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The profit of a company is likely to increase if the company manages to reduce its operating cost. The operating cost refers to the expenses incurred for the operation of a business, to put it simply. Moreover, the operating cost becomes a necessity for the company to continue in existence. It has to put to use the resources of the company to maintain itself in business.

Operating cost is divided into two general categories: Fixed cost and Variable cost.

As the name itself suggests, the Fixed Cost will be the same whether the operation is running at 100% or less. For example, the rent of the building which never changes whether the business is running at full or less than that.

Variable cost varies according to the volume of production, just to say one example. Suppose you require 10 days normally to produce 100 items and you want it done much faster in seven days. You have to engage the labour overtime which is normally expensive. It means more cost to the company thus varying from the normal cost.

Variable cost includes indirect overhead costs like Express Mail, Computer Supplies, and Credit Card Processing and so on.

It is also said that semi-variable costs are necessary to keep the business in proper condition.  Semi-variable cost is also known as a semi-fixed or a mixed cost since it has both fixed and variable components.

You must also know the total operating costs of your company. The total operating cost includes all costs except those directly related to the product your company sells.

The next step must be :  How to reduce operating costs? Because, reducing the operating costs increases the possibility of a greater profitability level. Let us look at the ways that help reduce the operating costs. In brief only.

With so much of automation and technology knocking on your doors, you can discreetly choose some technology that eases you of some of the business practices so that you have greater time for thinking on the lines of initiatives.  You can also think of outsourcing some of your business activities such as advertising and even marketing.  You spend less money and get more benefits. More significantly, you can identify any inefficiency in your business operations and eliminate them without sacrificing quality. It will save time and energy for your company. 

We have mentioned only a few ways of cutting down the operating costs; if you look around cautiously with a view to spot out any wastage of energy, space and time and even man-power, you may come across some points that need strategic revision. Business means ceaseless alertness.

We will stop with the topic of production cost and move on to the next one in our next session.
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