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The Importance of Food Costing

How Important is Food Cost?

With costs of ingredients/ input materials rising and customers eyeing for value for money, it is important that prices of menus are affordable, still profitable. One of the greatest weapons against profit/loss is to know your food costs.
A restaurant’s food cost determines its profitability. Without knowing the food cost and the movement during the period, the reports and accounts just serve as a piece of information with no precise action For example: Let’s say food cost for the month of January was 22% and for the month of February was 24%. Without having adequate records and information for food cost, the reasons for the change in food cost cannot be precisely ascertained. The food cost may increase due to the change in the mix of products sold, higher wastage, etc. Each reason may have a different action plan to be implemented.

How to keep Food Cost under check

To keep food costs under a check in a restaurant it is important to maintain proper cost records and timely information available on the go. In the era of multi locations and franchisees, the real-time availability of cost and accounting information becomes necessary and no more a “good to have” scenario. To effectively maintain your food costs and take timely action on exceptions, a restaurant is required to establish processes which can maintain the following data at the minimum:

  • Updated Menu item and their price
  • Correct and Complete Recipes
  • Expected yield of ingredients
  • Wastages
  • Broad segregation of raw material like vegetables, spices, packing materials, etc.

It is also important that we records are maintained timely and the information is easily accessible. Witnessing the current technology scenario, use of applications and systems supporting mobile would prepare you better towards a proactive approach.
We should maintain our cost and accounting data in a synchronized and procedural way to enable us with efficient MIS and report. The MIS and reports should help us meet the following:

  • A precise overview and breakup of cost with comparisons from the previous period
  • Daily, weekly, etc sales
  • Comparative with other locations (our own branches/ stores
  • Movement of Food Cost
  • Gross Margin and profitability analysis

In a nutshell, in a dynamaic and competitive environment of restaurant/ food business, accounting becomes very critical to its success