A kitchen's monthly food cost from stock counts
How a restaurant works out food cost of sales for the month from opening stock, purchases and the closing count, and how the result reaches the books.
By Achekam · · 4 min read · For Hospitality businesses in South Africa, Nigeria, Kenya
The chef says the kitchen is running lean. The pile of supplier invoices suggests otherwise. The owner suspects waste, the chef suspects the suppliers, and the bookkeeper simply adds up the invoices and calls the total "food cost". All three are arguing about a number that nobody has worked out properly.
A month's food cost is not what you bought this month. It is what you used. The difference sits in the freezers, the walk-in and the dry store, and the only way to measure it is to count. Here is how a restaurant or hotel kitchen in South Africa, Nigeria or Kenya can do the calculation, and how the result reaches the books.
Opening stock plus purchases less closing stock
Investopedia gives the formula for cost of goods sold as beginning inventory plus purchases during the period minus ending inventory. ACCA sets out the same logic: cost of sales is opening inventory plus purchases minus closing inventory, so closing inventory is a credit to cost of sales in profit or loss and a current asset in the statement of financial position.
Investopedia adds the principle behind it: costs incurred on goods not sold during the year are not part of that year's cost of goods sold. The same holds month by month. The lamb bought on the last Friday and still in the freezer belongs to next month's food cost, not this month's.
A worked example in words. Last month's closing count becomes this month's opening stock. Add the food lines of every supplier bill delivered this month. Subtract the value of this month's closing count. What is left is the food the kitchen used: served to guests, eaten by staff, spoiled, thrown away or taken.
Counting the kitchen at month end
The count is the part kitchens rush, and the part that decides whether the figure means anything. A few rules keep it honest:
- Count at the same point every month, after the last service and before the first delivery.
- Count by storage area: walk-in, freezers, dry store, and anything kept at the pass.
- Count in the unit the supplier invoices in, so a value can be put on each line.
- Value each line consistently, normally at the latest purchase price.
- Treat opened items the same way every month, whatever rule you pick.
- Use two people: one counting, one writing, and not both from the kitchen.
With Achekam's Warehousing add-on, a stock count sets each location's quantity to what was counted and records the difference as an adjustment, so the walk-in, the freezers and the dry store can each be a location with its own count.
Know the limit, though. Counts, wastage, transfers and opening quantities do not post to the general ledger; only till sales and till returns move the inventory account. The count gives you quantities and differences. The closing stock value still reaches the books by journal.
Purchases come from the supplier bills
Purchases for the month are the food lines of the month's supplier bills. In Achekam a business records supplier bills line by line with VAT, so the food on a wholesaler's invoice can be separated from drinks, cleaning materials and packaging on the same page. That split is what makes a food cost figure possible at all.
Two traps to avoid:
- Missing bills. A delivery whose invoice is not yet recorded understates purchases and flatters the food cost.
- Cut-off. A delivery that arrived before the count, and was counted, must be in this month's purchases. If it is in the count but not in purchases, the kitchen looks better than it is.
The routine for recording and paying those bills is in paying food and beverage suppliers in parts.
Bringing the books into line by journal
In Achekam a business can post manual journals. An unbalanced journal, or one dated in a closed month, is refused, and a posted journal is corrected only by a reversal. That suits a month-end stock adjustment well: dated on the last day of the month, posted before the month is closed, and visible in the ledger afterwards.
The journal moves the inventory account from the value the books show to the value of the count, with the other side to food cost of sales. If closing stock is higher than the books show, inventory goes up and cost of sales comes down; if it is lower, the reverse.
Agree the exact entry with your accountant before the first month. Because till sales and till returns already move the inventory account, the journal must correct the difference between the books and the count, not repeat what the till has posted.
Reading food cost against food sales
Investopedia explains that gross profit is revenue less cost of goods sold, expressed as an amount, while gross margin expresses gross profit as a percentage of sales. For a kitchen, food sales less food cost is the food gross profit, and food cost divided by food sales is the food cost percentage that chefs and owners talk about.
Watch the trend more than any single month. When the percentage jumps, the usual suspects are:
- waste and spoilage that nobody recorded;
- portions creeping up;
- supplier price rises not yet reflected in menu prices;
- staff meals not accounted for;
- a count or cut-off error, which is worth checking first.
Drinks deserve the same discipline with their own count; controlling bar stock from cellar to counter covers the bar. Investopedia's explanation of cost of goods sold sets out the formula and what it does and does not include.
Count the kitchen properly at this month end, record every bill for the month, and post the adjustment. One honest figure is worth more than a year of argued ones.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
