Costs and Revenue
Topic 1.3- 13
Money in Business
• Businesses need money to exist.
Revenue
• Businesses will receive money by selling their goods or
services
• As such we can say that there are two ways a business
can get money
• Revenue can also be called
– Sales Revenue
– Total Revenue
Different sources of revenue
• A business may have different sources of
revenue.
• For a example a farm;
Different sources of revenue
• The total amount of money received is calculated
using the following formula;
Total Revenue
(TR)
=
Selling Price
Per unit
X
Number of
units sold
• For example, if a firm sells 1 sweet for 20p its
total revenue will be (1X 20p) 20p
• If the firm sold 5 sweets for 20p each it would
received in total (5 X 20p) £1.00
• Unit sold is sometimes called Quantity or Sales
Volume.
Forecasting Revenue
• A new business will not know how much revenue
it will receive
• However, they will need to know how much profit
they think they will make
• To calculate this a business must forecast it’s sales
revenue by;
– Estimating how many units it will sell based on their
market research
– Deciding what prices they will charge for each unit
sold.
Costs
• A new business will have 2 types of costs;
• Once established a business will only have to
pay the running costs.
Running Costs
Total Costs (TC)
• This is the total amount of money a firm spends
on making goods or services
• It is calculated using the following formula
Total Cost
(TC)
=
Total Fixed
Costs (FC)
X
Total variable
costs (VC)
• Where;
• Total Fixed Costs= all fixed costs added together
• Total variable costs = Variable cost per unit
multiplied by the number of units.
An example of Total Costs
• A firm makes 10,000 cans of drink
• It has the following fixed costs
– £1,000 Rent
– £5,000 Electricity
• They also know that it costs 5p to make every
can of drink that it produces
• Calculate Total Costs….
An example of Total Costs
• A firm makes 10,000 cans of drink
• It has the following fixed costs
– £1,000 Rent
– £5,000 Electricity
• They also know that it costs 5p to make every
can of drink that it produces
• Calculate Total Costs….
– FC (Rent + Electricity)= _______
– VC (NUMBER OF CANS x 5p)= ______
– TC = FC + VC= ______
An example of Total Costs
• A firm makes 10,000 cans of drink
• It has the following fixed costs
– £1,000 Rent
– £5,000 Electricity
• They also know that it costs 5p to make every
can of drink that it produces
• Calculate Total Costs….
– FC (£1, 000+ £5,000)= £6,000
– VC (10,000 x 5p)= £500
– TC = £6,000+500= £6,500
Calculating profit and loss
• Businesses receive money from selling goods
and services
• They also have to pay costs in order to make
the goods or provide the services
• Profit can be calculated using the following
formula;
Profit = Sales Revenue – Total Costs
Defining profit and loss
• If their sales revenue is greater than their
costs then they have made a PROFIT
Revenue > Costs= Profit
• If their sales revenue is less than their costs,
then they have made a LOSS
Revenue < Costs= Profit
Tasks
Warwick
case studystart up
and
running
costs
Gorgeous
Gateaux –
case study
Joyce Curry
photography
case study
Tasks
Tasks
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