Hello 🤗 guys,
I welcome you all to the Steemit Learning Challenge season 21 week 6 on a contest organised by @yolvijrm & @adeljose which talks about Costs for entrepreneurs - Cost structure. I'm going to be sharing my understanding on the said topic below as I try to attempt all the questions below.

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What is a cost structure, and what is its importance for entrepreneurship?

The term cost structure can be seen as a detailed report or record of all the expenses which any business incur during its operations which include the production of goods and services and also customer satisfaction. Usually when keeping records of expenses in any business for it to be clearly define, the fixed and variable cost must be taken into account. So cost structure captures all that.

It is important to also mention here that there are some components of cost structure that needs to be taken into consideration such as Fixed Costs, Variable Costs, Direct Costs and Indirect Costs. These components are some of the terminologies who have previously come across in our previous classes.

For those who may be hearing about them for the first time, I will love to give a brief explanation about each term below.

Fixed Costs: As the name suggests, this is an expenses that remain unchanged despite productions. A good example is rent.

Variable Costs: As the name suggests, variable cost, this expenses changes with the amount of production.

Direct Costs: This type of cost is a cost that is directly associated with the production of the goods and services and a good example is labor.

Indirect Costs: Cost that is not directly tied to the production of goods and services is what we call indirect cost and a good example is administrative running cost.

Importance of a Cost Structure for Entrepreneurship

Cost structure is very important for entrepreneurship and here are some of the importance you may likely want to know.

Financial Planning and Budgeting: With the help of cost structure, entrepreneurs can plan properly as to the amount required to start and sustain a business. Also creating of budget is made easy with cost structure.

Pricing Strategy Development: With the help of cost structure, entrepreneurs can set up prices for their products or services which will cover all the expenses incurred in production and still give them the desired profit.

Identifying Profitability: With cost structure, entrepreneurs can identify profitability easily since the price they are setting for the product they are offering covers expenses and the intended profit.

Risk Management: Managing risk is much more easier with cost structure as all the forms of cost are always written down clearly to ensure that there is a balance between the expenses incurred in them all and the price of the asset with a little addition which is the profit.

Attracting Investors: When a business has a clear and good cost structure then it attracts more investors because people like investing in honest business that are transparent enough. Investors always go for businesses that have a longer sustainability.

Provide examples of businesses that use the cost structure methods explained; explain your answers.

Businesses that used the cost structure methods can be seen below.

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Cost structure: Fixed Cost

Business Example: Manufacturing Companies

Explanation: The fixed cost here remain constant (such as rent and others) despite the production which goes on within the company.

My Reasons: Here the investment is made in an upfront format example paying your rent for a year.

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Cost structure: Variable Cost

Business Example: E-commerce Platforms

Explanation: Variable cost are always directly associated with the amount of sale as it changes based on the sales. If the number of sales increases the variable cost will also increase and if the sales decrease the variable cost will also reduce.

My Reasons: Cost here moves directly with the production of goods and services.

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Cost structure: Semi-Variable Cost

Business Example: Utility Providers

Explanation: This business charges customers based on the amount of their consumption and they also have some other fixed cost such as grids. So here a combination of the fixed and variable cost is what this cost entails.

My Reasons: Has assets that are involve in variable cost and those that are fixed cost. Both cost are combined to give Semi-Variable Cost.

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Cost structure: Direct Cost

Business Example: Restaurants

Explanation: Cost here are very necessary in the production of the next meal. This means that if you don't spend to buy ingredients to make the next meal you won't have the next meal.

My Reasons: The cost here is tied directly to the production of the goods and services. So every cost is tied to the food produced.

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Cost structure: Indirect Cost

Business Example: Consulting Firms

Explanation: Cost here are used to support the consultant. So when you want to consult any specialist you must pay a consultant fee which is not directly tied to the client project.

My Reasons: The cost here used to support the operation but it is not tied to the production services that means it doesn't have direct effect on production

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What are the elements of a cost structure? Provide examples,

The elements of cost structure and their examples can be seen below.

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Fixed Costs: The cost that doesn't change despite the level of production is what we call fixed cost. Example of such cost include rent, staff salaries. Businesses that specialise in such cost can be a manufacturing company.

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Variable Costs: When the cost changes with the level of production, we call such cost a variable cost. Example include raw materials, commission on sales. Businesses that specialise in such cost can be a bakery.

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Semi-Variable Costs: Any cost that has both fixed and variable component embedded in it is what we call the Semi-Variable Costs. Example include utility bills, internet cost. Businesses that specialise in such cost can be a retail store.

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Direct Costs: When we have a cost that is directly tied to production we call such a cost direct cost. Example include labour, packaging cost. Businesses that specialise in such cost can be a shoe manufacturers.

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Indirect Costs: This cost is not directly linked to production but it is important for the business to run smoothly. Example include office utilities, administrative cost. Businesses that specialise in such cost can be a Technology setup.

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Operating Costs: The cost which is incurred in the day to day running of a business is what we call the operation cost of the business. Example include maintenance of gadgets, wages for workers. Businesses that specialise in such cost can be a logistic company.

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Economies of Scale Costs: When production cost increase and the fixed cost is seen in other units we say that such a cost is Economies of Scale Costs. Example of such cost include bulk purchase of material. Businesses that specialise in such cost can be a beverage company.

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Prepare the cost structure of a business dedicated to making cakes. It has a production of 5 cakes per day and expects to obtain a total profit margin of 25%.

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Given

5 cakes per day, 150 cakes per month (30 days).

Target profit margin: 25%.

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Fixed Costs (Monthly): The table below consist of the cost of production of cake monthly regardless the production amount or size.

Expense	Amount ($)
Rent	10
Salaries (2 staff)	8
Utilities	6
ovens, mixers	5
Business licenses	2
Marketing	3
Total Fixed Costs	34

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Variable Costs (Per Cake)
These costs vary with production volume that is per cake and total of 150 cake.

Expense	Cost per Cake ()	Cost for 150 Cakes ()
Ingredients	2	60
Packaging materials	0.5	15
Total Variable Costs	2.5	75

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Total Costs
The sum of fixed and variable costs for the month and total cost per cake.

Type of Cost	Amount ($)	Amount ()
Total Fixed Costs	34	34
Total Variable Costs	75	2.5
Total Monthly Costs	109	-
Total Costs per cake	-	36.5

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The unit cost of each cake is $36.5.

Taking as a reference that the company wants to obtain a total profit margin of 25%, it must sell its cake for $45.625

I want to finally invite @josepha, @solaymann, and @suboohi to join the contest and share their entry if they haven't done so yet.

Cc:
@yolvijrm
@adeljose