Trish Jack Door TEACHERS DESK Board Nasir Nice Joe Imran Asil Lidia Balween Aditya Rabbab Jahangir Mulki Yassir Ria Shuyeb Yugesh Nasir Nice Simran Joe Charlotte Trish Brijesh Samuel Jack Mason Imran Bonnie Asil Mon 7th December – 2 mins sit down Rahat Anthony Lidia Maruf Shamar Edmond Harry Monday, 17 September 2018

Learning Objectives - You have 2 minutes to write these down 1 To define revenue, costs and profit 2 To calculate revenue, costs and profit in a business scenario 3 To understand why costs are important and why it is difficult to estimate costs 3 mins

STARTER: What did we do last lesson? (WITHOUT LOOKING AT YOUR NOTES) Answer the following in your exercise book: What is a Fixed cost? What is a Variable cost? What is the calculation for Total Costs? What is the calculation for Total Revenue? What is the calculation for Profit? You have 5 minutes 10 mins

Homework You have 2 minutes to write this in your planner: “Complete finance worksheet” Due Friday 11th December If it is not written in two minutes, you will stay here at lunch time 2 mins

Task You have 2 minutes to glue last lessons worksheet into your exercise book. If it is not done in two minutes, you will stay here at lunch time 2 mins

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 2 mins

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 min

Its total cost will increase A. By 20 per cent B. By £700 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 2 mins

Its total cost will increase A. By 20 per cent B. By £700 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 1 min

Costs are important because they.. Are the thing that takes away the profits made by a business Are the difference between making a good and a poor profit margin Are the main cause of cash flow problems in a small business Change as the output or activity of a business changes – the entrepreneur needs to know how these are likely to change 8 mins

Total costs Lets do an example: Graham’s Van Repairs Business Forecasts for March Variable costs per job £75 Garage rent & rates £500 Wages £1,500 Advertising £100 Other fixed costs £400 Expected number of jobs for month 100 (7 mins ) FC = 500 +1500 +100 + 400 = 2500 VC = 75 * 100 = 7500 TC = 2500 +7500 = 10000 Q - What are Graham’s forecasted total costs for March? (Remember that Total costs = Fixed Costs + Variable Costs) Extension: If Graham earns £150 per job, what is his total Revenue and how much profit does he make? (Remember Profit = TR – TC)

Lets try it on your own: Carla has just opened her first business – a nightclub in Liverpool. Guests pay £30 which pays for entry, a burger and your first 4 drinks. The weekly fixed costs are £3,600 and the variable cost per guest is £12. Carla’s business plan forecasts 200 guests in week 1 rising to 800 by week 10. If the forecast is right, what will be Carla’s total costs in Week 1? If the forecast is right, what will be Carla’s total costs in Week 10? Extension/Challenge work: In fact Carla proves wrong about the variable costs, which turn out to be £15 per person. What is the effect on Week 1’s total costs if variable costs are £15? Suggest two reasons why variable costs per person may prove higher than expected. You have 5 minutes

Problems estimating costs You have 3 minutes to draw and fill in this table: Costs that are easy to estimate and control: Rent, salaries, advertising campaign Costs that are much harder Raw materials – affected by wastage Product returns or refunds – affected by quality Where the entrepreneur does not have detailed experience of a market Costs that are Easy to estimate Costs that are Hard to estimate

Plenary - Estimating costs Question Dennis is a keen gardener who is thinking of using some land on a property that he owns to grow organic tomatoes. He will sell them to local shops and restaurants. He plans to do most of the work himself but will need to hire temporary staff to help plant the fruit, and he plans to pay them on a piece-rate basis. He also plans to rent farm equipment until the business is up and running, in order to cut down on start up costs. Dennis has estimated the first month’s costs to be: Variable costs: tomato plants - £1,200; fertilizer - £50; extra labour - £250 Fixed costs: advertising - £100; rent of equipment - £200 Answer the following questions: What would be the effect on total costs if Dennis has underestimated the cost of renting equipment by 25%? What would be the effect on total costs if Dennis has underestimated the cost of variable costs by 20%? What would be the effect on total costs if Dennis has underestimated fixed costs by 50%? What would be the effect on total costs if Dennis has overestimated the cost of tomato plants by 20%? 5 minutes

Homework Don’t forget to: Complete finance worksheet

Friday

The importance of profit Copy this definition: Profit is the return for taking a risk Profit measures the success of an investment Profit is an important source of finance

Profit or loss? Revenue Costs Profit or Loss? If: Total revenue greater than total costs Total costs greater than total revenue Total revenue = total costs = Profit = Loss = Break-even £100,000 £75,000 £25,000 (profit) £125,000 £25,000 (loss)

Two Ways of Measuring Profit Profit in absolute terms The £ value of profits earned E.g. £50,000 profit made in the year Profit in relative terms The profit earned as a proportion of revenues achieved or investment made E.g. £50,000 profit from £500,000 of revenue is a profit margin of 10% E.g. £50,000 profit from an investment of £1 million = a 5% return on investment

The profit choice Take the profit out of the business Once a profit has been made, the owner of the business has a choice: Take the profit out of the business Dividends Drawings Re-invest the profit in the business e.g. new machinery & technology Open new locations Buy more stocks or

Good reasons to reinvest profit into a business An important and cheap source of finance Decision is in the control of the entrepreneur Profits are flexible – can reinvest some or all Shareholders will usually be supportive

Why should you reinvest profit into a business? An important and cheap source of finance Decision is in the control of the entrepreneur Profits are flexible – can reinvest some or all Shareholders will usually be supportive

Dealing with a loss Many start-ups make losses Costs incurred before trading begins Takes time to build up revenues Plenty of action that can be taken Keep tight control of costs, particularly fixed costs Try to minimise waste Don’t take on too many people or expand too quickly unless the business can afford it