If you’ve ever looked at your profit and loss statement and wondered why your food cost looks off, you’re not alone. For many restaurant owners, the numbers that go into a P&L can feel confusing, especially when you see things like Cost Of Goods Sold and Cost Of Goods Produced.
Both have to do with what you spend on food and supplies, but understanding a key difference will make your finances a lot clearer. It’s also one of the easiest ways to spot waste, track margins, and take advantage of tax deductions for your restaurant.
How To Calculate Cost Of Goods Sold for Restaurants?
Cost of Goods Sold (COGS) refers to what it costs you to make what you sold. If you sell a burger, COGS is the bun, the beef, the cheese, the lettuce, the fries that come with it, basically everything that went into that order. It’s not about what you bought that week; it’s about what was actually used to make the food your customers ordered.
Here’s how to calculate it:
COGS = Beginning Inventory + Purchases – Ending Inventory
Here’s how it works in practice. Let’s say you started with $10,000 worth of food and supplies, bought $25,000 more, and ended the month with $8,000 still in inventory.
Your COGS calculation would look like this:
10,000 + 25,000 – 8,000 = $27,000
This tells you how much food you actually used to generate sales. Most restaurants aim to keep COGS between 28% and 35% of sales, but it depends on your concept and pricing.
COGS is what helps you understand whether your menu is priced right, if portions are consistent, and if there’s any waste or theft happening behind the scenes.
What Is the Cost Of Goods Purchased for Restaurants?
Cost of Goods Purchased (COGP) is where a lot of restaurant owners get tripped up.
COGP looks only at what you bought, not what you actually used. If you stocked up on extra wine before a busy season or over-ordered produce that’s still sitting in the cooler, those purchases inflate your costs for the month, even though they haven’t turned into sales yet.
In other words, COGP is just your total purchases. It doesn’t account for the food still on the shelf at the end of the period. That’s why using COGP instead of COGS can make your margins look worse than they really are.
COGS vs COGP: Which Should You Use
You might be wondering if it really matters which one you use. It absolutely does, especially if you want to understand your real profitability.
When you treat everything you buy as an expense right away, your food costs jump all over the place. One month, you might stock up and show a huge loss on paper, and the next month, it might look like you’re making record profits just because you didn’t order much.
Using COGS smooths that out. It shows the true cost of what you used to generate your sales. That helps you see patterns, manage waste, and plan for seasonal changes.
It also matters for taxes. The IRS expects restaurants to track inventory and report the actual cost of goods sold, not just what you purchased. If you expense all your purchases without accounting for inventory, you could run into compliance issues or miss out on deductions you’re entitled to.
Let’s Look at a Simple Example
Using our earlier example, where you started with $10,000 worth of food and supplies, bought $25,000 more, and ended the month with $8,000 still in inventory. And your restaurant brought in $100,000 in sales this month.
COGS = 10,000 + 25,000 – 8,000 = $27,000
COGS percentage = 27,000 (COGS) ÷ $100,000 (Sales) = 27%
That means it cost you $27,000 to make the food and drinks you sold. Your COGS percentage would be 27%.
If you only looked at your purchases of $25,000, you’d think your costs were lower than they really were, and you’d be making decisions based on the wrong number.
Need Help Making Sense Of Your Food Costs?
Getting a handle on your food costs isn’t difficult once you understand what COGS and COGP really mean.
At Vast, we work with restaurants, wineries, and breweries every day to turn financial reports into clear, actionable insights. We’ll help you track your inventory properly and build a system that shows your true margins.
If you want to understand where your money’s going and how to make it work harder for you, simply reach out and book a call today!
