Topics Covered Business Costs Revenue Profit Expenditure Break Even Analysis Budgeting Cash Flow Forecast Profit & Loss Balance Sheet Maximising Profits

Re-cap Charlie wants to set up a chocolate factory. Organise the below costs in to start-up and operating (running) costs. Sales brochures Electricity Bill Making a website Deposit for leasing factory Wages for staff Till = 5mins

LO1) To distinguish between fixed, variable, direct and indirect costs UNIT TITLE: Unit 2:Finance for Business LESSON TITLE: Fixed & Variable Costs LEARNING AIM: A COMPETENCY FOCUS: Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data. Learning Objectives By the end of the lesson, you should be able to… LO1) To distinguish between fixed, variable, direct and indirect costs LO2) To calculate total costs using formulae LO3) To analyse the importance of managing costs for a business

Types of Business Costs: Start-up costs Operating Costs Fixed Costs Variable Costs (Indirect) (Direct)

Fixed Costs These are also called ‘indirect costs’ These are costs that a business faces once it is up and running (operating costs) These costs don’t change even if you produce more products or less products For example, council tax, rent & rates, heating, telephone bill

Variable Costs Costs that change with the number of products produced For example raw materials, labour costs Therefore if the business produces more products, their variable costs will increase.

Task 1 For your own business that you set up in Unit 1, produce a table with all of your fixed and variable costs. [15mins] Fixed Costs Variable Costs

Task 2 Tumbles Toy Factory has seen a slump in sales and production following the Christmas period. List all of the variable costs that would reduce due to lack of sales/production.

Task 3 Fixed or Variable? http://www.businessstudiesonline.co.uk/live/index.php?option=com_content&view=article&id=35&Itemid=23

Total Costs The total amount of money a business spends on running the business. Total costs = Fixed Costs (FC) + Variable Costs (VC)

Calculating Total Costs If a bicycle business sells 500 bikes per week with a variable cost of £250 per unit (per bike!) and £1000 fixed costs, what would the total costs be?

Calculating Total Costs Total costs = Fixed costs + Variable Costs Variable Costs = £200 x 500 = £100 000 Therefore… Total Costs = £100,000 = £1000 TC = £101,000

Task 4 Sarah owns a small beauty salon in Tipton. She is trying to analyse her annual costs. She knows that she pays £18,000 in rent, wages/salaries of 2 Beauty Therapists add up to £35,000, utility bills add up to and she spends £400 per week buying styling products. Identify Sarah’s fixed costs Identify Sarah’s variable costs Calculate her total costs

Start-up or Operating Cost? Move to the correct side of the classroom: Gas bill Staff Wages Telephone Bill Rent Council Tax Insurance Fixed Cost Variable Cost