For cost-effective program operations, programs 

providing meals to older individuals need to know 

the total cost of the meals they are serving to their 

participants. There is much confusion relative to 

meal cost with the following terms: “total meal cost,” 

“food cost,” “reimbursement rate,” “contracted 

rate,” and “negotiated rate.” Often these terms are 

used incorrectly. Even when the terms related to 

meal cost are used correctly, there is inconsistency 

in how programs calculate their meal costs. 

Accurate meal cost calculations are not only 

necessary for efficient use of available resources, 

but they are also needed if programs wish to sell 

meals to other organizations or programs.

BACKGROUND

Calculating accurate costs for both program 

food costs and total meal costs is important 

for successful long-term program operations 

in today’s competitive environment. As the 

population throughout the United States 

continues to age, there will be increasing 

demand for both congregate and homedelivered meal services as more older individuals 

will want to stay in their homes.

Programs are facing challenges on two fronts. 

As the demand for their services is increasing, 

many programs are finding that the government 

funding that they have relied upon is increasingly 

limited, relative to the number of participants 

they need to serve. At the same time, the 

increased demand for services is drawing forprofit firms into this market. Thus, programs 

are now operating in a competitive market and 

are needing to “bid” for the right to provide 

meal services to the older individuals in their 

communities. To be competitive in this market, 

programs must have accurate costs and must 

understand the relationship of the costs they 

incur to the meal services they are providing, or 

hope to provide, to program participants.

Inaccuracies in meal cost accounting can 

potentially lead to:

✓ Inaccurate budget planning.

✓ Shortfalls in projected revenue resources.

✓ Inability to meet the community need for

services.

✓ Poor operating controls needed to identify

inefficiencies and product waste that

contribute to excessive meal costs.

✓ Inability to compete with other non-profit or

for profit on nutrition service contracts.

These inaccuracies and inefficiencies may 

also lead to the failure of a program when the 

program costs consistently exceed the funding 

resources available to the program. Not only 

will a program lack the funds needed to prepare 

and serve meals, but poor management of costs 

is also likely to contribute to lower meal quality 

and lower client satisfaction with the program. 

When programs are trying to “stretch” their 

funds, the tendency is to try to save on costs by 

buying lower quality products and/or by “cutting” 

portion sizes for the meals to try to make 

the available food “go further.” Such actions 

significantly impact meal quality and participant 

satisfaction and often cause persons to withdraw 

from the program or loss of contracts. 

As calculating food and meal costs correctly 

requires good communication between the 

persons managing the food operations and the 

program’s accounting personnel, a common 

understanding of basic accounting terminology 

is necessary when calculating food and meal 

costs.

FOOD COST CALCULATIONS

Food cost is the cost of only the food used 

to prepare meals served to a program’s 

participants. 

✓ A program preparing its own meals would

include ONLY food, and not any other costs,

such as the cost of packaging or cleaning

supplies, when calculating food cost.

✓ A program purchasing prepared meals would

use the per meal cost paid to the meal

provider as their “food cost” when calculating

their total meal cost.

The National

Resource Center on

Nutrition & Aging

1

Identifying The Total Cost Of A Meal

Extended Brief

Written by: Audrey C. McCool, EdD, RD, FADA. Commissioned by the NRCNA.
To calculate food costs, a program needs to 

inventory their food supplies and calculate 

the value of that inventory on a periodic basis, 

such as a month. Computer-based inventory 

management systems are recommended, though 

the inventory will also need to be periodically 

taken manually so that the actual physical 

inventory on hand can be reconciled with the 

computer-based inventory.

The inventory should be valued on the basis 

of any one of the standard valuation methods 

accepted by the Internal Revenue Service. 

The program’s accountant should be able 

to determine the most appropriate valuation 

method for a particular program’s operations. 

A detailed discussion of inventory valuation 

methods can be found in the text by Dittmer & 

Keefe, 2009 (see reference list).

Adjustments would include anything that is 

either added to the food supply for participant 

meals or which reduced the supply because the 

food was used for other purposes. Examples of 

adjustments would be food used for employee 

meals or served to volunteers. Contributions 

of foods to the program would also be an 

adjustment. Food lost to spoilage or waste 

would be included in food cost. Such loss is NOT 

an adjustment to food cost. Careful inventory 

management and control of food production 

operations are important ways for programs to 

manage their food costs.

