4.02 All about the MONEY!

Costs Two Questions: How much money will it cost to start a business? Where will it come from? What are costs? How much money you spend on something In terms of business, how much it costs a company to make a product Includes supplies, salaries, bills, rent, etc. What will cost determine? How much a business will charge for a product

Categories of Cost Start-up Costs Borrowed money that a business needs to get started What’s included? Initial inventory or supplies, money to pay rent, salaries, equipment What start-up costs will we need?

Categories of Cost Fixed Costs Costs that do not change each month based on usage or materials. Examples? Rent, Car Rental or Payment, salaried employees’ wages, and insurance Variable Costs Costs that change with the amount of items produced Examples? Raw materials, packaging, supplies, overtime pay, electricity, etc.

Product Cost Product Cost- the cost of raw materials needed to make a product. Essentially, what groceries you’ll need to buy, and how much. What category of costs does product cost fall into? Variable! Product cost can be kept low with the help of unit price.

What is Unit Price? Unit Price- the cost of one unit of measure of an item. Volume: teaspoon, tablespoon, cup, fluid ounces, gallon, etc. Weight: Ounces, pounds, grams. Other: Each, Package Why is it important? We can compare the price of two or more brands of the same item to see which one is cheaper, in order to save money Good for getting the “most bang for our buck!”

How do we calculate unit price? Divide the cost per container by the units of measure. Example: Brand/ProductCost Per Container Units of Measure Unit Price Kraft Parm. Cheese oz. Food Lion Parm. Cheese oz 4.29/16oz= $0.27/oz 2.99/ 13.5oz= $0.22/oz

Practice Ex 1: If Brand X costs $3.99 for 32 oz, let's figure out the unit cost of Brand X (the cost of 1 oz). It's easy!!! 3.99/32= What is the cost per unit? $0.12/ oz.

Practice Ex 2: If Brand Y costs $4.25 for 3 lbs, let's figure out the unit cost of Brand Y (the cost of 1 lb). $4.25/3 = What is the cost per unit? $1.42/ lb.

Calculate Unit Price & Product Cost Baked Ziti Recipe 4 oz Cream Cheese 1 box Ziti Noodles 4 oz Parmesan Cheese 1 lb Ground Beef 28 oz Spaghetti Sauce

Find the unit price of the following ingredients for baked ziti. Baked Ziti Costs Cream Cheese = $1.97 per 8 oz. block  __________ / oz. Ziti noodles = $0.99 per 1lb. box  _________ / 1 box Parm. Cheese = $2.49 per 16 oz  _________ / oz Ground Beef = $5.15 per lb.  __________ / lb Spaghetti Sauce = $4.99 per 67 oz.  _________ / oz. Unit Price.246 $0.99 $0.16 $5.15 $0.07

Baked Ziti Costs Cream Cheese = $0.25 per oz.  __________ / 4 oz. Ziti noodles = $0.99 per box  _________ / 1 box Parm. Cheese = $0.16 per oz.  _________ / 4 oz. Ground Beef = $5.15 per lb.  __________ / lb. Spaghetti Sauce = $0.07 per oz.  _________ / 28 oz. Total PRODUCT COST of making one order of Baked Ziti: $ Product Cost $0.99 $0.62 $5.15 $1.96 $9.71

Mark-up Mark-up- The amount of money over what it costs a business to make something, that is added onto the cost to get the retail price or selling price. SIMPLIFIED: Amount added to the cost to get a PRICE. Product Cost + mark-up = price Mark-up is generally expressed as a percentage. Markup is the extra money a business charges over costs, so it can make a PROFIT.

If you want a 50% mark-up on a product, you will add 50% of the original price to the product…for example: It cost us $9.71 to make one Baked Ziti. If we want a 50% mark-up, we will: 0.50 x 9.71 = ___________ Mark-up + Cost = Price $ $9.71 = $14.57 is the PRICE (what the customer pays) How to calculate mark-up $4.86

Gross Income/Profit: the amount of profit you make based on revenue (Total payment from customer) Net Income/Profit: the amount of profit you make AFTER deducting your own costs (What you’re “netting” after your COSTS are subtracted) When we sell our Baked Ziti for $14.57, that is our GROSS INCOME/PROFIT. What is our NET INCOME/PROFIT?  $14.57 – COST = NET INCOME $ $9.71 = $4.86 Profit

Financial Statements Cash Flow Statement an accounting document that shows the flow of money into and out of a business. Items on a cash flow statement include: expenses, net income (or loss) and revenues. Balance Sheet an accounting document that shows a business owner what his/her business is worth at a given time. Think about balancing your own bank account. You are worth the balance of your bank account. How can you figure out the balance of your own bank account? Income Statement a document that shows the business owner and others the amount of profit or loss for the business. Uses the cash flow statement and balance sheet to calculate. Are you operating with a profit or a loss?

Sales Sales Forecast- A prediction of how much product can be sold given the current economic climate, i.e.- job market, inflation, etc. The Sales Forecast will determine the Sales Budget Sales Budget- How much money a company will spend to market its product. Contingency Funds are typically budgeted for unexpected costs. For example, if we were to mix ingredients for our pies incorrectly, we may have to purchase all new ingredients. Money for these ingredients would come from a contingency fund.

Wages vs. Salaries Wage- per hour pay Example: minimum wage = $7.25 Income varies from paycheck to paycheck Salary- pay per year Income is the SAME every month. $45,000/ year $3,750/ month $866/ week