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1.11 calculating costs, revenue and profits - moodle

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  • Provide students with handout – Calculating Costs, Revenue and Profit.

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  • 1. Do NowWhat do you remember from ‘Employing People’ …. Test what you’ve learned!
  • 2. Calculating costs, revenue and profits
  • 3. Learning ObjectivesBy the end of this lesson you should be able to:1. Separate business costs into fixed and variable costs2. Explain the meaning and importance of profit3. Make a clear distinction between the revenue earned by a business and its profit or loss4. Calculate the total cost and total revenue at different levels of output
  • 4. Box Clever Box clever is a small company that specialises in creating cardboard packaging. Calculate the following total costs: Cost of materials One piece of card with box template drawn = £1 Scissors = £5 Glue = £2 How much to make 1 box? How much to make 2, 5 and 10 boxes?LO1) Separate business costs into fixed and variable costs
  • 5. Box Clever Did you calculate the total costs correctly? TOTAL COSTS SALES REVENUE PROFIT/ LOSS 1 Box: £7 + £1 = £8 2 Box: £7 + £2 = £9 5 Box: £7 + £5 = £12 10 Box: £7 + £10 = £17 What did you notice about the cost of the scissors and glue? What did you notice about the cost of the boxes?LO1) Separate business costs into fixed and variable costs
  • 6. Box Clever Now that we know how much it will cost to create the boxes, we now need to know how much sales revenue will be earned. Calculate the sales revenue: Box retail One box will retail at = £2 How much to make 1 box? How much to make 2, 5 and 10 boxes?LO1) Separate business costs into fixed and variable costs
  • 7. Box Clever Did you calculate the sales revenue correctly? TOTAL COSTS SALES REVENUE PROFIT/ LOSS 1 Box: £7 + £1 = £8 1 Box: £2 = £2 2 Box: £7 + £2 = £9 2 Box: £4 = £4 5 Box: £7 + £5 = £12 5 Box: £10 = £10 10 Box: £7 + £10 = £17 10 Box: £20 = £20 What do you notice about the revenue?LO1) Separate business costs into fixed and variable costs
  • 8. Box Clever Now we know the total costs and sales revenue, how much was the profit/ loss? TOTAL COSTS SALES REVENUE PROFIT/ LOSS 1 Box: £7 + £1 = £8 1 Box: £2 = £2 1 Box: - £6 2 Box: £7 + £2 = £9 2 Box: £4 = £4 2 Box: - £5 5 Box: £7 + £5 = £12 5 Box: £10 = £10 5 Box: - £2 10 Box: £7 + £10 = £17 10 Box: £20 = £20 10 Box: £3 What do you notice about the profit/ loss?LO1) Separate business costs into fixed and variable costs
  • 9. Can you match the correct definitions?LO1) Separate business costs into fixed and variable costs
  • 10. Check your formula….LO1) Separate business costs into fixed and variable costs
  • 11. Why is profit so important? Think Pair Share Write down your Walk around the Share your ideas reasons. room until the with the rest of music stops and the group. share your ideas. Profit is the surplus value after sales after costs have been deducted from revenue. Used as a measure of success. Banks and other lenders are more willing to lend or invest. Reward for entrepreneurs after taking risks. Profit provides further finance that can be reinvested.LO2 - Explain the meaning and importance of profit
  • 12. Rashid – Sat Nav Business (1) Read the case study based on Rashid’s Sat Nav business…. 1. Identify any fixed and variable costs 2. Calculate Rashid’s total monthly fixed and variable costs (ignoring set-up costs) if he sells 12 units. 3. Complete questions 1-4 (ignore any start up costs)LO3 - Make a clear distinction between the revenue earned by a business and its profit or loss
  • 13. Forecasting costs and revenue Discuss and write down… 5 minutes 5 reasons why it is important for a business to forecast costs and revenue. Chose your top 3 reasons Feedback to the rest of the group.LO3 - Make a clear distinction between the revenue earned by a business and its profit or loss
  • 14. Rashid – Sat Nav Business (2) 1. Rashid wants to increase his sales revenue – what should he do? Are there any drawbacks? 2. Could you suggest any ways that Rashid could try to sell more Sat Navs without changing the price? 3. Recalculate Rashid’s revenue for month 2: a) He reduced his price for a fitted Sat Nav to £250 and sold 13 of them. b) What is Rashid’s profit margin for each Sat Nav when selling at this price.LO4 - Calculate the total cost and total revenue at different levels of output
  • 15. Key TermsCosts that do not change with the level of output or sales. Fixed Costs
  • 16. Key TermsCosts that change directly with the level of output or sales. Variable Costs
  • 17. Key TermsSelling price x No of items sold Total Revenue
  • 18. Key TermsTotal Revenue – Total Cost Profit
  • 19. Key TermsExpenditure made by a business as part of its day-to-day trading. Costs
  • 20. Key TermsFixed Costs + Variable Total Costs
  • 21. Key TermsThe value of sales made during a trading period Sales Revenue
  • 22. Re-cap Learning ObjectivesYou should now be able to:1. Separate business costs into fixed and variable costs2. Explain the meaning and importance of profit3. Make a clear distinction between the revenue earned by a business and its profit or loss4. Calculate the total cost and total revenue at different levels of output