How Entrepreneurs Optimize Costs of Production

Topics: Costs, Cost, Variable cost Pages: 2 (657 words) Published: April 5, 2013
University of Latvia
Faculty of economics and managment
Course „Microeconomics”

How entrepreneurs optimize costs of production.
Unfortunately, the economy hasn't improved in last few recession years. It is so difficult to live thru these hard times when the recession is overtaking whole worlds businesses. Companies now need to aggressively cut their costs. It's a survival issue. It is not easy to compete in the market today. Rising prices, shifting fuel rates, global competition and varying labor rates around the world have made cost control very important in nowadays. Reducing manufacturing costs increases profitability by making more with what you have or the same with less. It sounds pretty simple but many companies struggle with this. Of course there are many ways to reduce manufacturing costs. Reducing costs is like a never ending fight to maintain company profitability. One of the methods for improving profits is to optimize manufacturing costs. The importance of cost reduction programs within a company cannot be overstated. Companies that are losing money, need to increase profits, or must become more competitive need to cut expenses in order to succeed. Knowing how to implement effective cost reduction strategies can be the determining factor in the survival of a business. A good entrepreneur understands the importance of cost reduction to the health of a company. A cost reduction plan is one that focuses on lowering costs in every business activity, so which is the most popular methods for entrepreneurs to fight with this problem? There are two types of costs; fixed costs and variable costs. Fixed costs are those costs that are incurred even if no items are produced, for instance, rent, salaries, services, etc. Variable costs are dependent on the number of items produced. Cost reductions can be achieved utilizing different approaches. A company can reduce existing expenses, eliminate unnecessary expenses, and modify business strategies which...
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