1. Day 4 Morning 1. Attendance/Recap/Questions 2. SWOT Presentation
3. Mini – Lecture on Expenses / Practice
4. Variable Expenses Practice/ Cheeseburger Example
5. EOU and Expenses Assessment
6. EOU Lego Competition
"Don't be afraid to give up the good to go for the great."
--John D. Rockefeller

2. Class Website
Use for classroom resources and information!

3. What Is a Unit of Sale?
A unit of sale is what a customer actually buys from you. It’s also the amount of product (or service) you use to figure your operations and profit.
The unit of sale is the basic building block of your business.

4. Student Group Creation
1. Introduce the group ideas and people who created them.
2. Allow them to explain their ideas.
3. Groups will have 4 members (2 will have 5)
4. Once in groups, wait for further instructions!

5. Identifying Expenses Practice 1

6. Start-up Expenses
Variable Expenses
Fixed Expenses

7. Start-up Expenses
Variable Expenses
Fixed Expenses

8. Variable Expenses
A variable expense is an expense that changes based on the amount of product or service a business sells.
The two types of variable expenses are:
Cost of Goods Sold (COGS). For manufacturing and merchandising (retailing and wholesaling) businesses, the variable expense that is associated with each unit of sale is called the cost of goods sold.
Other Variable Expenses. These can include such expenses as commissions for salespeople, shipping and handling charges, or packaging.

9. The Economics of One Unit of Sale
Selling Price – Expenses = Profit (or Loss)
To calculate the economics of one unit of sale, subtract the variable expenses for a unit from the unit’s selling price. The result is the contribution margin. This is the amount per unit that a product contributes toward the company’s profitability before the fixed expenses are subtracted.
Selling Price – Variable Expenses = Contribution Margin

10. Create a Group Banner/Poster
Your team will create a poster or banner. It will include the following:
Business Name
Group Members Name
A big space for a Logo (does not have to be created now)
See Example

11. Selling Price Per Unit
$7.00
Variable Expenses Per Unit
Costs of Goods Sold
Materials
2.62
Labor
.83
Total COGS
3.45
Other Variable Expenses
Commision
None
Packaging
.02
Other
Total Other Variable Expenses
Total Variable Expenses
3.47
Contribution Margin Per Unit
$3.53

12. Selling Price Per Unit
Variable Expenses Per Unit
Costs of Goods Sold
Materials
Labor
Total COGS
Other Variable Expenses
Commision
Packaging
Other
Total Other Variable Expenses
Total Variable Expenses
Contribution Margin Per Unit

13. EOU for a Manufacturing Business
Section 10.2: The Economics of One Unit of Sale

14. EOU for a Wholesale Business
Section 10.2: The Economics of One Unit of Sale

15. EOU for a Retail Business
Section 10.2: The Economics of One Unit of Sale

16. EOU for a Business Selling More Than One Product
Section 10.2: The Economics of One Unit of Sale

17. EOU for a Service Business
Section 10.2: The Economics of One Unit of Sale

18. Expenses Practice Problems
Check the website for a link to a Google form!
This is an easy review of expenses and EOU!
Take 15 minutes to complete the form!

19. EOU Lego Challenge Requirements
Design your toy out of Legos.
Complete EOU Toy Lego Worksheet (ONE PER GROUP) This must be SHARED with Mailhiot with the toy name being the title.
Create a Google Slide show or Power Point that is shared with Mailhiot with the toy name being the title.
Your team will then pitch the product to Mailhiot using your toy and slideshow. Provide all relevant business information!
Mr. Mailhiot has decided to go into the business of selling toys. He needs prototypes of toys that will be the next big “hit”. However, as with all products, he wants it to be manufactured as cheap as possible to keep the price down.
You and your team must design a toy that will be a big hit using parts out of Legos. Each Lego color is assigned a certain cost.

20. Research your own EOU
In your business teams – you must begin researching your EOU and variable costs associated with your product.
Work on sections 2.1, 2.3, 2.4 in the written business plan!

21. Day 4 Afternoon
1. Attendance/Recap/Questions (SIT WITH YOUR TOY TEAMS)
2. Lego Toy EOU Presentations
3. Fixed Expenses, Start-Up Expenses, and Financial Ratios
4. Financials Review Assessment
5. Business Plan Research – Fixed and Variable Expenses – 2.1 to 2.7
“A business that makes nothing but money is a poor business. ” – Henry Ford, Founder of Ford Motor Company

22. EOU Lego Challenge Requirements
Design your toy out of Legos.
Complete EOU Toy Lego Worksheet (ONE PER GROUP) This must be SHARED with Mailhiot with the toy name being the title.
Create a Google Slide show or Power Point that is shared with Mailhiot with the toy name being the title.
Your team will then pitch the product to Mailhiot using your toy and slideshow. Provide all relevant business information!
Mr. Mailhiot has decided to go into the business of selling toys. He needs prototypes of toys that will be the next big “hit”. However, as with all products, he wants it to be manufactured as cheap as possible to keep the price down.
You and your team must design a toy that will be a big hit using parts out of Legos. Each Lego color is assigned a certain cost.

23. Production Process

26. What Is a Break-Even Point?
On an income statement, if the costs and expenses were exactly equal to the sales, there would be neither a profit nor a loss and net income would be zero. This is called the break-even point, because the business has sold exactly enough units to cover costs.
Break-even analysis examines the income statement to identify the break-even point for a business. A break- even analysis examines how many units of a product (or hours of a service) a business must sell to pay all its costs.

