Understanding Accounting & Financial Planning For the lesson: Account for what you do -and- Using accounting to develop your finance plan

Part I: Costs & Revenues

What are costs? Costs are all the different types of expenditures (both big and small) of a business that are necessary to keep the business running to produce the service and/or product. Fixed Costs… “…a cost that remains unchanged in total, regardless of changes in the level of total activity or volume” -Prof. G. Cassar Costs that remain constant regardless of how well or poorly the business is doing. Variable Costs… “…a cost that changes directly in proportion to changes in the level of activity or volume…” -Prof. G. Cassar Costs that cold change based on how well or poorly the business is doing.

Examples of Fixed & Variable Costs Fixed Costs… Costs that remain constant regardless of how well or poorly the business is doing. * * * * * * * * For Example… If you have store, the cost of the rental space every month is a fixed cost. For a restaurant, the cost of tables, chairs or other decorative items. Taxes or Insurance * * * * * * * * * * * * * * Student provide an example… Variable Costs… Costs that cold change based on how well or poorly the business is doing. * * * * * * * * For Example… If you are making t-shirts the cost of the material. The more t-shirts you make, the cost for the materials will go up and vise-a- versa. If you own a restaurant the cost of food. * * * * * * * * Student provide an example…

What are revenues? “Revenues are the sales of products, merchandise and services that a company makes to customers due to the normal business activities. The Philadelphia Phillies, the 2008 world Series Champions, generated a record-breaking $216 million in revenues from ticket sales, merchandise and refreshments last year.” -Prof. G. Cassar Revenue is the amount of money the business brings in from selling its product or service. Be careful, revenue does not mean profit. For example… At a restaurant the total amount of money all the customers paid during dinner service. The total amount everyone spent at a shopping store in a given day. Students give an example…

Match Up CostRevenue What is the difference between Costs (fixed and variable) and Revenue? How do or don’t costs and revenue impact each other? If a business is selling more of a product they are _____________ in variable costs. Regardless the fixed costs will ___________. If a business is selling more of a product they are bringing in more revenue.

Part II: Keeping Track of our Costs & Revenues

Lets pretend we have a lemonade stand. To being we need to construct a table with the different variable costs, fixed cots and a space for revenue. Variable Costs Cups Lemonade Mix Water Fixed Costs Pitcher Table Chair Table Cloth, Sign & Other Decoration Revenue Cup of lemonade

Now put in some information. Variable Costs Cups$4 for 30 cups Lemonade Mix $5 for mix makes 8 quarts (256 oz) Water$3 for 2 gal (256 oz) Fixed Costs Pitcher$35 Table$50 Chair$25 Table Cloth, Sign & Other Decoration$15 Revenue Cup of lemonade $1 per cup (8 oz is a cup)

What does it look like when we sell 300 cups? Based on Selling 300 Variable Costs $120 Cups$4 for 30 cups $4 x 10 $40 Lemonade Mix $5 for mix makes 8 quarts (256 oz or 32 8oz cups) $5 x 10 $50 Water$3 for 2 gal (256 oz) $3 x 10 $30 Fixed Costs $125 Pitcher$35 Table$50 Chair$25 Table Cloth, Sign & Other Decoration$15 Revenue $300 Cup of lemonade $1 per cup (8 oz is a cup) $300