Restaurant COGS formula: how to calculate cost of goods sold

Opening and closing inventory are valued at cost, not at menu price. Purchases are the invoices for food that landed during the period, including transfers in from another site if you treat them as purchases, and excluding transfers out. Food sales are the retail sales of food in that same period. Keep beverage in its own percentage if you want a number a chef can act on.

Food sales in that percentage are excluding VAT. Variance is actual COGS minus theoretical cost, in SAR and in percentage points. Calculate COGS and food cost % from the same inputs.

COGS and labor are the two largest published cost lines, and COGS goes wrong quietly: a missed invoice, a one-sided transfer, a count off the sales cut-off. Below: the formula, what goes in and out, a worked month in SAR, and a check against the recipes. In the United States, the National Restaurant Association says food and labor were each about 33 cents of every sales dollar before the pandemic (elevated costs, 8 July 2026). In Canada, Statistics Canada says COGS was the largest operating expense in food services and drinking places, at 35.9% of total expenses in 2024 (daily release). Both are labeled by country, not a Gulf standard.

What COGS means for a restaurant

Cost of goods sold (COGS) is the cost of the food that left stock during the period, and of drinks too if they share the line. Sold, wasted, eaten by staff, or lost: if it left the building, inventory COGS includes it. A single dish is a recipe cost or a portion cost, not COGS. Costing one plate is how to cost a recipe.

Recipe cost times quantity sold never sees trim that missed the waste log, a heavy portion, or an invoice booked for goods that did not arrive. Inventory COGS does. That gap is actual COGS minus theoretical cost.

Keep food and beverage separate if you report them separately. A food cost percentage uses food COGS and food sales only. This page does not decide whether those two lines are printed apart.

The COGS formula, step by step

Do these six steps on one period. Match each invoice to what arrived (purchasing variance and goods received). A price that moves after the order still belongs to the period the goods were received (supplier price change mid-period).

1. 1. Fix the period

   Pick a week or a month. Use that same start and end for counts, supplier invoices, transfers, and food sales. A week of sales against a month of invoices is not COGS.

2. 2. Take opening inventory

   Opening inventory, also called beginning inventory, is the previous period’s closing count, valued at cost, not at menu price. If that count was wrong, this period opens wrong by the same amount.

3. 3. Add purchases

   Add supplier invoices for food received in the period, matched to goods that arrived. A credit note belongs in the period it corrects.

4. 4. Add transfers in and subtract transfers out

   Add transfers in from a central kitchen or another branch, and subtract transfers out. Book each transfer on both sides in the same period. If one side is missing, one site’s COGS falls and the other’s rises.

5. 5. Count and value closing inventory

   Count what is still on hand and value it at cost. That is closing inventory. The ending inventory formula, closing equals opening plus purchases minus COGS, is only a check, never a substitute for the count. In that check, purchases means supplier invoices plus transfers in minus transfers out.

6. 6. Calculate COGS and the percentage of food sales

   COGS equals opening inventory plus purchases minus closing inventory. Divide COGS by food sales excluding VAT and multiply by 100. Leave beverage out of food sales if food and beverage are reported apart. Leave labor out of COGS.

What goes into restaurant COGS, and what stays out

In: ingredients purchased for resale, drinks if they share the COGS line, and transfers in when you treat them as purchases. Out: labor, which sits in prime cost beside COGS and not inside it, plus rent, utilities, equipment, cleaning supplies, and VAT you can recover.

Packaging for delivery, staff meals, and comps are choices, not rules. Make each choice once and keep it every period. Moving a delivery box from food COGS to operating expenses, or the reverse, moves the percentage when the kitchen did not.

• –

  Valuing stock at menu price instead of cost inflates the count and flatters COGS.

• –

  Mixing a VAT-inclusive figure with a VAT-exclusive figure does the same, quietly.

• –

  Booking an invoice in the wrong period puts purchases into a month the goods did not belong to.

Worked example: one branch, one month

One branch, one month, in SAR. The formula’s purchases are invoices plus transfers in minus transfers out. The table splits those lines. The total is the same.

