BUSINESS COSTING

(PERCENTAGE/COST/PRICES/RATES/TAXES/LOANS/EXPENSES)
This workshop attempts to help you strengthen your Math skills in English and business
vocabulary, using the language in the development and understanding of different activities
referred to percentage, prices, rates, taxes, loans and expenses.
Objective: from the development of this workshop, you will be able to talk about business
costing and what companies do to improve their business.
1. Work in pairs and discuss:

 What do you understand for business costing?

R/ Knowing the costs of manufacturing a product or providing a service is the first step
to control business expenses. So you can know how much you will need for the company
to finance itself and grow.
Cost is the value of the resources necessary to produce and sell the products or services
it offers. Knowing the cost, you can establish the sales goal that allows you to obtain the
necessary income to cover them, as well as set the sale price, lower some expenses
and use the money well.

 What do you think determines the Price of an item for sale in a company?
R/ In order to determine the price or prices of our products, we can use two methods:
the cost method, which consists of adding all the costs of the product and then adding
the profit margin that we want to earn, for example, 25%. And the market average
method, which consists of determining the price of our product, based on the average
price of products similar to ours that exist in the market.

 Mention one example of pricing items to improve sales in a company you know.
R/ According to your competition, penetration strategy, promotional price strategy, high-
end.
2. Look for the definition of the following words and give some examples.

 COST: It is the economic expense that represents the manufacture of a product or

the delivery of a service. By determining the cost of production, the retail price of the
good in question can be established (the retail price is the sum of the cost plus profit).
 PRICE: It is known as the amount of money that society must give in exchange for
a good or service. It is also the amount of money assigned to a product or service,
or the sum of the values that buyers exchange for the benefits of having or using or
enjoying a good or service.
 PERCENTAGE: It is a term used to write numbers under the guise of a fraction of a
hundred. The symbol of this concept is%, which is called "percent" and is translated
as "out of one hundred". For example: Ten percent is a percentage that is written as
10% and is understood as ten out of one hundred. If you say that 10% of a group of
thirty people have red hair, the phrase assumes that three of those people are
redheads.
 RATE: It is the average of the frequency with which a unit of money is spent on new
goods and services produced in the country in a specific period of time. Speed has
to do with the amount of economic activity associated with a given money supply.
 TAX: A tax is a tribute paid to the state to support public expenses. These
compulsory payments are required both for individuals and legal entities.
 LOAN: A loan is a financial operation in which a person (lender) grants, through a
contract or agreement between the parties, an asset (usually an amount of money)
to another person (borrower), in exchange for obtaining an interest (price of money).
 EXPENSE: It is an outflow of money that a person or company must pay to prove
their right to an item or to receive a service. However, there are lumps and
differences between the money that a person spends (because they do not get it
back) from the money that a company spends. Because the company does recover
it by generating income, therefore it "does not spend it" but uses it as part of its
investment.

3. Skills practice: do the following activities to practice the learnt vocabulary and English
structures.

3.1 READING PRACTICE: Read about business costing

Before reading the text, identify the following vocabulary. Find the definition and use
every word in one example.

 Fixed cost: Costo Fijo. Example: Public services (electricity, gas, water).
 Variable cost: Costo Variable. Example: Sales commissions.
 Direct cost: Costo Directo. Example: In the manufacture of a car it would be the
raw material used directly in its production (steering wheel, seats, wheels ...)
 Indirect cost: Costos Indirecto. Example: Factory building lease.
 Payments: Pagos
 Book cost: Costo de Libros
 Compute: Calculo
 Profit: Ganancia
 Loss: Perdidas
 Filing returns: Presentación de Declaraciones
 Income: Ingresos
 Raw material: Crudo Material
 Wage of labor: Salario de Trabajo
 Output: Producción
 Rent: Renta
 Salaries: Salarios
 Depreciation: Depreciación. Example: There is a machine valued at $
10,000,000 that can produce 20,000 units throughout its useful life. So
10,000,000 / 20,000 = 500. It means that each unit that is produced is charged a
depreciation cost of $ 500. If in the first period, the units produced by the machine
was 2,000 units, we have that the depreciation for the first period is: 2,000 * 500
= 1,000,000, and so with each period.
  Supervision: Supervisión
 Maintenance: Mantenimiento

