Revenue Costs Profit and Loss Learning Objectives Understand

Revenue, Costs, Profit and Loss

Learning Objectives • Understand the terms Revenue, Cost and Profit • Be able to calculate revenue • Understand why businesses need to make a profit • Appreciate the impact of losses on a business

Setting up a business • Imagine you are setting up a business which sells and makes jewellery • What money is coming into the business? • Money from selling jewellery • This money coming into the business from selling a product is called SALES REVENUE (sometimes called Sales Turnover)

SALES REVENUE = PRICE PER UNIT X NUMBER SOLD

PROFIT • Is sales revenue the same as profit? • NO • YOU NEED TO TAKE OFF THE COSTS ASSOCIATED WITH SELLING THE JEWELLERY • Like what?

COSTS • Make a list of all of the costs the jewellery business will have to pay to run its business

Costs Incurred • Two Types • FIXED COSTS • A cost a business has to pay no matter how much it sells or makes • Rent, Machinery, Equipment, Salaries, Insurance,

• VARIABLE COSTS • Costs which vary depending on the number of items sold or made • Raw materials (stock), wages, energy bills

• Fixed Costs = A set amount • Variable Costs = Usually shown per unit TOTAL VARIABLE COSTS = VARIABLE COST PER UNIT X NUMBER SOLD

TOTAL COSTS = TOTAL FIXED COSTS + TOTAL VARIABLE COSTS

Activity • Categorise the costs you identified for the business into whether they are fixed or variable FIXED COSTS VARIABLE COSTS

PROFIT When a businesses revenues are more than their costs

PROFIT/LOSS = SALES REVENUE – TOTAL COSTS Money coming into the business from selling the jewellery All the costs involved in making and selling the jewellery

GROSS PROFIT = Sales Revenue – Cost of Sales • Costs of sales are the physical costs of producing and selling the product or service • Stock/raw materials NET PROFIT = Gross Profit – Other Operating Costs • Other operating costs are all other fixed & variable costs

Why make a Profit? Write the correct reasons in your book To survive To pay employees wages To expand the business To attract investment To reinvest in the business To pay a shareholder dividend To make employees happy To pay for advertising

LOSSES If total costs are greater than total revenue the business will make a loss

How do you deal with a loss? Ways of dealing with a loss.

In your books… • Copy the table below and identify the impact of achieving a profit and a loss on the business and the owner Owner Business Profit Loss