Which item is used in determining cost of sales?

• A. Menu prices
• B. Food and beverage purchases
• C. Employee hours
• D. Utilities

Answer: (B)

Cost of sales reflects the cost of the foods and beverages actually sold during a period. The amount comes from what you purchase and how inventory changes across the period, since you start with beginning inventory, add purchases, and subtract ending inventory to arrive at the cost tied to the items sold. In other words, purchases of food and beverages are the primary inputs for calculating the cost of the goods that were sold. Menu prices measure revenue, not cost, so they don’t determine COGS. Employee hours relate to labor costs, and utilities are general operating expenses; neither directly sets the cost of the items sold.