The significance of a realistic budget to organizations is undebatable. Budget is needed in both large and small organization. Designing and observing a realistic budget is essential for the prediction of possible future events. As a result, strategic policies can be implemented to increase profits in the firm. The Babycakes case study is used to exemplify the necessity of a realistic budget in a firm. Also, the paper will demonstrate the usefulness and efficiency of a budget. New products are recommended for the 4th Quarter of 2016 that will increase profits and motivate Babycakes employees to work harder. The significance of careful planning will be addressed to help the newly opened branch in Los Angeles to avert any challenges associated with unpredictable events.
Benefits of a realistic Budget
Budgeting is a penned statement conveyed in monetary terms to exhibit managerial plans of a firm in a given period. This is an essential aspect of organizational development. Babycakes CEO argues that budgeting has helped the firm in monitoring its performance through strategic spending. In essence, a budget reflects the monthly performance of the firm. Financial progress can be tracked by businesses using a realistic budget (Reome & Sinclair, 2017). Ideally, a budget frames the plans of an organization, thus preserving the profile of the company among its rivals. The company becomes accountable and effective around money, which fosters business expansion. Also, profit and cash flow predictions can be executed effectively in consideration of the past performance of the firm. In the case of Babycakes, consumers resolve to spend less on sugary products in the quest of maintaining healthy lifestyles, especially Post New-Year season(Reome, & Sinclair, 2017). Thus, the company should balance production by implementing a production budget. However, the company has been strategic on planning which is evident in its success. Therefore, budgeting is an essential concept that should be integrated into every firm.
Babycakes Sales Budget for the Quarter 2016
Prices of Daily Monthly
Month Units (a) Sales$ (b) Sales Sales
October 750 1.75 1312.5 39375
November 750 1.75 1312.5 39375
December 750 1.75 1312.5 39375
Net Sales 3937.5 118, 125
Babycakes CEO delves that the company will be making newly designed cupcakes (small-black-and-orange cupcakes) with zigzag designs evoking funky and spiderwebsfor the Halloween Day. The variations in production are essential for every firm, as creativity will be exhibited. Ideally, the holiday seasons in the 4th quarter of each year are Veteran’s Day, Halloweens’ Day, and Christmas Day. During November, the cupcakes produced should be bedecked with blue, white, and red icing, which represents the U.S flag. The firm should invest much on Christmas Day as people spent spree during the holiday. Cupcakes decorated with reindeers, snowmen and Santa Claus will be produced.
In essence, the sales units are expected to increase meticulously compared to other holidays. On average, the company should sell over 1500 units on each holiday. Prices should increase as the production of non-seasonal products demands more time and resources. This implies that the total sales for each month will upsurge by over 1500 units. The estimates are based on consumption patterns of people during the holidays.
Benefits of a Flexible Budget
A flexible budget adjusts to inconsistent events, unforeseen occurrences and isolated incidents. Conversely, a static budget is constant; hence should be planned annually. Static budgets are divided into comprehensive parts targeting analysis of variance. Thus, static budgets usually flop to integrate new data and fluctuations exhibited in production. This shows why Babycakes CEO is jumbled on unfavourable variations depicted in her static budget. On the other hand, flexible budgets integrate the company’s’ experiences in the past, present, and future. Thus, a flexible budget is more accurate (Maher et al., 2018). A flexible budget can be altered to fit monthly variations. In this case, fixed expenses such as rent can be put aside while variable expenses should be adjusted accordingly. Thus, Babycakes owners should consider preparing a flexible budget to benefit from the coming holidays before a low season is experienced post-New Year. Integrating cautious and optimistic attitudes during the holidays will increase the expected profits substantially as the company will meet the demand accordingly.
Improper financial planning lapses firms into overspending. Small firms like Babycakes are challenged in the aspect of adhering to the set budget. Avoiding overspending has been the goal of every firm. To avoid overspending, the accounting department should be responsible for money flow in the business. Babycakes has managed to meet their monthly expenses, however, avoiding future bottlenecks will be impossible for the firm as it puts all the spending income in a file, thus hard to determine a steady flow of cash. Secondly, a firm should not settle for any insurance plan that comes on the way (Huebnar et al., 2018). One should be aware of the insurance plans available and settle for the best. Thirdly, a firm should avoid spending much on employees and general property. Salaries should be based on the productivity of the workers. Observing the above rules will help a firm reduce unnecessary expenses hence boosting profits.
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