2.10
Entrepreneurship I
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A category of expenditure that a business
incurs as a result of performing its normal
business operations.
Examples include:
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Production cost (raw materials, utilities, man hours)
Inventory (also, storage and transportation of
inventory)
Salaries and Benefits
Advertising and Marketing
Source: http://www.businessdictionary.com/definition/operating-expenses.html#ixzz1yCPMvHSz
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Operational costs involve any expenses related
to running your business, such as labor and
office costs. Profit margin serves as the
percentage of profit made from each sale.
Operational expenses have a direct effect on
your business' profit margin. This number tells
a story of how well you controlled expenses,
which can help or hurt in attracting investors
and bolstering your company’s stock.
What are ways to reduce operating costs?
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Ways to reduce operating expenses
Lower labor costs by placing an emphasis on high
employee performance.
2. Reduce waste. Order enough materials to run your
business but not in excess.
3. Lower utility costs
4. Set a marketing budget
5. Reduce travel expenses
6. Purchase used equipment instead of new.
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How would operating expenses affect selling
price?
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If operating expenses are high the business would be
forced to charge the customer more to cover those
expenses.
If operating are kept to a minimum, business can
charge less, which will result in more sales.
* It is important for businesses to create a budget in
order to track operating expenses and make
adjustments as needed.
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Business costs that are not affected by changes
in sales volume.
Examples include: Lease, Insurance, salaries
Source: http://www.investopedia.com/terms/f/fixedcost.asp#ixzz1yCQa37fz
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Business costs that change according to
changes in sales volume.
Examples include: Material, labor, and
utilities.
Source: http://www.investopedia.com/terms/v/variablecost.asp#ixzz1yCRo3NYf
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Business costs that vary to some extent in
response to sales.
An example is labor, which is fixed for 40
hours then variable as overtime is paid.
Source: http://www.investopedia.com/terms/s/semivariablecost.asp#ixzz1yCSv4HZa
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Money left after the cost-of-goods expense is
subtracted from total income.
Company A and Company B both have $1 million
in sales. Company A's cost of goods sold (COGS) is
$900,000 and Company B's COGS is $800,000.
Company A's gross profit will be $100,000 and
Company B's gross profit will be $200,000.
Company B spends less money to make the same
amount of sales, and is therefore more efficient.
Source:: http://www.investopedia.com/terms/g/grossprofit.asp#ixzz1yCUagBoE
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A company's break-even point is the amount of
sales or revenues that it must generate in order
to equal its expenses. In other words, it is the
point at which the company neither makes a
profit nor suffers a loss.
Source: http://www.investopedia.com/terms/b/breakevenpoint.asp#ixzz1yCVNOFdJ