Unit 2 P6,M4,D1,D3

Budgets-P6

a) Fixed costs –Fixed costs are costs that constantly need to be paid by the business even if the business isn’t operating currently. For example this can be rent.

Variable costs –Variable costs is costs that changes depending the amount of the level of output or sales by the business.

b) Costs need to be controlled because this can cause damage to the business if not controlled, the business could exceed their budget generating a negative balance creating no money for hair salon. Also the hair salon needs to monitor their budget knowing that their budget always has to be more than costs unless they want to go out of service.

c) Break-even point –This is fixed costs divided by unit contribution (the unit contribution is the selling price minus the variable cost per unit). This shows how many products a business needs to produce or sell, along with what services need to be offered, to display the point where they’re neither making a profit or loss. Total revenue equals total cost.

Contribution –This is how much money each item is sold for bringing in towards help for paying off fixed costs of a business.

d)

Units | Fixed Costs | Variable Costs | Total Costs | Revenue | Profit or Loss |

0 | 10,000 | 0 | 10,000 | 0 | -10,000 |

500 | 10,000 | 4,500 | 14,500 | 7500 | -7,000 |

1000 | 10,000 | 9,000 | 19,000 | 15,000 | -4,000 |

1500 | 10,000 | 13,500 | 23,500 | 22,500 | -1,000 |

2000 | 10,000 | 18,000 | 28,000 | 30,000 | 2,000 |

25000 | 10,000 | 22,500 | 32,500 | 37,500 | 5,000 |

e) Break-even can be used in the planning and monitoring process for new and existing businesses by locating potential problems within the business. This aids a new business by displaying levels of output it will have to sell to achieve a profit. Also if accurate records of transactions are kept it is possible to control effectively the cash coming in and out of the business.

f) The purpose of budgeting is to aid a business by...