Direct and indirect cost in restaurant

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Sagar Guragain (Querist)
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06 February 2022 I am working as a Accountant in a restaurant. i want to calculate the overhead cost for which how should i separate direct and indirect cost ?

Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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06 July 2024 Calculating overhead costs in a restaurant involves distinguishing between direct and indirect costs. Here’s a general approach to separate these costs:

1. **Direct Costs**: These are costs directly attributable to producing a specific dish or service. In a restaurant, direct costs typically include:
- Food ingredients used in specific dishes.
- Beverages served.
- Packaging specific to take-out orders.

These costs can be directly traced to the menu items or specific services provided.

2. **Indirect Costs (Overhead)**: These are costs that are necessary for the restaurant's operations but cannot be directly attributed to specific menu items or services. Indirect costs in a restaurant may include:
- Rent or lease payments.
- Utilities (electricity, water, gas).
- Salaries of non-production staff (administrative, managerial, support).
- Equipment maintenance.
- Insurance premiums.
- Depreciation of assets (furniture, equipment).
- Marketing and advertising expenses.
- Cleaning supplies.
- Pest control services.
- Kitchen supplies (not specific to a dish).

To calculate overhead costs effectively:

- **Allocate Indirect Costs**: Allocate or apportion indirect costs to various cost centers or activities within the restaurant. For example, allocate rent based on the space used for cooking versus dining areas.

- **Use Cost Drivers**: Identify cost drivers (e.g., number of meals served, square footage of kitchen space) to allocate indirect costs more accurately.

- **Accounting Software**: Utilize accounting software to track and allocate costs efficiently. Categorize expenses clearly as either direct or indirect.

By separating direct and indirect costs, you can accurately determine the total cost of producing each menu item or providing specific services in your restaurant, helping with pricing decisions and overall financial management.