M3.27 Working with Costs and Budgets Essay

The total cost of production of Sony’s new product is the addition of both fixed and variable costs. Fixed costs are assets within a business that are not used up or sold during the typical production course e.g. buildings and machinery. Variable costs are costs that fluctuate in time with the production output or sales revenue of a company such as Sony e.g. raw material and labour costs. Figure 1.1 shows how the total cost is composed of both fixed and variable costs.

Unlike fixed cost variable cost you have some room to play, variable cost is all about changing inputs around to change output. Or as defined by Thomas and Maurice “variable input is one for which the level of

This research paper is a brief discussion of budget management analysis. Budgeting is the key to financial management, and is the key to translates an organization goals or plan into money. Budgeting is a rough estimate of how much a company will need to get their work done, and provides the basis for evaluating performance, a source of motivation, coordinating business activities, a tool for management communication and instructions to employees. Without a budget an organization would be like a driver, driving blinded without instructions or any sense of direction, that’s how important a budget is to every organization and individual likewise (Clark, 2005).

A budget is a projection/estimation of the financial requirements and burdens that an individual/business drafts to understand their spending and financial boundaries. A budget generally outlines the situation a person will be in financially and can be created using estimates of future incomes and expenses.

A fiscal document used to plan future revenue and expenditures is a called a budget (Murray, n.d.). The overall process of whether or not the company can continue to run with the projected revenue and expenditures is called budgeting (Murray, n.d.). It is valuable because it helps an organization consume the inadequate financials and human capital for which is best to achieve current business opportunities. A company is also capable of formulating both long-term and short-term strategies for help in implementation and constant assessment of its performance.

Variable costs, on the other hand, are explicit expenses that vary with production output levels. As production output increases, variable expenses also increase. Variable costs that could be included in the manufacturing of dealybobs are the cost of the materials used in production. For example, if demand

Variable costs –Variable costs is costs that changes depending the amount of the level of output or sales by the business.

Fixed cost or expense are variables that are not effected by the change in production or sales. A variable cost or expense is effected directly by a change in production volume or sales. We will categorize our Fixed and variable cost and expenses. First, we have variable data: executive salaries, insurance and property taxes. These items are located on schedule 7 of our Excel analysis. Second we have fixed variables, raw material direct labor, and inventory.

Fixed costs are constant and have an impact towards profits despite the number of items sold. Reducing the fixed cost amounts is a sustainable way to make more profits and increase operating leverage (Edmonds & Tsay & Olds). Suggested by Reiss, outsourcing is a way of turning fixed costs into variable costs. Variable costs have a dependence of cost based on production or sale of the product (Reiss, 2010).

The budget that symbolizes sales, the fixed costs, and variable costs for contrasting standards of production is the flexible budget. For costs that are constantly the same amount no matter how different standards or levels are, they are the fixed costs. Let’s use a factory’s rent for example. The fixed cost for that building would have to change if the magnitude changed because of acquirement of some added fixed assets. The fixed cost per unit will expand or plunge if the production level goes up or down. On the other side, the variable costs can adapt in correspondence to the levels of composition. For example, direct material, if the production number reduces, the variable costs would be a smaller amount. In an opposite manner, if the production level goes up, expands, the variable costs total, would go up as well. No matter what the level of production is, the variable costs per unit are still continuous. Some of the expenditures aren’t full variables. The reason some are semi-variables, specific sections of the cost are fixed and don’t change, but the excess section of the cost can differ depending on the proportion to the production. To explain more in detail, a sales manager’s salary is fixed but his commission he makes is a variable. Fixed costs and variable cost are similar to one another when it

Factors affecting fixed costs include costs that do not change with an increase or decrease in the amount of goods or services produced. Fixed costs are also an expenses that has to be paid by a company. It is one of the

Fixed costs consist of items such as rent, insurance, and lease payments. Variable costs change in relation to a company's activities; this holds true for manufacturers. Typical variable costs include direct labor, direct materials, supplies, and certain utilities. The fixed costs and variable costs form a firm's cost to manufacture its products and make up its cost structure (Pondent, 2012). This impacts its profitability.

Firstly budget can be defined as “a quantitate expression of a plan of action and aid to coordinating and implementing the plan”(Horngren, Sundem and Stratton,2013). To add to this definition Collier(2006) also suggested profit is based on a defined level of activity and it takes into consideration of future time periods. budgets main purpose can be split into assisting managers in control and planning of the firm, moreover it also include sub factor such as acting as a communication device between departments. Furthermore jill collins definition for budgetary control is the process by which financial control is exercise by manager preparing budgets for revenue and expenditure for each function of the organisation in advance of accounting period. It also involve analysis of performance of department

The need to enhance organisational performance is intensifying in today’s business environment around the world. Every organisation has their own management control system which is defined by Anthony (1965) as “the process by which managers ensure that resources are obtained and used effectively and efficiently in the accomplishment of the organisation’s objectives.” Budgeting is considered as one of a means companies use in their management control and it is a powerful control mechanism in almost all organisation (Merchant and Van der Stede, 2007). Bierman, Dyckman and Hilton (1990) stated that budgets are used to plan for the organisation’s future activities and also to control current operations. In other words, budgets are used as a

A budget is a plan. Budgeting is generally formalized written documents. Budgeting is the process of developing a plan, implementing it and attempting to control outcomes so that they confirm to or exceed the result called for by the plan. Budgeting is an element of cost accounting, because mush of planning related to cost the organization expects to incur.