Food service operations prepare monthly financial statements. Accurate inventory value and usage in dollars is needed to prepare these statements. The physical inventory is counted at the close of business on the last day of the month. This way we have accurate information with which to prepare our month-end financial statements.
Inventory values and usage are determined for our financial statements using the following standard formula:
Beginning inventory (BI) (Close of inventory from last month)
+ Purchases (all inventory purchases for the month)
Cost of food available for sale
— Ending inventory (EI) (from the comparison of the physical to the perpetual)
If we are preparing our month-end financial reports for the month of July 20XX, our beginning inventory value is the ending inventory value from the month of June 20XX. The other information that we need in order to arrive at a cost of food sold is the total value of all of our food purchases that went into inventory during the month and the current, adjusted, ending inventory for July 20XX.
If our ending inventory value for June 20XX was $3,700.00, and we purchased $14,400.00 worth of products that were placed into inventory, and our month-end inventory value is $4,500.00, what is our cost of food sold for the month of July 20XX?
For the month of July 20XX, our cost of food sold is $13,600.00. If our food-sales revenue for July 20XX is $54,400.00, what is our food-cost percentage for July 20XX?
Goods available for sale — EI
Cost of Food Sold
$ 3,700.00 14,400.00 $18,100.00 4,500.00 $13,600.00
Cost of food sold
Food cost percentage
Food sales revenue
Remember that our food cost is a part or a portion of our food-sales revenue. A part or a portion of a number yields a decimal or a percentage. If we cannot determine an accurate value for our inventory, then our financial statements as well as our food-cost percentage will not be correct. If our inventory information is inaccurate, then we cannot determine if we are really making any profit.
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