Question

S2-2 Applying Job Order Costing to an Entrepreneurial Business LO 2-1, 2-2, 2-3 Assume you are going to become an entrepreneur and start your own business. Think about your talents and interests and come up with an idea for a small business venture that provides a unique product or service to local customers. You can select any business venture you want, but if you are struggling to come up with an idea, here are some examples

Answer 1

Being a enterprenuer i will opt for Wedding Planning Consultancy

1. Classification of Expenses-

A. Professional Service cost- Direct cost. This is the cost paid to professional/ Technically sound employee for providing services to guest.

B. Marketing Cost- General Cost

C Technology Cost- General Cost. Cost for developing app and softwares

D. Rent Charges- Admin Cost. Rent for office.

E. Legal Charges- General cost. Statutory tax etc.

F. HR Cost - Admin expense. Apart from Professional charges, it includes recruitment cost also.

G. Quality Assurance cost- Admin Cost. Cost incurred for taking feedback from customers.

H.Utilities bill cost- Admin expenses.

2. Most important criteria to identify cost is deciding service fees. Every organisation would prefer to sell goods or services higher than its cost so there should be profitability. Profit creation is the most important objective of every organisation.

Other Aspects which can be done once we have clarity over cost is-

A. Profitability Analysis.

B. Utilisation of Funds.

C. Liquidity Position.

D. Financial viability of organisation.

3. From accounting point of view our direct should be less. Therefore if possible it is possible to classify indirect cost as much as possible. The reason behind is Direct cost affect gross profit directly. Higher Direct cost results in low gross profit/Contribution Margin. There is a concept in costing named ABC Analysis where cost are divided on the basis of department wise. It can be either Hourly, Customer wise or department wise. Where bifurcation is not possible whole cost is totally divided into no of customers. Overhead rate should be upto 15-20%

4. Hypothetical cost Sheet in $

Professional charge(Fees of person assist customer	1,000
Complementary goods given	50
Direct Cost	1,050
Cost which are allocated to total customer= Total Cost/ Total Customer
Utility and Rent charges =200
HR Cost= 500
Marketing = 1,000
Technology=800
Total Cost= 2,500
No of Customer=25 Cost per customer=2500/25 Total Cost per Customer=	100 1,150