Question

Question 1:-

a) Assuming that you are running a printing shop. Identify 3 items as fixed costs and 3 items as variable costs of your business. Hint: You also need to determine the level of activity in your business.

b) What would be the implications if a business does not prepare a budget? Explain your views

c) Choose one limitation of budgeting and write clearly on that point using your own words.

Answer 1

Ans)

1.

Variable costs are expenses that vary in proportion to the volume of goods or services that a business produces.It do not remain constant when production levels change.

• Direct materials : Ink, plates, and paper .They are vary with Volume of printing job
• Production Supplies - the supplies that are necessary for the machinery that help produce your product, such as supplies that help maintain your equipment
• Salaries,​ and wages. Performance bonuses to employees are also considered variable costs.

  Fixed costs are costs that remain constant regardless of production levels

Examples of Fixed cost in Printing business are,

• Depreciation -Depreciation is the gradual deduction of an asset's decline in value.
• Rent - the rent you pay on your office is fixed expense.Even if your company isn’t making any Printing sale, you have to pay your Rent.
• Utilities - electricity, water, and other utilities.

• Equipment maintenance /service fixed charges

• Loan payments if Loan is taken for the running of business

2.

Budgeting is the basis for all business success. It helps with both planning and control of the finances of the business.If a business does not prepare a budget, the implications would be,

* Inability to Effectively Price

Proper budjecting helps your business to Differentiate cost as Overhead(Fixed,variable) , Production ,Selling and administration etc.It is very important to compute your cost and Find selling price.

*Difficulty in  achieve your business financial goals

* Poor Cash Flow

A good cash flow is one of the most important aspects of building a healthy business .If you are not creating budject, it will be difficult to estimate the cash you expect to receive and cash flow you expect to pay during a period of time

3

Although budgeting has a lot of advantages, it has a few limitations also. One of such limitation is Inaccuracy.

Human error is the number one reason behind data mistakes and miscalculations.Lack of controll and misleading assumptions also affect accuracy of budject.Budjecting is based on a lot of assumptions in estimating the expenses and revenues. These are generally based on trends and the market scenario prevailing at the time of making the budget. Budgets can also be based on the predictions made for the coming year considering the data available at the time of budgeting.

If the business environment changes to any significant degree, then the company’s revenues or cost structure may change so radically that actual results will rapidly depart from the expectations delineated in the budget.Cnange in Law,changes in interest rates, currency exchange rates also result in variation of  budgeted expectations with actual data. Unless management acts quickly to override the budget, managers will continue to spend under their original budgetary authorizations, thereby rupturing any possibility of earning a profit.