1. Topic 1.3 Putting a Business Idea into Practice

2. Revenue, Costs and Profit

3. Total Revenue = Price x Quantity Sold
Estimating Revenues
Revenue is the amount of income a business will earn over a period of time (week/month/year).
A.K.A sales revenue – turnover – sales turnover
Revenue is made up of the total money received from products/service provided.
To estimate revenue in the future a price has to be determine and an estimate of how many jobs done/items sold (sales volume).
Total Revenue = Price x Quantity Sold

4. Estimating revenue…. Example
David is a builder. Here is how he could estimate his revenue:
Number of jobs done
Price per job
Total Revenue 10
£100 20 30 40
£1,000
£2,000
£3,000
£4,000

5. Total costs = Fixed costs + Variable Costs
Estimating Costs
Costs are money that is paid out during the day-to-day running of a business.
Fixed costs = Costs that do not change with output e.g. mobile phone contract, rent, insurance, wages,
Variable costs = Costs that change with output e.g. materials, petrol, wages
Total costs = Fixed costs + Variable Costs

6. Fixed Costs + Variable Costs = Total Costs
Costs example….
Fixed Costs
Variable Costs
Wages (FT)
Advertising
Rent
Insurance
Total
Fuel
Wages (PT)
Materials
Total
£50
£200
£100
£100
£250
£350
£100
£400
£750
Fixed Costs + Variable Costs = Total Costs
+ =
£750
£400
£1,150

7. Total Revenue – Total cost = Profit OR Loss
Profit or Loss is the difference between how much money a business has made and how much they have spent.
Total Revenue – Total cost = Profit OR Loss
e.g. a business has revenue of £100 and spends £80 they have a profit of:
£20
A business revenue is £180 and costs are £190
(£10)
A business makes £200 and costs are £150
£50
A businesses sales turnover is £500 and costs are £350
(£150)
Manchester City FC: Income £175 million; Wage costs £195 million
(£20 million)

8. The Impact of Profit
Occurs when revenue of a business are greater than the costs over a period of time.
Businesses that make profit can survive
Profit can help a business decide if they should expand
Large profits give businesses money for improvements or investments

9. The Impact of Loss
Occurs when revenue of a business are less than the costs over a period of time.
The business would need to reduce costs (change products/suppliers)
Loss means the business has to change
If continuous loss, the business might be forced to close

10. A – by 20 per cent B – by £700 C – from £3,000 to £4,200 D – by £70
A maker of electric guitars has fixed costs of £2,000 per month. Last month, it manufactured 50 guitar items. Its variable cost was £70 per guitar. This month, it has produced 60 guitars and the variable costs per guitars have stayed the same. What effect will this have on its total costs? Select one answer. Their total costs will increase:
A – by 20 per cent
B – by £700
C – from £3,000 to £4,200
D – by £70

11. ANSWER: B (costs increased by £700)
Calculations:
Variable costs = number of guitars bought x price for each guitar
Last month’s total costs: Fixed costs + variable costs = total costs
£2,000 + £3,500 = £5,500
This month’s total costs: Fixed costs + variable cost = total costs
£2,000 + £4,200 = £6,200
ANSWER: B (costs increased by £700)

12. A – Increased by 10 per cent B – Fell by £10,000
A paintball business charges £10 per each paint ball session. Last year customers paid for 5,000 sessions. This year, it increased its prices to £11 but the number of sessions fell to 4,000. What effect will this have on its revenues? Select ONE answer:
A – Increased by 10 per cent
B – Fell by £10,000
C – Changed from £50,000 to £44,000
D – Increased by £1,000

13. ANSWER: C (fell from £50k to £44k)
Calculations:
Sales Revenue = number of paint ball sessions sold x price
Last year’s total revenue:
5,000 x £10 = £50,000
This year’s total revenue:
4,000 x £11 = £44,000
ANSWER: C (fell from £50k to £44k)

14. The Paint Ball Business
Looking at the calculations and answer to the last question, discuss what would you advise the paint ball company should do to try and increase its revenue next year?
Advertise to increase number of customers?
Puts its price back down to £10?
What would be the advantages and disadvantages of these two ideas? Which idea do you suggest and why?