During this assignment I’ll be analysing the reasons why costs in a business need to be controlled by budgets. The company I’ll be talking about is ‘Premium Soft Drinks’. If they continue to not control their budgets then their profits will be largely affected; showing that budgeting is a method to control cost because it gives businesses an estimate of what their revenue as well as cost should be. Businesses must to budget + control what they’re spending so they can know what’s been spent and what’s been received, otherwise uncontrolled spending could occur which could lead to deterioration of the business.
A major problem that could occur if the costs aren’t controlled to budget is high fixed cost per item. This reduces a business’ profit …show more content…
Even if the business does sell the budgeted amount of drinks that they expect to then they’ll be left with hardly any profit. They could be in a risk of having a poor cash flow as their budget report tells us they expected to make a profit of around £20,000 every month but only made £9,000 – This shows us that the business is left in risk of not having enough money to cover their costs and expenses. Another reason why costs need to be controlled to budget is high staff costs. A overspend on employees will automatically lower the organisations profit. Therefore they should increase the wages based on employee’s productivity and their completion of their objectives/goals. The business needs to avoid the overlap as well as redundant duties due to they don’t need more people than what’s required to be doing the same job, as this will result in having areas where they could cut back on and could lead to