You own a retail business that sells clocks, which you purchase from a local wholesaler. Your typical order is for 12 dozen clocks at a cost of $100 per dozen. The salesperson for the wholesaler offers you a special deal. She says that if you double your order to 24 dozen, she will give you one-half her commission on the extra clocks. This deal would lower your contribution margin per unit and think you would be able to sell the extra clocks. However, you feel uneasy about the offer. Write a blog posting describing what you would do in this situation.
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The Cost of Doing Business - Recap Entrepreneurs have two types of business expenses to consider: fixed expenses and variable expenses. The fixed expenses of a business are expenses that are not affected by increases or decrease in the number of products a business sells. Common examples of fixed expenses are insurance, salaries, advertising, interest payments, depreciation, utilities, and rent. Depreciation is an accounting method of spreading the total cost of the equipment a business buys over the number of years it will be used. Despite being called "fixed", fixed expenses may vary from month to month. Variable expenses vary based on the amount of product or services a business sells in a give time period. Variable expenses are divided into two categories: cost of goods sold per unit (COGS) and other variable expenses. The cost of good sold per unit includes the cost of the labor and materials used to make a product. Other variable expenses could include commissions, shipping, and handling charges, and packaging. After reading the passage above, please read the question below. You will create a written report that summarizes a new business concept, explains a list of fixed expenses and includes a EOU (Economics of One Unit). This is to show your contribution margin per unit.
Passage: You want to start a business selling pretzels from a booth at the annual community festival. Prepare a written report that briefly summarizes your concept, provide a list of fixed expenses for just selling the pretzels at the festival (think equipment etc) and include an EOU that shows your contribution margin. Please set up your report like the example below. When you complete your report, please email your work to [email protected] - subject line: Pretzel Business. Summary: Variable Expenses Cost of Goods Sold Materials: __________________ Labor:______________________ Total Cost of Goods Sold__________________ (Materials + Labor) Other Variable Expenses Commission: ____________________ Packaging:______________________ Total Other Variable Expenses____________________ (Commission + Labor, if you have any) Total Variable Expenses:________________________ (COGS + Total Variable Expenses) Fixed Operating Expenses (Items you will need for the festival, you might have more than 10 or less than 10) 1.) 2.) 3.) 4.) 5.) 6.) 7.) 8.) 9.) 10.) |
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