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Greetings, Teachers and fellow students! It's another opportunity to discuss business with the topic "cost for entrepreneurs". Let's dive into the topic without much time wasted.

Cost is the total money a business or entrepreneur uses to create goods or services. This means that in business, cost covers all spending on materials and labor, as well as overhead costs. Understanding costs is crucial for every business because it shows how much needs to be spent to sell a product or service and make a profit. Knowing a business's costs is important for several reasons.

Improved Pricing of Products and Services:
Entrepreneurs must set prices that cover their expenses while still attracting customers. If they don’t fully understand their costs, they may set prices too low and lose money or too high and drive customers away.

Financial Planning:
Budgeting is essential for business owners to effectively manage their finances. By understanding production costs, they can allocate resources wisely and prepare for future expenses.

Informed Decision Making:
Knowing the costs of running a business enables owners to make better decisions regarding their operations.

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Costs and expenses are closely linked ideas, but they mean different things when it comes to business. Costs refer to the total money spent to create goods or services. This includes direct costs like labor, then indirect costs such as overhead expenses like rents and utility bills.

To provide my products or services to my customers, I will face some essential expenses. For instance, I manufacture my products, I need to pay for materials and workers. If I run a retail business, I will probably need to buy products in bulk.

As a pastry chef, to produce 1000 pieces of chops would cost me;

Flour - 100 steem
Eggs - 100 steem
Milk - 50 steem
Sugar - 50 steem
Veg.oil - 150 steem
Butter - 100 steem
Labour - 200 steem
Total cost - 750 steem

To create or produce 1000 chops in a space of one month would cost me 750steem.

Service-based businesses are usually faced with lower direct costs compared to product-based businesses, but they still incur some direct costs. For instance, when I had a hair salon, I need to buy hair products like shampoo and conditioner to render services.

Expenses are often called overhead or operating expenses. They cover costs like rent, promotion, utilities, and office supplies. In simple terms, an expense is money spent on everyday business activities that are not direct costs.

Promotion - 100 steem
Utilities - 100 steem
Rent - 1000 steem
Office supplies - 100
Total Expenses - 1300 steem

Since the total cost of a business is the sum of direct cost and expenses, then the total cost of my pastry business is Direct cost (750 steem) + Expenses (1300 steem) = 2,050 steem.

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Profitability: Understanding your expenses helps you determine prices that guarantee profit. Setting prices too low can result in losses, while setting them too high may scare off customers.

Budgeting: Knowing your expenses leads to better budgeting and financial planning.

Competitiveness: By being aware of your costs, you can price your products wisely to remain competitive in the market.

Decision Making: Having precise cost information is essential for making smart business choices, like increasing production, exploring new markets, or stopping unprofitable products.

As a pastry chef, to determine the cost of my business, I would have to think about everything, actions, efforts that added to creating/ producing my baked goods,which includes ingredient costs, labor costs, and overhead expenses, such as rent, utilities, and insurance.

Ingredients Cost
To price my pastries, I'll start by knowing my ingredient costs. This means considering all the basic items needed, like flour, sugar, butter, eggs, and any other items like chocolate or fruit. Remember that some ingredients can cost more during different seasons, so using locally sourced ingredients that are of high quality can help me set higher prices and appeal my customers who care about quality.

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Labour Cost
Labor costs include all the time I spent making my pastries, such as preparing, baking, and cleaning up. To figure this out, I will estimate the time needed for each pastry and multiply it by my hourly wage or the amount I would pay if I hire someone else to do the work.

Overhead Cost
Overhead costs are the regular expenses needed to operate my baking business, like rent, utilities, and equipment upkeep. It's helpful for me to calculate the total monthly overhead and then divide that by the number of pastries I aim to make during that month. This way, I can assign a part of those costs to each pastry.

To determine the total cost per pastry, I will add together my ingredients cost, labor cost and overhead cost. For example, if it cost 600 steem for ingredients, 200 steem for labor and 1500 steem for expenses, then my total cost would be adding them together which is; 600 + 200 + 1500 = 2300. So my total cost in pastry business is 2300.

In Conclusion,

Accurate costing is essential for any business to succeed. By adding up all production costs and knowing the different cost parts, you can set prices that help you make a profit and stay competitive. Remember, costing is crucial for long-term business growth.

I invite @nancy0 @mariami @pandora2010