Notesale: Turn your study into money

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Unit 2 – Investigating Business Resources
M2 – Analyse the reasons why costs and budgets need to be controlled and explain in
detail problems that can arise if they are left unmonitored – Example Business: Tutti
Brothers Ice Cream Ltd
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Budgets need to be controlled
because they need to monitor their functioning activities, and work out from previous
operations and forecasts of what will happen in the future
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A number of problems can occur if costs are left unmonitored
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Another reason would be that cash
cannot be comforted without appropriate planning, clearly there will be no money and result
in a lack of sales, sources of finance cannot be used properly as the company will be unable to
afford them and selling prices will have to increase to numbers no one can afford
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Budgets need to be controlled as well by Tutti Brothers for reasons such as being unable to
establish the amount of sales and income the company has made, along with variances decline
and will lead to falling business currencies
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The business cannot even achieve as much since there are limits on
what they can spend, and they cannot set targets which are unable to be achieved
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This
also causes a lack of spending, fewer sales, clearly it would be harder to survive the market
since competitors will not have the same problems and can continue selling and borrowing
would be difficult to pay back, especially with interest gradually increasing
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To pay back, they will have to raise their
rivalry with competitors as well as their prices, which cause fewer sales to be made, along
with gross and net profits rapidly decreasing
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Without targets to set their efforts on, staff will have
nothing to work towards, communication between departments will fall and they will be
unsure on what sales margin to obtain
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An example of uncontrolled costs and budgets is Tutti Brothers Ice Cream Ltd, causing over expenditure in budgets throughout December and January, as shown in P4
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They had higher sales than what was budgeted and were sufficient in their market, but

then it was discovered that they had budgeted 32500 whilst their actual value was 32700,
because they mainly believed that since it was winter they thought that their ice cream would
not sell on that specific month
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This
lead to more employment and overpaid wages for each day of the week to keep the company
running, which means part – time staff are hired as much as full – time
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But
they were able to sell more products than interpreted whilst knowing that they can do better
during summer since they sell ice cream, so they planned for higher budgets
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In January, the business had to make payments on assets such as
stock and staff wages with only the amount of 500 between the budgeted and actual figures
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Advertising was an added cause of this and was expensive although the business didn’t gain
as many sales from it as they thought and instead had considered other forms of making sales
before creating adverts
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Tutti Brothers can recover with
higher sales and advertising during the summer
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