M4 - Analyse the reasons why costs need to be controlled to budget?
Introduction:
For this task I will be analysing the advantages and disadvantages about the business that Brad owns which involves transporting business people to and from airports using luxury cars and limousines. Addition to this I will also be explaining what the words budget, fixed, variable and total costs mean. One of the main topics that I will be covering is the fact that if Brad does nothing with his costs what the implication would be on the business as well as him and what encounters it will have.
Budget:
So what is budget? Budget is a financial document which is used to project future income and expenses. Budgeting is used by everyone who owns a
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However, should an unexpected increase in demand for products could cause the balance to be UN-even and could make it more complicated and harder to break even as more products would have to be sold in order to stay balance. The disadvantage of fixed cost is fixed costs may be allocated based on the ability of the department, the less money it makes the less fixed costs are spent on the business which can limit their spending on products and if they were to over spend, they would not break even. In addition to this unless fixed costs are allocated properly, the resulting information may lead management to make faulty decisions based on erroneous assumptions.
Variable:
When talking about Variable Cost, what it actually means is the cost of labour, material or overhead that changed according to the change of the volume or the production units. The variable cost it combined with the fixed costs to make up its Total Costs of the production, whilst the total variable cost changed depending on the production whereas the total cost stays the same no matter how much a business sells whether it’d be thousands or none. Unlike a fixed cost, a variable cost can be much more difficult to budget, and may at times exceed the limits of the budget when the variable cost is related to an unexpected expense, and sometimes it can come to the stage where the limits of the budget
The total cost of production of Sony’s new product is the addition of both fixed and variable costs. Fixed costs are assets within a business that are not used up or sold during the typical production course e.g. buildings and machinery. Variable costs are costs that fluctuate in time with the production output or sales revenue of a company such as Sony e.g. raw material and labour costs. Figure 1.1 shows how the total cost is composed of both fixed and variable costs.
5. Fixed costs can be discretionary or committed. Using your judgment based on the discussion in the case, identify which costs are likely to be discretionary. Assuming that management is able to decrease discretionary fixed costs by 10%, what would be the impact on Bridgestone’s break-even point revenues?
Secondly I will tell you about a budget. A budget is a plan to help you spend your money (like you have right now). This is to help you not to go into debt. If you don’t have
A budget is a plan which predicts how much a company makes in revenues and how much it is going to pay in expenses and so predicts a profit or loss. A budget is can be prepared whenever a company wants two and for however long a period of time it wants to prepare it for. Companies and people would budget in order to avoid overspending and even if this does happen as it will predict how much money will be needed then the person/ business can arrange for it by getting an overdraft facility or
Budgeting is the systematic method of allocating financial, physical, and human resources to achieve an organization’s strategic goals. Budgets are utilized by for-profit and non-profit organizations to monitor the progress towards the goals, assist in the control of spending, and help predict cash flow for the organization.
A variable cost is a corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases (Variable Cost, n.d.); in the case study for all cost per event such
Budget is the major financial and economic statement. The role of the budget is to keep track of the money coming in and the money going out. It is essential part of running any business effectively. It can help make a short and long term projections about financial situation, avert a financial crisis and plan for major financial changes.
Variable Costing: Only those costs of production that vary directly with activity (variable costs) are treated as product costs. Under variable costing, only the variable manufacturing costs are included as a part of the cost of the product manufactured. The fixed manufacturing costs are treated as an expense of the period in which they are incurred. Selling and administrative costs
Variable costs are costs that vary with output. Variable cost changes according to the quantity of a good or service being produced. Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc. The inputs of Listerine start with Raw Materials (generally composed of diluents, antibacterial agents, soaps, flavorings,
“It’s clearly a budget. It’s got a lot of numbers in it” (George W. Busch 2005). This definition of a budget can be supplemented using the Oxford dictionary, which states that a budget is an estimate of income and expenditures for a set period of time. Nowadays almost every business uses budgets and managers use them as a tool in order to set targets. In other words managers can, with the use of budgets, explain in a financial way what are the
The essential relationship between fixed and variable costs is the same whether the budget is static or flexible. The key is that in the flexible budget, both fixed and variable costs are subject to change. In most cases,
In other words, variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of units produced).
Budget is a comprehensive business plan for procuring and appropriating a firm’s financial resources over a specified time period.
A budget is a financial statement which is an estimate of income and expenditure of a set period of time, which may include planned revenues, expenses, assets, liabilities and
Budget and budgetary control practices are undeniably indispensable as organizations routinely go about their business activities and operations. These organizations are constantly on the alert on how actual levels of performance agree with planned or budgeted performance. A budget expresses a plan in monetary terms. It is prepared and approved prior to a particular budgeted period and explicitly may show the income, expenditure and the capital to be employed by organizations in achieving their goals and objectives.