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.
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)
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