Analyse the Reasons Why Costs Need to Be Controlled to Budget

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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…show more content…
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
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