In this article, we will discuss the cost of goods sold (COGS), the catering business’s direct expense, and the cost of catering business sales with brief implications. We will also discuss the impact of sales costs for the company and its impact on the catering business.
What is the Cost of Goods Sold?
It is a direct cost incurred on a product to sales in the market. This cost often includes the direct material and labor cost of business to make the product or deliver the service. It excludes all indirect expenses like marketing, administration, and finance costs.
- The cost of sale is the cost incurred to produce the product in a saleable position.
- It excludes all fixed costs.
- It will be deducted from revenue for the calculation of Gross profit margins.
- Vale of cost of goods sold might be changed due to the accounting standard used by the business.
What is a Catering Business?
In the catering business entity, provide food-related services to clients on a permanent or temporary basis. For Example, if you want to arrange a party and don’t want to make food at home, you will hire anyone to provide food and party arrangements.
The person or entity you called for receiving the service will be called catering services.
What is the cost of Goods Sold for the Catering Business?
Any direct expense incurred by the catering business to provide the service will be deemed cost of sales or service costs. The catering business includes many costs like the food business, but some companies or sole proprietors also offer decoration services to their targeted customers.
There are two main kinds of expenses, one that fluctuates with sales revenue and the other that remains constant, no matter what is sales revenue.
Cost of Goods Sold Components for a Catering Business
Cost of goods sold (COGS) is a key component of an income statement, as it represents the direct costs associated with producing and selling a product. In a catering business, the COGS typically includes the following components:
1. Food and Beverage Costs
This includes the cost of ingredients, spices, and beverages used to prepare and serve the food. This can include raw materials such as meats, vegetables, dairy products, and other ingredients needed to prepare the dishes.
The cost of these ingredients can fluctuate based on market prices and supply and demand, so it is important for a catering business to track these costs regularly.
2. Labor Costs
Labor costs can be a significant component of COGS for a catering business. This includes the wages paid to kitchen staff and servers who are directly involved in the preparation and serving of the food. This can include the cost of hourly wages, taxes, and benefits for these employees.
3. Equipment Costs
Catering businesses often require specialized equipment, such as ovens, grills, and refrigeration units, to prepare and store food. The cost of purchasing or leasing this equipment, as well as its maintenance and repairs, can be included in COGS.
4. Rent and Utilities
The cost of renting a kitchen space or using a commercial kitchen can also be included in COGS. This includes the rent, utilities (such as electricity, gas, and water), and any other associated costs.
5. Supplies and Packaging
This includes the cost of disposable items such as plates, napkins, silverware, and packaging materials used to transport and serve the food. This can also include the cost of cleaning supplies used to maintain the kitchen and serving equipment.
General and Administrative Expenses for a Catering Business
General and administrative expenses refer to the indirect costs associated with running a business, such as rent, utilities, salaries, and other overhead costs. In a catering business, the following are common components of general and administrative expenses:
1. Rent and Utilities
This includes the cost of renting or leasing a commercial kitchen or office space, as well as the cost of utilities such as electricity, gas, and water.
2. Salaries and Benefits
This includes the wages paid to administrative staff, such as office managers, bookkeepers, and sales staff, as well as any associated benefits, such as health insurance and retirement plans.
3. Marketing and Advertising
This includes the cost of promoting the business, such as creating and distributing flyers, advertising in local publications, and creating a website.
4. Legal and Accounting Fees
This includes the cost of legal services, such as incorporating the business or obtaining necessary licenses and permits, as well as the cost of accounting services, such as preparing financial statements and tax returns.
This includes the cost of liability insurance, property insurance, and any other insurance necessary to protect the business.
6. Supplies and Equipment
This includes the cost of office supplies, such as paper, ink, and pens, as well as any equipment necessary to run the administrative side of the business, such as computers, printers, and phones.
General and administrative expenses in a catering business can include rent and utilities, salaries and benefits, marketing and advertising, legal and accounting fees, insurance, and supplies and equipment. Keeping track of these costs is important for determining the overall overhead costs of running the business and making informed business decisions.
The short cost of goods sold is a necessary expense for a caterer; it might not be neglected because a significant payment for a catering business is a food cost expense.
Caterers can’t ignore the cost of business sales, so if you are going to start a catering business, you have to understand the business’s cost of sales and food costs.
Because this business is considerably dependent on food costs, you can easily manage other expenses if you can manage the food cost. Gross profit should not be calculated without identification and calculation of the cost of sales.
Let me know if you have any questions or queries regarding the catering business’s cost of sales; please leave a comment.