Analyse the reasons why costs need to be controlled to budget.

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Analyse the reasons why costs need to be controlled to budget.

A budget is an estimation of the revenue and expenses the business are expected to reach over a specific period of time. There are many reasons why costs need to be controlled to budget; if they are not it can lead to many problems.

If costs are not controlled or monitored to budget it can lead to many problems. The first problem that they could have is they won’t be able to achieve their goals and objectives. This is because a budget sets objectives and targets in which the business expect to reach. For instance, they may budget a certain amount of money on costs. If they overspend of costs it means they haven’t reached their goal and would mean the business wouldn’t be able to move forward.

Furthermore, if they do not control their budget it will also lead to an adverse variance and a decrease in profits. This is because, when businesses overspend than they budgeted for, their costs will go up and the profit will fall; they may even make losses. This means they wouldn’t be able to pay their monthly bills or declare dividends to their shareholders.

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Additionally, not keeping to the budget will affect other departments in the business. This is because if they overspend in one department they will need extra funds and this money may come from other departments. This means that other areas won’t be getting as much money which could impact the businesses performance.

Moreover, not monitoring the budget would mean that they won’t have money for other expenses. This is because they will need extra cash to pay for the overspending meaning they won’t have the money to pay for monthly bills. For instance, they won’t be able to pay ...

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