SLC | S21W1 | Costs for Entrepreneurs - Introduction to Cost
I'm glad to participate in the Season 21 Week 1 Task Cost for entrepreneurs so lets get started.
The brief introduction of the task talks about the various costs that occurs in the business and If not managed properly, it would be hard to make a profit or earn higher margins, i am myself into e-commerce industry and i have seen how important it is to effectively manage all the costs in order to increase the overall margins.
There are many small costs which we ignore but when considered they literally make the bigger difference, generally people tries to cut bigger costs but cutting multiple small costs can make a bigger impact depending upon the size of the business or costs associated with it.
What is cost and how important is it for entrepreneurs?
In my opinion cost is basically the amount invested by the business in order to sell a product or deliver a service. In simple terms all costs are accounted such as purchasing raw materials, converting into finished or semi finished goods, packing, delivery, wagers, salary etc.
To understand and consider all associated costs (Direct and indirect costs) are really important for entrepreneurs because these costs affect the overall revenue and profit of a business. If the costs are not considered or being neglected then it may bring additional risks for business and won't survive in the market for a longer period of time, the more effective the cost analysis is the more profit the business will make.
Establish the difference between costs and expenses, giving examples of this through a real case.
In my opinion costs are that which are directly related to production, in simple terms the amount spent in order to produce the good is termed as cost.
On the other hand, expenses are more like indirect costs which are related to business but not directly related to the production itself.
Let's understand this with the example, i will take the example of my business industry.
So at our company we are involved in selling the crystal stones, now the Costs for our business are the import cost, stone polishing cost, mining cost because such costs are directly related with the production of the goods.
Now the expenses for the same are salary of employees like me, who work in backend to promote or grow the sales of the business, the marketing expenses such as spending on Google or meta ads to boost the sales, these are termed under expenses because it's not directly related to the production but more of the selling part so it's considered as an expense for a business.
What are the benefits of performing a good cost determination?
A detailed cost determination is important for all businesses irrespective of their size, because it allows them to set a appropriate pricing (neither over price nor under priced) get a better understanding of the profit margins, forecasting, optimum allocation of various resources. This is only possible when you have done a in depth analysis of all the costs associated and grow your business for a long run.
How do you determine the costs of your business? If you are not an entrepreneur, how would you do it?
I'm not really an entrepreneur and i got to understand about the costs during my PG in MBA (Marketing) where i learned in details about the costs. So lets understand more about the cost and how can you determine for your business.
Costs are generally divided into two types:
Fixed cost - These are the type of cost which do not change with the change in the volume of production. For example the cost of rent for a business or manufacturing unit will remain same and won't change either the unit product X goods or XX amount of goods.
Variable cost - These are the type of costs which changes with the change in the volume of production. For example the company got more orders and had to hire new staff, more raw materials purchase such costs are variable costs because they change with the volume of production.
To determine all the cost you simply need to breakdown your all costs into variable and fixed cost then simply calculate the variable cost for per unit of production to determine the costs for X number of unit produced.
Fixed cost would be same as i mentioned above and variable costs differ for example:
If the cost of purchasing raw materials and labor for per unit cost is $5, and you are planning to produce 1,000 units, then in that case your variable cost would be $5,000.
This was indeed a nostalgic topic for me, i hope i was able to cover all the tasks and if i put wrong information please correct me :), i invite my friends @senehasa @ahlawat @awesononso
Greetings @rishabh99946
1.- You have presented a concept about cost, and named the importance. The cost is the "money invested in a product" that will later be sold with the intention of making a profit.
2.- You have mentioned the difference between costs and expenses. It seems to me to be a business where labor costs are highlighted. The expenses for using Google may be related to the internet service.
3.- You have pointed out the benefits of a good costing process. It is important to consider every outlay made, especially if it goes into the production process. Cost reports can provide details that will allow you to adjust both the investment and the production of products and/or services.
4.- You have shared your way of determining costs if you run a business. It is important to indicate in detail each element in the corresponding type of cost.
Thanks for joining the contest.
Thank you for the response.