Here I am providing an information about budget and its relationship with cost calculation;
| Category | Description | Relationship |
|---|---|---|
| Budget | It involves comprehensive financial planning which highlights projected income and expense | It is useful for providing cost calculation and allocation of resources |
| Cost Calculation | It's a phenomenon of identification, estimation and analyzation of expenses | It is used for informing budget related decisions and financial plans |
| Cost Identification | It is important for identification of different expenses which relates with particular project or activity | It's most crucial for making precise budgeting |
| Cost Estimation | It's important for estimation of costs dependent on historical information, industrial standards etc. | It's useful in budgeting for allocation of resources |
| Cost Control | It's important for analysing and to properly check out actual costs vs budgeted costs | It gives surety of budget adherence and managing of finance |
| Decision Making | It's important to inform finance and strategy related decisions | It's essential for providing budget and cost calculation so in return used to give input |
Key components of budget
| Component | Description |
|---|---|
| Income | Revenue or funding according to projection |
| Fixed Costs | Expenses that are not altered like salaries, rent etc |
| Variable Costs | Expenses which changes with production or output |
| Operating Costs | Expense which are outgoing like utilities, supplies etc |
| Capital Expenditures | Big, one-time investment such as equipment, infrastructure etc |
Budgeting is also important for playing a role in determination of costs because it is useful for enabling precise forecast, allocation of resources and controlling of costs.If I talk about well crafted budget then it is used for;
• Establishment of financial restrictions, prevention of overspending.
• Identification of spending areas, giving surety of resources which are allocated in an efficient way.
• Estimatation of future expenses, facilitation of informed decision-making.
• Helping prioritizing costs, optimization of resource utility.
• For enabling monitoring of costs and controlling, reduction of unimportant expenses.
Budgeting benefits
- Accuracy in cost forecasting
- Providing enhancement in financial planning
- Enhancing decision-making
- Minimisation of costs
- Increasing profitability
Effective budgeting gives surety
- Most precise prediction and cost expectations
- Allocation of resource
- Minimizing of associated finance risk
- Increasing returns at investment
By integration of budgeting into determining expense, organizations may make informed decisions, optimizing resource and achievement of finance goals. A detailed budget acts as a roadmap for success in finance,to guide business for allocating resources in an efficient and effective way. Regular reviewing of budgeting and updating gives surety of adaptability with altered market conditions.
Here I am discussing about budget for cake production while keeping a 4% adjustment in my consideration;
Income
- Cake sales are of $10,000
- Other incomes including catering, events etc are of $2,000
Total income is now at around by adding both of above are $12,000
Fixed Costs
- Rent is at around $1,500
- Employee salaries are around collectively $3,000
- Other utilities are around $500
Now total fixed costs are around $5,000
Variable Costs
- Ingredients are of cost $2,500
- Packaging cost is at around $800
- Fuel and transportation is at around $500
If I calculate total variable costs then it's around $3,800
General Expenses
- Advertisement expenses are around $800
- Providing safety and cleanliness expenses are around $500
If I talk about total general expenses then these are around $1,300
4% Adjustment
- Income adjustment are at around now $480 (by making 4% adjustment (4% of $12,000)
- Cost adjustment are at around $320 which is 4% of $8,100.
Total Budget
- Income is $12,480
- Costs are $9,420
- Profit is at $3,060
This budget is accounting for a 4% adjustment for accommodation of potential alternation in income and expenses. Regular reviews and updates about budget gives surety of accuracy and effective financial plans.
If I calculate budget for the hair salon service considering a 3% adjustment then it can be calculated as I am showing below;
Income
- Haircut costs can be around $8,000
- Coloring of hair can be of $4,000
- Treatment of hair can be in between $2,000
- Other little hair services are around $1,000
Now let's calculate total income which is around $15,000
Fixed Costs
- Rent can be almost $2,000
- Employee salary can be around $6,000
- Utility costs may be around $800
Now if we calculate total fixed costs then it can be around $8,800
Variable costs
- Hair care products costs may vary but considering it around $2,500
- Fuel and transportation costs can also alter but here I am taking them at around $500
- Cleanliness supplies are around $200
Now if we calculate total variable costs then these are around $3,200
General expenses
- Advertisment costs are of $1,000
- Safety and cleanliness costs are around $500
If we calculate total general expenses then these are $1,500
4% Adjustment
- Income adjustment are at around $450 after making 3% adjustment so 3% of $15,000.
- Cost adjustment are at around $390 after making 3% adjustment so 3% of $13,000.
Total Budget
- Income is around $15,450
- Costs are almost $13,390
- Profit is around $2,060
This budget is useful for accounting for a 3% adjustment for accommodation of potential alternations in incomes and costs.
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