Entrepreneurship - Opportunity, Costing and the Business Plan
This domain tests whether you can turn a skill into a small enterprise: spotting an opportunity, surveying the market, costing a product, pricing it, and presenting a simple business plan.
Core concepts
- Market survey establishes demand, competitor price and customer preference before money is spent.
- Marketing mix (4Ps): Product, Price, Place, Promotion.
- Costing: fixed costs do not change with output (rent, licence); variable costs change per unit (raw material, piece-rate wages). Total cost = fixed + variable.
- Break-even quantity = fixed cost ÷ (selling price per unit − variable cost per unit).
- Business plan components: idea and promoter, market, operations, costing and pricing, funding, and risk.
- Formal registration such as Udyam for MSMEs and GST registration where turnover crosses the prescribed threshold gives legal standing and access to schemes.
Worked example
A tailoring unit has fixed costs of ₹20,000 per month, sells each stitched item at ₹50, and spends ₹30 on material per item. How many items must it sell to break even?
- Contribution per unit = 50 − 30 = ₹20.
- Break-even quantity = 20,000 ÷ 20 = 1,000 items. Reasoning shown: below 1,000 items the unit makes a loss; each item above 1,000 adds ₹20 of profit. This also shows why cutting material cost by ₹5 lowers the break-even to 800 items.
Traps that cost marks
- Calling rent a variable cost.
- Computing break-even with total cost instead of contribution per unit.
- Writing a business plan with no numbers - examiners look for costing.
- Confusing profit with turnover.
- Ignoring working capital: raw material and wages must be paid before customers pay.