Business decisions the economics of one unit
Download
1 / 14

Business Decisions & the Economics of One Unit - PowerPoint PPT Presentation


  • 297 Views
  • Uploaded on

Business Decisions & the Economics of One Unit. 10. Section 10.1 The Cost of Doing Business Section 10.2 The Economics of One Unit of Sale. The Cost of Doing Business. 10.1. Define and provide examples of fixed expenses Explain how variable expenses are calculated

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' Business Decisions & the Economics of One Unit' - evette


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Business decisions the economics of one unit
Business Decisions & the Economics ofOne Unit

10

Section 10.1 The Cost of

Doing Business

Section 10.2 The Economics

of One Unit of Sale


The cost of doing business
The Cost ofDoing Business

10.1

  • Define and provide examples of fixed expenses

  • Explain how variable expenses are calculated

  • Define economies of scale

Section 10.1: The Cost of Doing Business


Fixed expenses
Fixed Expenses

A fixed cost is a recurring expense that isn’t affected by the number of items a business produces.

An easy way to remember eight of the most common fixed expenses is to remember the phrase: I SAID U +Other FXs

Insurance

Salaries

Advertising

Interest

Depreciation

Utilities (Gas, Electric, Telephone)

Rent

Other Fixed Expenses

Section 10.1: The Cost of Doing Business


Depreciation
Depreciation

Depreciation is an accounting method of spreading the total cost of the equipment a business buys over the number of years it will be used.

To caclulate the annual depreciation expense, you can use the formula shown in the following example.

Disposal Total Years Depreciation

Value Depreciation Used Expense

$25,000 $4,000 $21,000 5 years $4,200

Cost

÷

=

=

=

=

÷

Section 10.1: The Cost of Doing Business


Variable expenses
Variable Expenses

A variable expense is an expense that changes based on the amount of product or service a business sells.

The two types of variable expenses are:

  • Cost of Goods Sold (COGS). For manufacturing and merchandising (retailing and wholesaling) businesses, the variable expense that is associated with each unit of sale is called the cost of goods sold.

  • Other Variable Expenses. These can include such expenses as commissions for salespeople, shipping and handling charges, or packaging.

Section 10.1: The Cost of Doing Business


Economies of scale
Economies of Scale

The cost reduction made possible by spreading costs over a larger volume is called an economy of scale.

The most common ways to gain an economy of scale are:

  • Spreading fixed costs over as much output as possible. Typically, as your fixed costs per unit decrease, your profit increases.

  • Getting better deals from suppliers. You can get discounts from suppliers if you buy in quantity (volume discounts). Typically, as your cost of goods sold per unit decreases, your profit increases.

Section 10.1: The Cost of Doing Business


The economics of one unit of sale
The Economicsof One Unit of Sale

10.2

  • Define a unit of sale

  • Explain how to calculate the economics of one unit of sale

Section 10.2: The Economics of One Unit of Sale


What is a unit of sale
What Is a Unit of Sale?

A unit of sale is what a customer actually buys from you. It’s also the amount of product (or service) you use to figure your operations and profit.

The unit of sale is the basic building block of your business.

Section 10.2: The Economics of One Unit of Sale


The economics of one unit of sale1
The Economics ofOne Unit of Sale

Selling Price – Expenses = Profit (or Loss)

To calculate the economics of one unit of sale, subtract the variable expenses for a unit from the unit’s selling price. The result is the contribution margin. This is the amount per unit that a product contributes toward the company’s profitability before the fixed expenses are subtracted.

Selling Price – Variable Expenses = Contribution Margin

Section 10.2: The Economics of One Unit of Sale


Eou for a manufacturing business
EOU for aManufacturing Business

Section 10.2: The Economics of One Unit of Sale


Eou for a wholesale business
EOU for a Wholesale Business

Section 10.2: The Economics of One Unit of Sale


Eou for a retail business
EOU for a Retail Business

Section 10.2: The Economics of One Unit of Sale


Eou for a business selling more than one product
EOU for a Business Selling More Than One Product

Section 10.2: The Economics of One Unit of Sale


Eou for a service business
EOU for a Service Business

Section 10.2: The Economics of One Unit of Sale


ad