Lecture 1 - Scenario
You have recently started a small business selling custom-made t-shirts. You have been keeping
track of your revenue and costs, but the calculations have become more complex as your business
has grown. Here is a breakdown of your financial information for the year:
Revenue:
 Online sales revenue: $80,000
 In-person sales revenue: $20,000
 Licensing revenue (earned by licensing your designs to other companies): $5,000
Costs:
 Cost of goods sold (includes materials, packaging, and labor): $35,000
 Operating expenses (includes rent, utilities, and marketing expenses): $20,000
 Interest expenses (includes interest on any loans or credit lines used to finance the
business): $1,500
 Depreciation expenses (includes the loss of value of equipment or assets over time): $3,000
In addition, you have also received a grant of $10,000 from a local business organization to help
fund your operations.
Using the profit formula, calculate the profit earned by your t-shirt business for the year.
Required:
1. What is the total revenue earned by the business for the year?
2. What is the total cost incurred by the business for the year?
3. Using the profit formula, calculate the profit earned by the business for the year.
4. How does the grant affect the business's profitability?
5. How can the business owner use this information to make informed decisions about the
future of the business?
Sample Answers:
1. What is the total revenue earned by the business for the year? Total revenue = $105,000
2. What is the total cost incurred by the business for the year? Total costs = $59,500
3. Using the profit formula, calculate the profit earned by the business for the year. Profit =
Total revenue - Total costs = $105,000 - $59,500 = $45,500
4. How does the grant affect the business's profitability? The grant of $10,000 increases the
business's revenue, but does not affect its costs. Therefore, it increases the profitability of
the business.
5. How can the business owner use this information to make informed decisions about the
future of the business? The business owner can use this information to evaluate the
financial performance of the business and make decisions about how to allocate resources.
For example, if the business is highly profitable, the owner may consider expanding
operations or investing in new marketing initiatives. Alternatively, if the business is
struggling to generate profits, the owner may need to make changes to the pricing or
marketing strategy in order to increase sales or reduce costs.