Task 4 Financial Planning

Financial Planning

Financial planning within the video game industry helps the publishers and developers understand how far they can go, in terms of money, in the development. With this information they can create and idea of what the final product might look like as well as how long it may take to complete the development process. In addition to this they can also work out how many they will need to sell to make a profit or break even. From this how much the final product will cost is worked out.

Financial planning consists of different types of costs they are: Fixed, variable and the breakeven point.

What are “Fixed costs?”

The term fixed price is a phrase used to mean the price of a good or a service is not subject to bargaining. The term commonly indicates that an external agent, such as a merchant or the government, has set a price level, which may not be changed for individual sales. In the case of governments, this may be due to price controls. In short it’s a price that is not subject to change. Once the price is worked out, that’s it. That price cannot and will not change, hence the term “Fixed”.

What are “Variable Costs?”

A corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.

Variable costs can include direct material costs or direct labor costs necessary to complete a certain project. For example, a company may have variable costs associated with the packaging of one of its products. As the company moves more of this product, the costs for packaging will increase. Conversely, when fewer of these products are sold the costs for packaging will consequently decrease.