5 Finance & accounting

5.1 The need for business finance

5.1.1 Start-up capital, capital for expansion
 why businesses need finance to start up & to grow
- Start-up – initial purchase of capital, land & payments for marketing, production, etc
- Working capital – day-to-day finance to pay for bills, stocks, etc
- Expanding capital – new premises / takeover, etc
- Special situations – decline in sales, economic downturn
- Cash – amount business has at its disposle
- Profit – a financial gain of business after reducing cost of goods produced from revenue.

 Business failure due to following reasons

 Lack of finance
 Bankruptcy- when business is unable to pay its debts
 Liquidation – the process of liquidating assets of business
 Administration – when business is not properly managed

5.1.2 Working capital

 the meaning & significance of working capital as a
source of finance
- Working capital: the capital needed to pay for raw materials,
day-to-day running costs & credit offered to customers. In
accounting terms working capital = current assets – current
liabilities.

 significance of the distinction between revenue

expenditure & capital expenditure
- Capital expenditure: the purchase of assets that are expected to
last for more than one year, i.e. Building & machinery.
- Revenue expenditure: spending on all costs & assets other
than fixed assets, includes wages, salaries & materials
bought for stock.
 5.2Sources of finance
5.2.1 Legal structure & sources of finance
 the relationship between the legal structure of a business & its sources of finance
- Share issues can only be used by limited companies – & only public limited companies can sell
shares directly to the public. Doing this runs the risk of the current owners losing some control –
except if a rights issue is used.
- If the owners want to retain control of the business at all costs, then a sale of shares might be
unwise.

5.2.2 Internal sources

 internal sources of finance
- Internal Sources of Finance – internal money raised from the business’s own assets / from profits
left in the business (ploughed-back / retained earnings)

Source of Finance Explanation Advantage Disadvantage

Earned profit that is not Once invested back into Newly formed companies /
Retained profit taken as tax / used to pay the business the retained ones trading at a loss will
owners / shareholders earnings will not be paid not have access
out
Opportunity cost of selling
Use of assets that are no Assets can be sold to
Sale of Assets assets that could be used in
longer fully employed to leasing company &
the future
raise cash leased back
Reductions in Firm’s liquidity may be
Money raised through selling assets / reducing debt
Working Capital reduced to risky level

5.2.3 External sources

 debt finance / equity capital?

Debt finance Equity capital

Lenders have no voting rights at the annual
It never has to be repaid; it is permanent capital.
general meetings.
Loans will be repaid eventually (apart from Dividends do not have to be paid every year; in
convertible debentures), so there is no contrast, interest on loans must be paid when
permanent increase in the liabilities of the demanded by the lender.
business.
As no shares are sold, the ownership of the
company does not change / is not ‘diluted’ by
the issue of additional shares.
Interest charges are an expense of the
business & are paid out before corporation tax
is deducted, while dividends on shares have to
be paid from profits after tax.
The gearing of the company increases & this gives
shareholders the chance of higher returns in the
future.
 external sources of finance
- External Sources of Finance – external money raised from sources outside the business.

Source of Finance Explanation Advantage Disadvantage

Often High Interest Rates,
Bank Bank agrees to a business Amount raised can vary
Bank can ‘call in’ overdraft
overdraft borrowing up to an agreed limit as from day-to-day
– force firms to pay back
& when required.
Selling of claims over trade
Short term

receivables to a debt factor in Only a proportion of the

Debt Any debts to the business
exchange for immediate liquidity – value of the debts will be
factoring can be received
only a proportion of the value of received as cash
immediately
the debts will be received as cash.
Extra existing finance, no
Delaying the bills for goods & Supplier confidence lost;
Trade credit interest rates must be
services to suppliers / creditors quick payment discounts
paid for this ‘loan’
lost
Obtaining the use of equipment /
vehicles & paying a rental / leasing
Avoids raising long-term Periodic payments may
charge over a fixed period. This
Leasing capital to buy assets, total more than one
avoids the need for the business to
leasing company payment, asset returned
raise long- term capital to buy the
repairs/upgrades after use
asset. Ownership remains w/ the
leasing company.
Medium term

