Completion requirements
In this theme you have learnt that business costs are divided into different classifications. Cost classification depends upon the actual cost and nature of the business.
Video - Watch and Take Notes
Watch this short video.
Video - http://www.bbc.co.uk/education/guides/zxq2hyc/video
The video is a panel of experts who explain what costs are involved in a business and how to manage them.
Transcript of
the video: COSTS DEBORAH MEADEN-
ENTREPRENEUR People often get
confused in business, the difference between sort of the margin, which is the
moving bit, the bit that says look if I sell an apple for a pound I’ve had to
pay fifty pence to, to actually buy it to sell it. So that’s the margin. Below
the line are the overheads and what you would call the fixed costs. They’re
really the areas you really need to look at, because they don’t, and really,
really get to grips with, because they don’t move with the turnover. They are
fixed, that’s the point. That’s the type of thing that says I’ve got fixed
salaries, I’ve got fixed rent I’ve got to pay, I’ve got to pay power and
electricity. And, and that’s whether I sell one or I sell three hundred. SAIRA KHAN-
SKINCARE ENTREPRENEUR Costs are
anything from stationery, to putting petrol in your car, to travel, to
entertainment, to meeting customers, to actually you know, buying the product
or service. DR PAUL THOMAS-
TRUFFLE ENTREPRENEUR Like any
business we’ve got quite a huge number of costs associated with it. Two of our
biggest costs are leasing those specialist facilities, and also labour costs.
And just last year those prices went up by about twenty percent, which was
quite a big hit to us because it pushed our break-even point back quite away.
So it’s always important to factor in a, a good margin for error HUGH PYM- BBC
CHIEF ECONOMICS CORRESPONDENT Keeping control
of costs is crucial for companies, and normally they can do it. But often there
are costs completely outside their control. For example, if you’re driving a
taxi you have to fill your taxi up with fuel. If the fuel cost goes up you
can’t suddenly change what you charge customers because that normally is
regulated. So you can find you’re getting the same amount of money for the same
amount of people you’ve taken on different journeys, the same amount of fares,
but the money you’re paying out on your fuel has gone up quite a lot. And
there’s nothing you can do about that. And you can suddenly find from making a
profit your business is barely breaking even, you might even be making a loss.
Another example is if you’re buying in raw materials or goods from abroad and
selling them in the UK or processing them in the UK. DR PAUL THOMAS-
TRUFFLE ENTREPRENEUR When the pound’s
very strong, it makes it harder for people overseas to buy our product. And
when the Euros very strong it makes it mover expensive for us to buy some of
our raw materials. BEN WALLACE-
MARKETING, GOOGLE UK Traditionally
the highest, the highest resource cost will be the salaries of your staff, and
also the time of your staff. Certainly, for a business where you don’t have a
high kind of overheads in terms of your office space, or in terms of like a
manufacturer and supply chain. But people are really precious resource. They’re
kind of the supply chain that get your work done. NICOLA VANE-
PHONE SOCK ENTREPRENEUR The biggest cost
was probably trade marking a brand name. We needed to do this to make sure our
competitors didn’t use it. HUGH PYM- BBC
CHIEF ECONOMICS CORRESPONDENT I think there is
a time when it didn’t matter very much when in terms of retailers, people just
wanted to go in and get the cheapest possible deals. They didn’t really mind
where the products were made or whether the retailer had an ethical policy. Nowadays
I think consumers are much more aware, for example in clothing they might want
to know that the item that they buy was made in a factory that is supplying
proper standards, is not overworking their staff, that is not employing young
workers who are not properly protected. SAIRA KHAN-
SKINCARE ENTREPRENEUR There are some
costs that you; you have to invest in, in order for the business to kind of
work. The overheads are things that actually you can reduce and keep a tighter
control of. So for example I’ve decided to work from home and set up an office
in my home so that I don’t have to pay rent. I also, decided that instead of
employing people I will actually outsource certain services. The benefit of
that is that I don’t have to pay somebody National Insurance, I don’t have to
pay for their pension, and actually I don’t have to pay for anything about
them, apart from when I buy their product or service from them. So overheads
and costs are important, but what you want to do is keep them to a minimum so
that you can reap the benefits of the profits. DEBORAH MEADEN-
ENTREPRENEUR