The Costs of Running a Business

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The Costs of Running a Business
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Lesson Objectives

• At the end of this presentation you should be
  able to
• Apply the appropriate terms to the cost of
  running a business.
• Use formulas correctly in determining the cost of
  running a business.
• Begin the creation of your student run business
  by creating a cost analysis.

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Business Costs There are many costs involved in
running a business, the following are
instrumental in running a successful business.

• Fixed Costs
• Variable Costs
• Total Costs

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Fixed Cost

• A fixed cost is like a solid brick wall that has
  little to no change over the years.

Fixed Cost Cost or expense, that does not
change as output changes.
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Which of the following are fixed costs of running
a fruit market?

• Building Rental
• Utilities
• Employees Wages
• Advertising

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You are Correct!

• Building rent is a great example of a fixed cost
  because it is a business cost that does not
  change from month to month.

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You are Incorrect!

• Your choice is a cost that could change each
  month.

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Variable Cost

• A variable cost is like a leaf in the fall that
  is always changing.

Variable Cost Cost or expense that changes as
output changes.
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Which of the following are variable costs in
running a fruit market?

• Building Rent
• Forklift Lease
• Delivery Van Payments
• Employee Wages

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You are correct!

• Employee wages is a great example of a variable
  cost because each month you may need to hire new
  workers, lay-off workers, or pay for overtime.

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You are Incorrect!

• Your choice is a cost that does not change from
  month to month, it remains constant.

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Total Cost

• Total cost is like the universe because it
  encompasses everything.

Total Cost Fixed Cost Variable Cost
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Which of the following would be an example of a
total cost of running a fruit market?

• Building Rental Delivery Van Payment
• Fruits and Vegetables Utilities
• Employee wages Building Rental
• Utilities Employee Wages

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You are Correct!

• Employee Wages are an example of a variable cost.
  Building rental is an example of a fixed cost.
  Fixed cost Variable Cost Total cost

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You are Incorrect!

• Your choice did not include both a fixed cost and
  a variable cost.

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Real Life Example

• A firm produces 125 units of a good. Its
  variable costs are 400, and its total costs are
  700.

• What do the firms fixed costs equal?
• 700
• 300
• 400
• 1100

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Application To Your Student Run Business

• You can now list all the materials needed in
  running your business.
• You should be able to divide the necessary
  materials into Fixed Cost and Variable Cost.
• You should be able to apply the following formula
  to determine the total cost of running your
  business Fixed Cost (FC) Variable Cost (VC)
  Total Cost (TC)

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Congratulations

• You now have the necessary information to
  create a cost analysis for your student run
  business. Apply your terminology and formulas to
  a spreadsheet format by clicking on the
  micro-soft excel icon, and creating a cost
  analysis spreadsheet.