The management of costs is a very important aspect of managing financial resources. If costs are not managed effectively, it can lead to profits being damaged and the business potentially unable today its expense. Keeping within a budget, increasing income in order to cope with change and making sure that working capital is available and money and set aside for emergencies is all part of the balancing exercise.
Costs managed to budget
McDonald’s budget was adverse as there was a miscalculation and McDonalds managed to overspend. This is because the management team at McDonalds under budgeted on certain aspects like staffing, security and utility bills.
Costs managed to budget there are two main types of costs:
Fixed cost – these are costs that do not change regardless of the number of goods that sold or services that are offered. These costs include rent, insurance, salaries. Whatever McDonalds makes whether its 100 or 10,000 products, these cost must be paid.
Variable cost – these are costs that change depending on McDonalds output.
So if McDonalds makes a burger it will have varying requirements for amounts of bread, meat, fish, cheese and lettuce head will depend on how many burgers the make.
Break –even point
Businesses can use the calculations that they make of fixed costs, variable costs and sales to work out the point at which their costs equal their sales. This is known as a break-even, this is essential for McDonalds as this will work out how many products they need to produce and sell which will conclude them to know whether they are making a profit or a loss. To work out the break even you have to do a formula: BEP= Fixed Cost / Sales – Variable Costs per unit.
This means that to work out break-even pint (BEP) you have to take fixed cost and divide it with the Unit contribution and take-away the variable cost per every unit.
When McDonalds calculates their break-even point this would give them an understanding on how many... [continues]
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