Business Unit 2 P6

Unit 2: Business Resources

P6

Introduction

In this task I will illustrate the use of budgets as a means of exercising financial control of east ham shipping.

Fixed cost

Fixed costs are the expenses that do not change regardless of the activity of a business. For example Eastham shipping has to pay rent and utility bills and all of their overheads regardless of sales or profit.

Variable cost

Variable costs are costs that can change depending on the activity of the business such as production volume and sales. An example for east ham shipping may be the cost of their fuel. Since fuel prices change due to supply and demand this can be a variable cost. Fuel usage can increase or decrease due to the amount times East ham shipping has to ship Items.

Semi variable cost

Semi-variable costs are made up of different fixed and variable components. Semi-variable costs are fixed for a certain limit of production or consumption once this limit has been exceeded the cost then becomes a variable.

Step cost

A step cost is a fixed cost within certain limits. Step costs are expenses that stay the same until a level of activity has been reached. For example if in East Ham shipping employee receives between zero and a certain amount of orders to process then the company will only need one employee. However if this limit is exceeded then East ham shipping will need to hire an extra employee

A budget is a plan of expenditure usually tied to a fixed period of time as well as different methods of financing those expenditures.