BUSINESS-DECISION-

AND-ECONOMICS-OF-
ONE-UNIT.docx
BUSINESS DECISION AND
ECONOMICS OF ONE UNIT
What is  operational business
decision?
A  large part of conducting any
business is making decisions.
Some of these are strategic:
should we enter a certain market,
how should we design our new
product, which partners and
distribution channels should we
choose? Others are more routine,
made manually or automatically
during everyday business
operations. The latter are
operational decision. Operational
decisions are determination that
businesses make on a regular
basis, a selection or calculation of
an outcome that depends on a
number of prevailing
circumstances (inputs) and which
ultimately, has an observable
impact on the behavior of an
organization. They include making
determinations like:
• Should we extend a line of credit
to this customer? On what terms?
• Should we initiate an inquiry in
to a customerʼs insurance claim
or just pay it?
• What products should we
recommend to client when they
visit our website, given their past
behavior?
• Does this trade fee structure
satisfy compliance regulations?
Why are decisions important?
Operational decisions determine
the day to day profitability of the
business, how effectively it
retains customers or how well it
manages risk. Often the quality
and consistency of decision
making determines your client
reputation for some clients their
sole perception of your company
is obtained from the outcome of
these decision. The logic of some
decision making is intellectual
capital: it helps to establish or
maintain a competitive advantage
for your company it represent
what you do to better you rivals,
your unique selling points. You
need to identify the important
decisions you are making, define
the decision making process
transparently, ensure they are
made accurately, monitor their
performance and manage their
evolution and improvement.
ECONOMICS OF ONE UNIT-
Method used to determine
whether a business model can be
successful (profitable), by
calculating if an individual unit of
good or service would be
profitable.
FIXED COST- is a recurring
expense that isnʼt affected by the
number of items a business
produces.
VARIABLE EXPENSE- is an
expense that changes based on
the amount product or service a
business sells.
Two types of variable expense:
• Cost of goods sold (COGS)- for
manufacturing and merchandising
(retailing and wholesaling)
businesses, the variable expense
that is associated with each unit
of sale is called COGS.
• Other variable expense- these
can include such expenses as
commissions for salesperson,
shipping and handling charges, or
packaging.
VARIABLE COST- which are
costs that vary with production.
As you produce and sell
something, you incur more of
these costs.
First thing you have to figure out
is selling price per unit. This is
important because you have to
know how much left over after
you subtract all the costs of the
item. Next you will be determining
the figure in the three categories
of variable costs;
• Direct materials- all of the
items/ingredients that go into
creation/ producing/ making the
item or service.
• Direct labor- manpower needed
to produce the good or offer the
service, per unit.
• Direct labor- manpower needed
to produce the good or offer the
service, per unit.
    
Once you figure out all of those
things, you can figure out what
your gross profit margin per unit
is, and what your contribution
margin per unit is. Contribution
margin represents the final
product of the economics of one
unit. This is the amount of money
that contributes towards covering
a firmʼs fixed cost. ( I SAID U +
OTHER FXs)