An asset is sold to a company

The asset belongs to the
Hire which agrees to pay fixed Periodic payments may
company, purchase made
purchase repayments over an agreed time total more than one
over time
period – the asset belongs to the payment
company
Interest rates must be paid
Medium- Bank can supply large
back to bank, collateral
term loan sum quickly
must be provided
Ltd. Cannot sell shares
Share issue
Permanent finance raised by publicly, expensive to join
/ equity Nothing needs to be paid
companies through the sale of stock exchange, risk of
finance back
shares. takeovers, some loss of
ownership
Usually not secured on an Company must pay fixed
Long-term Bonds issued by companies to asset, convertible rate of interest each year
bonds / raise debt finance, often w/ a debentures can be turned up to 25 years, if secured
debentures fixed rate of interest into shares overtime so the on an asset & the firm
company issuing them will ceases trading the investors
not have to pay it back may sell the asset
Bank can supply a large Interest rates must be paid
Long term

Long-term Loans that do not have to be

sum quickly that does not back to bank, collateral
loan repaid for at least one year
have to be paid back for must be provided
awhile
Mortgage A legal agreement by which a financer, lends finance by taking title of the debtor's property.
Difficult to receive – the
Money donated to the Do not have to be
Grants business has no choice
business by outside agencies repaid if conditions are
over who gets the grants
met
They usually invest in small
Risk capital invested in business Venture capitalists
to medium-sized businesses
start- ups / expanding small generally expect a share
Venture & risky businesses
businesses that have good profit of the future profits / a
capital (technology / research) that
potential but do not find it easy to sizeable stake in the
may find it difficult to raise
gain finance from other sources. business in return for their
capital from other sources
investment.

- Finance for unincorporated businesses

 Microfinance: providing financial services for poor & low-income customers who do not
have access to banking services, i.e. Loans & overdrafts offered by traditional commercial
banks.
 Crowd funding: the use of small amounts of capital from a large number of individuals to
finance a new business venture. In business ventures that are successful, the crowd funding
investors will receive either:
 Their initial capital back plus interest – this is sometimes known as peer-to-peer lending
 An equity stake in the business & a share in profits – when these are eventually made!
5.2.3 Factors influencing the sources of finance
 factors influencing the choice of sources of finance in a given situation
- Use of finance
- Size of existing borrowing
- Flexibility of firm’s need for finance
- Legal structure & desire to retain control
- Amount required
- Cost of debt
- Time period for which finance is required
- Existing assets of the firm
5.3 Forecasting & managing cash flows
5.5.1 Purposes of cash flow forecasts
 difference between cash & profits
- Profit does not pay the bills & expenses of running a business – but cash
does. Of course, profit is important – especially in the long term when
investors expect rewards & the business needs additional finance for
investment.
- Cash is always important – short & long term. Cash flow relates to the
timing of payments to workers & suppliers & receipts from customers.
- If a business does not plan the timing of these payments & receipts
carefully it may run out of cash even though it is operating profitably. If
suppliers & creditors are not paid in time, they can force business owners
into liquidation of the business’s assets if it appears to be insolvent.

Cash flow forecasts in practice

 uses of cash flow forecasts
- Preparing for areas of negative cash-flow – new business start-ups are
often offered much less time to pay suppliers than larger, well-established
firms – they are given shorter credit periods
- Required for investors & banks – banks & other lenders may not believe the
promises of new business owners as they have no trading record, they will
expect payment at the agreed time
- Planning to reduce negative cash-flow – finance is often very tight at start-
up, so not planning accurately is of even more significance for new
businesses.

 construction of cash flow forecasts, including recognising the uncertainty

of cash flows
- Limitations of cash flow forecasts:
 Mistakes can be made in preparing the revenue & cost forecasts / they
may be drawn up by inexperienced entrepreneurs / staff.
 Unexpected cost increases can lead to major inaccuracies in forecasts.
Fluctuations in oil prices can lead to the cash-flow forecasts of even major
 airlines being misleading.
 Wrong assumptions can be made in estimating the sales of the business,
perhaps based on poor market research, & this will make the cash inflow
forecasts inaccurate

