A budget is a planned, written statement by the management expressed in financial context for a given period. For companies dealing with the provision of snacks like Babycakes Company, it is crucial to conduct a budget plan for a given time to keep positive progress in the market. Babycakes operates storage and supply of two-layered cupcakes and is located at 4145 Erie Street, Willoughby, Ohio. In the discussion below, I will analyze the benefits of having a flexible budget in Babycakes Company as well as creating the possible efficient budget that may be more operational than the current budget.
The owner of Babycakes can benefit abundantly from using realistic budget considering that their products are on high demand. Realistic budgeting involves setting aside some amount of month every month to cater for planned activities within the company. A realistic budget, therefore, would help the Babycakes company to evaluate future expectations on the customers, thus setting aside the equally enough amount of resources (Bragg, 2019). A realistic budget promotes efficiency in operation in the sense that it provides detailed requirements for a given period; therefore, the owner is aware of the possible outcomes. A realistic budget additionally keeps high morale among the employees to achieve a set objective in contrast to no budget at all. In a situation where the Babycakes Company operates without any budget, there is a high probability of operating at a loss since there are no specified targets in the future.
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The sales budget for the LA Babycakes store for the 4th quarter of 2016 would be as follows:
| Month | Units | Price ($) | Total daily sales ($) | Total monthly sales ($) | ||
| October | 800 | 3.50 | 2800 | 84000 | ||
| November | 1200 | 3.50 | 4200 | 126000 | ||
| December | 1600 | 3.50 | 5600 | 168000 | ||
| Total sales for the 4 th quarter | 12600 | 378000 | ||||
In creation of the budget above, I made the following assumptions:
The sales price does not change in the course of the quarter since the cost of production is still constant.
LA Babycakes store deals with one product in the market.
The LA Babycakes Company is able to sell more than 600 units every month.
The Babycakes Company operates for 30 days in each month in every quarter.
All units produced in every month are entirely sold.
The units sold in every succeeding year increase by 400 units.
In the 4 th quarter, the Babycakes Company will probably make more sells of different new cakes in the following manner. In the month of October during Columbus Day, Babycakes will make more sales of gluten free cakes. In November during the Veterans Day, Babycakes will make more sales of vegan cup cakes and in December during Christmas Day, Babycakes would make more sales of brown cakes. Therefore, the budget for the sales in that 4 th quarter would be as in the table below:
| Month | Day | Cakes | Units | Price ($) | Daily sales ($) | Monthly sales ($) |
| October | Normal days | Gluten free cakes | 800 | 3.50 | 2800 | 84000 |
| Columbus day | 1600 | 5600 | 5600 | |||
| November | Normal days | Vegan cup cakes | 1200 | 3.50 | 4200 | 126000 |
| Veterans day | 2000 | 7000 | 7000 | |||
| December | Normal days | Brown cakes | 1600 | 3.50 | 5600 | 168000 |
| Christmas day | 2400 | 8400 | 8400 | |||
| Total sales for the new products for the 4 th quarter | 399000 | |||||
In preparing the above budget, I made the following assumptions:
The cakes have an equal return on investments at the uniform selling price of $ 3.50 per unit.
In every special day, there is an increase in sales of 800 units.
All items share the same cost of production and thus I estimated the price of new products to be the same as the previous price.
Therefore, with the new product sales, the corresponding budget would appear as follows:
| Month | Units | Price ($) | Total daily sales ($) | Total monthly sales ($) | ||
| October | 2400 | 3.50 | 8400 | 252000 | ||
| November | 3200 | 3.50 | 11200 | 336000 | ||
| December | 4000 | 3.50 | 14000 | 420000 | ||
| Total sales for the 4 th quarter | 33600 | 1008000 | ||||
A flexible budget allows for adjustments in the actual revenue levels at the end of an accounting period as cited in Sheffrin, (2003). Typically, the flexible budget provides for measuring the performance of the products in the company. For instance, form the newly created budget, there is a corresponding increase in the units sold in every special day across the months. The increase in units sold, therefore, implies that there are expectations of an increase in the income, thus planning for future expectations. A flexible budget further helps in improving budgeting efficiency. From the budget created above, while the price of products remains constant ($3.50), it is much easier to plan for future expectations about the prevalence of the products.
In some conditions, the fixed sales price does not create a corresponding variation in the total amount over different periods according to Hofstede, (2012). This act relatively creates a stagnating economy in the company since there is a certain amount of finances required to keep the store perfectly stocked. The cost of production and maintenance may vary over time. Thus the prevalent constant selling price may make the owner of the Babycakes Company operate at a loss. The possible actions to be taken to counter the overspending include identifying all fixed costs and detach them from the budgetary expenses. Create a budget model that consists of a flexible budget model in the accounting system to compare the total costs.
In conclusion, the Babycakes Company would desperately require realistic budgeting to thrive in the business. For efficiency, incorporation of the realistic budget would contribute to the analysis of the expenditure and sales volume, thus identifying the faults that may need immediate attention. Since the Babycakes Company has focused on many customers, there is a need to create a budget that shows the expected expenditure compared to sales volume. Therefore, a scrutiny of the working cost of production would reduce the inherent over expenditure, thus promoting future prosperity.
References
Bragg, S. (2019). “Budgeting: flexible budget.” Accounting Tools.
Hofstede, G. H. (2012). The game of budget control . Routledge.
https://www.google.com/urlsa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=2ahUKEwiV66e16sjiAhUQTBoKHVZhDYwQyCkwAHoECAoQBA&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3Dfrh3I2rVDzs&usg=AOvVaw0NZNvB_1L4gG8vasuARIMu
Sheffrin, Steven M. (2003). “Economics: Principles in Action. Upper Saddle River”, New Jersey 07458: Pearson Prentice Hall.
