Budget Planning and Control Babycakes LA

BABYCAKES LA 6

BudgetPlanning and Control: Babycakes LA

BudgetPlanning and Control:BabycakesLA

Waysa Realistic Budget Will Benefit the Owner of Babycakes versus HavingNo Budget at All

Budgetinghelps Erin &amp Company to be more efficient and motivated,responsible in spending, as well as act as an early warning system.For instance, Erin notes that failure to budget results inoverspending because she has so many things that she wants to do forthe business. Through a realistic budget, employees of Babycakes willhave financial education and pay attention to detail. In the case ofBabycakes, Erin motivates workers by involving them in the creation,application, and monitoring of the budget outcomes. To Erin,consistency appears critical, that is, the budget is her focus, andtherefore, that of the employees as well. Budgeting assists Babycakespoint out where market research and corrective measures should betaken. For example, Erin at one point did not formulate a budget,which led to an imbalanced demand and supply of cakes on Valentine’sDay. However, she got alert,and hence, budgeted properly and made huge sales in return(Cunningham et al., 2015). It is through the quarterly and annualbudgets, which Erin prepared that she is able to organize thecompany’s expenditure and savings. Due to the absence of previousshare market, the Los Angeles branch relies on data from the New Yorkstore to categorize expenditures and savings. In this way, it is lesscomplex to make alterations. In addition, it is easier to organizebills, financial statements, and receipts.

SalesBudget

Thesales budget has a categorized transactions forecast forthree months both in units and dollars as shown in Appendix A.Additionally,thebudget is presented in a quarterly format, thus providing lessactionable data from various sources. Erin McKenna is at the heart ofmarketing the business in Los Angeles hence, responsible foraltering timing and quantity of sales.

Assumptions

  • The units are expressed in kilograms.

  • The financial information is presented on cash basis.

  • There are several products that Babycakes sells however, donuts, cakes, and cookies will make a significant proportion of the sales.

  • The selling price per unit will vary depending on the prevailing market conditions. Nonetheless, for the sake of sales forecasting, the selling price is fixed.

  • As the year ends, the sales and profits will increase as Babycakes presence in LA broadens.

  • The final month of the year (December 2016) will record the highest sales because of the impending Christmas holiday.

  • The management has carefully analyzed the economic conditions, competition, production volume, and selling costs.

FlexibleBudget for Babycakes LA

Unlikea static budget, aflexible one changesbased on the level of activity, that is, it computes various levelsof expenditure for variable expenses, depending on revenue variations(Bragg, 2013). As a result, it will be an important planning tool forBabycakes and can also be used to shape fiscal outcomes. Appendix Bclearly elaborates the company’s possible flexible budget for the4thquarter of 2016.

Overspending

Theissue of businesses using more than budgeted is common. The practiceis a big threat to companies in other words, it may not operate inthe foreseeable future. Therefore, it is prudent for small venturessuch as Babycakes to make sure that they spend withinthebudgeted amount.

Causesof Overspending

Babycakes’lackofplanning.Theabsenceof a plan means that the business is predisposed to the whims of theowner and employees. Erin needs to come up with a business plan toorganize her team, resources, and strategies (Peris-Ortiz &ampSahut, 2014). A plan will be essential if the enterprise has toattain particular goals in the event of a static budget.

Erinhas inadequate access to financial management information. Babycakes’objectives entailselling the highest number of units for each product as possible andkeeping up with the market trends. However, it will be important forthe business to seek financial management advice from consultants andallied businesses (Peris-Ortiz &amp Sahut, 2014). Because of this,she will be in a position to assess and interpret financialstatements, review quarterly or annual performance, comprehend taxstrategies to lower liabilities, and possible reinvestmenttechniques.

Overcomingthe Problem of Overspending by Babycakes

Reducingthe level of expenditure helps prevent budget deficits. Babycakesshould limit its expenditure for the 4thquarter of 2016 to avoid spending more than its earnings (Peris-Ortiz&amp Sahut, 2014). The management has to eliminate the unwantedexpenditures from the business. Consequently, it will be easier todeduct finances in various areas, for example, employee parties andother unnecessary incentives. Erin, the CEO/finance manager of thecompany, needs to ensure that funds spent onirrelevant items are transferred to other expenses such asadvertisement and salaries. In addition, during the low seasons, thecorporation can decrease payroll expenses by limiting working hoursand retrenching some of its employees. By doing so, Babycakes will beable to limit its expenditure partially.

References

Bragg,S. M. (2013). Accountingpolicies and procedures manual: A blueprint for running an effectiveand efficient department.Hoboken, N.J: Wiley.

Cunningham,B. M., Bazlley, J. D., Kavanagh, M., Nikkolai, L. A., Simmons, S., &ampSlaughter, G. (2015). Accounting:Information for business decisions.South Melbourne, Vic. Cengage Learning.

Peris-Ortiz,M., &amp Sahut,J.-M. (2014). Newchallenges in entrepreneurship and finance: Examining the prospectsfor sustainable business development, performance, innovation, andeconomic growth.Cham: Springer.

Appendices

Appendix A: Babycakes’ Sales Budget

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Sales Budget

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Oct-16

Nov-16

Dec-16

Volume

3,333

5,633

8,255

Donuts

1,100

2,456

2,955

Cakes

1,333

1,400

3,000

Cookies

900

1,777

2,300

Selling Price per Unit

$3.50

$3.50

$3.50

Sales

$11,665.50

$19,715.50

$28,892.50

Cost of Sales

$

$

$

Opening Inventory

1,500

1,569

1,600

Distribution costs

2,500

2,600

2,660

Purchases

3,300

3,500

3,667

Closing Inventory

700

550

667

Gross Profit

$5,065.50

$12,596.50

$21,632.50

AppendixB: Babycakes’ Flexible Budget

Babycakes LA

FLEXIBLE BUDGET

Month

Oct-16

Nov-16

Dec-16

Units sold

3,333

5,633

8,255

Sales Revenue

$ 11,665.50

$ 19,715.50

$ 28,892.50

Variable Costs

$ 5,400.00

$ 6,000.00

$ 6,200.00

Contribution Margin

$ 6,265.50

$ 13,715.50

$ 22,692.50

Fixed Costs

$ 3,000.00

$ 3,000.00

$ 3,000.00

Operating Income

$ 3,265.50

$ 10,715.50

$ 19,692.50