Making a profit or surplus AO2: Investigate the key elements of financial planning that managers and entrepreneurs must understand What was your sales revenue if you had sold all your doughnuts? After paying the cost of buying the doughnuts how much profit would you have been left with? Making a profit or surplus

Making a profit or surplus In this topic you will learn about profit/surplus calculations: profit/loss = total revenue – total cost surplus/deficit = income - expenditure

Profit/loss = total revenue – total cost Profit is the surplus of revenue over cost TR > TC = profit TR < TC = loss TR = TC = break-even i.e. not making a profit or a loss Profit/loss = total revenue – total cost Surplus/deficit = income - expenditure

Profit Profit is revenue minus total costs Revenue is the money coming in from the sale of goods and services Total costs is the money going out to provide for and generate those sales The relationship between costs and revenue will determine if the business makes a profit or a loss Example 2 Example 1 TC £1300 There is a shortage (a loss) of £100 Revenue £1000 There is a surplus (a profit) of £200 Revenue £1200 TC £800 Profit £200 Loss £100

Calculate revenue, cost and profit The information below applies to a business: Selling price = £250 Quantity sold = 5 000 units Fixed costs = £70 000 Variable costs per unit = £85 Sales revenue = price x quantity £250 x 5 000 units = £1 250 000 Total costs = fixed costs + total variable costs £70 000 + (£85 x 5 000 units) = £495 000 Profit = total revenue – total costs £1 250 000 - £495 000 = £755 000

Calculate revenue, cost and profit The information below applies to a business: Selling price = £15.00 Quantity sold = 100 000 units Fixed costs = £40 500 Average costs per unit = £6.00 What is the total revenue? What are fixed costs? What are the total variable costs? What are total costs? What is the profit or loss?

Making a profit or surplus In this topic you have learnt about profit/surplus calculations: profit/loss = total revenue – total cost surplus/deficit = income - expenditure