1. To understand what expenditure is and how to work out profit
L/O – To understand what expenditure is and how to work out profit
Part 4
How businesses have to spend money (expenditure) in order to succeed

2. Starter What are start-up costs? What are running costs?
L/O – To understand what expenditure is and how to work out profit
Starter
What are start-up costs?
What are running costs?
What is profit?

3. Lesson Objective Describe how businesses spend money (expenditure).
Identify different types of expenditure.
Describe the difference between expenditure and overheads.
Define and work out profit.

4. Start-up costs = Capital Expenditure
Capital expenditure is the money spent to buy or improve an asset such as equipment or property.
Before a business starts trading, it will need to spend money on equipment, possibly premises, and other large items.
E.g. a café would need to spend on the following to start up:
The premises
A van
Tables and chairs
An oven
Saucepans and plates
Knives and forks

5. Activity 1 Imagine you are setting up in business.
You can pick one of these or another of your own choice.
Create a poster to show the capital expenditure costs of that business.

6. Running costs= Overheads
Once a business is running, it will have to pay regular bills – overheads.
E.g. a café will have the following overheads:
Advertising
Supplies of food and drink
Washing-up liquid and cleaning materials
Wages of the cook and waitress
Rent for the premises
Electricity
Petrol, tax and insurance for the van

7. Activity 2
Add to your poster the overheads for your chosen business.

8. Expenditure, overheads and profit
The term ‘expenditure’ means spending money.
This includes capital expenditure AND overheads.
Without this, we cannot calculate if the business will make a profit.

9. How to calculate profit
In order to work out the profit the business makes, it needs to deduct (take away) the expenditure from its revenues.
PROFIT = Revenue – Expenditure
If revenue is more than expenditure, the business will make a profit.
If expenditure is more than revenue, the business makes a loss.

10. Profit and Loss Explained
Profit: revenue is more than expenditure
Loss: expenditure is more than revenue
Example 1
A business sells 1000 items at £10 each – making £10,000 in revenue. During the year its expenditure add up to £6000. It will make a £4000 PROFIT.
Example 2
A business sells 100 items at £10 each – making £1000 in revenue. During the year its expenditure is £1200. it will make a £200 LOSS.

11. Activity 3 20 x £5 = £100 revenue - £40 expenditure = £60 profit
15 x £50 = £750 revenue - £1000 expenditure = £250 loss
25 x £15 = £375 revenue - £250 expenditure = £125 profit
115 x £50 = £5750 revenue - £6000 expenditure = £250 loss

12. Recap What do we mean by capital expenditure? Give an example. 1 mark
What do we mean by overhead expenditure? Give an example. 1 mark
What is the difference between expenditure and overheads? 1 mark
What is the formula for working out profit? 1 mark
If expenditure is more than revenue, what is this situation called? 1 mark
From the following list, identify which are revenues and which are expenditures:
Cost of buying goods
Electricity
Sale of goods
Advertising
Wages
5 marks
Now you will mark each others!

13. Extension Go to www.businessstudiesonline.co.uk
Click activities & BTEC First activities
Scroll down to Unit 3 – Costs
Choose an activity Or
GCSE – topics – finance – costs – choose tasks

14. Revision stations!
Using the sheet provided, please revise for next weeks end of topic test!