COGS for the month

COGS = 42,000 + 118,000 + 9,500 − 1,500 − 38,000 = 130,000. Stated as the formula box states purchases, invoices plus transfers in minus transfers out are 126,000, and 42,000 + 126,000 − 38,000 = 130,000. The ending inventory check is closing = opening + purchases − COGS = 42,000 + 126,000 − 130,000 = 38,000. It matches the count. It does not replace the count.

COGS as a percentage of food sales

Food sales excluding VAT are 460,000 ÷ 1.15 = 400,000. VAT inside the inclusive total is 460,000 × 15/115 = 60,000. Food cost % = 130,000 ÷ 400,000 = 32.5%. The same COGS on VAT-inclusive sales is 130,000 ÷ 460,000 = 28.3%, which is 4.2 percentage points better than the month really was. The denominator got bigger by the tax.

What a wrong closing count does

A closing count overstated by SAR 2,000 makes COGS 128,000 and the percentage 128,000 ÷ 400,000 = 32.0%, which is 0.5 percentage points better than the month was. Next month opens SAR 2,000 too high, so next month’s COGS is overstated by SAR 2,000. The error changes sign. It does not disappear.

Checking COGS against theoretical cost

Theoretical cost is SAR 121,000, or 121,000 ÷ 400,000 = 30.25%. Variance = 130,000 − 121,000 = SAR 9,000, which is 2.25 percentage points (32.5 − 30.25). That gap is the illustrative month, not a target.

Turn this month into inventory turnover.

COGS and VAT

On sales, in Saudi Arabia, divide VAT-inclusive food sales by 1.15 before the percentage. VAT collected is accounted for separately from revenue. Supply value inside an inclusive price is price × 100/115, and the VAT inside it is price × 15/115 (ZATCA retail guideline). For another market, divide by 1 plus the VAT rate where you operate. No other country’s rate is stated here.

On purchases, food purchases are normally recorded net of VAT you recover. 15% is added to purchases from a VAT-registered supplier. That 15% is reclaimed, not a food cost. Input VAT that cannot be recovered stays in the cost. Confirm the treatment with your accountant. In the worked month, leaving that recoverable 15% inside the SAR 118,000 of purchases makes purchases 135,700, COGS 147,700, and the percentage 36.9%. The overstatement is SAR 17,700, and only where that input VAT is recovered.

Add or remove VAT on a menu price in the VAT menu price calculator. The same 15% rule on one plate is in how to cost a recipe.

Actual COGS vs theoretical food cost

Theoretical cost needs sales by item, from a POS import or a file matched to recipes (match a sales file to recipes). Foodics, Oracle Simphony, Marn, and Sapaad are POS systems AKLI connects to, through its POS connector. AKLI is not a POS.

Variance = actual COGS − theoretical cost, in SAR and in percentage points. The gap is waste, portioning, comps, counts, or paperwork. The comparison is food cost variance. The waste log beside it is waste and variance and how to track kitchen waste.

How inventory valuation changes COGS

IAS 2 assigns the cost of interchangeable inventory with either FIFO or the weighted average cost formula (IAS 2). Both are valid. A new delivery goes into the same bin as the stock already there, so lot layers are hard to run in a kitchen. Weighted average cost gives one blended cost per item per branch, updated from each invoice.

Weighted average cost is 2,120 ÷ 100 = SAR 21.20 per kg, so 25 kg closes at SAR 530. FIFO closes those 25 kg at 25 × 22.00 = SAR 550. COGS for this item is SAR 20 lower under FIFO this period. The difference reverses as stock turns over. AKLI costs recipes at weighted average cost.

COGS percentage, gross profit, and prime cost

COGS % = COGS ÷ sales excluding VAT × 100. For food only, that is the food cost percentage. The walkthrough stays on that page. Rerun a period in the food cost calculator.

