Revenue and Expenses Probability Grade 12 Essential Math

Business Basics • What is a business? • A business provides a good or a service in order to make a profit. • Good: a product that a business sells • Service: a task a business performs for customers

Profit • The purpose of all business is to earn profit. • Profit is earned when a business collects more money in revenue then they spend on expenses. • A business suffers a loss when their expenses are more than their revenue.

Expenses • Expenses are anything a business spends money on. • Common expenses include salaries, supplies, advertising, raw materials, etc. • Expenses can be either ▫ Fixed: the same every month ▫ Variable: may change each month

Revenue • Revenue is any money a business collects in return for a good or service. • Revenue is usually earned by sales. • Like expenses, revenue can be either fixed or variable.

Example • Which of the following are revenue and which are expenses? • Which are variable and which are fixed? Item Cost Business Insurance $200/year Salaries $8000/month Raw Materials $5000/month Vehicle Insurance $2100/year Maintenance Contract $1700/quarter Shed Construction $2000 last month Painting $9500 last month

Monthly Costs • Frequently, revenue and expenses may be listed as “per year” or “per quarter” • We convert these to monthly costs for easier comparison ▫ Hint: there are 12 months in a year, and 3 months in a quarter.

Example • Convert these costs to monthly: Item Cost Business Insurance $200/year Salaries $8000/month Raw Materials $5000/quarter Vehicle Insurance $2100/year

Break-Even Point • Businesses will often borrow money to help them get started. They will pay back this money over time. • If a business is earning a profit each month, we can determine how long it will take them to “break-even”. • To find the break-even point, divide the cost of the loan by the monthly profit.

Example • Keith runs a DJ company. He recently purchased a new sound system for $5500. He does about 5 DJ events each month, and charges $400 per event. • How many months will it be before Keith breaks even?