D3-Evaluate the problems Adam & Josh may have from unmonitored costs and budgets.
In this assignment I will talk about why costs and budgets need to be controlled and the advantages and disadvantages of controlling costs and budgets. I will also explain what can happen to a business if costs and budgets are unmonitored.
Importance of costs and budgets controlling:
It is very important for an organisation to control its costs so that it can manage its financial resources effectively. The reason organisation needs to control their costs properly would be that it would end up saving money on expenses and increase its revenue. This will help the company to increase its revenues and ...view middle of the document...
If a business doesn’t make enough profit they might end up in a condition where they end up in debt or bankrupt, also if a business doesn’t manage or control their budget then it would find it difficult to reach its objectives and targets. it also runs the risk of spending more money than it is taking in or, even, not spending enough money to expand the business and compete effectively.
Reference: http://www.deloitte.com/view/en_IL/il/services/fas/budget-control/index.htm, Btec Business Level 3 Book 1
Advantages and disadvantages:
Following are the advantages of unmonitored costs and budget:
1. it can manage its financial resources effectively
2. it is a way to achieve the goals set for the units
3. it serves as a benchmark for controlling on going operations
4. it helps in developing a team spirit where participation in budgeting is encouraged
5. it serves as a basis for evaluating the performance of managers
If businesses doesn’t control their budget then serious mistakes can occur for example, a business might have bought too much stock and this means that the stock would be left in the stock room, it may go out of fashion, then the business will have to put reduced offer on the stock, so therefore the business will loose money because they selling the product below cost.
Over-expenditure is where businesses spend more than they estimated at the start of the year. for example if business planned to spend £5000 on expenditure but they actually spent £6000. the reasons for business having resulting in over expenditure are in correct data and inexperienced employees.
The incorrect data will cause over expenditure to occur as the business will think they have more to spend than they actually have. The over expenditure can also be a result of in experienced employees creating the wrong budget for business as they do not have the required skills to successfully draw up the business budget with the correct figures being used.