P6 Illustrate the Use of Budgets as a Means of Exercising Financial Control of a Selected Company

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Budgets & Break-even analysis.
P6 Illustrate the use of budgets as a means of exercising financial control of a selected company Fixed Costs- The running costs of a business such as rent and wages. Variable Costs- Costs that varies with the level of output or sales.An example of a variable cost would be direct labor costs. The breakeven point to two decimal places is 6.12 (£68)

 | Fixed Cost| Variable Costs| Total| Revenue| Profit/Loss| 0| 416| 0| 416| 0| -416|
1| 416| 12| 428| 80| -348|
2| 416| 24| 440| 160| -280|
3| 416| 36| 452| 240| -212|
4| 416| 48| 464| 320| -144|
5| 416| 60| 476| 400| -76|
6| 416| 72| 488| 480| -8|
7| 416| 84| 500| 560| 60|
8| 416| 96| 512| 640| 128|
9| 416| 108| 524| 720| 196|
10| 416| 120| 536| 800| 264|

Three ways in which the Hotel Excellent can attract more customers for 2011 and reasons why the method would be effective: 1) Cut down on the variable and fixed costs. The hotel’s costs have risen which has resulted in more loss than profit, therefore if the hotel lower their costs there may be more room for profit. The hotel could get their supplies from cheaper suppliers, could switch companies for their electricity, gas, water and lay off staff if a high volume of staff is not essential. 2) To increase sales the Hotel Excellent could advertise and promote themselves more; this will bring publicity and attention to the hotel. Advertising is essential if you want to communicate to a specific audience therefore if the Hotel Excellent advertised on an online holiday booking website it could bring in customers from outside the local area, internationally and nationally. 3) Improve each component of the marketing mix. If the Hotel Excellent where to improve the service, promotion, price, people, process and physical evidence of their business then they will see drastic improvements to their level of sales. To improve the full service the hotel could include more services in the package; perhaps a spa or tea room would add more value and individuality to the hotel. If the promotion were to improve this would help the Hotel Excellent successfully reach a wider audience resulting in more custom. If the Hotel Excellent changed the prices of the rooms and services they offer in accordance with the quality of the hotel they could increase their sales; if they are offering a budget package then they could decrease their price and if they are offering a more luxury package they could increase the price to help cover some of the fixed and variable costs. The process could be made easier for the customers; an instant online booking facility would be an advantage for the customers as it makes it more convenient and instant for the customers. The physical evidence could also be improved, the corporate image is hugely important to whether the hotel receives sales or not, if the Hotel Excellent were to update their décor, change their logo or brand name this could deem the company more attractive to the customers. The people of Hotel Excellent could also be improved on; the staff could be retrained or introduced to new ideas to improve the general image of the company.

M4 Analyse the reasons why costs need to be controlled to budget.

How may the overspending have occurred?

The overspending may have occurred because the hotel is not budgeting properly. It is important if a company wants to make profit to have a strict budget under control. If the company is not using a budget then this means they are not keeping track of whether they are spending beyond their means and if they are spending more than they are accumulating (revenue) then there will be losses. The spending could also have occurred through spending budgeted yet unnecessary amounts of capital on food, supplies, advertising, direct labour etc. The overspending may seem necessary to the hotel but...
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