Transportation
Whether you're preparing food in your own kitchen and transporting finished products to the
venue or cooking at the venue itself, your catering company still requires a mode of transportation that can get you and the food there in one piece. A van is the logical choice as a start-up vehicle for your catering company. It is has room for storage and enough seating for you and a couple of employees. You can lease a van for a lower monthly fee than purchasing one, though it may make more sense to purchase the vehicle for the bigger tax deduction at the end of the year.
Advertisement
Word of mouth alone isn't enough to get the word out about your new business. Advertising
start-up costs can be as small as advertisements in a local newspaper. You may also wish to create a profile for your catering business on several social networking sites. The accounts are free and they allow you to spread the word about your business through existing friends and business connections with the speed of the Internet.
Technology
A computer for bookkeeping, catering order management and general file keeping is a
necessity. Incorporating a combo fax-printer and Internet connection can allow clients to send catering queries in real time, which can shorten the turnaround time for you to come back to them with a final price.
2. Operating costs
Operating costs are defined as non-capital costs (non- capital operating costs)-
the company incurred costs their economic and administrative activities to accomplish: salaries and wages, insurance costs, floor space rental, electricity, computer maintenance contracts, software maintenance contracts, and so on. In brief, almost all routine expenditures a company makes in operating a business are operating costs, except for a few special non-operating costs (such as costs of financing a loan, or one-time costs for closing a plant), and except for capital costs (see assets and capital budget). Activity costs size in the company is relatively constant, because there is no directly related to the sale.
Operating costs consist of goods or services "used-up" or consumed in operating a
business. Operating costs consist of two categories; Marketing costs and Administrative costs. Marketing costs are costs that directly relate to the selling of a product or service. Administrative costs, on the other hand, are expenses that do not directly relate to the selling of a product or service; they are, however, necessary in operating the business. Table 2.1 provides a listing of several Marketing and Administrative costs (i.e Operating costs).
3. Cost behaviour
When the way a specific cost reacts to changes in activity levels is called cost behaviour. Costs
may stay the same or may change proportionately in response to a change in activity. Knowing how a cost reacts to a change in the level of activity makes it easier to create a budget, prepare a forecast, determine how much profit a new product will generate, and determine which of two alternatives should be selected. It is separated into three main types of costs:
Fixed costs
Variable costs
Mixed costs
Information about behaviour cost is very important, in making management and economic
decisions behavior cost is very important, in making management and economic decisions, such as, how many of the productions expected to produce, whether it is worth to reduce products prices, to aim increase sales volume. How to be paid for employees of sales department; paying commissions, the base salary or a combination of these for methods, whether it is worth buy new equipment, to aim increase production volume and others.
Analyse the fixed and variable costs is especially important, solving the continuity and
increasing of production problems, because the variable costs formed only then, when produced output, while fixed costs will be the same at hundred present and at zero present of produce volume level. Fixed and variable costs distribution especially important their control. Variable costs must be controlled taking in activities level, while fixed- in time.
3.1 Fixed costs
Fixed costs- fixed costs are business expenses which level is constant and independent of
output, and which don't change, than changes in production volumes. They remain constant for the production increase, decrease or even in his absence. Fixed costs can be attributed to sales costs, indoor lighting costs, heating, administration, depreciation of facilities, premises for rent, insurance, wages management of staff, accountancy costs, marketing costs, and other costs, which don't change, than changing production volume. For example, catering business rent payment for premises and use for equipment payment will be fixed costs, which don't change and independent of the output. Although the fixed costs its essence is independent of production volume. But they can change, but not because are changing production volume, but for other reason. For example, due for inflation increase, the catering premises expenditure coming years can increase. However, the current year rent costs are independent of the numbers of visitors. Some fixed costs are also running costs. Rent and equipment is fixed costs, which will not change from volume of production. Fixed costs: 80% of these costs are labour costs and are generally invoiced each month. Typically, these costs do not evolve directly and in a linear way with the volume of activity, but in stages, with high and low periods of activity. Salaries are not dependent on the number of hours worked and are agreed annually, but paid monthly. It is important that fixed costs are paid in the agreed time otherwise a business will have a bad credit rating which could affect future requests for borrowing money or purchasing goods. Also suppliers like their customers to pay for their goods and services on time and it will look good if you keep up regular payments.
Also a longer time producing less or more production can be changed and fixed costs. But are
fixed in relation to the quantity of production for the relevant period. The more produced output is the lower proportions of the fixed costs have for single output unit. For example, a company may have unexpected and unpredictable expenses unrelated to production; and warehouse costs and the like are fixed only over the time period of the lease.
2. 3.
Fixed costs may also be expressed in algebraic:
Y=a, where Y- Total fixed costs a- fixed-term costs (constant)
As we see this equality activity level has no effect.
Analysing the fixed costs allocated into two types of these costs:
Mandatory fixed costs- is the costs without movement, associated with the company law and
physical existence. Managers cannot control them. This could be insurance fees, interest, premises rent, paid by long-term contracts, depreciation and other costs.
Discretionary fixed costs- is the costs, which and then a being fixed by sufficiently long time
can change. So, the exchange of activities volume over long time period they can become semi-fixed and their graph will look like as shown in the 3.1.2 figure.
