Inventory Procedures and Cost of Goods Sold

Why Inventory Accuracy Matters

Every dollar of food or beverage that leaves a storage area either becomes revenue or becomes waste. Inventory control is the system that tracks that movement. When inventory records are inaccurate, a restaurant cannot know its true cost of goods sold (COGS), cannot catch theft or spoilage early, and cannot price its menu with confidence. For the ServSafe Manager, NRAEF ManageFirst, and AHLEI Hospitality Supervisor credentials — and for every employer who will hire you — accurate inventory work is a non-negotiable baseline skill.

The Physical Inventory Count

A physical inventory count is a hands-on tally of every item on hand at a specific moment in time, usually at the close of business on the last day of an accounting period. Most full-service restaurants conduct a physical count at least once a week or once a month; bars and high-cost proteins (seafood, prime beef) are often counted daily.

Two-person counting is the industry standard. One person counts and calls out the quantity; the other records it on the count sheet. This reduces transcription errors and provides a built-in check against dishonest reporting. Both counters sign and date every sheet before it leaves the storage area.

Count technique — left to right, shelf by shelf: Begin at the top-left corner of the first shelving unit and work across to the right before dropping to the next shelf down. This systematic path prevents double-counting or missing a section. Count each item by the unit shown on the count sheet (each, case, pound, liter, etc.). Never estimate — count every individual unit.

Dating every entry is required. If a discrepancy is found later, the date tells management exactly which count period is in question.

Safety in Storage Areas

Storage areas carry specific hazards you must control before you count:

• Slip and fall: Floors may be wet or greasy. Wear slip-resistant, closed-toe shoes. Never stand on shelving to reach upper levels; use an approved step stool or ladder.
• Lifting: Use proper body mechanics — bend at the knees, keep the load close to your body, ask for help with items over roughly 50 pounds.
• Walk-in cooler/freezer: Before entering, confirm the interior release handle works and that a coworker knows you are inside. Wear appropriate cold-weather gear for extended counts. Never prop the door open with equipment that could fail.
• Chemical storage: Food and cleaning chemicals must be stored separately per food-safety regulations. If you encounter mislabeled or unlabeled chemicals during a count, do not move them yourself — notify your supervisor.
• FIFO verification: While counting, note whether items are rotated correctly (First In, First Out). Flag anything past its use-by date for supervisor disposition; do not consume or discard it on your own authority.

Extending Inventory Values

Once quantities are recorded, each line is extended: the quantity on hand is multiplied by the unit cost to produce the total value for that item.

> Extended Value = Quantity on Hand × Unit Cost

All line extensions are then added together to produce the total inventory value for that count sheet or storage area. Extension errors are the most common mistake beginners make; always re-check your multiplication before totaling.

Calculating Cost of Goods Sold

COGS measures how much inventory was actually used — consumed, sold, or lost — during a given period. The standard formula is:

> COGS = Opening Inventory + Purchases − Closing Inventory

• Opening Inventory is the total value counted at the start of the period (last period's closing count).
• Purchases are the total cost of all items received from vendors during the period, as shown on verified invoices.
• Closing Inventory is the total value counted at the end of the period (the count you just completed).

The logic: you started with a certain value of product, brought in more, and ended with a certain value still on the shelf. Whatever is not on the shelf was used (or lost).

Food Cost Percentage

COGS in dollars is useful, but managers compare it against sales to get food cost percentage, which allows comparisons across periods of different sales volumes.

> Food Cost % = (COGS ÷ Total Food Sales) × 100

Most full-service restaurants target a food cost percentage somewhere in the range of 28–35%, though the specific target varies by concept, menu price point, and ownership. Your COGS worksheet will show you the target range for this exercise; flag any result outside that range and be prepared to suggest possible causes (over-portioning, spoilage, receiving errors, theft).

Completing the Worksheet

Work neatly and show every step:

1. Record opening inventory total.

2. Add purchases total.

3. Subtract closing inventory total → COGS.

4. Divide COGS by sales figure provided; multiply by 100 → food cost %.

5. Compare to target range and note whether the result is within, above, or below target.

To pass today's lab, your extended inventory total must be within 2% of the instructor key AND your COGS and food cost percentage must be mathematically correct with all steps visible.