per patron on food from the batch recipe model and add any packaging to just the off-prem items.

    Joe Dunbar

  • RAKESH SRIVASTAVA posted: 22 Jan at 5:39 am

    I HAVE A QUERY : WHETHER LPG AND CHARCOAL WILL CONSIDERED TO CALCUALTE FOOD COST %

  • mary jane posted: 14 Oct at 9:40 pm

    pls tell me what are the percentage formula of beverage revenue, food dining room average montly revenue.

  • varun chandran.r s posted: 16 Jul at 5:23 pm

    can u pls tell me how i can calculate beverage cost and which are the things i have to include in bevarage cost

  • Danielle posted: 23 Nov at 1:33 am

    If you produce these menu items in quantity for the on-prem operation and simply add packaging costs for off-prem. Each outlet in hotel send to me in morning the transfer sheet regarding for each item soft drink.

  • Steven posted: 23 Nov at 10:51 pm

    Now I have a problem to calculate the Food cost of our out side catering.We are providing large volume of meal packets to various functions. Regarding for any soft drink with meal we add it to cost center named beverage to food to deduct the consumption from beverage add it to food cost we do that daily in flash cost report.

  • suresh prasad posted: 16 Jun at 6:10 am

    hi
    aim F&B cost controller in 5 star hotel ,regarding for any soft drink with meal we add it to cost center named beverage to food to deduct the consumption from beverage add it to food cost we do that daily in flash cost report.each outlet in hotel send to me in morning the transfare sheet regarding for each item soft drink .i have my own simple sheet to make culculation .Iam completly monthely cost report
    suresh prasad

  • vineet kumar posted: 21 Jun at 1:12 am

    hi

    hw can we calculate exctual food cost in hotel industry and and also give me food cost % & beerage %

  • sudeep posted: 22 Mar at 10:19 am

    how to calculate gas, electicity and labour cost while finalising food cost. How these factors effect food cost??

  • Vinod Kumar posted: 16 Sep at 8:44 am

    hi

    Iam working as an Assistant F& B Manager please tell me the exact formula for exact food costing.

  • Mohan posted: 28 Oct at 3:03 am

    what will be the idel food cost in a four star hotel, whether it include gas or not ?

  • William posted: 16 Mar at 6:41 pm

    Dear Sir/Madam,

    I am currently student at Croydon College and I am looking for information regarding track of reservations and guest.

    The questions as follows:

    “Economics of operations”

    Your help is much appreciated

    Please reply to e-mail : a.duven@yahoo.co.uk