Budget Control and Planning

Erin McKenna, who is the owner of Babycakes, will benefit significantly from having a good budget compared to not having a budget or having a budget that is not realistic (Wiley, 2011). The first benefit that she will experience is that a good budget will enhance her ability to operate two bakeries regardless of facing one of the busiest periods. Having a good budget helps her keep track of the performance of each bakery with the view being that this would help improve overall capacity to meet some of her business goals. Another benefit that Erin will experience from having a good budget is that she will have greater control over her money. Budgeting plays a central role in determining the specific aspects that an individual or business must consider as part of advanced operations (Asogwa & Etim, 2017). In this case, Erin will be in a much better position to enhance her capacity to manage her money much better.

The third benefit of having a good budget is that it will help her determine her spending and savings. A good budget evaluates different areas of financial performance including evaluation of spending and saving with the focus being to ensure that the business maintains its performance (Arnold & Artz, 2019). In this case, Erin will use the budget she has created to save money for “rainy days” considering that she is likely to encounter emergencies taking into account that she is operating two bakeries simultaneously. From the case, what is most notable is that Erin created a realistic budget that ensured that her business did not suffer in any way during the valentine day rush. The possibility of experiencing a problem during this rush is high considering that she would have experienced challenges affecting her ability to deliver on projected outcomes.

Sales Budget for the LA Store 

Creating a sales budget is important because it gives a business owner a rough estimate of what to expect from the business in terms of sales. That will help in the budgeting process because it helps determine the possibility of the business making profits depending on the projected operational costs. The following is a sales budget for the Los Angeles store for 4 th quarter of 2017, which will focus on the months of October, November, and December.

From table above, it is clear that the bakery is experiencing a significant rise in demand for its products during this period considering that this is one of the times of the year with the highest demand. The number of units sold increases by a margin of 1,000 for every month peaking at 24,500 units.

Holiday Treat 

In this quarter, the bakery will introduce three (3) new products that would ensure the bakery retains its ability to attract a vast array of consumers. The three new products will be introduced in different months, which would be of value to ensuring that its customers remain satisfied with the quality of products provided. The three products that the bakery will introduce during this quarter are double layer pumpkin cheesecake, pineapple coconut cobbler, and peppermint candy cane delights.

The demand for the new products depends solely on the month considering that customers are much more likely to go for a higher number of products in the month of December considering that this is the ultimate holiday month.

Flexible Budget 

The challenge that Erin is facing is that it is challenging for her budget to change depending on the changes in variances, which affect different elements of the business’s budget. A flexible budget may help overcome this problem because it changes depending on the change in the volume of activity. Radu and Giju (2015) note that having a flexible budget is much more appropriate for businesses because it allows them to change specific aspects on the budget statements depending on the volume of activity that they experience. In this case, Erin may adopt the use of a flexible budget by ensuring that she changes how her approach towards the different elements in the budget. For example, if the volume of activity goes higher than anticipated, she would be able to use the flexibility in her budget to ensure the business remains afloat. The impacts associated with the changes in variances will be much limited depending on her use of a flexible budget.

Financial Challenge 

The financial challenge that the business is facing is that its budget allocations do not align with its actual expenditures, which impacts its ability to maintain overall performance projections. One of the key factors contributing to this problem is that the bakery is spending much of its budget on areas such as advertisements but is not able to attract the expected number of customers. From this perspective, one key recommendation for the business is that it needs to consider the idea of using social media as part of its advertising approaches. Additionally, it needs to incorporate deals and discounts for its customers as a way of attracting many more customers. The recommendation would be of great benefit for the business during this period when the business anticipates an increase in demand for its products.

References 

Arnold, M., & Artz, M. (2019). The use of a single budget or separate budgets for planning and performance evaluation.  Accounting, Organizations and Society ,  73 , 50-67. https://doi.org/10.1016/j.aos.2018.06.001

Asogwa, I. E., & Etim, O. E. (2017). Traditional Budgeting in Today's Business Environment. Journal of Applied Finance and Banking ,  7 (3), 111.

Radu, M., & Giju, G. C. (2015). The flexible budget-basic tool of the management control in the economic entities.  Scientific Bulletin-Economic Sciences/Buletin Stiintific-Seria Stiinte Economice ,  14 (1), 3-10.

Wiley (2011, September 28). Budgetary planning featuring Babycakes [Video file]. YouTube. https://www.youtube.com/watch?v=frh3I2rVDzs