Costs need to be controlled because your costs cannot exceed your budget or you will have a negative balance; thus you would not be making any money. you also need to monitor your budgets as your budget always needs to be more than your costs or your business will go out of business.
They reduce profit.
Two things mainly: 1. Costs can run out of control, causing organisations to spend more than they need to, run inefficiently, reduce their potential profit or at worst turn a profit into a loss 2. Budgets can be overstated and if an organisation actually spends less than it expects to in a particular area than those funds can be made available elsewhere in the business. If costs aren't monitored effectively such opportunities can be missed.
because otherwise you will become bankrupt idiot.
Henry Ford acquired great wealth by producing automobiles that were within the budgets of many Americans. He was able to produce cars using an assembly line type of operation. This reduced production costs and the savings were passed down to consumers.
Variable budgeting is one based on different levels of activity. It is an extremely useful tool for comparing the actual cost incurred to the cost allowable for the activity level achieved. It is dynamic in nature rather than static. By using the cost-volume formula (or flexible budget formula), a series of budgets can be developed easily for various levels of activity. A static (FIXED) budget is geared for only one level of activity and has problems in cost control. Flexible budgeting distinguishes between fixed and variable costs, thus allowing for a budget that can be automatically adjusted (via changes in variable cost totals) to the particular level of activity actually attained. Thus variances between actual costs and budgeted costs are adjusted for volume ups and downs before differences due to price and quantity factors are computed. The primary use of the flexible budget is for accurate measure of performance by comparing actual costs for a given output with the budgeted costs for the same level of output.
no
One similarity between standards and budgets is they are both predetermined costs. A major difference is that companies can report inventories using standard costs but not budget costs.
No direct cost and controlled costs are both separate costs.
they both involve the determination of future costs
Past costs can play an important role in making future cost budgets. The previous costs can help individuals budget how much money they will need for future production of similar objects.
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they force the manager to compare actual costs at one level of activity to budgeted costs at a different level of activity.
A static planning budget is suitable for planning and for evaluating how well costs are controlled.
Factors such as costs, taxes, staffing levels etc are always fluctuating therefore the budget needs to be revised to account for these aswell as any shortfalls that must be plugged from the previous year(s) budgets
An operating budget outlines the expected revenues and expenses for a specific period, usually annually. It helps businesses plan and control their financial resources effectively by setting targets and guiding financial decisions. It typically includes details on sales projections, production costs, operating expenses, and profitability goals.
Cost behaviour is associated with learning how costs change when there is a change in an organization's level of activity. The costs which vary proportionately with the changes in the level of activity are referred to as variable costs. The costs that are unaffected by changes in the level of activity are classified as fixed costs. The understanding of cost behaviour is very important for management's efforts to plan and control its organization's costs. Budgets and variance reports are more effective when they reflect cost behaviour patterns. The understanding of cost behaviour is also necessary for calculating a company's break-even point and for any other cost-volume-profit analysis.