Restaurants carry out food cost analysis to identify the most costly meals on their menus and calculate profit margins. This method helps the owner of the restaurant to benchmark costs, target profit, and perform a cost control.
There are four aspects of food cost analysis that must be calculated individually. First, a maximum allowable food cost figure determines the food cost percentage that is required to achieve profit objectives. Secondly, a sum of the cost of food consumed by customers is called an actual food cost. This figure must not include employee meals or spoilage.
A potential food cost is an ideal percentage that indicates what the food cost should be in a perfectly run restaurant, given the particular sales mix. The fourth important figure is called a standard food cost percentage, and it includes a waste allowance.