Gross profit = sales excluding VAT − COGS. Gross margin % = gross profit ÷ sales excluding VAT × 100. On the illustrative month, SAR 400,000 − SAR 130,000 = SAR 270,000, which is 67.5%. That is the invented month, not a margin a restaurant should expect. Prime cost is COGS plus labor. Labor is still not inside the COGS line. Where that cost of sales line sits in a full statement, beside labor and operating profit, is how to read a restaurant P&L.

The rows below are someone else’s survey or trade article. Read the label. None is a GCC standard or a result from this site. The illustrative 32.5% is not in the table.

Compare, then return to your own counts. The same publishers are collected on restaurant food cost statistics.

Weekly and monthly COGS, and branches

Monthly COGS feeds the profit and loss. A weekly close catches a problem while the service is still in memory: the weekly food cost close.

A group calculates COGS for each branch and for the central kitchen. Book every transfer on both sides in the same period. Forgetting a transfer means the commissary’s COGS falls and the outlet’s COGS rises, or the reverse, depending on which side you forgot. The price on the transfer is not set here. Use one price on both sides so the two ledgers describe one movement. The operating pages are central production, multi-branch groups, and multi-branch inventory.

Five COGS mistakes that distort the profit and loss

1. A count on a different day from the sales and invoice cut-off

Counts, invoices, transfers, and sales need one start and one end. A Monday count against Sunday’s sales is a different period with the same name.

2. Stock valued at menu price, or at the last invoice only

Menu price is not cost, and the last invoice is not the cost of a bin that still holds earlier stock. Value the count at cost. The blended cost on this site is weighted average cost.

3. An invoice received and not booked, or booked twice

A missing invoice understates purchases and flatters COGS. The same invoice booked twice does the opposite. Match it to goods received in the period: purchasing variance and goods received.

4. A transfer booked on one side only

One site’s COGS falls and the other’s rises. Book both sides in the same period, using the same price on each side. This page does not set that price.

5. Mixing VAT-inclusive and VAT-exclusive figures

Sales including 15% VAT in the denominator, or recoverable VAT left inside purchases, move the percentage without a change in the kitchen. The worked month shows both: 28.3% instead of 32.5% on sales, and 36.9% instead of 32.5% when recoverable VAT is left in purchases.

How AKLI handles COGS and the live profit and loss

AKLI is AI restaurant management software for food cost control, inventory, recipe costing, waste and variance, purchasing, and multi-branch reporting. It is not a POS. It connects to your POS to import sales, and your POS stays. Foodics, Oracle Simphony, Marn, and Sapaad are POS systems AKLI connects to, through its POS connector (integrations).

A supplier invoice updates weighted average cost, and every recipe that uses the item re-costs. Sales imported from the POS give theoretical cost, recipe cost times quantity sold, next to actual COGS from counts, purchases, and transfers. The live profit and loss is per branch and for the whole group (food cost control).

AKLI gives you a live P&L by branch and for the whole group. Actual COGS still needs an opening and a closing count. The published price is SAR 299 / QAR 290 / AED 293 / BHD 30 / OMR 31 per branch per month, excluding VAT. See your COGS and P&L on your own numbers. Details are on pricing.

Sources

Benchmarks above link to these pages. The worked month and the chicken lines are arithmetic on invented inputs, not sources.

• –

  United States, National Restaurant Association, 2024 food-cost ratios: restaurant operators kept food-cost ratios in check.

• –

  United States, National Restaurant Association, higher-volume restaurants, 2024: lower food-cost ratios.

• –

  United States, National Restaurant Association, labor, 2024: elevated labor costs.

• –

  United States, National Restaurant Association, 8 July 2026: elevated costs and profitability.

• –

  Canada, Statistics Canada, food services and drinking places, 2024: daily release.

• –

  International accounting standard: IAS 2 Inventories.

• –

  Saudi Arabia, ZATCA: retail sector VAT guideline.

• –

  Gulf trade site, not a GCC standard: KitchenPark on menu pricing.

• –

  US-focused trade publication: Restaurant Bottom Line, food cost by concept.