Fixed
total costs
Unit
Managers can slightly influence these costs of exchange. One example of these costs can
be management personnel wages. While managers, and administrative staff, and other employees’ salaries, does not depend on whether it will be made 1000 or 2000 production unit, but management can decide to raise wages. Thus fixed management costs suddenly jumps up, but then later they again will not change.
Another example of discontinuous fixed costs can be short-term rental costs. For example, if
you rent premises, but production volume (number of customers) can increase so many, that in one premises cannot fit. Then the management can decide to rent another premises. Thus, fixed costs suddenly jumps up, but then again for some time will not change.
Fixed costs have the following properties:
Changing the volume of production up to a certain range the general the level of costs remains constant.
Proportion of the costs per unit of output, increasing of production volume up to a certain range, decreases.
Costs, assigned to particular the company subdivision, using a cost allocation method.
Responsibility these conclusion of costs have companies, not for subdivision managers.
3.2 Variable costs
Classic variable costs definition is as follows: variable costs- is the costs, which total amount
changes proportionally production volumes. Variable costs include costs directly by the production of produce or the service provide. This is costs, which directly depend on the produce volumes. These costs are increasing growth the production volumes. This is because that want to produce more production need use more of variables production factors, for example if the production volume increases by 10%, so total variable costs amount also have increasing 10%. Another definition of variable costs is: the costs of the company, for variables production of resources to pay in the short-term. For example, if £20 costing of food product is used in food production, so the total food costs proportionately to the decrease or increase depending from produced food quantity. Or, for example, if catering business provides more services, it will consume more work or additional measures, energy resources, therefore variable costs will increase. Other variable costs examples can be payment of direct labour costs, used materials, raw materials, materials, commissions, bank charges (per sale), delivery costs and so on. Variable costs can change each week and each month, fixes costs usually remains the same each month or year.
Variable costs graph shown figure 3.2.
1. 2. 3.
These variable costs the graph is the simplest and expressed as of linear costs and volume
dependence. This dependence can be expressed and algebraic.
Y = b x X, where: Y- total variable costs, b- variable one product costs, X- level of activity
But variable costs are very various and their graph not necessarily can be straight. In
the book mentions these types of variable costs, which will not be directly proportional to the level of activity.
Progressive costs- are the costs, increasing faster than of activities volume.
Digressive costs- are the costs, increasing slower than of activities volume.
Regressive costs- are the costs, which, increasing the activities volume, absolute amount
decreases.
Leaping costs- is the costs, which due one reason or another abrupt increase or decrease.
So variable costs increase or decrease 'automatically', depending on level of activity and them
have the following properties:
1. Common size of costs is variable depending on activities volumes.
2. Remains relatively constant production per unit costs size, when production volume range
up to a certain limit.
3. Costs easily attribute to company subdivision.
4. Responsibility these conclusions of costs have companies, not for subdivision managers.
3.3 Mixed costs
Mixed costs- are costs, which have variable and fixed costs properties. In literature these
costs also called semi-variable, sometimes called semi-fixed costs. Mixed costs examples can be telephone service costs: subscription fee – fixed costs parts, call charge by time- variables costs parts. Truck rental – fixed costs for starting away and variable costs depending on the number of kilometers travelled. Of course, there are many mixed costs, with variable and fixed costs is not so easy to distinguish. Therefore these for separation are various methods of mixed costs.
Fixed costs may also be expressed in algebraic:
Y = a + b x X, where: Y- mixed costs, a- fixed costs b- variable per units costs, X- Units
3.4 Graph Analyse
Fixed, variables costs graph:
Graphically, the total fixed cost looks like a straight horizontal line while the total variable
cost line slopes upward.
The graphs for the fixed cost per unit and variable cost per unit look exactly opposite the
total fixed costs and total variable costs graphs. Although total fixed costs are constant, the fixed cost per unit changes with the number of units. The variable cost per unit is constant.
When cost behavior is discussed, an assumption must be made about operating levels. At
certain levels of activity, new machines might be needed, which results in more depreciation, or overtime may be required of existing employees, resulting in higher per hour direct labor costs. The definitions of fixed cost and variable cost assume the company is operating or selling within the relevant range (the shaded area in the graphs) so additional costs will not be incurred.
Mixed costs graph:
To analyze cost behavior when costs are mixed, the cost must be split into its fixed and
variable components. Several methods, including scatter diagrams, the high-low method, and least-square regression, are used to identify the variable and fixed portions of a mixed cost, which are based on the past experience of the company.
COST OF PRODUCTION FORECAST EXAMPLE
First year:
Start-up costs
Premises installation:
Wall painting–£300-£1000
Ceiling whitewashing – £200-£900
Flooring – £400-£1000
Door – 5 X £400-£1000
Exterior door – £600-£1300
Electrical installation – £150-£300 Total: £3650-£8500
Operating costs
Fixed costs
Administrative and management costs:
Premises:
The total area: 50 - 250m , one square per meter rent £28. Total: £16800-£84000
Employees’ salary:
Director – £5000-£8000
Deputy Director – £2500-£4500.
Employees – £1000-£2500. Total: £102000-£180000
Insurance costs:
Social insurance of 30% from amount of salary, Total: £30600-£54000
Insurance costs 0.25% per annum from value of the buildings.
Variable costs
Utilities:
(Change price in line with the cost of energy price, price could go up or down).
Electricity –£37
Gas – £63 Total: £1200
by
gyncius (student)
