Assignment 5: Preparing financial documents. P6: Illustrate the use of budgets as a means of exercising financial control of a selected company. In this task, I’ll be illustrating the use of budgets as a means of exercising financial control of my selected business which is Morrison’s. A budget is a financial plan for the future of business relating to its costs. However a budget is more than just financial numbers. Budgets for incomes/ revenue and expenditures are prepared in advance and then are put in comparison with the organisation’s actual performances. There are multiple uses for budgets within the managing departments. Budgets are used to: Control income (budgets which is earned within the organisation) and expenditures (the organisation’s overall budget that deals with the total budget cost to operate the business). They can also be used to motivate staff to be more economically minded, pay greater attention to retail therefore think before they act. Budget is also used to monitor the business’s financial performance. Improve organisation.
Be more concerned on important matters and also set financial targets. Furnish direction and co-ordination, so that the business objectives can be turned into practical reality. Break-even point is the point at which total revenue equals total costs or expenses. At this point, there isn’t any profit or loss, it’s the break-even. A business could be turning a large amount of money, but still be making a loss. Knowing the break-even point is helpful in deciding prices, setting sales and preparing a business plan. The break-even point is a useful implement to decide on the organisation’s sales volume, average production costs aswell as sales prices. Understanding the organisation’s break-point makes it easier to work out: How profitable you present product line is.
How far you can process sales within the organisation before budget loss occurs. How many products need to be purchased before you make a profit. How reducing price or volume of sales will impact on your profits. Morrison’s has
M4: Analyse the reasons why costs need to be controlled to budget. In the merit section, I will analyse the reasons why costs need to be controlled to budget. The important responsibilities are to be able to control budgets and costs and also make sure that they are making a positive financial input to the business. A business has to budget their finances in sequence to be aware what has been paid out but also received within the business, or else uncontrolled spending could cause business’s budget may get declined. Fixed costs are financial costs that don’t charge, regardless the number of goods that are sold or services that are offered. This includes rent, insurance and salaries, these are costs have to paid off. Variable costs are costs that change according to output. These are linked to how many products are made. Budgeting is most difficult because it gives an approximate of how much believes they’ll spend.
Businesses can use zero as a budget or dispense a certain budget. If a business decides to not spend a budget, approval is needed by the management department, however if the budget is divided, the budget is shared into departments but mainly the people working in it. There is always some kind of control over costs as the business has to be co-ordinated to ensure they can make a profit. If the business’s costs weren’t controlled, expenses would be made and certain departments would be more financially deprived compared to others therefore it would retain the organisation forward as a whole. Break-even is the point at which the business use their calculations that they have made out of fixed costs, variable costs and work out the point at which their costs was equal to their sales.
These calculations inform the business how many products must be manufactured and purchased/ services must be offered so that the business is at neither making a profit or a loss. Calculating break-even awares a business of how many products must be supplied in the organisation that could lead into a profit. This is quite crucial for the business to be successful in the making of profit and most preferably enough to invest back into the business to improve it further. Break-even can sometimes provide fast predictions for the business’s financial state. It empowers business owners to gain early predictions concerning their organisation if their sales go down and their costs go down, therefore help owners organise theirselves in advance to avoid their business from falling.
D1: Evaluate how managing resources and controlling budget costs can improve the performance of a business. In this task, I must evaluate how management of resources control budget costs can improve the performance of a business. It is very important for a business to be able to manage their resources and control their costs to budget; this would allow them to be aware of their financial situation but also progress. In this section, Furthermore, businesses must manage their resources, in order to recruit people to recruit people which are qualified for the job position which requires vacant.
Managing the resources of an organisation and being aware of the financial budget within a business is very crucial. It improves the performance over every department within the organisation furthermore provides the business management department with a clearer perspective on what areas could be improve in the future. For example, your CFO (Chief Financial Officer) Every Ltd companies that allow the public to buy shares of the organisation must publish their accounts so that investors/ creditors are aware of the business’s financial state therefore could decide on either to purchase their stock exchanges.
D3: Evaluate the problems they have identified from unmonitored costs and budgets. In this task, I’ll be discussing the effects of un-monitored costs and budgets, and also analysing how businesses could suffer if their financial budgets are not controlled responsibly. I will show disadvantages of not using this method correctly. At the start of each period budget of production will be ready, using costs of goods but also predicting production amount. At the end of these time periods, the budget cost is compared to the actual costs. This comparison notify the business on either their business are sustaining their financial aims. By using a budget, the management team can predict their budget future, this includes future costs, cash but also production costs, etc. Variance reports update management departments on either a certain functional area are under or over their budget. They will try repeating their successes and get rid of their failures.