What is the formula for average daily food cost?

What is the formula for average daily food cost?

• A. Opening inventory plus closing inventory divided by 2
• B. Cost of food sold divided by average inventory
• C. Food cost divided by the number of days in the period
• D. Purchase orders divided by days in period

Answer: (C)

Average daily food cost is found by taking the total food cost for the period and dividing it by the number of days in that period. This gives the amount of food cost you can expect on average each day, which is useful for budgeting, forecasting, and daily cost control. In practice, the total food cost for the period is typically calculated as beginning inventory plus purchases minus ending inventory (in a periodic system), so the numerator reflects all the food cost incurred during the period. The other options mix up different concepts. Opening plus closing inventory divided by 2 estimates average inventory, not daily cost. Cost of food sold divided by average inventory yields an inventory turnover ratio, not daily cost. Purchase orders divided by days in the period measures purchasing activity, not how much cost occurs per day.

Average daily food cost is found by taking the total food cost for the period and dividing it by the number of days in that period. This gives the amount of food cost you can expect on average each day, which is useful for budgeting, forecasting, and daily cost control. In practice, the total food cost for the period is typically calculated as beginning inventory plus purchases minus ending inventory (in a periodic system), so the numerator reflects all the food cost incurred during the period.

The other options mix up different concepts. Opening plus closing inventory divided by 2 estimates average inventory, not daily cost. Cost of food sold divided by average inventory yields an inventory turnover ratio, not daily cost. Purchase orders divided by days in the period measures purchasing activity, not how much cost occurs per day.