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Investigating Business Resources Unit 2

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Investigating Business Resources Unit 2 Costs and Budgets (M2) Profit is the difference between the selling price and the production cost. Product costs include not only the cost of manufacturing a product, but also all the other costs incurred in the process of producing or delivering a product or service. A business reaches the break-even point when its total revenue equal the total costs. Break-even graphs are used to illustrate the total costs and the total revenue. Businesses will use break-even analysis to calculate the level of sales that are needed to break even. A business can use this information to work out the impact of a change in price or the level of sales needed to cover a new bank loan. Break-even analyses are important for any business as they will be able to use break even graphs to work out the margin of safety. This is the amount by which demand can fall before the business starts to make a loss instead of a profit. Business Costs Fixed costs do increase or decrease. This means that if the business makes better use of their facilities and either produce more products or provide more services then the importance of these fixed costs will be reduced. Although, fixed costs do not change, they do over a period of time. ...read more.


There are a number of ways to reduce the operating costs of a business these include staff wages, property rental, cheaper suppliers and less usage. The importance of profit to a business is to pay its owner/s wage. Profits can also be kept in the bank to use as reserves for a later time or in case of emergencies. Profits can also be used to expand the business. They can update or upgrade equipment to improve efficiency or repay any debts. Budget For any company to succeed, needs to have control on the income and expenditure in order to control costs. An example of this is a budget. A budget is a forecast of costs and incomes. The costs and incomes must relate to a particular purpose. Budgets may usually refer to an ongoing project, but it may equally be important when considering capital expenditure. Individual Budgets can be based on a variety of different elements. Individual budgets are brought together into a master budget - this is the budget for the organisation as a whole. If we look at an example of a project that did not have any budgetary controls we may see how a business can fail. A company may have a great demand for its goods and need to increase capacity. ...read more.


The break-even point in the graph is the point where the total cost line and the total revenue line intersect. This can predicted the amount of units needed to sell to break-even and the amount of sales revenue; this can also predict the profit margins. A break-even formula can also predict the break-even point; the number of sales required to break-even can be calculated by dividing the fixed costs by the variable costs minus the selling price. A business can check its profitable activity level by using a break-even formula as they can predicted how many units it needs to sell to break-even. It can also help owners answer key questions and help business make decisions. For example, if a business wants to expand using the break-even formula it can help the owner decide whether they can afford it and how long it will take till the business see a return in their investment. This is an example of a break even chart and the way it should look. As you can see the lines 0A represent the variation of income of different levels of production activity. The lines OB represent the fixed costs in the business. As the output increases, the variable costs are incurred, this means that the total costs also increase. ?? ?? ?? ?? Anton Prinson Sritharan BTEC BUSINESS NATIONAL UNIT 2 1 ...read more.

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