Cost of Goods Sold (COGS)

Cost of goods sold (COGS) is the cost of the food, beverage or other inventory actually used to generate sales during a defined accounting period. In a restaurant, food COGS is not simply the value of purchases made that month; it accounts for opening inventory, purchases and closing inventory.

Basic COGS formula

COGS = Opening inventory + Purchases − Closing inventory

For example, if opening food inventory is $8,000, purchases during the month are $22,000 and closing inventory is $7,000, food COGS is $23,000.

Food-cost percentage

Food-cost percentage = Food COGS ÷ Food sales × 100

If food COGS is $23,000 and food sales are $75,000, the food-cost percentage is approximately 30.7%. Use consistent treatment of discounts, staff meals, transfers, waste and taxes when comparing periods.

Why COGS matters

• Measures the direct inventory cost associated with sales.
• Helps identify purchasing, portioning and waste issues.
• Supports menu engineering and pricing decisions.
• Allows comparison between locations and accounting periods.

Chef’s tip: Complete inventory counts consistently and value stock using the same method each period. Record transfers, spoilage, staff meals and complimentary items correctly so the food-cost report reflects actual operations.

Key distinction: Purchases are what the business bought; COGS is the inventory cost recognized as used during the period.