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Unit 3 - Investigating Financial Control

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Introduction

Unit 3 - Investigating Financial Control I have recently completed my BTEC First Diploma Business and have been employed by Pedro, who owns and runs a hot dog van. He has asked me to investigate his finances; I will be creating a break-even chart for his business. A) Three types of costs to businesses are start-up costs, fixed costs and variable costs. Before a business is set-up, the business will need to buy various items such as building and equipment these are called start-up costs, these costs which happens before the business can begin. These costs also occur when a business expands or decides to star a new venture. Fixed costs are costs which usually occur when the business has begun; these costs remain the same for a period of time and do not vary on output. This means that the business needs to pay the bills whether it sold 100 units or 0 units. Fixed costs are also called indirect costs; these costs include rent and rates. ...read more.

Middle

Then calculate the total revenue of the business. To find out if the business is making a loss or a profit you will need to find out the gross profit and the net profit. The gross profit is the money left from sales income once the costs of materials are taken away. The net profit is the gross profit minus the operating costs; the operating costs are the variable costs plus the fixed costs. There are two ways of maximising profits, these are to increase sales or reduce operating costs. There are a number of ways to increase sales income these include increasing prices, reduce prices to increase sales, increase advertising, sell new products to existing customers and increase scale of business. 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 a wage. Profits can also be kept in the bank to use as reserves for a later time or in case of emergencies. ...read more.

Conclusion

C) For examples if you sold your hot dog at �2 with a variable cost of 50p and fixed costs of �1250 per month which include a salary and rent. So your break-even formula would go as follows: �1250 / (�2.00 - �0.50) = units needed to break-even (Fixed cost) (Selling price - variable cost) So to calculate the formula you will need to minus the selling price from the variable price which equals �1.50, then you will need to divide into the fixed costs (�1250) by �1.50 which equals 834, this means the business will need to sell 834 units to break-even. D) 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 examples 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. ...read more.

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