Costs Essay Samples
Businesses require different values of capital and funds to start and run or operate. These costs can be either startup costs, that are the capital necessary to start the business or operating costs, which are needed for daily operations of the business ("Costs - start-upbusiness case studies," n.d.). Expenses in a business can either be direct or indirect costs or expenses. Direct costs denote the expenses incurred within the business that can be directly traced to the product or service provided by the business. On the contrary, indirect costs denotes cost, which cannot be directly traced to the product or the service produced by the organizations ("Are direct costsaccounting coach,” n.d.). Business costs are further classified as either fixed or variable. Fixed costs remain the same, whether the organizations operate or not, and it does not depend on the value of sales made by the company. On the contrary, variable costs vary with the amount of sales and keep changing from time to time (“Are direct costsaccounting coach,” n.d.).
Just like any business, pressure business is likely to incur various costs in its operations to deliver its services to the customers. These costs include operating costs, which are incurred in the daily operations of the business. For the pressure washing business to function, the firm must buy the washing machines and maintain them through repair and maintenance. Such services to the machines lead to repair and maintenance costs ("10 Hidden Costs small business,” n.d.). The company will also incur overhead costs such as rent and rates on the premises in which it operates the business in case it is rented. Cost of electricity is also an expense for the company since most of the washing machines use electricity to run. In addition, washing various items requires different items such as soap. Therefore, the company incurs cost of raw materials, as it will have to maintain a continuous supply of these raw materials.
The major aim of all organizations is to maximize their profits. Profit maximization can be done through maximizing revenues from the sales and reducing operation costs. Therefore, before deciding on what prices to sell products, the washing company must analyze various costs it will incur in its operations. It then sets a price that enable it earns a given level of profit. Therefore, the price must be higher than the operating costs incurred to offer the washing services to the customers. In addition, the company can set its prices by considering the prices of its competitors. Competition is a common factor in most businesses and organizations have to beat it to be successful in operations (“Steps inKnowthis.com,” n.d.). If the company realizes that its competitors are charging higher prices, it can set lower prices to attract more customers to its services since customers always prefer cheaper services. However, the prices must not go lower than the costs since it ends up making huge losses, which eventually lead to the failure of the company.
Lastly, before setting any price for services, the company has to consider the target group and their ability to pay the proposed amount of money for services. It is significant since the number of customers that go for the services determines the sales made by the company. Therefore, it must set prices that the consumers can afford at a given period (“The Secretsbusiness week,” n.d.).
Temporary Price Promotion
Product promotion is essential for the success or profit to any business. It is employed to create awareness to attract various consumers to the products of a company. One of the strategies of product promotion is price promotion. It involves the use of discounts or temporarily lowering the prices of various products to attract customers to the company's products. The washing company can employ the strategy to beat competition and to position itself in the market. Temporary price promotions increase customer loyalty and lead to more sales, thus leading to higher profits for the company. Nonetheless, the firm must be keen not to lower their prices so much since most customers’ associate lower prices with low quality (“Sales Promotion ProgramsChron.com,” n.d.)
Price discrimination denotes the act of charging varying prices to different customers for the same product. The company can employ such a strategy to capture various customers to buy its services. There are three major types of prices discriminations that can be employed by the company. These include first-degree price discrimination, which involves charging consumers the highest price they are willing to pay. Second-degree price discrimination involves charging different prices depending on the quantity consumed by the consumer. Third-degree price discrimination involves charging different prices to different groups of people (Geoff, 2012). Price discrimination enables the company increases its revenues and be capable of staying in business. With increased revenues, the company can carry out research and development, which benefit consumers, which eventually increase their loyalty to the company’s products.
In conclusion, most cost analyzes are significant to the success of any business. It enables the business to critically analyze the types of costs associated with its activities and to establish prices that can enable it earns a profit. However, the organization must also consider various factors in setting its prices. Competition, total costs, and the target group are among the matters to be concerned about in establishing the price of products. Detailed analyzes of these factors can lead to more sales, thus more profit margins for the company.
Startup costs for Pressure Washing Business (Fixed costs)
Operation Costs (Variable costs) and Overhead Costs
The total cost for starting pressure washing business equals start up cost and operation cost, which is 21700 added to 610. It sums up to 22310 dollars. Setting the prices for services will take into consideration start-up costs, operation costs, competitors' prices and target group of customers. The business is to provide services to homes, fences, decks, driveways, as well as patio's.
On average, offering pressure washing for a residential home of approximately 200 square feet can take four to six hours and at a cost of 75 dollars. Twelve hours of a day as working hours, it means two orders can be accomplished in a day. Therefore, it is possible to make 100 dollars in a day. Working six days in a week, it sums up to 600 dollars a week. In a month, it totals to 2400 dollars. For a year, it sums up to 28800 dollars. For a period of two years, the startup cost is incurred in year one, but operation cost is incurred for the two years. Therefore, profit for two years entails:
Start up cost- $21700
Operation cost- $610 by two- $1220
Feasible income generation in two years based on the above description is 28800 by two- $57600
Expected Profit for two years (generated income-expenses): 57600-22920 equal to 34680 dollars.
10 Hidden Costs of Running a Small Business. (n.d.). Retrieved from http://www.waspbarcode.com/buzz/10-hidden-costs-running-small-business/
Are direct costs fixed and indirect costs variable? | Accounting Coach. (n.d.). Retrieved from http://www.accountingcoach.com/blog/direct-indirect-fixed-variable-costs
Costs - start-up and running - Developing enterprise skills - NFTE-UK | NFTE-UK case studies and information | Business Case Studies. (n.d.). Retrieved from http://businesscasestudies.co.uk/nfte-uk/developing-enterprise-skills/costs.html#axzz3Oc5L82ng
Geoff, R. (2012, September 23). Price discrimination. Retrieved from http://tutor2u.net/economics/revision-notes/a2-micro-price-discrimination.html
Sales Promotion Programs | Chron.com. (n.d.). Retrieved from http://smallbusiness.chron.com/sales-promotion-programs-10341.html
The Secrets to Price-Setting – Business week. (n.d.). Retrieved from http://www.businessweek.com/stories/2006-11-06/the-secrets-to-price-settingbusinessweek-business-news-stock-market-and-financial-advice
Steps in the Price Setting Process - KnowThis.com. (n.d.). Retrieved from http://333.knowthis.com/setting-price-part-1/steps-in-the-price-setting-process
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