There are many different cost and structures that need to be considered when forming a profitable business. A companies expansion can play a role in how some of these concepts are engaged. Furthermore, understanding the level of success a company has can be measured in multiple ways. In this paper I would like to discuss the types of costs a company can expect to have, and they ways these cost can be determined and understood. Then closing with an explanation of how these can affect an expansion of our business and profits. Implicit and explicit costs are completely different, but are both important to understand when looking at a company’s finances. The simplest way to differentiate between the two is that one is a business expense and the …show more content…
These are transactions where money leaves the company, such as payroll, buying assets, renting office space, etc. One example we will see many times in our careers is purchasing supplies. Companies pay money to other business that provide them the materials needed for their product or service. The company I work for offers a variety of spa service. We need materials to complete these services such as lotion, cotton, nail polish, skin care products, and many more materials. The company spends some of their tangible assets to purchase those, therefore, they are explicit costs. Alternatively, there are costs that do not result in spending tangible assets, instead they deal in opportunity costs. For example, there are employees that temporarily change their job descriptions, resulting in implicit costs. At my current position, I am a trainer for my company they send me to other cities to train new employees. While I am away training, I cannot be completing my normal job functions. This does not necessarily cost the company any tangible assets, but it does result in an opportunity cost, and by extension an implicit cost (Investopedia, …show more content…
For instance, a business owner may have just taken out a loan to launch a new product and that product is taking off. Their accounting profit will not be great at that time but they are selling units and will eventually turn an accounting profit. The opportunity cost was successful because even though they owe money they are creating brand recognition and loyalty, which could lead to future success. The last component I want to discuss in this paper is economies and diseconomies of scale. The ideal situation for a business is that it will grow, and the more they produce the less it cost to make that product. This situation is called economies of scale, and it is a common outcome of expansion (Openstax, 2016). This is often why large companies can afford to sell items at a lower price than small businesses. While economies of scale is common, there is still another possible outcome. Unfortunately this one is less appealing but one that depends largely on the marginal cost of a business’ product. It is known as diseconomies of scale, and it generally happens when a company expands faster than it can handle. Ultimately, the factory or firm is inefficiently managed and organized. Common problems stem from too many employees, which raises the company’s costs and reduces the rate of production. The chain of command is too long and this can create a disconnect between upper management and workers (Openstax,
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Financial plan The principal source of the organization financial growth is through cash flow, it is clear and imperative after effective evaluation that growth will occur in phases. We identified that we will have to build the business in phases as indicated on the attached spreadsheet (Appendix B), for the Revenue projection of five business years respectively. We made our projection based on inflation and unforeseen circumstances; business growth is to be Contingency plan Victoria and family will invest part of the financial investment into the business account until the business is able to support its operating expenses.
However, once the market gets overly saturated with different firms there becomes a surplus of product. Once there is a surplus of product, and since the demand of the product is already being met, the equilibrium price will starts to decline. Subsequently firms will not be able to meet their variable and fixed costs, thus leading to the firm to exit the market. Having so many different firms selling one type of product creates major instability for the people of Tap, and creating an unpredictable standard of living for all
STRATHMORE UNIVERSITY MANAGERIAL FINANCE ASSIGNMENT STUDENT NAME: LINDA MCGAW ADMISSION NO: 061902 SUBMITTED TO: SUBMITTED BY: 28TH JUNE 2016 CASE; HANSSON PRIVATE LABEL, INC EVALUATING AN INVESTMENT IN EXPAANSION Identify the main dilemma and the key questions Mr. Hansson needs to respond to. Analyze in detail information in relation to the following and discuss how it might influence Mr. Hansson to make the decision (without any calculations) The main dilemma Mr. Hansson is facing is whether to invest in the proposed $50 million expansion project proposed by his manufacturing team and how to finance it, should be financed through equity or through additional debt.
For the company’s price, in the short run, must meet average variable costs and average total cost needs to be met in the long run in order to continue operations. 4. Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your
Before the 19th century, there only existed a small number of firms and much of which were extensions of the state – in other words, was owned by the government. Some companies were also provided with exclusive rights to trade and conduct business in certain markets or products. These companies would include the Dutch East India Company and Hudson Bay Company. The existence of firms started during the Industrial Revolution in Britain. The textile industry, serves as one of the concrete examples and basis for the establishment of firms.
Cost structure: What costs does the firm’s offerings entail for the firm? Business case analysis As mentioned before, we will use the CANVAS business modeling tool’s nine building blocks in order to describe Branded3’s BM. By the word ‘customer’ we will refer to business customers of Branded3. By the word ‘audience’ we will refer to audience of Branded3’s business customer.
A. Problem Formulation In preparing this paper, various statements related to the major problem are constructed on succeeding problem formulations: in doing a business, several firms start from preparing resources, including IT resources, afterward, they organize those resources in order to achieve a superior performance. Nevertheless, to do the business, a firm can also begin from determining required performance in terms of planning the resources with the intention of accomplishing a cost advantage, which is one of the categories of competitive advantages . However, the firms occasionally have not paid attention to the cost efficiency resulting in a waste of resources.
The True Cost by Andrew Morgan is a film that explores the processes that led to the uproar of fast fashion. These changes within the fashion industry have drastically affected the manufacturing process of clothing. Moreover, fast fashion has had varying economic impacts both at the micro and macro-level. The structure of our global economy has driven fast fashion to new heights via consumptionism culture along with materialism. The labour management techniques that have organized manufacturers of the global south have proven to be important in sustaining the mass production of new clothing lines.
Small businesses such as sole proprietorships are numerous but often lack the sizeable financial capital that “big business” has (Waters). This means that in order to be able to a profit they aren’t able to go below a certain prices as they have to be able to pay their workers a livable wage. So when corporations start to lower prices in order to gain consumer favor they (small business) usually have stop well above where the price will settle as acceptable for consumers. Now corporations are able to drop their prices incredibly low and still make profit as their workers are usually making next to nothing unlike small business employees (Landau). A lack of consumers for their higher priced products means that many small businesses will eventually shut down due to a lack of profit.
Danni Chen 383677 To tell or not to tell? Introduction After almost two years of studying at the Erasmus University, my surroundings constantly serve as a reminder that I am an economic student. Cost and benefit analysis, rationality, utility …these terms seem to be engraved in my brain.
A sample of three firms is, of course, too small to draw confident conclusions. In these firms profits fluctuated widely, but they do not appear obviously above the opportunity cost of capital in the economy when risk and management responsibilities are