Theoretical food cost represents a restaurant’s estimated expenditure for food items based on the actual cost of ingredients used and purchased over a certain period. This does not include any potential losses due to spoilage, wastage, theft, improper portion sizing, or accounting and inventory errors. By taking all these elements into consideration as well as the theoretical food cost, restaurants can gain a more accurate understanding of how much they are actually spending on food. This provides them with invaluable insights into their budgeting and food purchasing decisions.
The theoretical food cost is an essential component to restaurant success, as it helps to ensure that each purchase made is used in the most efficient manner possible. By taking these factors into consideration, restaurant owners can create a more successful and cost-effective environment. By understanding their food costs and the associated losses, they open the door to improved operational efficiency and increased profits.
The process of calculating theoretical food cost involves two primary steps: identifying the ingredients and their respective costs, and then using that information to calculate a total for the entire dish.
First, F&B businesses should determine all ingredients necessary for a particular menu item or recipe. This includes not only main ingredients such as meat or vegetables but also incidental ingredients such as spices, seasonings and oils. Once a complete list of ingredients is identified, the cost for each ingredient should be calculated. This can be done by determining how much of each ingredient is necessary for the dish and then multiplying that by the price per unit (e.g., pounds or ounces).
After all costs have been identified, the total cost of the dish can then be calculated by adding up all ingredient costs. This is the theoretical food cost for that menu item or recipe. To calculate a theoretical food cost percentage, businesses simply divide the total ingredient cost by the expected selling price of the dish and then multiply it by 100 to get a percentage.
By calculating theoretical food cost percentages, F&B businesses are able to better understand their profitability and ensure they are setting prices that adequately cover all associated costs. Moreover, tracking theoretical food cost can help managers identify areas where changes may be necessary in order to increase profits. For example, if a theoretical food cost percentage is too high for a particular menu item, managers might consider reducing portion sizes or changing the ingredients list to include less expensive items. By monitoring and adjusting their theoretical food costs, F&B businesses can ensure they are operating as efficiently as possible while still providing delicious dishes to their customers.
Also read: How to calculate food cost
Modern foodservice companies rely on food costing software to make sure calculations are correct and automatically updated. Food costing software is a technology platform that helps restaurants and other food service operators to accurately measure the cost of their menu items. It allows them to track ingredient costs, labour costs, overhead costs, and other expenses associated with each dish they serve.