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The Costs of Running a Business 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. 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 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. Which of the following are fixed costs of running a fruit market? Building Rental Utilities Employees Wages Advertising 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. You are Incorrect! Your choice is a cost that could change each month. 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. Which of the following are variable costs in running a fruit market? Building Rent Forklift Lease Delivery Van Payments Employee Wages 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. You are Incorrect! Your choice is a cost that does not change from month to month, it remains constant. Total Cost Total cost is like the universe because it encompasses everything. Total Cost: Fixed Cost + Variable Cost 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 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 + = You are Incorrect! Your choice did not include both a fixed cost and a variable cost. 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 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) 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.
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