Unit 2 Business Resources: P6 Essay

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Unit 2: Business Resources P6- Controlling costs Introduction- the relationship between costs, revenue and profit. The importance of and the for controlling costs Costs- type of Financial techniques available in controlling costs Break even analysis (CPV) Cash flow forecast Budgeting and budgetary control Conclusion TR- TC= Net profit/ loss Cost must be controlled by all businesses no matter the size of the business even if it’s small or large. As there is a clear relationship between cost and revenue and results would have an impact on the profit within the business. When the cost increased the profit would decrease, as the business would have to pay more whereas less profit will be left. On the other hand if the cost is decreasing it would have positive impact on the profit as the profit will increase. Business must make profit in order to create reserves. Reserves are needed for a variety of reasons. These reasons might include the following of: 1: unforeseen economic adverse changes in the future. 2. Future expansion 3. Reserves would help the business in replacing fixed assets in the future when the time comes to replace them. Types of costs Start-up cost- costs that the business spends when the business is started. Operating cost- money spent on a regular basis used by the business, while running the business. This can be a variable cost or a fixed cost. Variable cost- this refers to the direct cost of buying materials, finish goods and direct labour. Variable cost is so called variable as they are depended on the level of outputs. Fixed cost- fixed cost is costs that are not depended on the level of output/sales. Fixed costs must be paid weather the business makes money or not. This would include payment for bills such as rent, electricity, water etc. Fixed cost is the

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