Essay
Unit 7 Management Accounting P5 D2
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Lauren WhiteUnit 7: Management Accounting
Task 4
Forecasting and Management Planning
It is important that businesses have the financial resources that they require. These can be
accessed through bank loans and investments or retained profits. The way a business
manages their financial resources is crucial as a business would need to follow a budget in
order to achieve the objectives that they set. Without a budget, a business would not be
able to make any predictions for the future so they wouldn’t have an understanding on the
revenue they are likely to make and whether they are likely to achieve their objectives.
The purchases within a budget are important as they show how much money a business will
need alongside the goods required to achieve the objectives of the business. This helps a
business to manage their stock more effectively as they will know whether they are over
stocking or under stocking their goods. If too much stock is being purchased the business
may be at risk as they may not be able to cover their costs. There are also risks if there is too
little stock as the needs to the customers will not be fulfilled. The Royal Jam Company has a
variety of purchases they would need to make. This includes the materials and ingredients
required to manufacture their products. They would need to assess how much they would
need to purchase so they can supply the right amount of their product to their customers.
It is important to include sales within your businesses budget. This is so a business can
predict how much they are making from the service or product they offer. They can then
compare the budgeted sales with the actual sales of their business so they can see if they
are budgeting well. This will also show whether the business has reached their breakeven
point. This would be crucial for the Royal Jam Company as they would be able to monitor
their sales effectively and have an understanding on whether they will breakeven. This
means they will have a target on how much they need to sell. Therefore, they will know
when they are starting to make a profit. They could use the results from previous years in
order to set future targets relating to the amount of profit the business is making. The Royal
Jam Company would aim to exceed the sales figures from the year before in order to show
the business has grown and retained a higher profit. This means they will be able to make
investments within the business with the profit they make.
Production costs would be used within a budget as it can be used to determine how much
of a certain product is needed to manufacture the product sold by the business. This means
a business will understand how they can meet sales objectives and manage their inventory
more effectively. This means a business’s costs can be monitored more effectively so any
essential adaptions can be made. The Royal Jam Company would need to budget for their
production costs so they can set targets in relation to meeting the demands of customers
and overall be more successful as a business.
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