Your bar’s inventory variance is the difference between the amount of goods sold and the amount of goods used within a given time period. The term is more commonly known as “loss” or “shrinkage.”
When managing your bar’s inventory, it’s important to watch out for the variance of an item because it helps you identify potential issues with miscounting, overpouring, spillage, and theft.
Inventory Variance Formula
To calculate the variance of an item, you can follow either one of the following formulas, using monetary value or percentage. You’ll be able to do this after taking your bar’s inventory count.
Monetary Value Variance = Cost of Goods Sold (COGS) in $ – Usage in $
Percentage Variance = (Variance in $ ÷ Usage in $) x 100
Step 1: Determine the Cost of Goods Sold
First, find the COGS by multiplying the number of units sold during the time period by the cost per unit.
COGS = Number of Units Sold x Cost Per Unit
For example, you want to calculate the COGS for vodka in January. Your record shows that you sold 20 bottles of vodka in that month. With each bottle costs $25, you will have the following:
20 (Units Sold) x $25 (Cost Per Unit) = $500 (COGS)
Step 2: Find the Inventory Usage Value
An item’s usage is the amount of it that your bar has used over a time period. This can be calculated using this simple formula:
Inventory Usage = Starting Inventory + Received Product Inventory – Ending Inventory
In the example, you’re calculating the inventory usage of vodka in your bar in January. Your beginning inventory is what you have before service begins on January 1st, and your ending inventory is what you have left on January 31st after closing. You would also need to account for the amount of vodka that you ordered in January, which is your received product inventory.
Let’s assume that your beginning inventory is 30, your ending inventory is 8, and you ordered 5 bottles of vodka in January:
30 + 5 – 8 = 27 (Inventory Usage)
At $25 per bottle of vodka, the monetary value of your inventory usage is:
27 bottles x $25 per bottle = $675 (Usage in $)
Step 3: Calculate Variance Using The Formula
Now that you have the two key numbers you need, either 27 bottles of $675 worth of vodka, simply put one in the formula to calculate your product variance. Here’s how to calculate the variance of vodka in the month of January:
$500 (Cost of Product Sold) – $675 (Usage in $) = – $175 (Variance in $)
( – $175 ÷ $675) x 100 = – 25% (Variance in Percentage)
It is important to keep an eye on the variance of every inventory item to quickly identify inventory control issues, prevent them from happening in the future, and keep an accurate inventory.
But calculating variance manually can be very time-consuming and error-prone. We recommend finding a system like BinWise Pro that automates the process and gives you an extensive variance report so you can make smart business decisions.
Contact us to learn more about how BinWise Pro can help you determine your variance, calculate inventory usage, and save time.