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The equation for COGS is:

Beginning Inventory + Purchased Inventory - Final Inventory = Cost of
Goods Sold (COGS)

2) PRIME COST

A restaurant’s prime cost is the sum of all of its labor costs (salaried, hourly,
benefits, etc.) and its COGS. Typically, a restaurants prime cost makes up
about 60% of its total sales. Prime cost is an important metric because it
represents the bulk of a restaurant’s controllable expenses. While you can’t
control fixed rent costs on a weekly or monthly basis, for instance, you
can find ways to decrease prime costs by managing labor carefully. Thus, a
restaurant’s prime costs represent the primary area a restaurant owner can
optimize in order to decrease costs and increase profit.

Calculating Prime Cost

Now that you know how to calculate COGS, calculating prime cost is
straightforward. Add up all of your various labor-related costs. These costs
include salaried labor, hourly wages, payroll tax, and benefits. Then, simply
add the sum of your labor costs and your COGS to find your restaurant’s
prime cost.

The equation for prime cost is:

Labor + COGS = Prime Cost

3) FOOD COST PERCENTAGE

Food cost percentage represents the difference between the cost of
creating a specific menu item (the cost of all of the ingredients in a dish) and
the selling price of that item.

Calculating Food Cost Percentage

If it costs $3.28 to prepare your salmon dish and you sell it for $15, your
food cost percentage would be 21.9%. Although it depends on the novelty
aspects of your dish, your guests’ expectations, and your restaurant’s service
type, typically a restaurant’s food cost percentage should be between 28%-
35%. You can calculate your food cost percentage for all goods sold by
dividing your total food costs by your total sales during a set time period.
If you understand your food cost percentage for each of your menu items,
you can choose to upsell or design your menu to promote the items that
contribute the most to your revenue and bottom line.

The equation for food cost percentage is:

Food Cost / Total Sales = Food Cost Percentage

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