Which of the following is an example of a cost of sales credit?

• A. Employee meals
• B. Complimentary meals to guests
• C. Grease sales
• D. All of the above

Answer: (D)

Cost of sales credits are reductions to the cost of goods sold that come from recoveries or adjustments rather than new expenses. When you provide meals to staff, those meals aren’t sold to guests, so they lower the amount of food cost that would be attributed to sales. When you give complimentary meals to guests, you’re removing potential revenue and also reducing the cost of goods sold you would otherwise report. Grease sales involve recovering value from a waste product by selling used oil, which also decreases the net cost of goods consumed. Because each of these items lowers the amount of cost of sales rather than adding to it, they are all examples of cost of sales credits. That’s why all of the above is the best answer, since every item reduces the cost base rather than increasing it. For context, think of cost of sales credits as adjustments that reduce reported food costs, thereby boosting gross profit.