-
Business Cost1
Definition: The Business Cost includes all the costs (fixed, variable, direct, and indirect)
incurred in carrying out the operations of the business. It is similar to the real or actual costs
that include all the payments and contractual obligations along with the book cost of
depreciation on both the plant and equipment.
The firms compute their business cost to determine the profit and loss and for filing returns
for income tax. It is also used in several other legal procedures. There are several types of
business costs:
Variable Cost: The variable cost is the cost which changes with the change in the production.
Such as: raw material, wages of labor, energy used in production, etc.
Fixed Cost: The fixed cost is the cost which remains fixed irrespective of the level of output.
Such as rent, salaries of employees, advertising, and promotional campaigns, etc.
Direct Cost: The direct cost is the cost which can be assigned to the production of certain
goods and services. Such as labor, material, fuel, power or any other expense related to the
production of a product is the direct cost.
Indirect Cost: The indirect cost is the cost which cannot be directly attributed to the
production of goods and services. Depreciation, supervision, security, maintenance and
administrative expenses are the cost incurred which cannot be assigned to a specific
product or department and hence are classified as an indirect cost.
Thus, the business cost is computed to determine the efficiency with which the firm is
carrying out its business operations.
After the reading, answer the following questions:

 What does the firm do to determine the profit and loss and for filing returns for income
taxes?
R/ It is included in the General Accounting Plan. With the subtraction of expenses from
income, the result of the year can be calculated, that is, the benefits (or losses) of that
year.
The income statement is a document that records income, expenses and investments.
It is presented to the Directorate of National Taxes and Customs (DIAN) and is used by
the State to calculate whether the taxpayer must pay taxes and how much their
obligations would amount to.

 Mention the 4 types of costs for running businesses.

 Production costs: These types of costs are those generated in the process of
transforming raw materials into finished products. They are subdivided into:

1. Raw material costs

2. Labor costs
3. Manufacturing overhead
Distribution or sale costs: They are those incurred in the area that is
responsible for carrying the finished products, from the company to the
consumed.
Administration costs: Are those that originate in the administrative area, that
is, those related to the direction and management of the general operations of
the company.
Financial costs: Are those that originate from obtaining external resources that
the company needs for its development.

 What concepts can be assigned to Direct Costs?

The classification of costs: In Companies, whatever the activity they carry out,
there are three fundamental areas.

The Production or generation area of the good or service: It includes the

activities of production administration (Planning, programming and production
control), quality control, Maintenance, design and others that can be directed and
controlled directly and specifically by a Manager or area director.

The marketing area: This area includes physical distribution activities. (Storage of
finished products, dispatch of orders and others related to activities, which can be
directly and specifically controlled and controlled by a Manager or area director.

The support area: The latter includes support or support activities for the
development of production and marketing activities such as purchase of raw
materials, contracting and administrative management of personnel, insurance,
systematization, accounting, building administration, financial management,
management, and others related to the activities, that can be directed and controlled
directly and specifically by a Manager or area director.

3.2 LISTENING PRACTICE: listening what it costs to run a restaurant.

Before listening: Work in pairs and discuss the following questions.

 Talk about how popular restaurants in your city. Describe the type of food you can
get there.
 R/ There are many restaurants in my city, especially they are recognized for selling all
the typical dishes of Colombia. It is located in the center of the city and is called My
Colombia.

 Describe a restaurant you like eating at and one where you don’t.
R/ I like to eat in the Mi Colombia restaurant because the food is delicious and the place
is big and nice and it is clean, I don't like to eat in little known restaurants and that its
appearance is dirty.

 What do you think it is necessary to run a restaurant? Give some Examples. Use a
restaurant you know as an example.
R/ In a restaurant it is important that they find tables for children since this generates
comfort, distraction for children, such as toys, a good decoration, very clean toiletries
and that the atmosphere is very pleasant.

According to the video, mark the following statements as TRUE (T) or FALSE (F)
 Restaurant owners usually can take more than the 30% of their sales income FALSE
 The most expensive wage in a restaurant is the Labor Cost TRUE
 Food supplies is also part of the utilities of the restaurant TRUE
 Legal & accounting, security services, computer and software fees, liability
insurance and credit/debit card transactions, belong to the General and
Administrative expenses TRUE