M4 - Analyse the reasons why costs need to be controlled to budget?

Introduction:

For this task I will be analysing the advantages and disadvantages about the business that Brad owns which involves transporting business people to and from airports using luxury cars and limousines. Addition to this I will also be explaining what the words budget, fixed, variable and total costs mean. One of the main topics that I will be covering is the fact that if Brad does nothing with his costs what the implication would be on the business as well as him and what encounters it will have.

Budget:

So what is budget? Budget is a financial document which is used to project future income and expenses. Budgeting is used by everyone who owns a …show more content…
It also provides a sharp focus on the profitability products and customers. Variable costs can impact with its fixed cost which can be beneficial for the management as it makes it easier to control operating costs by separating them from the fixed cost.

Visa versa when looking at variable costing you have to also consider the bad factors about it. One of these bad points is that if sales are greater than production, higher profits may mislead management into taking improper action. Furthermore over-emphasis on the business may lead to improper decisions regarding relevant costing which could cost the business to be in trouble if not thought process is not planned out properly.

Total costs:

The final type of cost that I will be talking about is Total Costs. Total cost describes the total economic cost of production which is made up of variable costs, which can change according to the quantity of a good produced; this can include things such as labour and raw materials plus fixed cost such as building and machinery. Within total costs it includes the cost of each production as a part of its fixed and variable cost. Below is a simple picture of a graph which is used to present total, fixed and variable cost all in one;

Going back to Brad’s Taxi firm, one of the main issues he had was not sticking with his budget. In total there were 3 adverse out of the 12 items that he