Probability Grade 12 Essential Math Revenue and Expenses Probability Grade 12 Essential Math

Business Basics What is a business? A business provides a good or a service in order to make a profit. Good: a product that a business sells Service: a task a business performs for customers

Profit The purpose of all business is to earn profit. Profit is earned when a business collects more money in revenue then they spend on expenses. A business suffers a loss when their expenses are more than their revenue.

Expenses Expenses are anything a business spends money on. Common expenses include salaries, supplies, advertising, raw materials, etc. Expenses can be either Fixed: the same every month Variable: may change each month

Revenue Revenue is any money a business collects in return for a good or service. Revenue is usually earned by sales. Like expenses, revenue can be either fixed or variable.

Example Which of the following are revenue and which are expenses? Which are variable and which are fixed? Item Cost Business Insurance $200/year Salaries $8000/month Raw Materials $5000/month Vehicle Insurance $2100/year Maintenance Contract $1700/quarter Shed Construction $2000 last month Painting $9500 last month

Monthly Costs Frequently, revenue and expenses may be listed as “per year” or “per quarter” We convert these to monthly costs for easier comparison Hint: there are 12 months in a year, and 3 months in a quarter.

Example Convert these costs to monthly: Item Cost Business Insurance $200/year Salaries $8000/month Raw Materials $5000/quarter Vehicle Insurance $2100/year

Break-Even Point Businesses will often borrow money to help them get started. They will pay back this money over time. If a business is earning a profit each month, we can determine how long it will take them to “break-even”. To find the break-even point, divide the cost of the loan by the monthly profit.

Example Keith runs a DJ company. He recently purchased a new sound system for $5500. He does about 5 DJ events each month, and charges $400 per event. How many months will it be before Keith breaks even?