Calculation of Food Cost , Labour Cost , Overhead Cost in Hospitality Sector

Total cost is classified into food cost , labour cost and overhead cost . It is very important that we should watch these cost close as little variation can badly effect the profit of hotel and if the food cost actual is more than estimated food cost , profit suffers and if food cost actual is less than estimated food cost then the guest feel cheated. In previous blog I have posted calculation of food cost in brief.  We will be going in details in this article.


A) Food cost :- In food cost , we have to take I to account of opening stock , closing stock , food consumed by staff, purchase of food, beverage and complimentary served food items.
For example , If  Total sales = 30000
                         Opening stock = 1000
                        Purchase made = 10000
                        Closing stock     =500
        Food consumed by staff = 1000
    Complimentary food items = 500

Now we will do solution , 

 Opening stock = 1000
 Fresh Purchase made     =  10000
 
We will add these two = 11000

Now we will reduce closing stock = 500

It will be = 10,500

Again we will reduce food item consume by staff ,  1000

It will be = 9,500

Again, we will reduce complimentary food , which will be 500 ,

It will be 9,000

Now , food cost percentage to net sales, we will use formula

Total food cost * 100 divided by total sales

 9000/ 30000 * 100 = 30% which is our food cost percentage to net sales. 

B) Labour cost :- To calculate labour cost we have to include all expenditure incurred in staff and on their welfare . It includes wage, salaries, uniform, Accomodation 

For example :-  if,

Total sales = 50000
Wages and salary paid = 5000
Employee provident fund = 1000
Medical re-imburstment = 500
Uniform allowance = 500
Free telephone at home = 500

Now we have to add all of them beside Total sales , and the formula is , 
Total labour cost / Total sales * 100

So , 7500 /50000 * 100 = 15%

Thus, labour cost percentage to net sales is 15%

C) Overheads :-  All other cost like office expenses, rent , power and light expenses, water , gas , fuel and advertising , marketing expenses fall under overheads

For example , if Total sales = 20000

Rent = 2000
Commission= 500
Depreciation= 1000
Gas and fuel = 500
Advertisement = 500
Laundry = 300
Electricity = 200
Water = 500

We have to add all overheads cost , which will be 6000 and now formula will be,
  
     Total overhead / Total sales * 100

= 6000/ 20000 * 100 which will be 30% to net sales. 




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