TOTAL MEAL COST CALCULATIONS

Total meal cost includes ALL costs associated 

with the production and service of meals to 

program clients. Both direct costs (e.g., food, 

packaging) and indirect costs (e.g., administration 

costs, insurance) must be included in these 

calculations. The costs to be included will vary 

with each program.

All direct costs, such as raw food or the cost 

of purchased meals, are included in the total 

meal cost calculations. If a nutrition program 

offers only one nutrition service, e.g., only 

home-delivered meals, then all of the cost 

incurred by the program are direct costs and are 

incorporated into the total meal cost calculation. 

However, most nutrition programs offer more 

than one service (offering both congregate 

and home- delivered meals). When more than 

one service is part of a nutrition program’s 

operations, the indirect costs must be allocated 

proportionately to the services offered by 

the program. There are several ways that this 

allocation might be done, such as on the basis 

of the number of program participants or on the 

proportion of the building square footage used. 

Not all of the indirect costs need to be allocated 

on the same basis. For example, utilities costs 

might be allocated on the basis of square 

footage since the more square footage used, the 

more heating/cooling or electricity (lights) might 

be used. Other costs, such as management time 

or computer costs might be allocated on the 

basis of participant proportion. Programs should 

work with their accountant to determine the best 

basis for cost allocation for each of the indirect 

expenses incurred by the program.

Many programs fail to include the value of 

volunteer labor or donations received when 

calculating their total meal cost. However, if 

these items are not included, the calculated meal 

cost is less than the actual cost would be if the 

program had to employ paid labor to do the work 

done by the volunteers or purchase the items 

that were donated to them. When the total meal 

cost is calculated to be a lower amount than it 

actually is, the program is less likely to be able 

to negotiate a rate with funding agencies that 

allows them to recover, or nearly recover, their 

full cost of providing that meal. The situation 

becomes even more serious if the program 

contracts to provide meals to another entity and 

sells the meals at a price which is less than the 

sum of their direct and relevant indirect costs to 

produce the meals. In this situation, the program 

will be subsidizing the other entity’s operational 

costs with funds they have acquired to produce 

and serve meals to their own participants. 

FOOD

COST

Beginning

Inventory

Program

Purchases

Ending

Inventory

Adjustments

+ - +/- = Inventory

2
COSTS TO BE CONSIDERED IN TOTAL 

MEAL COST CALCULATIONS

✓ A program purchasing prepared meals would

use the per meal cost paid to the meal

provider as their “food cost” when calculating

their total meal cost.

✓ Raw Food (program prepares its own meal)

✓ Purchased meal cost (program purchases

prepared meals)

✓ Paid food service labor (including labor for

meal transport)

✓ Utilities

✓ Kitchen supplies

✓ Kitchen equipment

✓ Meal packaging supplies (include cost of meal

transport containers)

✓ Building costs (rent, mortgage, repairs,

maintenance)

✓ Management costs (management and other

non-foodservice staff salaries and benefits)

✓ Operating costs (office supplies, insurance,

taxes, office equipment, computers,

communications)

✓ Professional fees (consultants – dietitian,

legal, tax/accounting, other professional costs)

✓ Transportation (including any program

vehicles)

✓ Training – staff development

✓ Donations (food supplies and any other

donations)

✓ Volunteer labor value

To calculate the value of volunteer labor, it is 

first necessary to determine what an equivalent 

job title or description would be for the work 

the volunteer is doing. Then the local prevailing 

hourly wage for that job title needs to be 

determined. Once that information is available, 

the value of volunteer labor hours can be 

determined using the following formula. The 

value of donated food, supplies, equipment or 

space would be valued at the current retail value 

for the donated item.

REIMBURSEMENT RATES

CONTRACTED OR NEGOTIATED

It is important to remember that a program’s total 

meal cost is NOT the same value as the program’s reimbursement (contracted, negotiated) 

rate. While the total meal cost should be an accurate reflection of what it actually costs a program 

to produce and serve a meal to a participant, 

the reimbursement (contracted, negotiated) rate 

is the amount that a program negotiates with a 

funding source (usually a government agency, 

but may also be a private funding source). This 

rate is not likely to be the same amount as the 

program’s total cost per meal and will permit a 

full cost recovery.

CONCLUSIONS

In today’s rapidly changing environment, 

accurate calculations of total cost per meal is 

essential to a program’s long-term “survival” 

and its ability to effectively meet the needs 

of an ever-growing number of participants. 

