Understanding Costs



 Please respond to the following:

  • Suppose you own a small business (e.g., a dry cleaner, local café, housekeeping services), and there is a noticeable cost increase from a supplier, such as higher delivery costs due to an increase in fuel. What pricing decision(s) would you make?

classmate post:

Hello everyone,

I am going to supposedly own a dry cleaner business. One of my suppliers would be bringing in packaging materials to cover up the clothes. If they went up on their price, then I would have to choose a company closer to the location of the dry cleaner. The company can invest in a van to deliver dry cleaning to a customers’ home and help pick up supplies from the supplier’s warehouse. Also, this can be used to pay for the price of gas and used as a tax write-off. One pricing decision is analyzing and researching the competition of successful dry cleaners. Another pricing decision can be promoting monthly subscriptions to be a dry cleaning member. Other pricing decisions come to mind are offering bundling deals to up to getting more clothes items in to get dry cleaned such as 2-3 outfits together under $100.00. There has to be the financial planning by knowing the incremental costs and avoidable costs of investing in a dry cleaning business. The variable costs vary from knowing how much the expenses are of doing business such as the rent, electricity, transportation, equipment, and other costs to run a business. The fixed costs will show how to plan exactly how much will be spent on the promotion of advertising, sales, and the same fees to run a productive dry cleaning business. Of course, all of the pricing decisions come down to targeting the appropriate demographics and psychological segments of understanding this industry very well to distinguish what are the real costs to charge customers.  Arnelle

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