Question

To calculate food costs for a specific month, managers would add the costs of purchases to the value of the _____ at the beginning of the month and then subtract the value of the ____ at the end of the month.

A. Accounts receivable, accounts payable
B. Accounts payable, accounts receivable
C. Gross sales, net sales
D. Inventory, inventory

Answer 1

To calculate food costs, managers add the beginning inventory value to purchases, subtracting the ending inventory value to find the cost of goods sold.

Step-by-step explanation:

To calculate food costs for a specific month, managers would add the costs of purchases to the value of the inventory at the beginning of the month and then subtract the value of the inventory at the end of the month. This method is essential for accurately calculating the cost of goods sold (COGS). When the beginning inventory and the purchases are combined, this total represents all possible goods available for sale during the month. Subtracting the ending inventory gives the value of the inventory that was actually sold during the month.

The formula used here is: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold (COGS). By understanding and applying this formula, managers and accountants can accurately assess the expenses associated with food costs.