Investigating Business Resources Unit 2

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Anton Prinson Sritharan                                                                           BTEC BUSINESS NATIONAL UNIT 2

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.  Rent and rates may increase each year, but since the business is only interested in the in that year classified as fixed costs as far as calculation are concerned.

The variable costs are not like the fixed costs because they can also be described as being direct costs.  Direct costPs are costs to the business that are closely associated with the production of a product itself.  It is also usually the case that if a business is able to increase its output, its variable cost per unit reduce.

Three types of costs to businesses are start-up costs, fixed costs and variable costs.

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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 start 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 ...

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