Budget Planning and Control Report Instructions
Before approaching this assignment, be sure that you have watched the following video.
- Budgetary Planning featuring Babycakes *FULL VIDEO*. (2016). YouTube.
Babycakes, a specialty bakery, is the company that will be considered for all parts of your budget planning and control report. For this assignment, you will develop a three to four (3 – 4) page paper in which you address the following.
- Briefly discuss the ways a realistic budget will benefit the owner of Babycakes versus having no budget at all. Be sure to use Babycakes as the company and any specific product details in your explanation.
- Prepare a sales budget for the LA Babycakes store for the 4th quarter of 2016. Present the number of units, sales price, and total sales for each month; include October, November, and December, and a total for the quarter. Use one-half of the Valentine’s Day sales as the basis for a usual day in the new quarter. Use 30 days for each month. Calculate the total sales for each month for October, November, and December.
- Create three (3) new products, one (1) for each of the three (3) holiday seasons in the 4th quarter. Estimate the sales units, sales price, and total sales for each month. Describe the assumptions used to make these estimates. Include an overview of the budget in the report, presenting the actual budget as an appendix with all data and calculations. Add these amounts to your sales budget.
- The owner of Babycakes is interested in preparing a flexible budget rather than the static budget she currently uses. She does not understand why, when sales increase, her static budget often shows an unfavorable variance. Explain how a flexible budget will overcome this problem. Use the details of your newly prepared budget for the 4th quarter of 2016 to address her concern.
- Imagine that Babycakes is facing a financial challenge that is causing the actual amount of money that it spends to become significantly more than its budgeted amount. Include a discussion of your own unique cause of the overspending. Explain the corrective actions needed to address these challenges.
- Integrate relevant information from at least three (3) quality academic resources in this assignment. Note: Please do not use your textbook as an academic resource. Also, Wikipedia and other Websites that are unreliable do not qualify as academic resources.
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Babycakes Company Budget Planning and Control Report
Benefits of Eric Mckeena having Realistic Budget than Having no Budget
The importance of budgeting for a business cannot be overemphasized. The owner of Babycakes should develop a realistic budget for the business in order to gain several advantages associated with budget creation. First, developing a good budget will allow the owner of Babycakes to determine the cost of inputs and outputs that are required in the baking process. This is important in determining the optimal inputs that meets the production needs. In not having a budget, it could lead the Babycakes owner to redirecting resources for other uses. Babycakes produces cakes for special occasions and the business needs raw materials such as flour, sugar, salt, fat, yeast, flavors and improvers. All these need to be acquired, a process which can be expedited through adoption of budgeting
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In addition, having a realistic budget would allow Babycakes owner to make forecasts for its business. Without a budget, it would mean Babycakes owner will need to rely on vague generalizations, which is not good enough in predicting about future impact of business environment may have to the bakery business. Forecasts are important to the Babycakes business since the cakes are for special occasions and making appropriate future forecasts could have good effect on the production and profitability of the business.
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Sales Budget for LA Babycakes
A sales budget is a financial document that contains information on sales of a business over a specified period of time (Albrecht, 2008). It is a part of the master budget, which provides details regarding financial plan, marketing as well as the sales expectation of a business. For the case of Babycakes, the sales budget provides sales expectations in terms of unit items and the prices, reflected in sales forecast form. The business deals in special occasion cakes that are targeted at events such as valentines, weddings and Christmas among other special occasions. The products are made on demand, and are the only products on offer. The sales forecasts for Babycakes are shown in the table below and the sales budget and forecast are presented in the appendix 1.
| Sales/Month | October | November | December |
| Total sales expectation | $30,000 | $35,000 | $69,000 |
Considering that the cakes produced are for special occasion, they will be produced in three categories of small, medium and large, in order to serve all customer categories. In addition, the number of units requested in each of the categories will vary depending on the specific customer needs and requirements.
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The Three Products for the Fourth Quarter and Estimation of Sales Units
As the owner of Babycakes approaches the 4th quarter of 2016, the business would wish to add new product portfolio into its offering. The fourth quarter is a festive seasons as there are events such as Halloween in October, Thanksgiving during the month of November and Christmas celebrated in December. New products that can be added into the already existing portfolio include orange cream candy cone cupcake for October, sweet potato cupcake for month of November and candy cane cupcake specifically for the Christmas festivities. The breakdown of the products including the sales and prices are provided in the appendix.
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Flexible Vs. Static Budget
A flexible budget is the one that provides an estimate of costs at different levels of business activities. According to (Khan & Jain, 2007) with a flexible budget, change in price variable corresponds with a change in the total amount. For example, a change in price of a certain commodity is net with a change in total quantity of that particular commodity. The use of flexible budgets provides important ways of identifying problem areas in a business. According to (Albrecht, 2008) a flexible budget can show why there was a fall in actual against planned production. For example, Babycakes can determine any discrepancies between the planned productions against the actual production of cakes.
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Babycakes business reported an indication of unfavourable variance, which can be explained from the fact that there was a decline in the price of cakes. This did not happen as originally forecast by the business or due to a decline in the volume of the cakes that the business sold. The result was a decline in the total revenues from the sale of cakes. The other possible cause could be that the cost of raw materials for making of cakes increased, leading to a reduction in the profit margins. In the new budget for instance, a decline in the sales volume of the small Christmas cakes from 400 to say 300 units, then the margins will drop by $1,040. Such a variance will be reflected in a flexible budget, which is not the case if a static budget is used.
Financial Challenge
In a baker business, there are many potential causes of overspending. One of the major causes can stem from the sourcing of raw materials, especially with lack of a good budget in place to account for raw materials. Having a proper budget is the only way to ensure money is spend the right way. According to (Carysforth & Neild, 2004) the presence of a budget and budget controller is crucial in controlling overspending. The budget can be analyzed to determine the causes of overspending such as rising costs of suppliers, double payment for services and expenditure on absent staff due to illness. If it is determined that overspending stems from rising costs of raw materials, then the business can identify alternative less expensive suppliers.
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