1. Topic 1.3
Costs, Revenue
& Profit

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. Start-up and Running Costs
Start-up Costs
Costs that a firm needs to pay out before it is able to start selling its goods or services. eg:
Purchase of machinery; equipment; vehicles; furniture; installation of electricity, telephone; market research
Running Costs
Costs that a business needs to pay out for in its day-to-day operations. eg:
Paying wages, telephone bill, buying stock
Some costs could be both: eg buying initial supplies of stock and ordering regular supplies of stock each week.

4. Start-up and Running Costs
Place the following costs into the correct column:
Market research before the firm opens Rent
Insurance policy for the business Buying supplies every week
Wages paid to cleaners Buying a cupboard to store shampoo
Advertising the opening of a shop Paying for a shop front sign
Fitting sinks in a hair salon Refreshments for customers
Start-up Costs
Running Costs

5. … a start-up cost … a running cost
A cost that a firm has to pay before it is able to sell its goods is called …
… a start-up cost
A cost that a firm has to pay during its day-to-day operations is called …
… a running cost

6. Start-up cost or running cost?
Advertising the opening of a new shop
Start-up cost
Buying weekly supplies of sweets for a tuck shop
Running cost
Paying a loan repayment every month
Paying suppliers every week
Taking insurance for a business

7. 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, wages, 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

8. Fixed and Variable Costs
Place the following costs in the correct column:
Annual license to sell burgers Burger supplies
Insurance for the burger bar Wages
Drinks to sell customers Fuel for cooking burgers
Fitting the gas cookers Packaging for burgers
Council tax Rent
Straws for drinks Serviettes
Fixed Costs
Variable Costs

9. 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.

10. Sales Revenue for Gorgeous Gateaux
Price
Number sold
Total Revenue
January £5
400
February
March
500
April
May
600
June
July
August
550
September
October £6
November
December
650
Total revenue for the 12 months:
2000
2000
2500
2500
3000
3000
3000
2750
2750
3000
3600
3900
34,000

11. 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

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

13. Calculating Profit
Total revenue - Total costs Gorgeous Gateaux: Total Revenue: £34,000 Total Costs: £26,000 Profit: £34,000 - £26,000 = £8,000