Imagine your class is holding a bake sale to raise money for a school trip. Before you sell a single cupcake, you need to think about money in two directions: what you spend, and what you earn.
Costs: what you must pay for first
Before you can sell anything, you usually need to buy things first. These are called costs. For a bake sale, your costs might be flour, eggs, sugar, and paper cases for the cupcakes.
| Item | Cost |
|---|---|
| Ingredients (flour, eggs, sugar, butter) | £3.00 |
| Paper cases and a box | £1.00 |
| Total cost | £4.00 |
Choosing a price
Next you decide how much to charge for each cupcake. Charge too much, and nobody buys them. Charge too little, and you might not cover your costs. If you make 20 cupcakes and sell each one for 50p, you would earn: 20 × 50p = £10.00. This total amount of money coming in is called revenue.
What is profit?
Profit is the money left over after you take away your costs from your revenue.
Revenue: £10.00 (from selling 20 cupcakes at 50p each)
Costs: £4.00 (ingredients and paper cases)
Profit = Revenue − Costs = £10.00 − £4.00 = £6.00
Put these bake-sale steps in the right order:
- Work out how much the ingredients will cost
- Decide on a fair price for each cupcake
- Bake and sell the cupcakes
- Add up all the money taken (revenue)
- Take away the costs to find the profit