For Module 1, you did research on consumer demand and pricing for your business
idea. Continue with the same business idea that you wrote about for Module 1, but now
look at the cost side of your business.
Do some research on various potential start-up expenses for your business based on
research on wages, office space rental rates, etc., in your home town. More specifically,
write a three-page paper answering the following questions:
- What do you think the main expenses will be for your business? Make sure to discuss
labor, rent, equipment, and any other major expense you can think of.
- Do some research on the internet or from your own personal contacts to get a
ballpark estimate of how much the specific expenses are in your home town for the
items that you listed in your answer to Question 1 above. You can use Craig’s List or
similar webpages to get an idea about wages for different positions that you may need to
hire for, and there are many webpages that have advertisements for renting commercial
property in different parts of the country.
- Finally, break down your expenses into fixed plus variable costs. Make sure to cite
two of the required background readings as justification for your classifications of your
different expenses into the fixed and variable cost categories.
Consumer electronics financial aspect
The factors of production based on economics are labor, rent, land, capital, and
organization. In the present analysis, the focus will be on analyzing the expenses incurred in
running the consumer electronics business. The costs are incurred as a result of exploiting the
factors of production. The first expense is labor this refers to the human contribution to
production. The labor is divided into direct and indirect expenses. Direct labor expenses refer
to the cost paid to permanent workers who I will employ in the business (Taylor, 2014).
In my business, I will employ one finance and sales manager respectively. I will work
with the CEO and the procurement manager. Indirect expenses will be incurred in paying the
three salespeople who will be in charge of selling the electronics in the store. The accountant
will focus on managing the finances of the business and carrying out internal audits. On the
other hand, the sales manager will focus on coordinating the sales and marketing of the
business. Finally, I as the CEO and procurement manager will focus on coordinating the
operations and purchasing supplies at affordable prices from the suppliers.
CONSUMER ELECTRONICS FINANCIAL ASPECT 2
The second expense is the rent for the premises. Rent refers to the amount that is paid
to the landlord for the use of their premises. I will rent business premises in the top business
district in Massachusetts. I will pay six-months rent advance to enable me to concentrate on
my business operations. The third expense that I will incur is insurance that I will pay to
American International Group on a monthly basis to indemnify my business operations from
any risk that might occur. The risks that will be covered by the insurance are fire, terrorism,
burglary, and medical insurance for the permanent employees.
The fourth expense that will be incurred is the depreciation expense on the fixed
assets that are part of the business operations. The fifth expense is the cost of purchasing the
electronic supplies to be sold in the business. I plan to focus on importing some of the
electronics from China and others will be provided directly by the local manufacturers. The
local manufacturers are LG, Samsung, Sony, Toshiba, and Panasonic. The sixth expense that
will be incurred to ensure that the business operates without any difficulties is the licenses
and permit expenses. They will be paid on a yearly basis.
When it comes to ensuring that the business gets sufficient publicity, I will focus on
advertisement through the social media networks this is the seventh expense. The reason for
selecting social media network is because I will incur fewer expenses, but manage to attract
young customers to the business. The eight expenses will include electricity and water that
will be paid on a monthly basis to ensure efficient operation of the business. The ninth
expenses incurred will be the transportation of consumer electronics to consumers who
purchase goods in bulk. Sundry expenses cover other expenses that will be incurred by the
business, but are not central to its operations like entertaining, cleaning, repairs, and
maintenance of the premises.
CONSUMER ELECTRONICS FINANCIAL ASPECT 3
The table below provides the estimated cost of operations that the business will incur
based on the expenses discussed above:
EXPENSE MONTHLY COST
CEO and Procurement manager $4583
Finance manager $3334
Sales manager $3750
Insurance $ 5000
Depreciation of fixed assets at 10% $ 800
3 Sales personnel $ 1000 x 3= 3000
Cost of purchasing the supplies $ 526,534
Transportation $ 550
Sundry expenses $ 600
Total expenses $ 538,619
CONSUMER ELECTRONICS FINANCIAL ASPECT 4
The expenses discussed can be divided into the fixed and variable cost. Fixed cost is
the cost which remains the same at various levels of output. In other words, the cost does not
change and is incurred on a periodic basis. In this case on a monthly basis and the fixed cost
remains constant at zero level of output (Beveridge, 2013). In the case of my business, the
fixed costs that will be incurred are rent, insurance, direct labor, and depreciation cost. Based
on the description, at the end of every financial year, the business will incur the same amount.
On the other hand, variable cost refers to the cost, which changes with the level of
production. When production increases, variable cost also increases. Similarly, when the
production decreases the variable cost also decreases (Marburger and Peterson, 2013). In my
business, the variable costs that will be incurred are electricity, indirect labour, water, sundry,
advertisement, transportation, and cost of purchasing the supplies for the business. Based on
the description, at the end of each financial year, the amount reflected from these expenses
will either increase or decrease based on internal and external pressures.
In conclusion, the expenses discussed in the paper are essential to ensure that I not
only set up the business but also continue its operations for a long period. The division of the
expenses into the variable and fixed costs will help the managers in deciding how to control
the variable costs. The variable costs can be streamlined with time to reduce the cost of
operations once the business does stabilize.
CONSUMER ELECTRONICS FINANCIAL ASPECT 5
Beveridge, T. M. (2013). Chapter 5: Production, costs, and revenues. A Primer on
Microeconomics. New York, N.Y.: Business Expert Press.
Marburger, D. R., & Peterson, R. (2013). Chapter 4: What your cost accountant can’t
measure: The economic theory of production and costs. Economic Decision Making Using
Cost Data: A Manager’s Guide. New York, NY: Business Expert Press.
Taylor, T. (2014) Principles of Microeconomics. OpenStax College.