SLC | S21W1 | Costs for entrepreneurs - Introduction to cost
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Hello teacher
It's good to begin the class with an important subject. AM ready to learn and unlearn and that is why am here.
What is cost and how important is it for entrepreneurs? |
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Cost is the total amount of money spent to deliver a service or produce goods. Cost can also be seen as the value placed on a good or service in terms of money.
Cost is important to entrepreneurs in the following ways;
Knowing your cost as an Entrepreneur helps you make reasonable budgets for your business and have good financial plans.
Cost helps entrepreneurs determine the price at which their products will be sold or their services delivered to consumers ensuring that profit is made rather than loss.
Cost is important to entrepreneurs in terms of making decisions like how to increase their cash flow and reduce the amount of expenses made.
How profitable a business will be can be determined by cost, this is why cost is important to entrepreneurs.
Cost is important to entrepreneurs because it helps them stay relevant in the market because they would know how to place their price so that it won't be so high compared to others.
Establish the difference between costs and expenses, giving examples of this through a real case |
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Costs are the total amount of money spent to produce a goods or service, cost are directly linked to production of a product or service while expenses are not directly linked to production, instead expenses are money spent to keep the business ongoing.
For example I have a neighbor who is an entrepreneur he is into concrete blocks production, leasing a land where he produces blocks but has no electricity connected and has part time workers he pays daily.
His Costs includes;
- Cost of raw materials needed for blocks like cement, stones and sand
- Cost of fuel/diesel for using generator to pump water
- Daily payment of staff
His Expenses includes
- Concrete blocks delivery to customers
- Land lease payment
- Government tax
What are the benefits of performing a good cost determination? |
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There are several benefits of performing a good cost determination and they include;
- Good financial management: It helps decide how money and resources will be used or spent.
- Loss Prevention: when a good costing is done loss in business is prevented because you would not need to fix price of your goods and services lower than it cost to produce it.
- Good investment decision: It helps to determine if a business we are looking to start up or invest in is worth investing in it.
- Accurate budgeting: through performing good cost determination, business owners or entrepreneurs can make accurate budgets for their business or investments.
- Good decision making in terms of price allocation of goods and services
How do you determine the costs of your business? If you are not an entrepreneur, how would you do it? |
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I am not an entrepreneur yet but I plan to become one soon because I want to start up a chicken poultry business.
I would determine the cost of my business by doing the following things;
I will write down all I need for my business like equipments I need to buy such as
cage,
feeders,
drinkers,
Wiring,
lightening bulb,
feeds,
medicine
chicks.
I already have a space to use
I will write an estimated price for the items I have written down after carrying out a market survey
I will divide the expense of things I have written above into two which are one time expense and weekly or monthly expenses.
For example, Cage, drinkers, feeders, lightening bulb and wiring falls under one time expense.
While feeds and medicine and will fall under weekly or monthly expenses. But chicks will be on its own.
The total amount gotten when I add up My weekly or monthly expenses(feeds and medicine) plus the amount I bought my chicks are my cost of business.
I invite my friends to take part in this contest @ninapenda @sahmie @jovita30
Greetings @ruthjoe
1.- You have shared the concept and importance of Cost. The cost corresponds to all that has been invested in the production of a good or provision of a service, so it is important in setting prices and therefore the profitability of the business.
2.- He has clearly explained the difference between costs and expenses, using as an example his neighbor's business to identify the one and the other.
3.- She has shared with us the importance of costs for the profitability of his business, explaining which are the items in which he invests regularly and how he takes advantage of it to make his business much more solid.
4.- You show us what would be some of the costs of your next venture - some of the services you provide in your venture, detailing some of the resources you use in providing the service. We would have liked to see how you calculate the cost of some of the services you offer.
Thanks for joining the contest
Thank you for going through my post and verifying it. I have noted what you said.
Greetings my friend,
Costs like you have referred to is the total money spent to create a product or service, and they are directly tied to production. On the other hand, expenses are not directly linked to production; they are the costs needed to keep the business running.
For example, your neighbor who produces concrete blocks has specific costs, such as the raw materials like cement, stones, and sand, the fuel for the generator to pump water, and the daily wages for his part-time workers.
His expenses would include things like delivering the concrete blocks to customers, paying for the land lease, and covering government taxes. Understanding these differences is crucial for managing a business effectively. All the best.