ZALT@aol.com on sun 5 jan 97
Well the discussion on pricing is getting hotter.
As you remember from my last post on this subject, I stated that we would
have to do some real heavy research if we wanted to find the BREAK EVEN
POINT.
As I begin this post I am a bit concerned that the formatting of my page may
not give you the exact image. This is important as there will be a few
tables to discuss and if they don't come through right, the discussion will
become complex. I would appreciate feedback from you.
The best method to proceed with finding the BREAK EVEN POINT is to group the
information required for the analysis into two categories; FIXED COSTS and
VARIABLE COSTS.
Fixed costs are relatively easy to determine, if we already operate a studio
or if we have maintained records of our income and expenses required for tax
purposes. We just look up last years balance sheet and we will find most of
the required information. For those of us who have not maintained a balance
sheet of expenses and revenues; now is a good time to start one. You cannot
tell where you are going until you know where you have been.
Variable costs are also easy to determine. They are associated with the
activity of actually producing your mug. You will have to think about what
you are doing. You will have to maintain some records. These records will
assist you to analyze the cost of the activity and will also serve as a
history of your productivity.
Lets look at some yearly fixed costs. For the sake of the exercise I will
use fictitious figures. The reason for this will become evident as we read
on.
YEARLY EXPENSES including sales taxes.
Rent $ 2500.00
Insurance $ 200.00
Office expenses $ 250.00
Stationary and Stamps $ 250.00
Journals $ 50.00
Utilities $ 250.00
Equipment Maint and Parts $ 1200.00
Interest Costs $ 500.00
Conventions/Workshops $ 700.00
Taxes and Licenses $ 500.00
Equipment Less than $200.00 $ 200.00
Travel Costs /Hotels/Tickets $ 500.00
Advertising $ 600.00
Meals and Entertainment $ 250.00
Associations and Guilds $ 300.00
Motor Vehicle Expenses $ 5000.00
Salaries and benifits $25000.00
Total $35350.00
The above figures may not reflect your business costs and you may feel that
you can operate your studio without some of the bells and whistles. Some of
you might think that I am smoking some of my chemicals. That is your
privilege. Just remember that to produce a quality product ,(art), you will
need to have quality, working conditions and equipment, available. You may
also elect to earn a higher or lower salary. Before you do decide to reduce
your salary, take a good look at the average income in your area and adjust
your wages accordingly. Remember that, just because you are a potter/artist,
there is nothing to say that you cannot earn a little above a minimum salary.
You will note that I haven't included some items such as kiln firings (gas
or electric), the cost of clay and, glaze costs . They come later. These
figures are VARIABLE COSTS.
Some experts may say that salaries should fall under VARIABLE COSTS. This is
true when you have production employees. However, I am assuming that we are
doing it all. We are present all the time, even when when we are not
producing. If you hire a secretary (Ha! Ha! Ha!). His/her salary will come
under FIXED COSTS. The only time salaries come under VARIABLE COSTS is when
the employee is directly involved in the making of the object or when being
paid, piece work.
To sum up this page; FIXED COSTS are those expenses required just to open
and operate the business, (Pottery). They are not directly related to the
making of the object.
Well that is it for page three. Next time I will discuss some of the
expenses involved in the FIXED COSTS.
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