The Accounting Department has been working to respond to the overwhelming impact of COVID-19 / Coronavirus. For the next couple of newsletters, we thought we would take the opportunity to talk about a few items you may hear about when discussing financials or PBAs (Profit Before Advertising) by starting out with Cost of Sales.
Have you ever wondered how orders and inventory counts impact your PBA? Inventory counts tell us how much inventory you had at the beginning and end of the period.
Beginning Inventory + McLane Purchases – Ending Inventory = Cost of Sales on PBA
In accounting, we call this the matching principle because we are recognizing the food cost, to the best of our ability, in the period related to the sales. McLane purchases are lumped in cost of sales in the period the order is received. Ending inventory counts make sure we move the appropriate amount of food off the PBA for next period when the food will be used. When doing inventory counts, please keep the following in mind:
Check the unit description – gloves are a great example. On the count sheet it asks for the number of boxes which come 250 gloves to the box. The end of the period number is most likely between 1 and 3; however, we will frequently see a number between 250-350 resulting in the inventory being significantly overstated.
Check the dollar amount per item for reasonableness. Should a store have $8,000 of oil on hand?
Please make sure to respond to the accounting inquiries within 2 business days. We are always on a deadline to close the books and require timely / accurate information.
ICOS (Ideal Cost of Sales) is a calculation that can be helpful for all levels of management. The calculation is as follows:
(Cost of Theoretical Items / Store Net Sales) + Paper and Waste %
The paper percent is set at a flat 6.5% and the waste percent changes based on the period and brand of the location. Waste percentage for Q1 2020 ranged between 2.3% to 3.93%. ICOS is compared to a locations actual cost of sales where the goal is for the location to be slightly under or the same. If they are not close this is an indication of possible theft, over / under portioning, or too much food waste.
Lastly, the Accounting Department is excited to introduce our newest team member, Melissa Luna who moved here from California last year. Melissa is excited to bring her full cycle accounts payable background to the team and has already hit the ground running by helping streamline and improve current processes.
By: Greg Rowland
Chief Financial Officer