HA1 Task 5 – Budgets

Variable Costs

A variable cost is a sum of funds which can vary depending on the production output. They can rise as production increase, or lower as it decreases. Variable costs can be spent on materials or labour which are relevant to the project.

For example, if the volume of work is too slow and extra labour is required, the variable costs will increase to accommodate the extra work force within a boundary.

Fixed Costs

Fixed costs are funds which will never increase or decrease regardless of the amount of products produced or sold. They include costs such as rent of property, materials, labour, etc..

Break even Point

The Break even point is the point in a business where a profit has neither been gained or lost. When the gross-profit has met the fixed costs.

Monitoring

In business, it is required to set up a budget which is monitored each month. This is necessary to ensure that the fixed costs are not exceeded and to establish where these extra costs can then be cut.