What is budgeting?
Budgeting is the practice of creating a plan to spend money. This spending plan is called a
budget. Creating a spending plan helps a business to find out in advance whether they have
enough money to do the things they want to do. If a business does not have enough money to
do things they would like to do, they can use the planning process to prioritize their spending
and change the focus of where they want their money to be spent.
Variable and Fixed costs used in break-even
Variable costs are the ones that vary with sales. For instance, an electronics shops that buys in
certain electronics for an average of £20 each but resells the electronics for a higher price.
For the electronics store, the variable costs would be £20 per unit.
Fixed costs are the ones that do not vary with sales. For example, (using the electronics store
again), one of the fixed costs they would pay is the rent. The rent would stay the same
whether or not the shops sold lots or not very much products.
The break-even point is the point in which the money coming in equals the money going out.
The break-even point helps businesses in knowing when they’ll start to get a profit.
Break-even chart & Problems
Break-Even point = Fixed Cost / Contribution
Break-Even point = £39,260/£15 = £2617
Contribution = Price sold for – Variable costs
Contribution = £130 - £15 = 115
Budgeting is the practice of creating a plan to spend money. This spending plan is called a
budget. Creating a spending plan helps a business to find out in advance whether they have
enough money to do the things they want to do. If a business does not have enough money to
do things they would like to do, they can use the planning process to prioritize their spending
and change the focus of where they want their money to be spent.
Variable and Fixed costs used in break-even
Variable costs are the ones that vary with sales. For instance, an electronics shops that buys in
certain electronics for an average of £20 each but resells the electronics for a higher price.
For the electronics store, the variable costs would be £20 per unit.
Fixed costs are the ones that do not vary with sales. For example, (using the electronics store
again), one of the fixed costs they would pay is the rent. The rent would stay the same
whether or not the shops sold lots or not very much products.
The break-even point is the point in which the money coming in equals the money going out.
The break-even point helps businesses in knowing when they’ll start to get a profit.
Break-even chart & Problems
Break-Even point = Fixed Cost / Contribution
Break-Even point = £39,260/£15 = £2617
Contribution = Price sold for – Variable costs
Contribution = £130 - £15 = 115