27. Fixed Expenses ÷ Contribution margin per Unit = Break-Even Units
Break-Even Analysis
Use break-even analysis to determine how many units of a product a business must sell to pay all its expenses.
The gross profit of the business (Total Sales - Total COGS) is used to pay operating expenses.
Break-even units are the number of units of sale a business needs to sell to arrive at the break-even point (where the bottom line is zero).
Fixed Expenses ÷ Contribution margin per Unit = Break-Even Units

29. Example #1: Danny’s Rubber Burgers
Danny’s Burger stand has been in operation for two months. In his second month of business, he sold 420 primary units of sale. Danny determined his total variable costs per unit run him $3.47 per burger. He charges $6.99 for his burgers. Danny also has to pay $250 per month for the street corner location that he rents from a local business. He also pays $100 per month in liability insurance. Danny sets a budget of $200 a month on local advertising. Danny’s cooking gas usually runs him $200 per month as well. He also has a company cell phone that runs him an extra $70 per month.

30. Start-Up Investment
Start-up investment is the one-time sum required to start a business and cover the start-up costs.
Start-up expenditures are those expenses associated with opening a new business.
Cash reserves are needed for an emergency fund and a reserve for fixed expenses.
The emergency fund is the amount of money a business should have available in the first three to six months for the emergencies that often arise when a company is just beginning.
Businesses establish a reserve to cover their fixed expenses for at least three months. The reserve for fixed expenses is maintained for the life of the business and is used if the company should experience a downturn in sales.

31. Common Business Start-Up Costs
6 months of emergency fixed expenses
Initial Inventory (break even unit’s worth of product)
Initial trademarks, patents, and licenses
Product/App development costs
Business tech (strictly business computers and phones)
Machinery/Tools to create or maintain the product

32. Types of Financial Statements
Income Statement: A statement showing the financial information for a certain time frame that will show all expenses and income.
Balance Sheet: Shows financial information at a specific date. Focuses primarily on assets and liabilities.
Cash Flow Statements: This statement shows when cash actually inflows and outflows. Helps to determine the rate of cash accumulation or cash loss.
Equity Statements: A report dealing with changes in equity, ownership, and liabilties.

33. Projected Monthly Income Statement
Selling Price Per Unit $
[Selling Price] B
Number of Units Sold
[Number of Units Sold] C
Total Sales
[A] x [B] D
COGS and other Variable Expenses per unit
Variable Expenses per unit E
TOTAL Variable Expenses
[D] x [B] F
Contribution Margin per unit
Contribution margin per unit G
TOTAL Contribution Margin
[C] – [E] or [F] x [B] H
Fixed Operating Expenses
[Monthly Fixed Expenses] I
Pre-Tax Income
[G] – [H] J
21%
[I] x 0.21 K
Net Profit (Net Income)
[I] – [J] L
Return on Sales  %
K ÷ C x 100 M
Operating Ratio
(H + E) ÷ C x 100 N
Break Even Units
H ÷ F

34. Income Statement Ratios
Some financial ratios provide a “snapshot” of a specific aspect of a business and are used to monitor expenses, compare performance with the competition, to measure profitability.
The operating ratio is the percentage of each dollar of revenue, or sales, needed to cover expenses.
Return on sales (ROS) is the financial ratio calculated by dividing net income by sales.
(Expenses ÷ Sales) x 100 = Operating Ratio (%)
(Net Income ÷ Sales) x 100 = Return on Sales (%)

35. ROS (Profit Margin) ROS Margin Range Typical Product Very Low 2 - 5 %
Very High Volume OR very high price
Low %
High Volume OR high price
Moderate
11 – 20 %
Moderate Volume AND Moderate Price
High
20 – 30 %
Low Volume OR Low Price
Very High
30 % and up
Very low volume OR very low Price

36. Return on Investment (ROI)
Return on investment (ROI) is a financial ratio used to determine how well the business is doing in relation to the amount of money invested.
Return on investment (ROI) shows the profit on the investment expressed as a percentage of the total invested (when expressed as a percentage, it is also referred to as the rate of return).
(Net Income ÷ Investment) x 100 = Return on Investment (%)

37. Day 5 Financials Review
Take 25 Minutes to Complete the Google Form Worksheet titled “Day 4 Financials Review”

38. Sales Projections Sales Forecasting Techniques Full Capacity
Predicting your business will sell as many units that are possible to produce.
Observational Data
Observe competitors or similar businesses and predict how many units you may sell.
Industry Standards
Understanding how your sales are sometimes estimated in a particular industry is critical. Retail stores have different indicators of sales compared to a software company.
Industry/Seasonal Cycles
Investigate and understand buying patterns in your industry. Retail sales seem to do better near the end of the year…
Team Effort
As you begin to forecast sales, bring in multiple perspectives. The more groups you have looking at the situation, the better off you will be.
Number of Customers vs. Distance
This is critically important for businesses with a physical presence. If you have a business that requires a customer or you to make a physical visit, your sales will be greatly determined by the target market within a couple miles of your business.
Market Share
Number of customers x Number of purchases per Year x Average Amount of Each Purchase

40. Lego EOU Winners
1st Place
2nd Place
3rd Place

41. Business Plan Work Time
Complete all of Section 2 of the business Plan!
Ensure that everything is complete by 10 PM tonight!