If a facility reports a food cost percentage of 40% of revenue, what does this indicate?

If a facility reports a food cost percentage of 40% of revenue, what does this indicate?

• A. Labor Cost Percentage Is 40%
• B. Overhead Is 60%
• C. Profit Margin Is 40%
• D. Food Cost Percentage Is 40%

Answer: (D)

The main idea here is what the food cost percentage represents. It shows how much of each dollar of revenue is eaten up by the cost of the food itself. If the report shows 40%, that means for every dollar the facility earns in revenue, 40 cents go toward purchasing and preparing the food. The remaining 60 cents must cover other expenses such as labor, overhead, and any profit. This metric specifically reflects food costs, not labor costs or overhead, and it doesn’t by itself dictate profit. So saying the food cost percentage is 40% is the correct interpretation.

The main idea here is what the food cost percentage represents. It shows how much of each dollar of revenue is eaten up by the cost of the food itself. If the report shows 40%, that means for every dollar the facility earns in revenue, 40 cents go toward purchasing and preparing the food. The remaining 60 cents must cover other expenses such as labor, overhead, and any profit. This metric specifically reflects food costs, not labor costs or overhead, and it doesn’t by itself dictate profit. So saying the food cost percentage is 40% is the correct interpretation.