## Thursday, 13 September 2018

### Year 12 L2 Lesson 2 Fixed costs, variable costs and making a profit

Dear Year 12

• Can we start by marking the homework?

• Recap of last lesson here.  How many will you get out of 10?

• Remind me how do we calculate revenue?

• Notes
There is a saying

"if the numbers don't add up on the spread sheet they wont add up in real life"
Costs
Running costs also know as operating costs or overheads
Start up costs
Fixed costs - also known as indirect costs
A fixed cost, however, does not change in the short term so the rent of a factory at £500 per week will not change if the business makes 100 pizzas or 1000 pizzas

Variable costs - also known as direct costs
Remember variable costs are the cost of making one item so if you make 100 items this cost is multiplied by 100.

Total costs = Variable costs + Fixed costs
Calculating total costs then becomes obvious when you understand the different costs a business has to deal with.

Key terms test 1
Understanding and calculating profit

Profit means that revenue is more than expenditure

Loss mean that the expenditure is more than the revenue

Profit = Total revenue  - total costs (expenditure)

If the figure is positive, then the business in making a profit
If the figure is negative then the business is making a loss

Work out the profit or loss for the following businesses:

1. Business A sells 20 items at £5 each and has expenditure amounting to £40

2. Business B sells 200 items at £10 each and has expenditure amounting to £800

3. Business C sells 15 items at £50 each and has expenditure amounting to £1000

4. Business D sells 25 items at £15 each and has expenditure amounting to £250

5. Business E sells 115 items at £50 each and has expenditure amounting to £6000

Activity Which is best?

On this course you need to know that there are TW0 types of profit.
Gross Profit & Net Profit but I think that's enough for today!

Well done for keeping up

Mr T

 Profit = Revenue - expenditure

and this here a great revision resource also.

Mr T