Unit 2 Business Resources
Pass Criteria 6
P6 – Illustrate the use of budgets as a means of exercising financial control of a selected
company
There are two ways of budgeting, businesses either budget by using a zero budget or by
allocating a budget. A zero-based budget isn’t like a traditional budget in the sense that a
set amount of money is given to different departments depending on their needs instead
when an employee needs money to spend they have to go to their manager and justify their
reasoning for needing the money; money will be released from the business on a case-by-
case basis. An allocated budget it the opposite to a zero-based budget, an allocated budget
is what Tesco uses, it is figured out by deciding upon the amount of money that is the
budget and then using analyst figures of forecasted costs, revenues and resources (figure 1),
the budget is then divided up into the different departments whilst taking into account the
number of employees working within it.
A budget is an estimate of the costs, revenues and resources that are going to be needed in
the future over a set period of time. Tesco uses an allocated budget to:
Get all the facts the business needs to ensure that the money they have is going to
the right place to ensure that the company grows as quickly and efficiently as
possible
Limit expenditures that are unnecessary
Create a “financial roadmap”
Plan for future growth as using a budget means that money that was being “wasted”
in one area can now be used to invest in future business opportunities
Establishing attainable targets
A break-even chart is used by Tesco to visually show at which point the revenue is the same
as costs, this is the point the business needs to get to, to ensure they are not going to make
a loss on the products/services they are selling. A simplified version of a break-even chart
that would be used by Tesco is show in figure 2, it shows the fixed costs and variable costs,
and one of the lines show the rate that revenue is made when the products/services are
sold (over time) and the other line shows the rate that the costs increases when the
products/services are sold (over time).
Financial control is exercised in planning, performance, evaluation and coordination, these
are points that are demonstrated when creating a budget:
Planning – demonstrated due to the fact that the whole point of the budget is
planning for the future using the break-even chart to show at which point the
business is no longer making a loss
Performance – a budget takes into account how well Tesco has performed previously
to forecast how well Tesco will do in the future, it also increases the overall
performance of the business by ensuring that the money from capital is
invested/spent wisely
Evaluation – the analyst consensus is figured out by using previous figures that are
evaluated by looking at the difference Tesco is doing now from the time the figures
Pass Criteria 6
P6 – Illustrate the use of budgets as a means of exercising financial control of a selected
company
There are two ways of budgeting, businesses either budget by using a zero budget or by
allocating a budget. A zero-based budget isn’t like a traditional budget in the sense that a
set amount of money is given to different departments depending on their needs instead
when an employee needs money to spend they have to go to their manager and justify their
reasoning for needing the money; money will be released from the business on a case-by-
case basis. An allocated budget it the opposite to a zero-based budget, an allocated budget
is what Tesco uses, it is figured out by deciding upon the amount of money that is the
budget and then using analyst figures of forecasted costs, revenues and resources (figure 1),
the budget is then divided up into the different departments whilst taking into account the
number of employees working within it.
A budget is an estimate of the costs, revenues and resources that are going to be needed in
the future over a set period of time. Tesco uses an allocated budget to:
Get all the facts the business needs to ensure that the money they have is going to
the right place to ensure that the company grows as quickly and efficiently as
possible
Limit expenditures that are unnecessary
Create a “financial roadmap”
Plan for future growth as using a budget means that money that was being “wasted”
in one area can now be used to invest in future business opportunities
Establishing attainable targets
A break-even chart is used by Tesco to visually show at which point the revenue is the same
as costs, this is the point the business needs to get to, to ensure they are not going to make
a loss on the products/services they are selling. A simplified version of a break-even chart
that would be used by Tesco is show in figure 2, it shows the fixed costs and variable costs,
and one of the lines show the rate that revenue is made when the products/services are
sold (over time) and the other line shows the rate that the costs increases when the
products/services are sold (over time).
Financial control is exercised in planning, performance, evaluation and coordination, these
are points that are demonstrated when creating a budget:
Planning – demonstrated due to the fact that the whole point of the budget is
planning for the future using the break-even chart to show at which point the
business is no longer making a loss
Performance – a budget takes into account how well Tesco has performed previously
to forecast how well Tesco will do in the future, it also increases the overall
performance of the business by ensuring that the money from capital is
invested/spent wisely
Evaluation – the analyst consensus is figured out by using previous figures that are
evaluated by looking at the difference Tesco is doing now from the time the figures
