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| Budgeting in the Real World |
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| Forecasting Costs |
| Preparing Budgets |
| Budget Analysis |
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Page 4 of 9
Budgeting
3. Forecasting Costs
3.1 Analyse your costs and how they relate to sales.
- Fixed costs are largely independent of the level of sales.
- Variable costs depend on turnover or number of sales.For example, distribution costs might be a percentage of turnover, a cost per sale, or a combination of the two.
- Semi-variable costs contain both fixed and variable components.For example, your power costs might include both a fixed component (for lighting and heating the office) and a variable component (for production).
3.2 Forecast your costs (either as a fixed amount or in relation to sales).
- Analyse historical records or contact suppliers for quotes.
- Take into account any expected price changes.
3.3 Control significant uncertain costs.
- Enter into long-term supply contracts or use forward foreign exchange contracts.
- Insure against possible disasters.
Labels: Reduce Costs
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