Budget Planning and Control for Babycakes

Benefits of a Budget 

A budget is a fundamental part of business operations. A good budget will enable the L.A. Babycakes to do a profitability review. A budgeting process will be able to identify which aspects of the business help in boosting profits and which aspects of the business use up money ( Christopher & Onyema, 2018 ). With this knowledge, decisions can be made on which part of the business can be dropped and which parts can be expanded. It also helps the business to predict probable sales and set targets accordingly. It is difficult to make such decisions with no budget. 

A Proper budget will also help to address the needs of funding. Depending on the size of the budget, it will be easy to determine where to source the funds. Prior profits that can be reinvested, or savings that have been set aside for expansion; or loans could be used for the expansion and paid later from the expected profits ( Bowen, Chen, Eraslan, & Zápal, 2017 ). Without a proper budget, it will be hard to determine the most appropriate source of funding. 

LA Babycakes Sales Budget for the 4th Quarter of 2016 

	Mini donut	Red velvet cakes	Lemon cakes	Chocolate cakes	Cookies	Tarts	Total
Price($)	2.50	3.50	3.50	3.50	2.70	3.00	n/a
Units	150	750	750	750	200	100	2700
Total sales per day($)	375	2625	2625	2625	550	300	9100
October Sales($)	11250	78750	78750	78750	16500	9000	273000
November Sales($)	11250	78750	78750	78750	16500	9000	273000
December Sales($)	11250	78750	78750	78750	16500	9000	273000

Analysis 

The sales budget is a projection of the units that the new LA store is likely to be producing every day. The estimation is based on the statistics for the New York store which has been in operation for several years. The stable sales budget of the New York Brach will ensure that the LA Babycakes does not produce too few or too many units on a single day (Wiley, 2011). Therefore, to be on the safer side, the management should consider halving the units that are sold in the business days of the year in the New York store. In this case, taking one half of the valentine’s sales is a prudent move. These estimated units are neither too low to put off customers nor are they too high to lead to waste. 

The sales budget will also be an indicator of the business’ progress in the new location. The fact that LA and New York are similar in terms of their demographics implies that their total sales should be at per after a few months of operations of the LA store. If this situation does not occur, it would force the management to rethink of new ways of marketing themselves to the people of LA (Christopher & Onyema, 2018). There could be factors such as presence of strong competitor thus the store will have to think of unique ways of differentiating themselves. 

New Products for Baby Cakes 

Since Babycakes is a health-conscious business, the suggestions for the three new products will keep that into consideration. In this regard, the Blueberry Muffins, Coffee flavored cupcakes and the All-natural donuts can be used for Halloween, Thanksgiving and Christmas respectively. The servings will use natural products in their ingredients to give the customers a unique experience (Christopher & Onyema, 2018). The difference will come in the way the products would be decorated to give a reflection of the various seasons. For instance, the decorations on the blueberry muffins will consider gothic themes which arouse a sense of horror. 

The new products will have a little impact on the sales budget as they will be expected to be items to commemorate a single day. Therefore, their impact will be felt ion that particular day. Assuming that the production of the other products continues as usual, the two branches will requires about 1500 units for the new products. The situation arises as the buying capacity of the masses on these days is higher and the people come out in large numbers (Wiley, 2011). Therefore, for the LA store there, would be an addition of 1500 units for every month, each going for $3.50. This scenario translates to $ 5250 extra sales per month. Therefore, for the three months, the new products are likely to rake in $15750. 

Advantages of Flexible Budget over Static Budget 

Flexible budgets are most preferable over static budgets because of their ability to fit in the market and helps an entrepreneur remain competitive .It also has the ability to make one realize their profit during high seasons and the ability to incur little or no loss in the low seasons ( Gomez, Insua, & Alfaro, 2016 ). Flexible budget has been outstanding best on the following characteristics; 

Babycakes will have more cost control. A flexible budget will enable one play around with cost of commodity in the market (Bowen et al., 2017). Thus, a salesperson will know when to increase or decrease the price to achieve their objectives. 

Secondly, there will eb ample comparison between input and expected output. Input should directly relevant to the output and a flexible budget is able to vary these and helps the management to estimate the expected output from an individual commodity (Wiley, 2011). 

A flexible budget will prevent Babycakes from being overwhelmed with a given situation. At a season for high demand, the budget will differs from that of the low demand season. These changes makes an entrepreneur competitive in the relevant market range without compromising their needs as well as of those of their consumers. 

Unique causes of Overspending 

One financial challenge Babycakes can face is overspending which can be caused by a number of factors. Fortunately for L.A. Babycakes, the proprietor has been prudent in her business dealings and, therefore, minimizing the risk of overspending (Wiley, 2011). However, there is no full proof plan that would mitigate against overspending. The following are some of the factors that would lead to overspending for L.A. Babycakes. 

Overspending can most of the time be traced back to shortfalls in targeted sales. If the business invests resources on production and does not get returns on the investment, then this can be termed as overspending (Wiley, 2011). 

Unfavorable government policies can be a factor. Adverse government policies such as heavily taxing wheat products to discourage obesity could cause increased costs of production which would in turn increase the final cost of the products (Wiley, 2011). Consequently, the products become expensive and discourages buyers. In such a scenario, alternatives to wheat such as flour made from rice or potatoes could be used. 

Another factor is the general economic conditions. Hard economic times could be a factor to be considered. The ability of the consumers to buy is highly dependent on the general public’s spending power and this is dependent on the prevailing economic circumstances ( Gomez, Insua, & Alfaro, 2016 ). This issue can be solved by ensuring that the timing for opening should be strategic to when the economic environment is receptive to business expansion. Avoiding unpopular product lines can also help in focusing efforts on productive areas. 

The solution to overspending is interrogating the business expenditure. Once the reason for the overspending is arrested, the appropriate remedial measures can be taken. 

Appendix 1: Sales Budget Including Holiday Season Sales 

	Mini donut	Red velvet cakes	Lemon cakes	Chocolate cakes	Cookies	Tarts	Holiday sales	Total
Price($)	2.50	3.50	3.50	3.50	2.70	3.00	3.50	n/a
units	150	750	750	750	200	100	1500	2700
Total sales per day($)	375	2625	2625	2625	550	300		9100
October sales($)	11250	78750	78750	78750	16500	9000	5250	278250
October Holiday sales	-	-	-	-	-	-	5250	5250
November Sales($)	11250	78750	78750	78750	16500	9000	5250	278250
November Holiday sales	-	-	-	-	-	-	5250	5250
December Sales($)	11250	78750	78750	78750	16500	9000	5250	278250
December Holiday sales	-	-	-	-	-	-	5250	5250

References  

Bowen, T. R., Chen, Y., Eraslan, H., & Zápal, J. (2017). Efficiency of flexible budgetary institutions.    Journal of Economic Theory ,    167 , 148-176. 

Christopher, E. C., & Onyema, J. I. (2018). An evaluation of the relationship between budgeting and the efficiency of fast food industry in rivers state.    International Journal in Management & Social Science ,    6 (3), 74-84. 

Gomez, J., Insua, D. R., & Alfaro, C. (2016). A participatory budget model under uncertainty.    European Journal of Operational Research ,    249 (1), 351-358. 

Wiley. (2011, September 28).    Budgetary Planning featuring Babycakes *FULL VIDEO*   [Video file]. Retrieved from https://www.youtube.com/watch?v=frh3I2rVDzs