Amelia Gruner-Overgaard Unit 2 M4 & D3
Analyse the reasons why costs need to be controlled to budget
A budget is a set amount of money allocated to an individual/group to spend on
certain things to ensure overspending doesn't occur. For example, Harvey's Products
LTD marketing department may get a budget of £5000, which they can use to
promote their products. A budget is a plan for a business to control their finances,
such that they know how much money is being spent during the financial year,
rather than being unsure and going into debt. Alongside this, it ensures the business
can continue to fund its current commitments, such as an advertising campaign
that isn't yet completed. The management team can confidently make financial
decisions when working to a budget, it can give them a clear idea of where to spend
the money to meet the businesses objectives. Where successes are made, the
company will then know how much money to put aside for future projects, which
can be managed in comparison to previous successes.
Costs need to be controlled as budgets don't work in isolation within a business,
they can impact several other departments if a budget is not met. For example, if
the marketing department overspent their budget by £500, the manger of finance
may need to reduce the budget in another department by £500. Budgets need to be
allocated accordingly, by prioritising certain departments, the business can begin to
make returns within certain areas. The marketing department may make larger
returns due to an increase in advertising leading to a higher number of sales. By
setting budgets to different departments, it spreads the risk of losing such a large
amount of money.
Budgeting also allows Harvey's Products LTD to make predictions of the amount of
money that could be spent within the financial year, as they can use previous
performance data to create the budgets to prevent overspending. The predicted
monetary value is a key way of setting quantifiable objectives/targets for the
business and their staff. The staff will have a set figure to work with, rather than
spending an unlimited amount of money and getting the business into debt. This
could lead to an increase in staff motivation as they can clearly see whether they
have met the businesses objectives/targets. With an increase in motivation, the
efficiency within the work place at Harvey's Products LTD could increase, meaning
the cost per unit could decrease and the overall profit of the business could rise.
Budgeting costs also enables Harvey's Products LTD to plan for any change which
could influence the financial position of the business. Examples of change could be
a change in the economic climate (recession), emergencies (machinery breaking) or
a marketing campaign being unsuccessful. All of these could lead to the business
becoming insolvent if they weren't to plan for these changes. However, if they were
to plan it could mean they are affordable to resolve and wouldn’t affect the business
greatly.
Harvey's Products LTD need to ensure they have enough working capital, which is
the money used to pay for their day-to-day expenses, such as bills. This will allow
them to know what assets and liabilities they hold, if the liabilities are higher than
assets then Harvey's Products LTD can work towards reducing their liabilities.
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Analyse the reasons why costs need to be controlled to budget
A budget is a set amount of money allocated to an individual/group to spend on
certain things to ensure overspending doesn't occur. For example, Harvey's Products
LTD marketing department may get a budget of £5000, which they can use to
promote their products. A budget is a plan for a business to control their finances,
such that they know how much money is being spent during the financial year,
rather than being unsure and going into debt. Alongside this, it ensures the business
can continue to fund its current commitments, such as an advertising campaign
that isn't yet completed. The management team can confidently make financial
decisions when working to a budget, it can give them a clear idea of where to spend
the money to meet the businesses objectives. Where successes are made, the
company will then know how much money to put aside for future projects, which
can be managed in comparison to previous successes.
Costs need to be controlled as budgets don't work in isolation within a business,
they can impact several other departments if a budget is not met. For example, if
the marketing department overspent their budget by £500, the manger of finance
may need to reduce the budget in another department by £500. Budgets need to be
allocated accordingly, by prioritising certain departments, the business can begin to
make returns within certain areas. The marketing department may make larger
returns due to an increase in advertising leading to a higher number of sales. By
setting budgets to different departments, it spreads the risk of losing such a large
amount of money.
Budgeting also allows Harvey's Products LTD to make predictions of the amount of
money that could be spent within the financial year, as they can use previous
performance data to create the budgets to prevent overspending. The predicted
monetary value is a key way of setting quantifiable objectives/targets for the
business and their staff. The staff will have a set figure to work with, rather than
spending an unlimited amount of money and getting the business into debt. This
could lead to an increase in staff motivation as they can clearly see whether they
have met the businesses objectives/targets. With an increase in motivation, the
efficiency within the work place at Harvey's Products LTD could increase, meaning
the cost per unit could decrease and the overall profit of the business could rise.
Budgeting costs also enables Harvey's Products LTD to plan for any change which
could influence the financial position of the business. Examples of change could be
a change in the economic climate (recession), emergencies (machinery breaking) or
a marketing campaign being unsuccessful. All of these could lead to the business
becoming insolvent if they weren't to plan for these changes. However, if they were
to plan it could mean they are affordable to resolve and wouldn’t affect the business
greatly.
Harvey's Products LTD need to ensure they have enough working capital, which is
the money used to pay for their day-to-day expenses, such as bills. This will allow
them to know what assets and liabilities they hold, if the liabilities are higher than
assets then Harvey's Products LTD can work towards reducing their liabilities.
1