Accurate costs are needed for negotiating 

contracts with Area Agencies on Aging and/

or other government agencies, as well as nongovernmental funding organizations such as 

healthcare payors. Accurate costs are also 

related to the support of outcomes measures. If 

accurate costs are not known, programs cannot 

determine ways in which cost savings might be 

realized and/or cannot evaluate the extent to 

which actions taken have resulted in cost savings 

to outcomes measured.

Programs are encouraged to review their current 

food and total meal cost accounting practices. 

Where appropriate, programs should take steps 

to modify those practices, as needed, to enable 

them to have accurate cost information. 

CALCULATING THE VALUE OF VOLUNTEER LABOR HOURS

( Prevailing Hourly Wage for Job + [ Hourly Wage x Program’s Fringe Benefit Rate ] ) x Total Volunteer Hours for This

Job

3
STANDARD FOOD SERVICE DEFINITIONS

Food Costs - The actual cost of just the food 

used to provide participant meals. 

Food Cost = Beginning Inventory + Purchases 

- Ending Inventory +/- Any Adjustments

(Adjustments might be items such as food used

for employee meals or donated foods.)

Total Meal Cost - The cost of all expenses 

associated with the production and service of 

meals to program participants. Costs would 

include the cost of food, labor, supplies, and 

an appropriate portion of all other program 

operating costs.

Food Cost Per Meal - The food cost/meal = 

the total food cost for a time period, such as a 

month, divided by the total number of meals 

prepared during that time period. (Note: The 

total food cost is divided by the total number of 

meals PREPARED, not the total number of meals 

SERVED.) 

Total Meal Cost Per Meal - The total meal cost/

meal = the total meal cost for a time period, such 

as a month, divided by the total number of meals 

prepared during that time period.

REIMBURSEMENT RATES 

CONTRACTED OR NEGOTIATED

The amount per meal which a government 

funding agency or other funding source will 

pay to a program for each qualifying meal 

SERVED by the program. The contractor may 

or may not reimburse a program based on total 

cost, but may base it on what they consider a 

reasonable rate. This is an important distinction 

that providers must consider when agreeing to a 

reimbursement rate.

STANDARD ACCOUNTING TERMS

Variable Costs - Costs that increase or decrease 

with changes in volume. For example: Food or 

meal packaging costs and some labor costs.

Fixed Costs - Costs that are not affected by 

the volume of goods or services produced. 

For example: Building or equipment costs; the 

program manager’s salary.

Direct Costs - Costs that are easily traced to a 

specific product or product line. For example: 

Food or meal packaging costs or the costs of 

kitchen cleaning supplies.

Indirect Costs - Costs that are incurred for 

multiple projects/programs and not easily 

attributed to a specific project/program. These 

costs must be allocated in some way to each 

project/program. For example: Site manager’s 

salary or utility costs.

Overhead - Term commonly used to refer to 

fixed or indirect costs, depending on the 

situation.

Sunk Cost - Existing expenses that will be 

incurred regardless of whether or not the 

opportunity to market meals or services to other 

agencies or organizations is implemented by a 

program. For example: Building costs or 

executive administrator’s salary.

Relevant Costs - Future expenses that will be 

incurred only if the opportunity to market meals 

or services to other agencies or organizations is 

implemented by a program. For example: New 

food purchases or additional packaging.

Margin - The difference between the total cost of 

an item, such as a meal, and the selling price of 

that item. The margin is the “profit” that is earned 

on the sale of each item (meal). It is the amount 

earned from the sale which can be used in 

support of the program’s primary mission.

FOR MORE INFORMATION

Dittmer, P.R. & Keefe, J. D. Principles of Food, Beverage, and Labor Cost Controls. 9th Ed., Hoboken, NJ: John Wiley & Sons, 

Inc., 2009.

Identifying and Valuing In-Kind. Technical Assistance Memorandum AAA-TA200. Texas Department of Aging and Disability 

Services. http://www.dads.state.tx.us/providers/AAA/communications/TechnicalAssistance/AAA-TA200.pdf

Laube, J. & Shuster B.K. Uniform System of Accounts for Restaurants, 8th Ed. Washington, D.C.: National Restaurant 

Association, 2012.

Tools for Community Based Organization. The SCAN Foundation. 

http://www.thescanfoundation.org/tools-community-based-organizations

4