BTEC Level 3 Business Unit 2 Assignment 6- P6, M4, D3, D1.2

Budgeting What is the purpose of budgeting? Is it the same for individuals as it is for businesses?

Costs and Budgets A business needs to manage their costs if they want to make a successful profit. By not managing costs a business can loose control of what they are spending and make little or no profit. A business needs to; Keep within a budget Increase income to cope with change Make sure working capital is available Set aside money in case of emergencies

Costs There are two main types of costs that need to be controlled; Fixed Costs Variable Costs

Budgeting Budgeting can be difficult because it sets a guideline for how much a business thinks it will spend in the future. There are a two types of budgeting; Zero Budgeting- No budget is given, each time a department wants to buy something they need management approval Allocated budgeting- money is allocated per department based upon numbers of employees/ size of department.

Variance Analysis The Variance is the difference between the budget and what is actually spent. If the result is better than expected it is known as favourable. E.g. Joe aims to spend £15 on a birthday present but actually spends £12, he has a favourable variance of £3. If the result is worse than expected it is known as adverse. E.g Joe’s present costs £17, he would have an adverse variance of £2.

P6- Illustrate use of budgets as a means of exercising financial control. Describe the following for Emma and Johns Hair salon.; the purpose of budgeting the types of budget (e.g. sales budget, cashflow forecast) how budgets are set how a budget is monitored against actual performance the use of variance analysis Explain what their budget shows.

Break Even Explain the difference between fixed and variable costs. Explain the purpose of a break even chart/ analysis. Explain the calculations used in break even charts. Research the benefits and limitations of break even Produce a break even chart for Headliners Hair Salon using their data.

M4- Analyse why costs and budgets need to be controlled. Analyse the reasons why costs and budgets need to be controlled. (M4)

D3 Define what variances are (favourable and adverse)(see this). Examine the problems of not monitoring a business budget and state why budgets need to be managed properly. (D3) Think about the different aspects of the business and consider how they would each be affected if costs were out of control. Consider; Employees Suppliers Stock Profit Levels Customer Service

D3 Resources http://www.businessknowledgesource.com/smallbusiness/how_to_recognize_potential_budgeting_problems_024003.html

D1 Part 2 To complete D1 you need to evaluate how managing costs and budgets can help a business to be more successful. Think about the following areas; increases in sales increases in profit increase in the customer base increases in levels of customer satisfaction increases in levels of employee satisfaction reductions in labour turnover increased efficiency in production/service provision