7. Identifying costs

Costs offer all businesses a major challenge. Good cost control is essential.

Read the definitions below, then complete the phrases that follow by combining an appropriate word from the box with cost(s).

analysis	centre	fixed	labour	manufacturing
operating	price	sales	selling	variable

1.	Usual expenses such as rent, heating, lighting, which are not changed by the volume of production.	fixed costs
2.	Expenses which increase with increased production, e.g. labour, raw materials.	__________ costs
3.	All costs directly related to production.	__________ costs
4.	All costs directly related to getting someone to buy a product.	__________ costs
5.	The cost of employing workers and staff.	__________ costs
6.	The costs for the day-to-day running of a company or business.	__________ costs
7.	Selling at a price which is exactly what the product has cost to make.	cost __________
8.	The study of all likely costs associated with a product.	cost __________
9.	A business in a chain, or a subsidiary, but treated as independent for accounting.	cost __________
10.	The total costs for all products sold.	cost of __________

8. What’s a master budget?

A Here is part of a description of a master budget, given in a class to management trainees. Complete the spaces with appropriate words from the box.

administrative	budget		capital		cash		fixed		forecast
income		raw		sheet		turnover		variable

In business planning, a company financial controller needs to prepare a master budget. This is a budgeted (1) income statement which shows (2) __________ income and expenditure, and also a balance (3) __________ .

The master budget summarizes various forecasts, or budgets. Each of the following needs its own (4) __________ : sales, showing expected (5) ________ , production, showing all overheads and costs, both (6) _______ and (7) _______ , e.g. labour, (8) ________ materials and components.

A separate (9) __________ expenditure budget shows major spending on equipment and machinery. Another budget shows all general and (10) _________ expenditure that the business needs. Also, a (11) __________ budget shows estimated income and expenditure of cash, i.e. not cheque or credit card payments or payments by banker’s order.

B Find words in the above text which mean the same as the following.

a) estimated

b) investment

c) revenue

d) spending

e) income and expenditure plan

f) a regular payment to a creditor’s bank account, where the creditor can change the amounts paid

• Sales, income, receivables and revenue all indicate money received. Costs, liabilities, expenditure, outgoings, overheads, payments, and expenses all indicate money paid out.

• Turnover refers to total money received for all goods and services, sometimes referred to as invoiced sales. The invoice is, of course, the document which records the sale and requests payment. The word turnover is also used in the phrase staff turnover, to indicate the extent to which employees leave the company and are replaced.