1. Costs Learning Outcomes: To be able to define Fixed and Variable costs (E) To be able to give relevant business examples of types of costs (C) To be able to evaluate how a business can best manage its costs. (A)

2. Revenue and Costs “Revenue” is income earned by a firm when they sell either the goods it makes or the services it offers. Money received from customers is called sales, sales revenue or turnover. “Costs” are all the types of expenditure that a firm has when it first starts up and when it is operating on a day-to-day basis.

3. Fixed and Variable Costs Fixed Costs Costs that DO NOT change when the level of output changes. Fixed costs stay the same whether a firm is producing 100 units or 1,000 units. Fixed costs still have to be paid even if nothing is produced. eg: rent, rates, insurance, salaries, leasing equipment, electricity bill Variable Costs Costs that DO change when the level of output changes. The more that is produced, the more of these items have to be purchased. eg stock, raw materials, refreshments for customers, fuel for cooking beef burgers. Would the item be paid for if nothing was produced? If yes, it is a FIXED COST

4. Fixed and Variable Costs Place the following costs in the correct column: Annual license to sell burgersBurger supplies Insurance for the burger barWages Drinks to sell customersFuel for cooking burgers Fitting the gas cookersPackaging for burgers Council taxRent Straws for drinksServiettes Fixed CostsVariable Costs

5. Worksheet 1 Complete tasks 1 and 2 of the worksheet. EXT: If you are feeling confident have a go at task 3!

6. Gorgeous Gateaux: Revenue Revenue is the money received from customers. For example, a farmer selling their crops; a shop selling goods; an insurance company selling insurance; a travel agent selling a holiday; a supermarket selling food; a factory selling the cars they make. Gorgeous Gateaux will receive revenue when they sell their cakes to their customers. If they sold 20 cakes at £5 each, they would receive revenue of £100. If they sold 50 cakes at £4 each, they would receive revenue of £200. If they sold 100 cakes at £6 each, they would receive revenue of £600.

7. Sales Revenue for Gorgeous Gateaux PriceNumber soldTotal Revenue January£5400£ February£5400£ March£5500£ April£5500£ May£5600£ June£5600£ July£5600£ August£5550£ September£5550£ October£6500£ November£6600£ December£6650£ Total revenue for the 12 months:£

8. Sales Revenue for Gorgeous Gateaux PriceNumber soldTotal Revenue January£5400£ February£5400£ March£5500£ April£5500£ May£5600£ June£5600£ July£5600£ August£5550£ September£5550£ October£6500£ November£6600£ December£6650£ Total revenue for the 12 months:£ 2000 2500 3000 2750 3000 3600 3900 34,000

9. Gorgeous Gateaux: Fixed and Variable Costs Fixed costs do not change when the level of output changes. If Gorgeous Gateaux produced no cakes, they would still have to pay their fixed costs. eg Rent Variable costs do vary with output. These costs will increase when more cakes are produced. eg cake ingredients

10. Gorgeous Gateaux Costs Fixed Costs per year: Salary:£18,000 Rent:£1,000 Insurance:£2,000 Variable Costs per year: Ingredients£5,000 TOTAL COSTS PERYEAR: £26,000

11. Worksheet activities Complete the Joyce Curry Photography worksheets.

12. Plenary Define fixed cost Define variable cost Give 2 examples of fixed costs Give 2 examples of variable costs How can a firm reduce its fixed costs? How can a firm reduce its variable costs? Why would a business want to reduce its costs?