1. Week 9 Initial Cost Estimates
Entrepreneurship
Week 9
Initial Cost Estimates

2. Cost Estimates Labor - programmer 1000 O.R. /month
Labor – clerical assistant
500 O.R. /month
Office rental
300 O.R. /month
Phone service
5 O.R./month
service
Web site creation
20 O.R.
Web site hosting
Advertising brochures
50 O.R./1000
Software manuals
2 0.R. each
Software disks
1 O.R. each
Mailing costs for software
Conference exhibit fee
500 O.R.
Airfare to conference meeting
150 O.R.
Hotel cost at conference
200 O.R.
Food cost at Conference
80 O.R.

3. Cost Estimates Labor - programmer 1000 O.R. /month
Start up or Continual
Labor - programmer
1000 O.R. /month
Continual
Labor – clerical assistant
500 O.R. /month
Office rental
300 O.R. /month
Phone service
5 O.R./month
service
Web site creation
20 O.R.
Start up
Web site hosting
Advertising brochures
50 O.R./1000
Software manuals
2 0.R. each
By sale
Software disks
1 O.R. each
Mailing costs for software
Conference exhibit fee
500 O.R.
Airfare to conference meeting
150 O.R.
Hotel cost at conference
200 O.R.
Food cost at Conference
80 O.R.

4. Cost categories
Start up – An initial purchase for your business – usually equipment, or marketing materials
Continual – payments you are usually committed to making every month
By sale – costs that only occur if you sell a product -
(food for your restaurant, clothing for your store)

5. Cash flow Labor - programmer 1000 O.R. /month
Labor – clerical assistant
500 O.R. /month
500
Office rental
300 O.R. /month
300
Phone service
5 O.R./month 5
service
Web site creation
20 O.R. 20
Web site hosting
Advertising brochures
50 O.R./1000 50
Software manuals
2 0.R. each
Software disks
1 O.R. each
Mailing costs for software
Conference exhibit fee
500 O.R.
Airfare to conference meeting
150 O.R.
150
Hotel cost at conference
200 O.R.
200
Food cost at Conference
80 O.R. 80

6. Competitive Strategies- Children’s clothing store
Competitive responses to Lulu Hypermarket clothing –
New products or services – more kinds of children’s clothing, more sizes
Special products or services – imported brands
Alliances - store location next to ice cream shop

7. Children’s clothing store
Month 1
Month 2
Month 3
Labor - clerk
Labor – manager
Store rental
Phone service
5 O.R./month 5
service
Web site creation
20 O.R. 20
Web site hosting
Shelves and clothing racks
Initial inventory - boys
Initial inventory - girls
Store cleaning

8. Ice Cream shop Labor - clerk Labor – manager Store rental
Month 1
Month 2
Month 3
Labor - clerk
Labor – manager
Store rental
Phone service
5 O.R./month 5
service
Web site creation
20 O.R. 20
Web site hosting
Water fee
Electricity
Refrigerator
Store decorations
50 OR 50

9. Estimating Income Marginal Income = sales – cost of good sold
1 ice cream cone
Income = 500 (customer price) – 160 (my cost for the ice cream)
Marginal Income = 340 Baisas

10. “Real” Income Monthly income = unit income * units sold – fixed costs
My store earns
(340 * number of cones sold) –
Fixed costs (store rental, labor, web site, phones, electricity, etc.)

11. Monthly fixed costs? Labor - clerk Labor – manager Store rental
Phone service
5 O.R./month 5
service
Web site creation
20 O.R. 20
Web site hosting
Water fee
Electricity
Refrigerator
Store decorations
50 OR 50

12. Break Even point
Month 1 2 3 4 5 6 7 8 9 10 11 12
Labor costs
1500
Office costs
335
315
Conference costs
980
C.O.G.S.
200
Total costs
1835
1815
3015
2015
Revenue
2500
Profit/(loss)
(1835)
(515)
485
Yearly profit/(loss)
(3670)
(4185)
(3700)
(3215)
(2730)
(2245)
(1760)
(1275)
(790)
(305)
180

13. 50 OR price – 2 OR manual printing, 1 OR disk cost, 1 OR mailing cost
Cost of good Sold
Cost of Goods Sold (COGS) includes the cost of printing each software manual (2 OR), the cost of the disk (1 OR), and the cost of mailing (1 OR). I assume sales of 50 units each month for total cost of 200 O.R. (4 O.R. X 50 units)
Revenue assumes 50 programs sold each month for 50 O.R. each.
Unit income = 46
50 OR price – 2 OR manual printing, 1 OR disk cost, 1 OR mailing cost

14. I must sell 496 units my first year to break even
Break Even Point
Total costs to operate for 1 year / unit income
Fixed costs include one year of labor, one year of office expenses, and the conference costs. This totals to 22,780 (18000 labor costs office costs conference costs)
Variable costs are the selling price of my software (50 O.R.) less the cost of making and mailing each program (4 O.R.)
So my breakeven point for sales is units (22,780 / 46)
I must sell 496 units my first year to break even