5.5.2 Methods of improving cash flow

 how reducing costs / improving the management of trade
receivables & trade payables can improve cash flow
Particular How it can be managed
- Not extending credit to customers – / extending it for shorter time periods
- Selling claims on trade receivables to specialist financial institutions acting as debt factors
Trade receivables
- By being careful to discover whether new customers are creditworthy
- By offering a discount to clients who pay promptly
- Increasing the range of goods & services bought on credit
Trade payables
- Extend the period of time taken to pay
- Keeping smaller inventory levels
- Using computer systems to record sales & inventory levels – thus ordering as required
- Efficient inventory control, inventory use & inventory handling so as to reduce losses
Inventory
through damage, wastage & shrinkage
- Just-in-time inventory ordering – by producing only when orders have been received,
working capital tied up in inventories will be minimised.
- Use of cash-flow forecasts – as identified above, these can help the management of
cash flows & working capital needs
Cash - Wise use / investment of excess cash
- Planning for periods when there might be too little cash & arranging for overdraft facilities
from the bank to avoid a liquidity crisis.
 recognition of situations in which the various methods of improving
cash flow can be used & working capital
- There is no ‘correct’ level of working capital for all businesses. Business
requirements for working capital will depend on a number of factors,
especially the length of the working capital cycle. For example,
supermarkets can manage on a much lower level of working capital than a
shipbuilding business.
- Too much liquidity is wasteful.
- Too little liquidity can lead to business failure.
- Managing working capital is not just about looking after cash. Clearly the
timings of cash received & spent are important but other features of
management are important too – efficient operations management will
reduce wastage of resources (& money) & cut inventory levels. Efficient
marketing will help to speed up the sale of goods – &, therefore, the cash
inflows from this.
- When businesses expand, they generally need higher inventory levels & will
sell a higher value of products on credit. This increase in working capital is
likely to be permanent, so long-term / permanent sources of finance will be
 needed, i.e. Long-term loans / even share capital.

5.4Costs
5.4.1 Cost information
 the need for accurate cost data
- Accurate profits / losses will allow a business to take effective & profitable
decisions, i.e. Where to locate.
- Cost data are useful to other departments, e.g. Marketing managers will
use cost data to help inform their pricing decisions.
- It allows comparisons to be made w/ past periods of time & the efficiency of a
department / the profitability of a product may be measured & assessed over
time.
- They can help set budgets for the future which will act as targets to
work towards for the departments concerned & actual cost levels can
then be compared w/ budgets.
- Comparing cost data can help a manager make decisions about resource use,
e.g. If wage rates are very low, then labour-intensive methods of production
may be preferred over capital-intensive ones.
- Calculating the costs of different options can assist managers in their
decision-making & help improve business performance.

 types of costs: fixed, variable, marginal; direct & indirect

- Direct costs: these costs can be clearly identified w/ each unit of
production & can be allocated to a cost centre.
- Indirect costs: costs that cannot be identified w/ a unit of production / allocated
accurately to a cost centre.
- Fixed costs: costs that do not vary w/ output in the short run.
- Variable costs: costs that vary w/ output.
- Marginal costs: the extra cost of producing one more unit of output.

5.4.2 Approaches to costing: full, contribution

 Important concepts
- Cost centre: a section of a business, i.e., a department, to which costs can be
allocated / charged.
- Profit centre: a section of business to which costs & revenues can be allocated –
profit can be calculated.
- Overhead costs
 Production overheads – these include factory rent & rates, depreciation of
equipment & power.
 Selling & distribution overheads – these include warehouse, packing &
distribution costs & salaries of sales staff.
 Administration overheads – these include of ice rent & rates, clerical, &
 executive salaries.
 Finance overheads – these include the interest on loans.

Unit cost =
𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑖𝑛𝑔 𝑡ℎ𝑖𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
- 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑

 differences between full & contribution costing

- Full costing: a method of costing in which all fixed & variable costs are
allocated to products, services, / divisions of a business.
- Contribution / marginal costing: costing method that allocates only direct
costs to cost/profit centres, not overhead costs. uses & limitations of the

Contribution per unit = 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
full costing method.

Total contribution = 𝑡𝑜𝑡𝑎𝑙 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑡𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡

-
-

Uses Limitations
There is no attempt to allocate each overhead cost to
Full costing is relatively easy to calculate & understand
cost/profit centres based on actual expenditure
incurred.
Arbitrary methods of overhead allocation can lead to
Full costing is relevant for single-product businesses
inconsistencies between departments & products.
All costs are allocated (compared w/ contribution The full unit cost will only be accurate if the actual level of
costing) so no costs are ‘ignored’. output is equal to that used in the calculation.
Full costing is a good basis for pricing decisions in single It is essential to allocate on the same basis over time –
product firms otherwise comparisons cannot be made
The cost figures arrived at can be misleading

 the nature of the technique of contribution costing

- As a rule of thumb, a product that makes a positive contribution to fixed
costs should continue to be produced so long as there is spare capacity in
the firm, it does not take the place of a product w/ a higher contribution &
there is not another option that has a higher contribution. There are
many firms that have excess capacity & hence use contribution-cost
pricing to attract extra business that will absorb the excess capacity.

 the difference between contribution & profit

- Contribution cost per unit = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
- Profit per unit = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 − 𝑢𝑛𝑖𝑡 𝑐𝑜𝑠𝑡
- Unit cost = / 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 + 𝑓𝑖𝑥𝑒𝑑
𝑡𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑖𝑛𝑔 𝑡ℎ𝑖𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑡

𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑

- Contribution costing and decisions on stopping selling a product -- If a business sells

more than one product, contribution costing shows managers which product is making
the greatest or least contribution to overheads and profit.
- Contribution costing and special order decisions --- If a business has spare capacity or
if it is trying to enter a new market segment, contribution costing assists managers in
deciding whether to accept an order at a price below the full cost of the product.
- For example, hotels often offer very low rates to customers in off-peak seasons. It is
better to earn a contribution from additional guests than to leave rooms empty.

 limitations of contribution costing

Uses Limitations
Overheads not allocated – avoids inaccuracies Focus on contribution – opportunity cost for higher profits
 Decisions are made based on contribution to overheads – Contribution costing does not consider that some
full cost may be inaccurate products & departments may incur much higher
fixed costs than others
Qualitative factors may be important too, i.e., the image
Excess capacity is more likely to be effectively used
a product gives the business.

 situations in which contribution costing would be & would not

be used.
- Contribution costing can be used in the following situations:
 ‘One-off’ special orders – a firm may be willing to supply a batch of products
at a lower price if it has the spare capacity if regular customers do not find
out & fixed costs have been covered by the other products. What are the
dangers in accepting an order below full cost, even if it positively
contributes to fixed costs?
 Existing customers may learn of the lower prices being offered & demand similar
treatment.
 When high prices are a key feature in establishing the exclusivity of a
brand, then to offer some customers lower prices could destroy a hard-
won image.
 Where there is no excess capacity, sales at contribution cost may be losing
sales based on the full cost price.
 In some circumstances, lower-priced goods / services may be resold into the
higher-priced market.
 ‘Make / buy’ decisions – business can often choose to manufacture all its
products / to buy some of them from other manufacturers. This choice
depends upon contribution costing to compare the price of production & the
cost of purchasing.
 Deciding whether to stop a production of a product – if a product produces
positive contribution, it aids to cover fixed costs.
 When entering a new market – decide on selling price for penetration
costing & ensure it covers production costs.
- Fixed costing can be used in the following situations:
 When a business that produces a range of products / services needs to
calculate the price it should charge for specific product / service. the
business needs to know the full cost of each product.
 Allocate / apportion overhead / fixed costs to each product / service, this can
help w/ decision making & measuring efficiency.

5.4.3 Solutions to costing problems.

 solution of numerical problems involving costing methods.
 using contribution costing to help w/ ‘accept/reject’ order decisions.

 problems of trying to allocate costs in given situations

- Time – allocations take a lot of time for big complex organizations, this
drags out the time for financial close, which is so critical for timely internal
& external reporting.
- Accuracy – without Reciprocal Allocation & without sufficient flexibility,
 allocations are not as accurate as they should be.
- Transparency – it is difficult to understand where allocations come from & how
they are derived.
- Trust – sometimes people take the position that cost figures are not
accurate so there is no point in making decisions based on cost. Neither
attitude is helpful in a corporate setting.

 Uses of cost information

cost information for decision making purposes, e.g. average, marginal, total costs
how costs can be used for pricing decisions
how costs can be used to monitor & improve business performance, including using cost
information to calculate profits

5.4.4 Break-even analysis

 determining the minimum level of production needed to break-even / the
profit made
- The graphical method

- The equation method (https://youtu.be/578qm7sxo_M)

 Contribution per unit: selling price less variable cost per unit.
Contribution = 𝑠𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑡𝑜𝑡𝑎𝑙 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡
𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡

𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡

 Break-even level of output =

 define, calculate & interpret the margin of safety

- Margin of safety: the amount by which the sales level exceeds the break-even level

 Margin of safety = 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑜𝑢𝑡𝑝𝑢𝑡 𝑖𝑛 𝑢𝑛𝑖𝑡𝑠 − 𝑏𝑟𝑒𝑎𝑘-𝑒𝑣𝑒𝑛 𝑜𝑢𝑡𝑝𝑢𝑡

of output.

 uses & limitations of break-even analysis

 5.5 Budgets
5.5.1 The purposes of budgets
 measuring performance
- Budget: a detailed financial plan.
- Budget holder: individual responsible for the initial setting & achievement of a budget.
- Delegated budgets: delegate authority over the setting & achievement of budgets to junior
managers.

