Understanding Costs

Looking at the diagram above, let us explain how the elements of cost make up the selling price of an item and how we can use this and apply it to a calculation.

Gross profit is the full earnings gained after deducting the cost to make the dish but before any deductions are made for overheads and expenses.

Let’s take an example to explain the diagram:

Calculating the gross profit percentage

To calculate the gross profit percentage (remember the above figure is not a percentage), you do the following:

This gives a gross profit percentage of 55,5%.

Calculating the food cost percentage

The food cost percent is the difference between the gross profit and 100% (the selling price).

Using the above example: 100% – 55,5% = 44,5%, which gives a food cost of 44,5% of the sales.

So, the selling price minus the cost of food equals the gross profit.

And the gross profit minus the fixed and variable costs equals the net profit.

Calculate the following:

If your turnover is $16 000 for a month and your food cost is 33%, what is your gross profit?

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