1. Aims for today
Understand how businesses estimate revenues, costs and profits and why this is important.
Recognise the difference between fixed and variable costs.
Identify the difference between price and cost.
Identify and use appropriate formulas to forecast profit and losses and appreciate the impact of these on businesses.

2. Revenues
Revenues is the amount of income a business will earn over a period of time like a week or year.
Revenues can also be called sales revenue, turnover or sales turnover
To predict total revenues, a business has to predict how many jobs it will do (sales volume) and what the average price charged per job will be.

3. Total revenue = Price x Quantityor
TR = P X Q
For David this is:
£100 (average price) x 15 (jobs)
= £1,500 per week
Read page 72

4. Task 1 Write a definition for the following terms: Revenues
Sales volume
And
Write the formula for calculating Total revenue

5. Estimating costs
All businesses will have a number of different costs associated with running their business.
Can you think of some examples?
Costs can be separated into FIXED COSTS and VARIABLE COSTS.

6. Fixed costs
FIXED COSTS are costs which do not change with the output produced or the services provided. Such as:
Rent
Business rates
Advertising costs
Administration costs
Salaries
Insurance
Fixed costs will remain the same and have to be paid regardless of whether the business is busy or not

7. Variable costs
VARIABLE COSTS are costs which change directly with the level of production or service provided such as:
Cost of buying raw materials
Fuel costs
Utilities such as gas, electricity and water
Wages for casual staff
Telephone bills
Stock
With variable costs, the more that is produced or provided, the higher the variable costs will be. Also, if a business does nothing, the variable costs will be zero.

8. Total costs = Fixed costs + Variable costsor
TC = FC + VC
For David this is:
£1,200 + £200 = £1,400 per week
Read page 73

9. Task 2
Write a definition for the following terms and give 3 examples for each:
Fixed costs
Variable costs
Total costs
And
Write the formula for calculating Total costs

10. Price, cost and profit
The difference between the price paid and the cost is either profit or loss.
For example, if David earns £100 and his costs (wages, tax, bills) are £90 he has made a profit.
If his costs are more than £100, he has made a loss.

11. Total revenue, total cost and profit
To work out his profit (if any), David must calculate the difference between his total revenue and total costs.
Profit/loss = Total revenue – Total Costs
For David this would be:
£1,500 - £1,400 = £100 profit
What happens if his estimates are wrong?

12. Task 3 Write a definition for the following terms: Profit Loss And
Write the formula for calculating whether a profit or loss has been made

13. Impact of profits and losses
David estimated his business would show a small profit of £100 per week. Over a year this equates to:
£100 x 52 = £5,200
But....
What if the price of petrol, electricity or insurance went up?
What if he had to charge less for his services to compete with other businesses?
Losses are a sign that the business needs to make change or close.
Profits would enable a company to invest more or expand

14. Task 4
WORKING BY YOURSELF, complete the David Lutter costs and revenues exercise
You have 20 minutes

15. Quick quiz... What is revenues or turnover? (3 points)
What is the sales volume (2 points)
Give two examples of a fixed cost? (2 points)
Give three examples of a variable cost? (3 points)
What's the formula for TOTAL REVENUES? (3 points)
What's the formula for TOTAL COSTS? (3 points)
What's the formula for working out PROFIT/LOSS? (3 points)
Is making a profit a sign of success?

16. Homework Page 75 Test yourself section – Questions 1-3
Over to you section – Questions 1-8
ALL ANSWERS IN FULL SENTANCES THANK YOU
You have 20 minutes