1. Learning Objectives 1 To define and calculate revenue 2 To describe the different types of cost 3 To calculate revenue

2. Revenue Revenue is the amount of money a business will receive from selling a product over a period of time like a day, week or year. Revenue can also be called sales revenue, turnover or sales turnover. To predict total revenues, a business has to predict how much it will sell (sales volume) and what the average price charged per sale will be.

3. Total Revenue Total revenue = Price x Quantity or TR = P X Q For the Pizzeria this is: £10 x 20,000 (pizzas) = £200,000 for the year

4. 2. A paintball business charges customers £10 for each paintball session. Last year customers paid for 5,000 sessions. This year, It increased its prices to £11 but the number of sessions sold fell to 4,000. What effect will this have had on revenues? Select one answer. Revenues will: A. increase by 10 per cent B. fall by £10 000 C. change from £50 000 to £44 000 D. increase by £1,000 Remember: Total revenue = Price x Quantity or TR = P X Q Top tip: Work out the total revenue for each year

5. 2. A paintball business charges customers £10 for each paintball session. Last year customers paid for 5,000 sessions. This year, It increased its prices to £11 but the number of sessions sold fell to 4,000. What effect will this have had on revenues? Select one answer. Revenues will: A. increase by 10 per cent B. fall by £10 000 C. change from £50 000 to £44 000 D. increase by £1,000

6. Costs All businesses will have a number of different costs associated with running their business. In pairs, list the possible costs for Chadwell Pizzeria

7. Now go back to your list and highlight in two different colours (or distinguish by some other means): 1.The costs that will remain the same – no matter how many pizzas you make 2.Costs that will go up or down depending on the number of pizzas you make

8. Fixed Costs FIXED COSTS are costs which do not change with the output produced or the services provided. Such as: Rent Business rates Advertising costs Administration costs Salaries Insurance Fixed costs will remain the same and have to be paid regardless of whether the business is busy or not; and how much it makes and sells.

9. Variable Costs VARIABLE COSTS are costs which change directly with the level of production or service provided such as: Flour Pizza Toppings Pizza Boxes Wages for casual staff With variable costs, the more that is produced or provided, the higher the variable costs will be. Also, if a business does nothing, the variable costs will be zero.

10. 1.Which three of the following are examples of variable costs? Select three answers. A. Rent on a factory unit B. The cost of clothes bought by a high street fashion boutique C. Advertising in a local newspaper D. The salary of the managing director of a company E. Coca-Cola drinks in a fast food restaurant F. Diesel fuel used by a taxi driver G. The interest on a loan

11. 1.Which three of the following are examples of variable costs? Select three answers. A. Rent on a factory unit B. The cost of clothes bought by a high street fashion boutique C. Advertising in a local newspaper D. The salary of the managing director of a company E. Coca-Cola drinks in a fast food restaurant F. Diesel fuel used by a taxi driver G. The interest on a loan

12. Total Costs Total costs = Fixed costs + Variable costs or TC = FC + VC For the Pizzeria this is: £240,000 per year

13. 3. A maker of electric guitars has fixed costs of £2,000 per month. Last month, it manufactured 50 guitars items. Its variable cost was £70 per guitar. This month, it has produced 60 guitars and the variable cost per guitar has stayed the same. What effect will this have on its total costs? Select one answer. Its total cost will increase A. By 20 per cent B. By £700 C. From £3,500 to £4,200 D. By £70

14. 3. A maker of electric guitars has fixed costs of £2,000 per month. Last month, it manufactured 50 guitars items. Its variable cost was £70 per guitar. This month, it has produced 60 guitars and the variable cost per guitar has stayed the same. What effect will this have on its total costs? Select one answer. Its total cost will increase A. By 20 per cent B. By £700 C. From £3,500 to £4,200 D. By £70

15. Profit To work out the profit for the Pizzeria, you must calculate the difference between total revenue and total costs. Profit/loss = Total revenue – Total Costs This would be: £285,000 - £240,000 = £45,000 profit What happens if costs were £300,000?

16. Break Even We may not sell 20,000 pizzas a year! It could be a lot less! Break Even (B.E.P.) = the level of sales a business needs to cover their total costs. At this point total costs = total revenue and neither a profit nor a loss is made.

17. Plenary Q on worksheet Lets check our learning