Introduction: In this assignment, I was asked to illustrate the use of budget as a means of exercising
financial control in selected business which is Monsoon. I will be using breakeven graph to illustrate how
well is Monsoon doing, as also explaining it further so we will receive a view on the use of budget in
Monsoon
These are the costs that Monsoon have to take under consideration. As also revenue and total output.
Fixed Costs
A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or
services produced or sold. Fixed costs are expenses that have to be paid by a company, independent
of any business activity. Monsoon’s fixed costs examples can be the wages of their employees which
is set at the beginning of work (contract) and it’s not changing unless the contract will be terminated
or renegotiated. Also things as insurance, property taxes, utilities are also part of Monsoon fixed
costs.
Variable Costs
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 costs is opposite of Fixed costs, as Monsoon’s variable costs may change
every month, this could depend on how much products they sale, or the price of their suppliers may
change and so on. Variable means it can be changing at any time.
Total Output
Total output, is the total supply of goods and services produced within an economy at a given
overall price level in a given time period. For example Monsoon has produced one thousand of jackets ,
one thousand of jeans within 3 months, the money invested to produce it is at £42000 and sold for
£98000, so the total output is two thousand of units produced within 3 months and the total cost of
sales were £42000, the revenue were £98000 so after taking the cost of sales Monsoon made solid profit
of £98000 - £42000 = £56000.
Total Costs
Total Costs is the money spend by the business in this case Monsoon. Total Costs including, fixed costs,
variable costs. A business needs to calculate their overall fixed costs and add them to the variable costs
and this equals to the Total costs. For example the total fixed costs per month for Monsoon is £30000,
variable costs for just one month is £28000, this means (FC) £30000 + (VC) £28000 = (TC) £58000
Revenue
Revenue is the amount of money that a company actually receives during a specific period, including
discounts and deductions for returned merchandise. For example Monsoon has sold in January 3800
units of products, 600 of them were £20 each, 1200 of them were £10 each , 2000 of them were £40
each. To calculate the revenue you need to multiply 600x£20 = £12000 , 1200x£10 = £12000, 2000x£40 =
£80000, so now add them all together £12000+£12000+£80000 = £104000 of total revenue from sales.
, A budget is an estimate of the costs, revenues and resources over a set time period, which reflects a
business future financial conditions and goals. A budget is important as it also provides a plan of action
for achieving quantifies objectives, allows the business to measure its performance and can be used to
cope with foreseeable adverse situations.
Monsoon use budgets to be able to show to banks or other organizations how well the business is
expecting to do, if the franchise is only expecting to spend £100,000 in the next year but expecting to
receive a £1million profit then they are highly likely to receive financial support if they can prove the
loan will be returned. A budget also lays out what the company/franchise can spend over the next year
with a breakdown of how the money will be spent on different things, for example the budget will
include how much they can spend on employee wages and how much resources should be brought. This
will ensure that they do not overspend overall and in certain areas, it is important the business sticks to
the budget they have in order to be successful. A budget will limit the amount Monsoon can spend on a
certain operation, budgets could the expenses to make sure money is not wasted on items which are not
essential.
Zero budget is when management accounting is involving to prepare the budget from the scratch with a
zero-base. This involves re-evaluating every line item of cash flow statement and justifying all the
expenses that is to be incurred by the department.
It’s a good way for a small business, as there is no planned budget and all the expenses are covered from
the money that is available, this is a good way to control the spending but also it require a lot of time to
spend by the owner or whoever is in control of the money. For example, owner of small business is asked
by their employees that there is request for resources in order to produce goods, therefore the owner
doesn’t have planned budget for it as its small business and he can’t plan the exact spending in budget,
therefore the owner gives money from his own budget called zero budget and gives the employee to buy
the supplies. The employee needs to justify the need to buy the products, for example there is lack of
chips, or lack of chicken. That’s good zero budget works.
However, a business such as Monsoon, doesn’t really have to use this kind of budgeting, as it have big
revenue, and Monsoon can freely forecast their budget for all the needs, all using allocated budget is a
good way for Monsoon to plan their spends.
A company should be able to establish their priorities from their allocated budget, they should see which
areas are entitled to more money, e.g. Research Department, the Marketing Department, and how much
should be spent on goods in different stores. Staff should be informed about the company’s budget and
kept up to date throughout the year on how well they are doing with sticking to this, if it looks like a
certain store will go above their budget it may motivate staff to do what they can to ensure the money
spent is kept to a minimum, jobs and responsibilities may also be delegated within the store so all staff
are useful and are having a positive impact, if they aren’t worth the money they’re paid to be there they
should be delegated tasks to do. People within Monsoon will have responsibilities concerning different
aspects of their budget to ensure the spending is done efficiently and money is not spent unnecessarily,
for example, they are not overstaffed with the products so Monsoon will not have to wait long time to
sell their stock.
financial control in selected business which is Monsoon. I will be using breakeven graph to illustrate how
well is Monsoon doing, as also explaining it further so we will receive a view on the use of budget in
Monsoon
These are the costs that Monsoon have to take under consideration. As also revenue and total output.
