BTEC Level 3 Business
Unit 2 Assignment 6- P6, M4, D3,
D1.2
Budgeting
• What is the purpose of budgeting? Is it the
same for individuals as it is for businesses?
Costs and Budgets
• A business needs to manage their costs if they
want to make a successful profit. By not
managing costs a business can loose control of
what they are spending and make little or no
profit.
• A business needs to;
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Keep within a budget
Increase income to cope with change
Make sure working capital is available
Set aside money in case of emergencies
Costs
• There are two main types of costs that need
to be controlled;
– Fixed Costs
– Variable Costs
Budgeting
• Budgeting can be difficult because it sets a
guideline for how much a business thinks it
will spend in the future.
• There are a two types of budgeting;
– Zero Budgeting- No budget is given, each time a
department wants to buy something they need
management approval
– Allocated budgeting- money is allocated per
department based upon numbers of employees/
size of department.
Variance Analysis
• The Variance is the difference between the
budget and what is actually spent.
• If the result is better than expected it is known
as favourable. E.g. Joe aims to spend £15 on a
birthday present but actually spends £12, he
has a favourable variance of £3.
• If the result is worse than expected it is known
as adverse. E.g Joe’s present costs £17, he
would have an adverse variance of £2.
P6- Illustrate use of budgets as a
means of exercising financial control.
• Describe the following for Emma and Johns Hair
salon.;
– the purpose of budgeting
– the types of budget (e.g. sales budget, cashflow
forecast)
– how budgets are set
– how a budget is monitored against actual
performance
– the use of variance analysis
– Explain what their budget shows.
Break Even
• Explain the difference between fixed and variable
costs.
• Explain the purpose of a break even chart/
analysis.
• Explain the calculations used in break even
charts.
• Research the benefits and limitations of break
even
• Produce a break even chart for Headliners Hair
Salon using their data.
M4- Analyse why costs and budgets
need to be controlled.
• Analyse the reasons why costs and budgets
need to be controlled. (M4)
D3
• Define what variances are (favourable and adverse)(see
this). Examine the problems of not monitoring a business
budget and state why budgets need to be managed
properly. (D3)
• Think about the different aspects of the business and
consider how they would each be affected if costs were out
of control. Consider;
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Employees
Suppliers
Stock
Profit Levels
Customer Service
D3 Resources
• http://www.businessknowledgesource.com/s
mallbusiness/how_to_recognize_potential_bu
dgeting_problems_024003.html
D1 Part 2
• To complete D1 you need to evaluate how
managing costs and budgets can help a business to
be more successful.
• Think about the following areas;
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increases in sales
increases in profit
increase in the customer base
increases in levels of customer satisfaction
increases in levels of employee satisfaction
reductions in labour turnover
increased efficiency in production/service provision