1. Topics Covered Business Costs Revenue Profit Expenditure
Break Even Analysis
Budgeting
Cash Flow Forecast
Profit & Loss
Balance Sheet
Maximising Profits

2. Re-cap
Charlie wants to set up a chocolate factory. Organise the below costs in to start-up and operating (running) costs.
Sales brochures Electricity Bill
Making a website Deposit for leasing factory
Wages for staff Till
= 5mins

3. LO1) To distinguish between fixed, variable, direct and indirect costs
UNIT TITLE: Unit 2:Finance for Business
LESSON TITLE: Fixed & Variable Costs
LEARNING AIM: A
COMPETENCY FOCUS:
Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data.
Learning Objectives
By the end of the lesson, you should be able to…
LO1) To distinguish between fixed, variable, direct and indirect costs
LO2) To calculate total costs using formulae
LO3) To analyse the importance of managing costs for a business

4. Types of Business Costs:
Start-up costs Operating Costs Fixed Costs Variable Costs (Indirect) (Direct)

5. Fixed Costs These are also called ‘indirect costs’
These are costs that a business faces once it is up and running (operating costs)
These costs don’t change even if you produce more products or less products
For example, council tax, rent & rates, heating, telephone bill

6. Variable Costs Costs that change with the number of products produced
For example raw materials, labour costs
Therefore if the business produces more products, their variable costs will increase.

7. Task 1
For your own business that you set up in Unit 1, produce a table with all of your fixed and variable costs. [15mins]
Fixed Costs
Variable Costs

8. Task 2
Tumbles Toy Factory has seen a slump in sales and production following the Christmas period.
List all of the variable costs that would reduce due to lack of sales/production.

9. Task 3
Fixed or Variable?

10. Total Costs
The total amount of money a business spends on running the business. Total costs = Fixed Costs (FC) + Variable Costs (VC)

11. Calculating Total Costs
If a bicycle business sells 500 bikes per week with a variable cost of £250 per unit (per bike!) and £1000 fixed costs, what would the total costs be?

12. Calculating Total Costs
Total costs = Fixed costs + Variable Costs Variable Costs = £200 x 500 = £ Therefore… Total Costs = £100,000 = £1000 TC = £101,000

13. Task 4
Sarah owns a small beauty salon in Tipton. She is trying to analyse her annual costs. She knows that she pays £18,000 in rent, wages/salaries of 2 Beauty Therapists add up to £35,000, utility bills add up to and she spends £400 per week buying styling products.
Identify Sarah’s fixed costs
Identify Sarah’s variable costs
Calculate her total costs

14. Start-up or Operating Cost?
Move to the correct side of the classroom:
Gas bill
Staff Wages
Telephone Bill
Rent
Council Tax
Insurance
Fixed Cost
Variable Cost