M4
M4 – Why costs and budgets need to be controlled
Within this assignment I will be analysing the reasons why costs need to be controlled to budget. I will be explaining the advantages and disadvantages of controlling costs and budgets using real business examples. As well as giving detailed explanations of the problems that can occur if they are left unmonitored.
Costs and budgets need to be controlled in order to know what is received and spent. For example, if costs and budgets are not controlled when running a business, then it will run the risk of spending more money than it is taking or not spending enough money to grow the business and compete.
If costs are not controlled by a company then their profits will be severely affected, therefore budgeting is one method to control cost as ti gives a business an estimate or a target on what their cost and revenue should be. A business has to budget and control the spending in order to know what has been received and spent, otherwise uncontrolled spending could occur and deterioration could happen.
Advantages and disadvantages of controlling costs and budgets
Advantages
An advantage of controlling costs and budgets is that they can help identify where money is being spent and possibly wasted. Action can be taken to correct the problem and make the business more profitable. Another advantage is that it helps increase profit margins by seeing if the selling price needs to be raised to cover costs or if the costs can be reduced to increase profits. The business is more likely to survive if costs and budgeting is controlled correctly. This is because knowing the costs and monitoring them will increase chance of survival. It will also help to prevent the blow if unexpected costs arise. The impact of these unexpected costs might not be as bad. An example of this is when Portsmouth football club were paying too much in wages, this led to the club going into administration and being forced to go down to league 2. A final
Within this assignment I will be analysing the reasons why costs need to be controlled to budget. I will be explaining the advantages and disadvantages of controlling costs and budgets using real business examples. As well as giving detailed explanations of the problems that can occur if they are left unmonitored.
Costs and budgets need to be controlled in order to know what is received and spent. For example, if costs and budgets are not controlled when running a business, then it will run the risk of spending more money than it is taking or not spending enough money to grow the business and compete.
If costs are not controlled by a company then their profits will be severely affected, therefore budgeting is one method to control cost as ti gives a business an estimate or a target on what their cost and revenue should be. A business has to budget and control the spending in order to know what has been received and spent, otherwise uncontrolled spending could occur and deterioration could happen.
Advantages and disadvantages of controlling costs and budgets
Advantages
An advantage of controlling costs and budgets is that they can help identify where money is being spent and possibly wasted. Action can be taken to correct the problem and make the business more profitable. Another advantage is that it helps increase profit margins by seeing if the selling price needs to be raised to cover costs or if the costs can be reduced to increase profits. The business is more likely to survive if costs and budgeting is controlled correctly. This is because knowing the costs and monitoring them will increase chance of survival. It will also help to prevent the blow if unexpected costs arise. The impact of these unexpected costs might not be as bad. An example of this is when Portsmouth football club were paying too much in wages, this led to the club going into administration and being forced to go down to league 2. A final
Bibliography: http://uk.ask.com/question/why-costs-and-budgets-need-to-be-controlled http://www.businessdictionary.com/definition/cost-budget.html http://www.reading.ac.uk/life/Finance/life-moneymatters.aspx http://www.investopedia.com/terms/v/variablecost.asp