Workshop 1. Fixed and variable costs

Workshop 1.

1) By calculating the cost of goods and services, knowing the cost per unit, managers can know what goods and services to offer for the market and at what price to enter into the market.

2) Planning for the future, it helps to budget plans for the future, calculate investments, make strategic decisions.

3) Performance control and calculation

Expense types:

Theoretically, there are many types of costs, but for practical purposes, we will divide the costs
into 2 categories:

Variable costs

Variable costs are costs that depend on the quantity/volume of goods or services, that is, depending solely on the number of goods.

Raw materials are a variable cost because the more you produce; the higher will be the total cost of raw materials. Water, soap, electricity in car washing station, these are all variable costs, if the number of cars increases, then the costs will increase.

Fixed costs

Fixed costs are costs that do not depend on
the quantity of goods or services.

For example, if there is no sale at all, you must pay expenses such as rent, wages, depreciation, utilities, loan payments.

Variable costs

In the transportation (delivery) business, petrol is a variable cost, since with an increase in the number of shipments, the cost of petrol for delivering a shipment increases. The commission paid to the manager on sales is a variable expense because if sales increase, the commission paid to the manager increases. So, in any business, if the cost increases with the increase in the number of goods or services, then this is a variable cost.

For example, you opened a transport business

You bought 10 cars, hired 10 drivers. According to your calculations, 0.9 liters of petrol are needed per 1 km of delivery. Your car transporters traveled 1550 km in a month, how much money was spent on petrol in 1 month? The cost of 1 liter of petrol is 470 tenge.

Find the total variable cost of 1 car / Total variable cost

You opened an online store

You store all your goods at the fulfillment center (warehouse). For example, let's say you pay to the fulfillment center 85 tenge for 1 product, and to the logistics company you pay 50 tenge for 1 product for the transportation of the same product. When selling goods via the Internet, you pay 3.5 % of the price of the goods to the processing company. You pay managers 10% of the price of the goods sold as a commission. The price of goods is 1200 tenge.

Calculate the company's variable costs.

Fixed costs

Fixed costs are costs that do not depend on the quantity of goods or services. For example, if there is no sale at all, you must pay expenses such as rent, wages, depreciation, utilities, loan payments.

For example, you opened a transport business

You bought 10 cars, hired 10 drivers. According to your calculations, 0.9 liters of petrol are needed per 1 km of delivery. Your car transporters traveled 1550 km in a month, how much money was spent on petrol in 1 month? The cost of 1 liter of petrol is 470 tenge. You leased each car for 5 years, monthly payment is 120,000 tenge, monthly salary of worker is 180,000 tenge, office rent is 210,000 tenge per month, utility/bills cost is 34,000 tenge per month, Internet to the office is 15,000 tenge per month, monthly expenditure for the car parts is 8500 tenge per month.

Find the fixed costs for each month.

While the number of services increases, the fixed costs do not change, they remain constant.

For example, you opened a transport business

You bought 10 cars, hired 10 drivers. According to your calculations, 0.9 liters of petrol are needed per 1 km of the delivery. The cost of 1 liter of petrol is 470 tenge. You leased each car for 5 years, monthly payment is 120,000 tenge, monthly salary of worker is 180,000 tenge, office rent is 210,000 tenge per month, utility cost is 34,000 tenge per month, Internet to the office is 15,000 tenge per month, monthly expenditure on the car parts is 8500 tenge per month.

Calculate the cost of transporting 1 km per month and calculate the markup for transporting 1 km per month.

The price of transportation for 1 km is 745 tenge, the price is stable for 1 year.

Mini case

You are going to rent the Golden Horde Cinema in Almaty; you need to pay 3.5 million tenge per month. Cinema "Golden Horde" has 5 cinema halls, each of which is designed for 150 seats. The ticket price is 1500 tenge.
The cinema is only open for 22 days a month.

Director

400 000

Cashier (2 people)

150 000

Technical staff

150 000

Marketer

200 000

In addition, you have 95,000 tenge monthly utility bills, 170,000 tenge monthly marketing expenses, 45,000 tenge monthly expenses for minor repairs at the cinema, and 25 tenge expenses for tickets and receipts (paper and ink) per ticket. When selling each ticket, the owner of the movie, that is, the film company, must be paid a royalty of 35% of the ticket price, as this is a fee for using the movie. You have outsourced all the cleaning work of the cinema, i.e. entrusted it to a separate cleaning company, and pay for it as follows: for every 100 tickets sold, you give the cleaning company 10,000 tenge.

Estimated cinema occupancy in the next 10 months
(hall occupancy)

• It is necessary to find the cost per unit of the sold ticket for each month;

• You need to find the markup for each month;

• Schedule of cost reduction with an increase in the number of tickets;

• Find BEP;

• If the rent increases by 10% in March, how much will the cost increase?

• If royalties increased by another 15% in January, how much would the value increase?

Companies attach great importance to writing a strategy, because the strategy says what pricing policy to follow and the sales plan. This sales plan should contain information about minimum sales. Equilibrium point If the company reaches this point, then all of the company's expenses are covered by this sale.

For example, you opened a transport business

You bought 10 cars, hired 10 drivers. According to your calculations, 0.9 liters of petrol are needed per 1 km of the delivery. The cost of 1 liter of petrol is 470 tenge. You leased each car for 5 years, monthly payment is 120,000 tenge, monthly salary of worker is 180,000 tenge, office rent is 210,000 tenge per month, utility costs is 34,000 tenge per month, Internet to the office is 15,000 tenge per month, monthly expenditure on the car parts is 8500 tenge per month. The price of transportation for 1 km is 745 tenge, the price is stable for 1 year.

How many transfers do you need to make in 1 year to cover all expenses? Find the BEP break-even point.

You have opened
an online store

You store all your goods at the fulfillment center (warehouse). For example, let's say you pay to the fulfillment center 85 tenge for 1 product, and to the logistics company you pay 50 tenge for 1 product for the transportation of the same product. When selling goods via the Internet, you pay 3.5 % of the price of the goods to the processing company. You pay managers 10% of the price of the goods sold as a commission. The price of goods is 1200 tenge.

Office rent

250 000

Payroll (employee salary)

1 850 000

Monthly marketing expenses

450 000

To open an online store, you bought a computer and office equipment for a total of 4,485,000 tenge, the service life of this equipment is 5 years.

How many products do you need to sell in 1 month and 1 year to cover all fixed costs? Find the BEP break-even point.

For example you have
a call center.

Other companies outsource their call centers to you. You will receive 400 tenge per a call to each client. A manager sitting in your call center can call a maximum of 110 people in 1 day, the salary of a manager is 250,000 tenge. Your office is located in a coworking space, you pay 5,000 tenge for each seat. You get the number of leads your customers have from IT companies. You pay 2.5 tenge for each customer number. Managers are supervised by a supervisor, each supervisor supervises only 3 managers. The salary of supervisors is 700,000 tenge. Managers and supervisors are trained, the number of trainers is 1 trainer for 5 people, the monthly salary is 600,000 tenge. In addition, the monthly cost of your IT system is 185,000 tenge.

Workshop document

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