Cost of Goods Sold

Cost of Goods Sold, COGS, is a simple formula that determine your dining’s profitability and efficiency.

Cost of goods sold (COGS), known also as a cost of sales, is the total costs of food items that a dining facility purchases and uses to prepare and serve meals to the facility’s residents.

COGS is a key measure in determining whether your dining department is making a profit or not and it ties directly to your overall profit margins and revenue on the profit and loss (income statement). 

Cost of Goods Sold (COGS) refers to the direct costs of producing the food sold by the dining’s facility. COGS usually calculated at the end of each accounting period such as a month and it is part of the monthly close process.

The cost of goods sold is an expense appearing as part of total expenses in the profit and loss statement. Here is a sample of how COGS can appear on the profit and loss statement for an independent living facility:

Cost of Goods Sold Calculation Formula

Inventory is the most important part of COGS since its calculation is based on the changes in inventory. The following three values are needed to calculate COGS for a given time period:

1- Beginning inventory: The value of the beginning inventory of a new accounting period should equal the same amount as the ending inventory from the prior accounting period. 

3- Purchased Inventory: The total dollar amount spent during the period on food supply such as bread and poultry, veggies and fruits, and beverages.

2- Ending Inventory: Taking a physical count of the inventory at the end of every period

Cost of Goods Sold Example

Example: At the end of the of month of May, the ending inventory of the period as reported by the dining manager is $22,500. The beginning inventory, which is the ending inventory of the prior month, which is the month of April, is $20,000. And during the month of May, total dining purchases is $30,000. Based on the following information and based on the COGS formula, then the COGS for the period:

Cost of Goods Ratio

The cost of goods sold (GOGS) ratio is your dining COGS as a percentage of total sales or revenue. To calculate the ratio, divide your COGS by your sales or total revenue and then multiplying the number by 100.

Based on the above information, our COGS ratio for the month is:

The dining facility COGS ratio is 35% for the reporting period. The average COGS for food dining is typically between 30% to 40%. This means that 35% of our dining department revenue or total sales goes toward paying COGS.