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FACTORS AFFECTING A COMPANY’S INCOME STATEMENT
Copyright © Texas Education Agency, 2011. All rights reserved.
2 “Copyright and Terms of Service
Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: 1) Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of
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Copyright © Texas Education Agency, 2011. All rights reserved.
3
Getting Started
Let’s understand factors of production through an engaging activity. Go to The four factors of production.
Copyright © Texas Education Agency, 2011. All rights reserved.
4
Name those FACTORS!
Natural Resources Human Resources
Capital ResourcesEntrepreneurial
Resources
Factors of Production
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5
Natural Resources
• Trees• Animals
•Water• Plants• Minerals
• Light• Wind
Natural Resources
Human Resources
Capital Resources
Human Resources
Factors of Productio
n
Raw materials found in nature:
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6
Human ResourcesNatural
ResourcesHuman
Resources
Capital Resources
Human Resources
Factors of Productio
n
Knowledge, efforts, and skills of peopleworking in various roles: CashierDoctorChefBankerEngineerManager
TeacherResearcherParamedicWelderGovernorMaid
CustodianAccountantPoliceArchitectWriterPainter
Copyright © Texas Education Agency, 2011. All rights reserved.
7
Capital ResourcesNatural
ResourcesHuman
Resources
Capital Resources
Human Resources
Factors of Productio
n
Things used to produce goods and services: BuildingFactory Warehouse
Materials
FabricLumber
EquipmentSewing
Machine Delivery Truck
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8
Entrepreneurial ResourcesNatural
ResourcesHuman
Resources
Capital Resources
Human Resources
Factors of Productio
n
Required to meet the changing wants and needs of people. Entrepreneurial resources identify new processes, develop new resources, and create new technologies.
Copyright © Texas Education Agency, 2011. All rights reserved.
9
Organize Your ThoughtsN
ATU
RA
L • List Natural Resources H
UM
AN • List
Labor Forces
CA
PIT
AL • List
Buildings,
• Materials, and Equipment
EN
TR
EPR
EN
ER
IAL • List
Creative Resources
Natural Resources
Human Resources
Capital Resources
Human Resources
Factors of Productio
n
Copyright © Texas Education Agency, 2011. All rights reserved.
10
What’s in an Income Statement?
•Revenue•Less: Cost of SalesGross
Profit
•Less: Expenses
Net Income
Learn about the income statement through visiting the U. S. Securities and Exchange Commission.
Copyright © Texas Education Agency, 2011. All rights reserved.
11
Income Statement Format (Sample)
RevenueCost of Sales Gross Profit (Revenue less Cost of Sales)Operating Expenses (i.e., Salaries, Rent, Depreciation)Income From Operations (Gross Profit less Expenses)Less: Interest Expense (or Add Interest Income)Net Income Before Tax Income TaxNet Income After Tax
•Revenue•Less: Cost of SalesGross
Profit
•Less: Expenses
Net Income
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12
Calculating Net Income and Net Loss
REVENUE less EXPENSES equals…
If REVENUE > EXPENSES, then NET INCOME
If REVENUE < EXPENSES, then NET LOSS
•Revenue•Less: Cost of SalesGross
Profit
•Less: Expenses
Net Income
Copyright © Texas Education Agency, 2011. All rights reserved.
13
Tying it all together Natural Resources
Human Resources
Capital Resources
Human Resources
Factors of
Production
• Revenue• Less:
Cost of SalesGross
Profit
• Less: Expenses
Net Income
How do you utilize the factors of production to improve a business’ profits, revenues, and expenses?
Copyright © Texas Education Agency, 2011. All rights reserved.
14
Increasing Revenue Natural Resources
Human Resources
Capital Resources
Human Resources
Factors of
Production
• Revenue• Less:
Cost of SalesGross
Profit
• Less: Expenses
Net Income
Increase price
Increase producti
vity
Increase promotio
n
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15
Decreasing Cost of Sales Natural Resources
Human Resources
Capital Resources
Human Resources
Factors of
Production
• Revenue• Less:
Cost of SalesGross
Profit
• Less: Expenses
Net Income
Decrease cost inputs
Increase productiv
ity of direct labor
Decrease waste
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16
Decreasing Expenses Natural Resources
Human Resources
Capital Resources
Human Resources
Factors of
Production
• Revenue• Less:
Cost of SalesGross
Profit
• Less: Expenses
Net Income
Reduce variable
costs
Evaluate
fixed costs
Eliminate
wasteful
spending
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17
Independent Activity
REVENUE COST OF SALES EXPENSES
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18
Evaluation
2009 2008
Revenue 200,000 250,000
Cost of Goods Sold 75,000 85,000
Gross Profit 125,000 165,000 Gross Profit % 63% 66%
Units Sold 80,000 100,000
My Potato Chip Corporation
19
Evaluation
Copyright © Texas Education Agency, 2011. All rights reserved.
Copyright © Texas Education Agency, 2011. All rights reserved.
20
Resources Natural Resources
Human Resources
Capital Resources
Human Resources
Factors of
Production
• Revenue• Less:
Cost of SalesGross
Profit
• Less: Expenses
Net Income
Brown, Betty J., Clow, John E., & Brown, Kenneth W. (1995). Introduction to Business. New York: Glencoe/Mac-Graw Hill.
________ (2007). Beginner’s Guide to Financial Statements. Retrieved from U.S. Securities and Exchange Commission Web site:http://www.sec.gov/investor/pubs/begfinstmtguide.htm
Penn, Pace (2010, February 13). The four factors of production. Retrieved from University of North Carolina at Chapel Hill, LEARN NC Web site: http://www.learnnc.org/lp/pages/3760
Rubistar. (2000 – 2008). Retrieved from ALTEC of University of Kansas Web site: http://rubistar.4teachers.org/index.php
