SLC S21W6: "Cost for Entrepreneur: Cost Structure
Helo friends and welcome to my article in the SLC: S21W6 and I would be more than ready to share my thoughts on the great dynamics immediately.
Cost structure is the totality of different costs which a business venture is ready to expend, all necessary costs, expenses and budgets needed to be covered, while performing activities. Cot structure are used by companies to minimize expenses this creating an avenue for generation of more revenue at low cost. The cost structure aids business improve while getting better in what they do.
Importance Of Cost Structure
Profit Maximization: Cot stressed gives room for making profit from businesses at the expense of much losses thus maximizing profit from business ventures.
Expansion Tendencies:
With adequate cot structure in place there are great tendencies of growing business from a small or medium scale businesses to a global venture! Cost Structure is the secret behind these.
Harnessed Planning:
It aids young entrepreneur harness their business predicting the future and basic bold steps to attaining success in business as regarding business.
Curtailing Extravagant Spending:
The cost structure in place is indeed a prerequisite for every business to achieving success while being able to cut down on expenses and extravagant Spending which in one way or the other destroy the business.
Cost Driven Structure: Suruji Train Services
This company maximizes profit through minimal cost to offer efficiency, they make these returns through special tickets fee for highly reserved customers or elite men to enjoy premium services this minimal cost.
Value-Oriented Structure; Rolls Royce Company
This company manifest highly valuable assets, premium standard through manufacturing high valued branded automobile to suit the taste of these prestigious customers who visit regularly.
Fixed Cost Oriented Structure: Amazon/Services
The cost of selling products on the company remains constant, they spend more in licensing agreement, taxes and other tariff this cost remaining fixed
Variable Cost: Delivery services like FEDEx
The cost is not fixed due to the cost of repairs of these transportation autos, fuel and others, all these a function of orders received.
Mixed Cost Structure: KFC Chicken
They execute fixed and variable costs, all as a function of demands of customer, in this scaling their business based on customer demand.
Elements of cost structure refers to proportion types of cost a business earned to providing goods and rendering services. Examples are shown below.
Fixed Cost: These costs remains constant, no matter the factor, regardless of volume of production too. Example the rent of a factory, office, taxation and so on
Variable Cost: These costs are a function of a fluctuating market, they depend on level of sales or production. Example; Cost of raw materials, labor, cost of hourly work, utility costs etc.
Direct Cost: These costs are traced directly to production of goods or services. Wages of assembly line, ingredients of food.
Operating Cost: Cost channelled towards the day to day operations of business. Example are transportation, marketing, advertising.
Variable Cost per Cake
| Ingredients | $5 |
|---|---|
| Packaging | $3 |
| Utilities | $2 |
| Labor | $5 |
| Total | $15 |
Fixed Cost (Monthly) : 25 production day per month 5 cakes /day
| Rent | $400 |
|---|---|
| Utilities | $150 |
| Maintenance | $80 |
| Marketing | $100 |
| Administrative | $50 |
| Total | 780 |
Production Volume:
| Daily Production | 5 cakes |
|---|---|
| Monthly Production | 5 cakes × 25 = 125 cakes |
Pricing Strategy: To achieve 25% profit margin selling price must cover desired profit and cost.
Total Monthly Cost
| Variable Cost | $15× $125 = $1775 |
|---|---|
| Fixed Cost | $780+ $1775 = $2555 |
| Revenue Total | $2555 |
Profit 25% of Revenue
| Revenue | Total Cost ÷ (1-Profit Margin) |
|---|---|
| Revenue | $2555 ÷ 0.75 = $3406 |
| Per Cake | $3406 ÷ 125 = $28 |
Profit Calculation Monthly
Revenue = $3406
Total Cost = $2555
Profit = $851
Greetings @daprado1999
1.- You have presented the concept and importance of the cost structure, a method that serves to show in detail the costs carried out in a company.
2.- You have shared in an acceptable manner, the examples of businesses that adjust to cost structure methods, which provide the ideal tool according to the analysis needs of each of them.
3.- You have mentioned the elements of the cost structure in an acceptable manner, with their respective examples. Each of them must be taken into account when consolidating costs.
4.- You have developed the exercise proposed in this class in an acceptable manner.
Thanks for joining the contest
Very informative post! Each step of cost analysis is outlined in great detail.