The Business Firm - Sole Proprietorship -Partnership -Corporation -private/public -Franchise
Sole Proprietorship § Are owned and operated by one individual or one family + inexpensive to start up § Owner gets all of the profit § Changes can be made quickly and easily - Limited resources- capital - Owner takes on all of the liability - Short lived § Examples: usually small businesses § The family farm § De. Lou’s landscaping § Ric’s furnace repair
Partnership § The pooling of the capital § Examples: usually professionals and business efforts of § Weber and Mills Tax two or more people + increase in capitol shared liability decrease in costs easy to start - Legally responsible for firm and other partner conflict with partner different views on how the company should be run sharing profits § § § Service Johnson and Stein D. D. S. Cellino and Barnes Attorneys at law Metternich and Momot Chiropractors
Corporation § Businesses owned by stockholders and managed by officers of the company + limited liability status as a legal entity easy to raise capitol life of company - Double taxation difficult to change things division of profit extra regulations difficult to start up § Example: large companies § Kodak § Xerox § GM
Franchise § A semi independent business that pays fees to a parent company + Management training and support Standardized quality National Advertising programs Financial assistance Centralized buying power - High franchising fees/royalties Strict operating standards Purchasing restrictions Limited Product Line § Examples: Fast Food § § Mc. Donald’s Wendy’s Tim Horton’s Mark’s Pizzeria
Indicate whether the following are most likely to be proprietorships (PR) partnerships (PA) corporations ( C) or Franchises (F) § § Welsh Family Farm A car manufacturer Subway Welsher and Donner law associates § GEICO § Jack Yager’s Dress Shop § § PR C F PA § C § PR
Advantage of Proprietorships (PR), Corporations ( C), Partnerships (PA), or Franchise (F)? § Ability to raise financial capital § Combined resources without higher taxes § Limited liability of owners § Easiest to start up § No profit sharing § Immortality in the eyes of the law § Training and support § C § PA § § C PR PR C § F
Disadvantages of proprietorships (PR), partnerships (PT), corporations ( C), or franchise (F) § Double taxation § Liability for someone else’s actions § Difficulty raising financial capitol § Government Regulations § Royalties § Life span of the company § C § PT § PR § C § F § PR
The Business Firm has four functions § § Identifying consumer wants Organizing production Allocating revenue Real capitol investment
How did 3 Dogs Bakery identify consumer wants? § Do you think Kindertools was as effective at identifying consumer wants?
Allocating Revenue is a difficult decision. - This is how you are going to spend the money you bring in from selling your goods and services - Questions to ask are usually do we take it as profit or do we reinvest in the company?
Real Capitol Investment § What is Real Capitol § Physical things that aid in the production of a good or service § Machines § Factories § Tools § Computers
Work on Case Study § The Progressive Bike Shop § Rip off last page and hand in at the end of class
Take out your HW
Sole proprietorship Franchise Partnership Corporation
What is a fixed cost? Fixed costs (FC) are production costs that do not change with the quantity of output Can you think of any examples of fixed costs of running an accounting business?
What are variable costs? § Variable costs are production costs that change with changes in quantity of output? § What are the variable costs of owning a pizza shop?
Fixed Cost FC or Variable Cost VC § A. The cost of property insurance § B. The cost of water used in the production process § C. Monthly mortgage payments on the building § D. Monthly payments on the restaurant’s cooking equipment § E. wages paid to employees § F. The cost of labor used in the production process § G. The cost of electricity used in the production process § FC § § VC FC § VC
Total Costs § Total costs are the sum of fixed costs and variable costs. § TC= VC+FC
What is Average Cost? § Average cost is the total cost divided by the number of units produced. § Example § Total cost $4000. 00 § Total units produced 840 § Average cost = 4000/840 § Average cost = $50 per. unit
Try This § Fixed Costs (FC)= $400 § Variable Costs (VC)= $250 Total Cost (TC)= ? Total units produced= 65 Average Costs (AC)= TC/Units Produced (AC)= per. unit
What is Total Revenue? § Total Revenue= Price X Quantity § Example 1, 000 Pizzas at $10. 00 each § TR= $10, 000. 00
What is Profit? § Profit (Pf)= Total Revenue (TR)- Total Cost (TC) § § § TR= $10, 000. 00 TC= FC+VC= 3, 000 Pf=7000
Examples § § § Fixed Costs = $900/ week Variable Costs = $300/ week Price = $5. 00 Quantity = 1000 TR= Pf=
Try example A § With a partner
What are Marginal Costs? § Marginal Costs are the extra costs of producing one additional unit of output. § The law of diminishing returns: beyond some point, output will increase by diminishing amounts as more units of a variable resource (labor) are added to a fixed resource.
Example § The Average Cost (AC) is $7. 00 to make each pizza up to 100 Pizzas with given equipment and staff. Pizzas are sold at $10. 00 each. § To produce more than 100 Pizzas you need to hire more staff, and get a bigger oven. The Average Cost (AC) is 10. 00 a pizza.
Try Example B
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