Unit 5B- Long Run Costs and Economies of Scale

We will consider a business idea and look at the different costs associated with it. The potential business idea I choose is Specialty Cakes. In the last few years the cake industry has grown quite a bit. With the introduction of TV shows that involve business' making extreme cakes for all occasions. The cake business will make specialty cakes to order for any and all occasions, wedding, birthday, holidays, retirements, etc. The business would be somewhat small, meaning that it would not require a large building or a ton of staff. A few keys employees to start would be sufficient but management will have to keep an eye on orders to ensure that the company does not become a diseconomy of scale by not fixing the inefficiencies soon enough.


There are so many different occasions that a cake is appropriate for the potential size and type of the market is fairly large but not everyone in this market will be looking to purchase a specialty cake. These sorts of cakes will be more expensive than a typical grocery store cake because of the variety in ingredients, decorations, and the skills that are required to produce these cakes.



Some of the fixed costs associated with this type of business are the rent for the business location, the equipment, such as industrial sized oven, fridge, freezer, display case, and any other pieces of equipment that is needed. The variable costs involved would be the ingredients and decorations that are preferred by the specific customers, the size of the cake, the detail, and the required labour that goes into each cake will vary, if the company offers delivery the gas, and if the bakery's and cake decorators require up to date training to keep up with the latest trends, as well as the tools required for the different techniques.

The business will need there shop to be in an area that offers other sort of speciality items. The location for a business like this is very important in order to gain and keep clients. But also offering delivery will help the business obtain customers from outside the neighbourhood. Advertising at wedding shows, at events like Christmas fairs, or charity events will help to build the customer base as well.

A similar business like this in Calgary is Sassy Cakes, found here, which offers specialty cakes made the way you want them. Just like the idea above you choose the design, the size, the flavor, and anything else that will make the cake fit the occasion. The disadvantage that Sassy Cakes has at this time is that they have become so popular that they are only accommodating previous customers and are not taking on new clients at this time. They are still continuing to get the business and sales that is needed to continue with the business but it the expanded they would be able to take on the new customers and grow even more!