Think about cost
Since the sales estimate has been completed, the next is to think about the cost.
The calculations of these two costs lead to profit. The cost is divided to variable costs and fixed costs. What are the subjects of these costs?
The subjects of the variable costs are the costs that increase in proportion to the quantities of the products or services provided by businesses. Raw material costs fall into this category.
Fixed costs are costs that do not increase in proportion to the quantities of the products or the services provided by businesses. Utility costs or maintenance costs facilities such as factories fall into this category.
The figure is the image of those costs.
In order to accrue profit, sales must exceed the costs. In other words, sales must exceed the sum of variable costs and fixed costs. The point where sales and costs match is called the break-even point. This becomes the standard of profit accruals for the increase. For example, when you know the break-even point, you will be able to figure out how many more products must be sold or how far sales must be increased.
Try these quizzes to make sure of your comprehension. Which company belongs to the industry who has the higher fixed cost? The pictures shown above are a steel industry and a travel industry. The answer is on the next page.