Fixed Costs
A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or
services produced or sold. Fixed costs are expenses that have to be paid by a company, independent
of any business activity. Monsoon’s fixed costs examples can be the wages of their employees which
is set at the beginning of work (contract) and it’s not changing unless the contract will be terminated
or renegotiated. Also things as insurance, property taxes, utilities are also part of Monsoon fixed
costs.
Variable Costs
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 costs is opposite of Fixed costs, as Monsoon’s variable costs may change
every month, this could depend on how much products they sale, or the price of their suppliers may
change and so on. Variable means it can be changing at any time.
Total Output
Total output, is the total supply of goods and services produced within an economy at a given
overall price level in a given time period. For example Monsoon has produced one thousand of jackets ,
one thousand of jeans within 3 months, the money invested to produce it is at £42000 and sold for
£98000, so the total output is two thousand of units produced within 3 months and the total cost of
sales were £42000, the revenue were £98000 so after taking the cost of sales Monsoon made solid profit
of £98000 - £42000 = £56000.
Total Costs
Total Costs is the money spend by the business in this case Monsoon. Total Costs including, fixed costs,
variable costs. A business needs to calculate their overall fixed costs and add them to the variable costs
and this equals to the Total costs. For example the total fixed costs per month for Monsoon is £30000,
variable costs for just one month is £28000, this means (FC) £30000 + (VC) £28000 = (TC) £58000
Revenue
Revenue is the amount of money that a company actually receives during a specific period, including
discounts and deductions for returned merchandise. For example Monsoon has sold in January 3800
units of products, 600 of them were £20 each, 1200 of them were £10 each , 2000 of them were £40
each. To calculate the revenue you need to multiply 600x£20 = £12000 , 1200x£10 = £12000, 2000x£40 =
£80000, so now add them all together £12000+£12000+£80000 = £104000 of total revenue from sales.
, A budget is an estimate of the costs, revenues and resources over a set time period, which reflects a
business future financial conditions and goals. A budget is important as it also provides a plan of action
for achieving quantifies objectives, allows the business to measure its performance and can be used to
cope with foreseeable adverse situations.
Monsoon use budgets to be able to show to banks or other organizations how well the business is
expecting to do, if the franchise is only expecting to spend £100,000 in the next year but expecting to
receive a £1million profit then they are highly likely to receive financial support if they can prove the
loan will be returned. A budget also lays out what the company/franchise can spend over the next year
with a breakdown of how the money will be spent on different things, for example the budget will
include how much they can spend on employee wages and how much resources should be brought. This
will ensure that they do not overspend overall and in certain areas, it is important the business sticks to
the budget they have in order to be successful. A budget will limit the amount Monsoon can spend on a
certain operation, budgets could the expenses to make sure money is not wasted on items which are not
essential.
Zero budget is when management accounting is involving to prepare the budget from the scratch with a
zero-base. This involves re-evaluating every line item of cash flow statement and justifying all the
expenses that is to be incurred by the department.
It’s a good way for a small business, as there is no planned budget and all the expenses are covered from
the money that is available, this is a good way to control the spending but also it require a lot of time to
spend by the owner or whoever is in control of the money. For example, owner of small business is asked
by their employees that there is request for resources in order to produce goods, therefore the owner
doesn’t have planned budget for it as its small business and he can’t plan the exact spending in budget,
therefore the owner gives money from his own budget called zero budget and gives the employee to buy
the supplies. The employee needs to justify the need to buy the products, for example there is lack of
chips, or lack of chicken. That’s good zero budget works.
However, a business such as Monsoon, doesn’t really have to use this kind of budgeting, as it have big
revenue, and Monsoon can freely forecast their budget for all the needs, all using allocated budget is a
good way for Monsoon to plan their spends.
A company should be able to establish their priorities from their allocated budget, they should see which
areas are entitled to more money, e.g. Research Department, the Marketing Department, and how much
should be spent on goods in different stores. Staff should be informed about the company’s budget and
kept up to date throughout the year on how well they are doing with sticking to this, if it looks like a
certain store will go above their budget it may motivate staff to do what they can to ensure the money
spent is kept to a minimum, jobs and responsibilities may also be delegated within the store so all staff
are useful and are having a positive impact, if they aren’t worth the money they’re paid to be there they
should be delegated tasks to do. People within Monsoon will have responsibilities concerning different
aspects of their budget to ensure the spending is done efficiently and money is not spent unnecessarily,
for example, they are not overstaffed with the products so Monsoon will not have to wait long time to
sell their stock.
