Essay
Unit 2: Business Resources- M4
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M4: analyse the reasons why costs need to be controlled to budget.
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Name: Shermarrie WeekesUnit 2: Business Resources (M4)
Introduction
This assignment focuses on the importance of cost control within the business, along with
reasons and benefits of controlling costs.
Cost Definition
A cost is an amount that has to be, paid in order to get something. Usually, in a business a
cost is monetary valuation of effort, material, resources, time and utilities consumed, risk
incurred and opportunity forgone in production and delivery of goods or service.
Types of Costs
There are two main types of costs, which need controlling, in order to manage the budget of a
company. These costs include:
Fixed Cost- this cost does not change despite an increase nor decrease in value of goods or
services within a business. Fixed costs are expenses that have to be, paid by a company.
Fixed costs that make up the businesses total financial structure requires s high level of
revenue in order to break even.
Variable Cost- this cost is the opposite of fixed. This corporate expense changes in value
according to the production output. It increases and decreases depending on the company’s
production volume.
Fixed Costs Variable Costs
Insurance Sales Commission
Interest Expense Direct Labour Costs
Utility Expenses Utility Costs
Property Taxes Cost of raw materials
Depreciation of Assets
The controlling of costs in a business is important. It has a lot of benefits that can help the
business strive and grow in the future. Cost control is the process by which a business
identifies and attempts to reduce expenses to increase profits and limit costs which starts
with the process of budgeting. In any profit orientated business, they aim to make a profit
because if not done, the business will not be able to cover any additional costs and normal
costs as they should. Reasons for cost controls are to provide targets for members of staff.
The business will also need to control costs of business competition, or enough money
provide an increase in salary for workers or training staff and to motivate staff to perform an
accurate job within the business. Extra money is also good to help the business make
expansion which provide more space to do a bigger job.
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