Learning Objectives
1
2
3
• To define and calculate revenue
• To describe the different types of cost
• To calculate revenue
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.
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
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
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
Costs
• All businesses will have a number of
different costs associated with running
their business.
• In pairs, list the
possible costs for
Chadwell Pizzeria
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
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.
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.
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
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
Total Costs
Total costs = Fixed costs + Variable costs
or
TC = FC + VC
For the Pizzeria this is:
£240,000 per year
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
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
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?
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.
Plenary Q on worksheet
• Lets check our learning