How are you?Hope so everyone would be safe and sound just like me as I am also safe Alhamdulillah....
I am happy to take part in this learning challange which is all about costs for entrepreneurs.I would like to delve into its details by answering these questions!
Cost may be defined as financial expenses which are incurred by particular business for producing and selling its goods or products. For entrepreneurs knowing how and management of costs is important for profitability and sustainability.
There are different types of ghosts in which first of all they are fixed costs which are rents of salaries as an example.One type is variable cost which is raw material or labour cost.One type is operating cost which are marketing and utilities. Last but not least there are opportunity cost which are alternative investments.
To know about cost is really important for an entrepreneur because through this and entry period may;
• Set a proper price strategy.
• To know about cost can be helpful for an entrepreneur in terms of budgeting and forecasting.
• For profitability analysis it is also important.
• For allocation of different resources it is crucial to know about cost for an entrepreneur.
• For competitive advantage it can be helpful.
There's a major difference between costs and expenses with proper examples:
| Category | Definition | Examples |
|---|---|---|
| Costs | This is amount which is paid or incurred for acquiring or producing something | As an example there are rents, salaries, raw materials |
| Expenses | This is amount which is utilized or used for generating revenue | As an example there are utilities, marketing, travel |
Real case example
Bakery
| Item | Cost | Expense |
|---|---|---|
| Flour | $100 (purchased amount) | $50 (Which are utilized in production) |
| Oven | $5,000 (purchased amount) | $100 (Which is monthly depreciation) |
| Worker Salary | $4,000 (monthly amount) | $4,000 (Which is monthly per worker expense) |
| Electricity | $200 (monthly usage expenses) |
In the above example;
- Flour and oven are costs which are incurred for purpose of acquiring assets.
- Utilities and workers salaries are expenses which are spent for generating revenue.
- Oven depreciation is that amount of expense which spread with time.
There are multiple benefits of performing good cost determination which I am going to describe below;
• First of all if costs are determined in an appropriate way then it can be helpful for accurate pricing for ensuring a competitive pricing and then getting a good profit.
• If costs are determined well then definitely for making inform the decisions by helping managers it is beneficial.
• For optimising resources it can also be helpful because it can be beneficial for identifying those areas in which there is a need of reducing costs.
• If cost is determined properly than definitely financial planning can be enhance in this way in terms of making budget and in terms of forecasting.
• For evaluation of performance that what is about efficiency and productivity it can be helpful as well as for detection and prevention of those expenses which are not necessary it can also be helpful.
• Last but not least for maximizing revenue and for minimization of waste as well as four supporting strategic pricing it is most important.
For me,I am an entrepreneur in actual and I am trying very hard and my best to become a successful and a big entrepreneur in future but for answering this question I need to imagine that how I will manage cost if I am not an entry period so here is my answer;
• If I am not an entrepreneur then first of all I would try to review allocation of budget and I will focus in identification of direct and indirect cost or cost which is necessary or which is unnecessary.
• After that I will focus on analysing with financial statements as well as I would consult with accounting and financial specific teams and then I would try to categories cost into its types as I have described above that there are fixed variable and operational etc.
• For me most important thing will be to categorize cost like I will focus on labour salaries or benefits and then materials or supplies, equipment and maintenance as well as rent and utilities. Last but not least marketing and advertisement, travelling or training etc.
I want to invite @dove11,@jyoti-thelight,@adeljose,@steemdoctor1 to participate
Greetings @khursheedanwar
1.- You have shared the concept and importance of cost. Cost can be the main variable to determine the financial performance of the company, which is why it is so important for the entrepreneur.
2.- You have pointed out the difference between costs and expenses. These can be differentiated by their purpose, the cost seeks productive purposes, the expenses are for administrative, commercial, human factors, among others.
3.- You have mentioned some benefits that good cost determination generates. Through this report, a series of analyzes can be generated that will allow optimal use of the investment.
4.- You have indicated your way of proceeding to determine the cost of a business or production process. Depending on the size of the business, the support of professionals is taken into consideration to generate the overall balance. Basically, the important thing is to identify the financial outlay generated by the acquisition of elements directly related to production, as well as the estimation of the quantity of products to know the real production cost.
Thanks for joining the contest.
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