Budget Planning and Control
Budgeting is an essential component of any business operation it helps in controlling the involved expenses while enhancing the generated revenue (Reider, 2008). Budgeting is essential in ensuring that the general ability of the business fully meets the set objectives in the financial context (Reider, 2008). For the Babycakes bakery, an accurate budget is highly favorable when compared to operating without the guidance of any budget. The budget mainly needs to highlight the bakery requirements for running the business as well as the involved costs. Having a budget is therefore advantageous given that it permits the business to make advance arrangements that highlight the general cost that is needed for cake preparations. The essence of budgeting for the bakery is that the major resources that are allocated to certain needs cannot be diverted. Since the business is involved in the baking of cakes for a different occasion, this means that it can be able to account for all the needed materials ranging from sugar, flour and so on. In addition, a budget can enable the management to trace how different products are being used. Business operation in the absence of budgets makes it rather challenging to track the spending of the business (Reider, 2008). Financial reconciliation is even harder since the revenue accounted over a certain spending cannot be identified.
A Sales Budget for the LA Babycakes for the 4th Quarter
|
Month |
Units |
Price in $ |
Sales per day |
Monthly sales |
|
October |
1500 |
3 |
$4500 |
$135,000 |
|
November |
2000 |
3 |
$6000 |
$180,000 |
|
December |
2500 |
3 |
$7500 |
$225,000 |
|
Total |
|
|
$18000 |
$540,000 |
This budget was created based on the assumption that the sales will be increasing yearly given that as it operates the demand increases. In addition, the last quarter is associated with the highest number of events and festive seasons which implies that the demand for cakes will increase.
For the 4th quarter, three different products that fit the needs of the holidays during the period will be added. To begin in October during the Halloween holiday orange cream candies and cupcakes will be implemented to fit the needs of the customers during that period. For the Thanksgiving holiday potatoes cupcake with fruity flavors will be available and for the biggest charismas, holiday splendid candy juicy cupcakes will be available. The sales units for the three months are 23000, 23500 and 24,000 respectively. It is assumed that the sales will mainly be about 700 units each being 3 dollars while for the charismas holiday the sales might be up to 1500. This budget will be useful in maintaining stable and smooth operations.
Flexible Budget versus the Static Budget
In the development of a working budgetary plan, infrequent budgets are more favorable when compared to the static ones (Cokins, 2013). This is because of the flexible budgets usually helpful in the generation of reliable estimations. Since the owner of Babycakes has made the decision of using the flexible budgets this option is favorable for the operation since for the business the materials that are utilized for every order varies. Unlike the static, a flexible budget is easy to apply given that it does not need previous records any mathematical skills to create a balance. This, therefore, shows that flexible budget is an appropriate choice for the company since the owner will not have to worry about the variances.
Financial Challenge
Excessiveness is not a new challenge in the business world. Excessive spending can mainly be generated from the general costs of materials that exceed the general sales (Cokins, 2013). If the materials are offered at higher rates while the business offers rather a low pricing this, therefore, implies that it will definitely experience a loss. In addition, overspending is caused by the lack of plans which means that the business operates based on its capacity rather than on the appropriate spending. This might result in the purchase of unneeded commodities in general or excessive materials that exceed the needs of the company (Vanderbeck, 2013). These products later become wastes and this is a major loss for the business. For example, if Erin purchases more ingredients than the actual amounts needed for baking this will result in overspending. Such issues can best be resolved by working under a well-designed budgetary plan and sourcing for suppliers that provide the inputs at the least cost in order to ensure that the spending decreases.
Having a plan means that accurate records regarding the sales and purchasing costs are set. This will work to ensure that the pricing by the company is not low. In addition, the plan acts as a control tool that highlights the spending limits in general (Vanderbeck, 2013). This will also play part in ensuring that the needed amount of ingredients are used thus reducing wastes. By having a reliable supply system Babycakes can control the purchasing expenses in general thus resulting in reduced expenses. This is because the objective of any business is to ensure that its revenue is above the incurred cost since it will be creating profits rather than losses.
References
Cokins, G. (2013). Strategic business management: From planning to performance. New York: American Institute of Certified Public Accountants (AICPA.
Reider, R. (2008). Effective operations and controls for the small privately held business. Hoboken, N.J: John Wiley & Sons.
Vanderbeck, E. J. (2013). Principles of cost accounting. Mason, OH: South-Western, Cengage Learning.
