1.11 calculating costs, revenue and profits - moodle

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2. Calculating costs, revenueand 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 materialsOne piece of card with box template drawn = 1Scissors = 5Glue = 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 = 17What did you notice about the cost of the scissors andglue?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 retailOne 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 = 125 Box: 10 = 10 10 Box: 7 + 10 = 1710 Box: 20 = 20What 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 COSTSSALES REVENUEPROFIT/ LOSS 1 Box: 7 + 1 = 81 Box: 2 = 2 1 Box:- 6 2 Box: 7 + 2 = 92 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 = 2010 Box:3What do you notice about the profit/ loss?LO1) Separate business costs into fixed and variable costs 9. Can you match the correctdefinitions?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 PairShare Write down yourWalk around theShare your ideas reasons.room until the with the rest ofmusic stops and the group. share your ideas.Profit is the surplus value after sales after costs have been deducted fromrevenue.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 Rashids Sat Navbusiness.1. Identify any fixed and variable costs2. Calculate Rashids 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 revenueDiscuss and write down5 minutes 5 reasons why it is important for a business to forecast costs and revenue. Chose your top3 reasons Feedback to the rest of the group.LO3 - Make a clear distinction between the revenue earned by a businessand its profit or loss 14. Rashid Sat Nav Business (2)1.Rashid wants to increase his sales revenue what should he do? Arethere any drawbacks?2.Could you suggest any ways that Rashid could try to sell more Sat Navswithout changing the price?3.Recalculate Rashids revenue for month 2: a) He reduced his price for a fitted Sat Nav to 250 and sold 13 of them. b) What is Rashids 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 aspart of its day-to-day trading. Costs 20. Key TermsFixed Costs + VariableTotal Costs 21. Key TermsThe value of sales made during a trading periodSales 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