Hello My Steemain Friends ,

How are you. I hope you people of steemian are good and enjoy your life . Well I am well. May God bless you all. Today I am writing about an interesting Steemit Engagement Challenge S21 - W6: which is all time my favourite topic “Costs for entrepreneurs - Cost structure" this amazing challenge organised by @yolvijrm . So, in this post I am going to share my point of view about this topic.

If we understand cost in simple words, what is the cost of a business, then we have to look at the things used in the business. We can easily calculate the cost by adding their prices. First of all, we add the prices of all the things. These are the expenses which are necessary for us, without which our business cannot start and we cannot reduce the quality of the goods. Because when we provide good quality to any customer, only then we will be able to earn good profit and only then will our business be able to get customers.

After that we add the electricity cost, transport fare and the price of the envelope and then add some percentage of labor to it, then our margin comes out. In this way we can decide the percentage of our profit.

Importance of cost structure

The cost incurred on it is the most important in starting any business. In this cost, many costs are fixed and many are variable.

Fixed costs

Fixed costs are the expenses incurred on the space required to start a business. Expenses incurred on machine upkaran.

Variable costs

Variable costs are the cost of the goods today. After 2 months, the cost of the goods can be either less or more than its original value. Such as raw material, rent, electricity bill etc.

Example

When a person starts a business and the things that are needed to start the business and the profit margin is high, a businessman wants to buy goods in wholesale or directly from the company so that he does not have to pay the middleman and the goods come at a lower rate and if sold according to the market price, the profit margin will be high.

I am telling you all the examples of such businesses which come under fixed costs and variable costs.

Fixed cost

An example of a business falling under fixed cost is the rent of a factory, machinery bill and salary of employees, these costs are fixed.

Whether more or less goods are made in the factory, you will have to pay the fixed amount of rent. If machinery equipment has arrived, then you will have to spend on its maintenance, the salary of the employees which is fixed does not depend on whether less or more goods are made, this expense has to be made.

Variable cost

Variable cost is an example of a business falling under variable cost.

Raw material

Packaging cost, water cost, electricity bill consumption.

pexels

Nowadays e-commerce websites are growing rapidly. Their sales depend on people ordering goods online. If the sale of the product is more, then shipping charge, customer service cost etc. are charged on it. The cost structure of every business is different.

The elements of the cost structure of every business are different. The way of spending income of every business is also different. The cost of any business also depends on the type of business it is. If you do business of grocery, clothes, or electrical goods etc. or any product which is not perishable, even if it is not sold for six months, then also its cost will remain safe with you. So in this way we can call it fixed cost.

On the contrary, if someone's business is of raw material i.e. milk, curd, sweets, chaat or fast food etc. then the goods start getting spoiled within 2 days, if there is no sale. So the businessman may have to suffer a lot of loss, profit is far away, even the cost is not recovered.

For example

If someone has a milk curd shop and the cheese made by him does not sell and he kept it stored in the fridge for two days and after that the cheese starts getting spoiled, then the cost of the milk used in making the cheese is wasted, because if it had been sold, then another cheese would have been made with its cost and also the electricity used in the fridge to store the cheese is also wasted. Now they will have to use new cost to make new cheese the next day.

Thus we can say that the elements of cost structure vary according to the business.

First of all I found out what ingredients I need to make a cake and how much cost I will have to spend to collect those ingredients.

pexels

First of all I prepared a list of ingredients and wrote their prices along with it.

The ingredients used to make a cake are as follows:

Ingredients 15$
Labor 2.5$
Electricity 3$
Packing and distribution 1.5$
Advertisement 3$
Total cost 22$

We find out the cost of one cake in our total cost and then multiply it by 5 to find out the cost of five cakes.

25$×5=125$

So in this way the cost of five cakes is 113$. This is the cost of making five cakes daily. If we calculate the monthly expenditure then we will calculate it as 125×30.

The monthly expenditure will be

3,750$

Now we expect to earn a total profit margin of 25%. So the profit of 25% on the cost of each cake will be as follows

25×25/100
=6.25$

So we are earning a profit of 6.25$ on one cake. If we produce five cakes daily then we are earning a profit of

6.25×5=31.25$.

I want to invite my friends to take part in this contest: , @suboohi , @waqarahmadshah , @eliany , @lirvic"

Cc: @adeljose

Thankyou 🙏

Greetings