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Costs and Budgets of Headliners Hair Salon

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Introduction

´╗┐Costs and Budgets of Headliners Hair Salon Information Pack Agata Dabkowska I am working with Chloe and Tarik, which are concerned about the financial management in their new hair salon. In order to guide them I am going to analyse different types of costs that the business is likely to incur and state why those costs should be kept under control. Also, I am going to explain what a break-even analysis is. Costs There is a lot of expenditure within a business such as wages, equipment, raw materials, utility bills or rent. Those costs are classified into two types ? fixed costs and variable. Fixed costs ? Those costs are unavoidable and all business has to spend certain amount of money to cover it. It does not vary with the output. Examples of fixed costs are: salary, rents, utility bills etc. Variable costs ? Also known as direct costs, it varies depending on sales of a product or service. Examples of variable costs: equipment, raw materials, wages etc. Why those costs need to be kept under control? The business will never make a profit if the expenditure is too high or the business charges too little for services/products. It needs to be under control as it would be hard to break-even and/or to make any profit. To make a business more profitable fixed and variable costs should be reduced to minimum. ...read more.

Middle

The business would break-even slower if the price of the service is lower and it would have to sell 333 more units. 1. An increase in fixed costs to £11.000 per annum BEP = 11,000 15 – 9 BEP = 11,000 6 BEP = 1,834 units The business would struggle to break-even if the expenditure is increasing. Headliners Hair Salon would have to sell 167 more units in order to break-even. 1. A decrease in variable overheads to £0.75 per unit BEP = 10,000 15 – 8,75 BEP = 10,000 6,25 BEP = 1,600 units If the variable overheads are reduced to £0.75 per unit then the break-even point is 1600 units so this time the business is going to reach the break-even quicker. Headliners Hair Salon would break-even at 1600 units which is 67 units less. If the costs are reduced the line of break-even would become stepper and the revenue would break-even quicker – this means that the business would improve their profitability. Budgets There are two main types of budgets which the business has to estimate each month; sales budget and expenditure. Sales budget is the certain amount of the income from sales revenue. The business is usually sets a target and decides how many units they want to sell. What will happen if the target is not met is that the business is going to increase the sales target for the next month. ...read more.

Conclusion

The accumulative surplus was then £2100, it is because the November had the sum of £1000 accumulative surplus which added up to £1100 it gives us the sum of £2100. Headliners Hair Salon will struggle to break-even. The expenditure is too high, which makes the business hardly profitable. The budget is too low and it does not cover all the costs. This business should take some actions in order to avoid debts or even to avoid the bankruptcy. Headliners Hair Salon should not increase the amount of wages paid out every month. Owners should wait until they have more funds and are easily breaking-even. Every business should also have a certain amount of money left over in order to cover any unplanned costs. It may be worth trying to cut the costs and the increased number of sales is highly recommended. This would possibly help to make the business more successful. The owners of Headliners Hair Salon are supposed to control the cash flow forecast if they do not want the business to fall. Firstly, the business should increase the number of sales to become more profitable. In order to cut the costs Headliners Hair Salon should negotiate the rent payments with the landlord, so the fixed costs would possibly be reduced. The business may also change the power/gas supplier to save some funds. ...read more.

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