Budgets Explanation
Sales Plans the volume & value of sales over specified period.
Production Plans production levels & input costs over a specified period.
Marketing Plans the finance required for marketing strategies over a specified
period.
Financial Plans the need for external sources of finance over a specified period.
Project Plans the tasks, timings, & costs of a project over a specified period.
Capital expenditure Plans the level of capital expenditure over a specified period.
Master The total of all budgets aggregated into one main budget over a
specified period.

 benefits & drawbacks from the use of budgets.

Budgets can be useful for ... Budgets can present problems if ...
allocating resources based on unrealistic assumptions
monitoring & evaluating business performance managers unskilled in budgeting
identifying problems before they happen they are over optimistic
improving decision-making there is no previous experience of a project
motivating employees there is a lack of data available
managing money affectively unrealistic target set
planning manage are stick rigidly to budgets & cannot adapt to
change

 how budgets might be produced

The most important organisational objectives for the
coming year are established.
The key / limiting factor that is most likely to
influence the growth / success of the organisation
must be identified, it is most likely to be sales.
Therefore, the sales budget will be the first to be
prepared.
The sales budget is prepared after discussion w/ all
sales managers of the business.
The subsidiary budgets are prepared, which will
now be based on the plans contained in the sales
budget.
These budgets are coordinated to ensure consistency.
A master budget is prepared that contains the
main details of all other budgets & concludes w/
a budgeted income statement & Statement of
financial position.
 The master budget is then presented to the board –
hopefully for the directors’ approval.

 use of flexible budgets & zero budgeting.

- Incremental budgeting: uses last year’s budget as
a basis & an adjustment is made for the coming
year.
- Zero budgeting: setting budgets to zero each year &
budget holder must argue their case to receive any
finance.
- Flexible budgeting: cost budgets for each expense can vary if sales
/ production varies from budgeted levels.

 purposes of budgets for allocating resources, controlling, & monitoring of a

business.
- Resource allocation – setting of budgets is likely to encourage a detailed plan of
what resources will be needed & how resources are to be allocated to achieve the
best outcome for the business.
- Controlling & monitoring
 Inefficient use of resources can be identified & corrected.
 Progress towards achieving corporate / department objectives.
 Over-spending budget holders can be identified & the cause of any over-spend can be
investigated (not all over-spending is unnecessary; circumstances may have changed
since the budget was set).
 The performance & progress of a departments / division can be measured against the
budget.
 Departments requiring additional funding can be identified.
 role of budgets in appraising business
- Variance analysis: calculating differences between budgets & actual performance, &
analysing reasons for such differences.
- During the period covered by the budget & at the end of it the actual
performance of the organisation needs to be compared w/ the original targets, &
reasons for differences must be investigated.
 Analysing these variances is an essential part of budgeting for several
reasons:
 It measures differences from the planned performance of each department both
month by month & at the end of the year.
 It assists in analysing the causes of deviations from budget. E.g., if actual profit is
below budget, was this due to lower sales revenue / higher costs?
 An understanding of the reasons for the deviations from the original planned
levels can be used to change future budgets to make them more accurate.
- The success of a business can be measured by how well it meets the targets
contained in its budgets. These budgets may be closely related to business
objectives. A business that exceeds the expectations in the budgets would be judged
to be successful, while one that continually fails to meet the expectations outlined in
its budgets would need to investigate the reasons for the underperformance. It might
be that the budgets were set at an unrealistic level.
 5.5.2 Variances: adverse, favorable
 the meaning of variances
- Adverse variance: exists when the difference between the budgeted & actual figure
leads to a lower-than- expected profit.
- Favourable variance: exists when the difference between the budgeted & actual
figure leads to a higher than-expected profit.

 calculation & interpretation of variances [but not price/volume variances]

- Variance = 𝑎𝑐𝑡𝑢𝑎𝑙 𝑝𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒 − 𝑏𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑝𝑒𝑟𝑓𝑜𝑟𝑚𝑎𝑛𝑐𝑒
- Expense variances: negative (–) = favourable
positive (+) = adverse
Actual expense higher than budgeted = lower profits than budgeted
- Sales variances: negative (–)
= adverse
positive (+) = favourable
Actual sales higher than budgeted = higher profits than budgeted

Causes of adverse variances Causes of favourable variances

Lower sales revenue = fewer units sold / lower Higher sales revenue = higher economy growth / problem w/
selling price (competition) competitors’ products
Higher raw material costs = higher output / cost per unit Lower raw material costs = lower output / lower cost per unit
increased
Higher Labour costs = higher wages (shortage of
Lower Labour costs = lower wages / less time taken
workers) / more time taken
Higher overheads = increased rents (more than budgeted) Lower overheads = reduced advertising rates