Cost vs Percentage
Cost Versus Usage Percentage
Once of the main reasons why a restaurant’s finances are usually not matching what is spent is because who ever is in charge of managing the purchasing and inventory does not know the difference between actual costs and usage percentage. What a company needs to realize is that both should be treated separately and then compared later to find if further investigation is needed to evaluate the discrepancy. First the company needs to record their attainable cost and evaluate the actual cost, calculate the operational efficiency ratio and reasons why the two costs might not add up.
Attainable Versus Actual Costs
The attainable cost is the amount of inventory is supposed to cost on paper. For instance, if a company were estimating it will cost $2 to make a cheesecake and they sold $100 cheesecakes, their attainable cost would be $200. Once the attainable cost is known, they can compare what it actually cost them to make it. Using the same example, lets say the actual cost to produce these cheesecakes was $210 dollars to make. So now that the two costs are recorded, the operational efficiency percentage can be evaluated.
Operational Efficiency Percentage
Once the two costs are recorded, they need to be inputted into the operational efficiency ratio. This is a predetermined range that can be used to consider what is an acceptable cost for inventory. This formula is Actual Cost/ Attainable Cost = Operational Efficiency Ratio. So in the example above this is what the numbers would look like:
Attainable Cost
Actual Cost
Operational Efficiency Ratio
Acceptable Requirement
200
210
1.05
Yes
If a company is using an Excel spreadsheet, the “What If” formulas would be beneficial and easy for who ever is calculating the inventory costs to look at and see if requirements are being met.
Next Steps to be considered
In the example above, management has deemed that 105% of the attainable cost is an acceptable amount, but
Once of the main reasons why a restaurant’s finances are usually not matching what is spent is because who ever is in charge of managing the purchasing and inventory does not know the difference between actual costs and usage percentage. What a company needs to realize is that both should be treated separately and then compared later to find if further investigation is needed to evaluate the discrepancy. First the company needs to record their attainable cost and evaluate the actual cost, calculate the operational efficiency ratio and reasons why the two costs might not add up.
Attainable Versus Actual Costs
The attainable cost is the amount of inventory is supposed to cost on paper. For instance, if a company were estimating it will cost $2 to make a cheesecake and they sold $100 cheesecakes, their attainable cost would be $200. Once the attainable cost is known, they can compare what it actually cost them to make it. Using the same example, lets say the actual cost to produce these cheesecakes was $210 dollars to make. So now that the two costs are recorded, the operational efficiency percentage can be evaluated.
Operational Efficiency Percentage
Once the two costs are recorded, they need to be inputted into the operational efficiency ratio. This is a predetermined range that can be used to consider what is an acceptable cost for inventory. This formula is Actual Cost/ Attainable Cost = Operational Efficiency Ratio. So in the example above this is what the numbers would look like:
Attainable Cost
Actual Cost
Operational Efficiency Ratio
Acceptable Requirement
200
210
1.05
Yes
If a company is using an Excel spreadsheet, the “What If” formulas would be beneficial and easy for who ever is calculating the inventory costs to look at and see if requirements are being met.
Next Steps to be considered
In the example above, management has deemed that 105% of the attainable cost is an acceptable amount, but