What is food cost variance? And how is it controlled?
How often do you check the prices of your meal components? With every delivery? Once a week? Once a month? Your supplier hasn’t mentioned any significant changes in prices, so why worry? After all, you have a great deal with them, and you’re getting excellent prices. But prices are seasonal and change all the time, with small increases here and there; sometimes it goes unnoticed, and sometimes it doesn’t. In an ideal world, the cost of food would always be what you expected, but unfortunately, it doesn't always work that way.
What is food cost variance?
If you are like most restaurants, you probably have a high stack of invoices on the table and you're likely checking your food costs once a week or at best, once a month, or not checking at all. When you start reviewing your invoices and notice that the costs of some products have changed significantly from what you expected.The difference between the actual food cost and the expected food cost is your food cost variance.
Why do we need to measure food cost variance?
Measuring food cost variance is an essential task for every restaurant; it helps maintain your product pricing review process. It allows you to calculate your food cost percentage, create sales forecasts, understand your suppliers, and the efforts and ways needed to manage your inventory. Efficient and profitable restaurants will keep their food cost variance low and will be able to explain in detail why there is a disparity between the actual figures and the expected cost.
How is food cost variance calculated?
Food cost variance = (Actual price * Actual quantity) – (Expected price * Expected quantity)
Essentially, you take the actual cost, subtract the expected cost, and get the food cost variance.
Actual cost
Actual price is what you are currently paying for the products. This cost fluctuates according to market trends and seasonality.
Actual quantity is the quantity of products you are currently purchasing.
Expected cost
Here comes the tough part. Expected cost is based on previous information that has been gathered.
Expected price is the average price of a specific product over a selected period of time. Collecting historical data allows you to