This assignment fully meet all the criteria imposed by the assignment brief. In this essay I illustrated the use of budgets as a means of exercising financial control of a selected
company
A.
The budget represents the estimation of costs and revenues over a period of time.
The purpose of the budget is very important as it allows the owners or managers of an
organisation to predict whether their company will make a profit or not. This will also help and aid
the managers/owners to predict if the profit/loss will be big or small. The more accurate is the
prediction the more the company will get.
Budgeting is crucial for a company because every business needs to know what to expect in the
coming years. The budget helps a company by providing them a perspective of what they have
done of a period of time. By doing this the managers of that company will be able to not only
estimate the costs de sales but also to indicate them and the company itself their breakeven point.
If the organisation does not uses the budget or if it does not develop the budget properly, then the
company will not be able to see how many products they will have to sell, to establish a price for
the products and to decide for how long the product should be kept in the market. By using
budgeting Sodor café will be able to estimate the sales and costs involved in their procedures and
manage their money efficiently in order to maximise their profit. The importance of estimating the
costs is pointed out in the company’s ability to establish a breakeven point. This means that Sodor
cafe must be able to estimate their costs in order to be able to know how much goods they will
have to sell to cover the costs. If Sodor café does not uses budget the consequences that may
occur might be catastrophic as they can discover at the end of the year that the number of sales is
too small to cover the costs without spotting anything. Moreover, if the sales cannot cover the
costs, then Sodor cafe might go bankrupt.
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