Actual Food Cost vs Theoretical Food Explained the Easy Way…
What is theoretical food cost?
The estimated sum of money that food may cost over a specific time period is known as the theoretical food cost. This entails examining the current price of ingredients as well as the quantity of ingredients required for that specific time frame. The restaurant’s head chef, general manager, or owner are typically the experts who calculate the theoretical food cost. The formula for theoretical food cost is:
[(food item A cost x item A units sold) plus (food item B cost x item Y units sold) plus ()] )] / (total food sales x 100).
What is actual food cost?
Actual food costs are the sums of money spent on food during a specific time frame. This covers any discrepancy in pricing or quantity when purchasing the food, as well as any food waste. Because it takes into account additional costs, the projected theoretical food cost is always higher than the actual food cost. The formula for actual food cost is:
(Total food sales multiplied by 100) / [(beginning inventory + new inventory purchased) – ending inventory]
Actual vs. theoretical food cost
Actual and theoretical food costs differ significantly in a number of significant ways:
Theft, also known as shrinkage, is a factor that actual food costs take into account. It frequently happens in eateries with poor inventory management, and it can have an impact on how much food the establishment must buy to make up the losses. Theoretical food costs may be impacted because restaurants may need to purchase ingredients or inventory to make up for the theft.
Miscounting available ingredients affects both actual and theoretical food costs. An ingredient that kitchen staff fails to recognize or account for may result in an unnecessary purchase. Therefore, both the actual and theoretical cost of food would rise.
Accurate inventory reports also impact estimated and actual food costs. Theoretically, the cost of food could increase if a restaurant reports insufficient inventory of items like food, napkins, tablecloths, utensils, and plates. If it reports an excessive amount of inventory, the cost of the food may unintentionally include the purchase of additional inventory. These errors can cause meal or inventory shortages.
Because the numbers only take into account the cost of an ingredient’s purchase or inventory, not its use, ingredient waste can have an impact on the price of food. A restaurant must replenish its stock or buy new ingredients if it wastes food. Because waste is an expected expense, it is typically taken into account in the theoretical food cost. Therefore, the theoretical food cost would remain unaffected.
The actual cost of the food can change if a restaurant’s accountant makes mistakes. This is because inaccurate prices on an invoice could cause the price of the food to increase or decrease. Theoretically, the cost of food would not change because it is an expected and estimated cost rather than a fixed cost.
The restaurant may experience an ingredient shortage if a meal uses more ingredients than necessary or anticipated. Because the theoretical food cost frequently assumes perfect portioning, this results in a need for said ingredient that may not be taken into account. As a result, the cost of preparing the meal rises, increasing the actual cost of the food.
Changing ingredient or inventory costs
Both the actual and theoretical food costs are affected if the ingredient purchase prices are higher or lower than the restaurant anticipated. For instance, if the head chef records the cost of a single bag of rice as $12 but it actually costs $14 when you go to buy it, the actual cost is $2 less than what the chef anticipated. This, in turn, increases the actual food cost.
How do you calculate theoretical food cost?
Simply put, this represents the price of all the food that the restaurant consumed during a specific time frame. How closely a restaurant’s actual costs converge with its theoretical costs is the sign of truly excellent food cost control. If the portions are an exact match, there is no breakage, waste, or shrinkage.
What is the difference between ideal food cost and actual food cost?
Theoretical food costs are what your meals should cost over a certain time period based only on what you sold and how much those items cost at the time given the most recent ingredient prices. It assumes zero breakage, shrinkage, or wastage.
How do you calculate food cost variance?
While actual food cost is computed using actual inventory levels, ideal food cost is a calculation that ignores inventory losses. The cost you would incur if you operated the ideal restaurant with no waste is your ideal cost. Actual costs are always higher than ideal costs because shrinkage happens in the real world.