To understand what expenditure is and how to work out profit L/O – To understand what expenditure is and how to work out profit Part 4 How businesses have to spend money (expenditure) in order to succeed

Starter What are start-up costs? What are running costs? L/O – To understand what expenditure is and how to work out profit Starter What are start-up costs? What are running costs? What is profit?

Lesson Objective Describe how businesses spend money (expenditure). Identify different types of expenditure. Describe the difference between expenditure and overheads. Define and work out profit.

Start-up costs = Capital Expenditure Capital expenditure is the money spent to buy or improve an asset such as equipment or property. Before a business starts trading, it will need to spend money on equipment, possibly premises, and other large items. E.g. a café would need to spend on the following to start up: The premises A van Tables and chairs An oven Saucepans and plates Knives and forks

Activity 1 Imagine you are setting up in business. You can pick one of these or another of your own choice. Create a poster to show the capital expenditure costs of that business.

Running costs= Overheads Once a business is running, it will have to pay regular bills – overheads. E.g. a café will have the following overheads: Advertising Supplies of food and drink Washing-up liquid and cleaning materials Wages of the cook and waitress Rent for the premises Electricity Petrol, tax and insurance for the van

Activity 2 Add to your poster the overheads for your chosen business.

Expenditure, overheads and profit The term ‘expenditure’ means spending money. This includes capital expenditure AND overheads. Without this, we cannot calculate if the business will make a profit.

How to calculate profit In order to work out the profit the business makes, it needs to deduct (take away) the expenditure from its revenues. PROFIT = Revenue – Expenditure If revenue is more than expenditure, the business will make a profit. If expenditure is more than revenue, the business makes a loss.

Profit and Loss Explained Profit: revenue is more than expenditure Loss: expenditure is more than revenue Example 1 A business sells 1000 items at £10 each – making £10,000 in revenue. During the year its expenditure add up to £6000. It will make a £4000 PROFIT. Example 2 A business sells 100 items at £10 each – making £1000 in revenue. During the year its expenditure is £1200. it will make a £200 LOSS.

Activity 3 20 x £5 = £100 revenue - £40 expenditure = £60 profit 15 x £50 = £750 revenue - £1000 expenditure = £250 loss 25 x £15 = £375 revenue - £250 expenditure = £125 profit 115 x £50 = £5750 revenue - £6000 expenditure = £250 loss

Recap What do we mean by capital expenditure? Give an example. 1 mark What do we mean by overhead expenditure? Give an example. 1 mark What is the difference between expenditure and overheads? 1 mark What is the formula for working out profit? 1 mark If expenditure is more than revenue, what is this situation called? 1 mark From the following list, identify which are revenues and which are expenditures: Cost of buying goods Electricity Sale of goods Advertising Wages 5 marks Now you will mark each others!

Extension Go to www.businessstudiesonline.co.uk Click activities & BTEC First activities Scroll down to Unit 3 – Costs Choose an activity Or GCSE – topics – finance – costs – choose tasks

Revision stations! Using the sheet provided, please revise for next weeks end of topic test!