F&B Management

COSTING

All restaurants using an accrual accounting system use the same basic calculation to determine cost of sales. This calculation is:

Beginning inventory + Purchases - Ending inventory = Cost of sales

Note: Procedures for valuing beginning and ending inventories were presented earlier in this article. The value of purchases is represented by the sum of all delivery invoices for products received during the month plus or minus any adjustments required as delivery invoices are audited by restaurant personnel. In addition, any delivery costs paid by the purchasing restaurant are added to the cost of purchases. If a restaurant uses the above definition of cost of sales consumed, the actual food and beverage costs for the accounting period can be determined as follows:

Cost of sales

——————— = Food cost percentage

Food revenues

Cost of sales: beverage

———————————— = Beverage cost percentage

Beverage revenues

When reviewing the above, note that the beginning inventory for food and for beverage plus the value of purchases for these two products equals the total amount of product (food and beverage) available. When the value of ending inventory for food and beverage products is subtracted from this amount, the cost of sales for each product results. Note also that the source documents (physical inventory forms for beginning and ending inventory values and delivery invoices for the value of purchases) indicate where data for these calculations will be found. In earlier articles we learned about the Generally Accepted Accounting Principle (GAAP) involving “matching”; that is, the revenue generated from a sale of a food or beverage product should be matched with the expense incurred while generating the revenue. Adjustments to the cost of sales calculations presented above are necessary to apply this matching principle.

ü  Some food products may actually generate revenues for the beverage
operations: complimentary food provided in the bar/lounge to encourage
beverage sales.

ü  Some beverages might be used to generate food revenue: wine used in
cooking and liqueur used to prepare desserts.

ü  Some food and beverage items may not generate food or beverage revenues
at all: complimentary meals/drinks given to persons considering the future booking of functions at the restaurant (this is more accurately a marketing expense) and food provided as a meal (benefit) to employees (this is more accurately a labor/benefit expense). The GAAP of matching, then, is recognized by making adjustments to the basic cost of sales calculations noted above. The calculations to do this follow: