Entrepreneurs must be able to identify different types of cost in order to be profitable. Please note that this is a practical concept. Fixed cost:stay constant in total but fluctuate on a per-unit basis across ranges of activity.That is as your output or production unit increase,the per unit fixed cost reduce.That is were economic of scale concept is derive which is beyond the scope of this post. Variable costs :are costs that remain constant on a per-unit basis and fluctuate in total in direct response to cost-driver changes.For example increase in production will increase raw material cost,this also applies in the service industry in terms of increase in labor cost to match demand. Knowing both cost helps you to understand break even analysis.That is the point were business is neither making profit nor lost. Break even point helps you to increase your level of effort or involvement in your business.Most successful entrepreneurs use this analysis to re-position their product or service. Break event = Fixed expenses ÷ Contribution margin per unit (Contribution margin = Selling price - Variable expenses per unit) LOOKS SIMPLE BUT CAN DIFFERENTIATE YOU IN THE MARKET PLACE. THINK ABOUT IT.
Posted on: Tue, 13 Jan 2015 01:43:38 +0000
Trending Topics
Recently Viewed Topics
© 2015