Budget or No Budget. Research Paper Example.

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University of California, Santa Barbara
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Research paper
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Budgeting is an essential aspect of every single business organization. A budget provides a business with the opportunity to meet their objectives and plans while at the same time attempting to minimize expenses and costs. In a business like Babycakes, it would be better to have a budget as opposed to not having one at all. There ought to be a pragmatic outline of the inputs as well as their costs for the bakery. Such an outline enables the organization to plan and be able to understand the amount required to make the cakes. Also, the budget ensures that all the resources are put into their intended purposes and not redirected to areas that they do not produce maximum benefits. The business makes cakes that are meant for special occasions such as birthdays, charismas and other celebrations and festivals.

The Babycakes bakery is required to purchase the raw materials for making cakes which include bakes cakes for special occasions. The bakery has to acquire raw materials for use in making cakes. These include flour, sugar, and flavors oil among other ingredients which cost money and therefore the organization can be able to track the expenditures. It is a bit difficult for a business to run without a budget as it cannot track its expenditure and it becomes hard to balance the expenditure against its sales revenue (Tarokh & Koochakpour, 2015). Therefore, Babycakes bakery engages in the forecast of both cost and products so that it can successfully plan how to produce the products and sell to the market. In essence, Babycakes bakery cannot operate without undertaking forecasts since it would be impossible to create a budget which is important for the company to operate. Budgets can impact positively to the company because the company can be able to track the production operations by measuring the costs as well as the sales comparable to gauge whether the company is operating well. Thus, the Babycakes bakery budget proposal can make a positive impact on how they operate and how efficient they are.

Sales Budget 4th Quarter

The sales budget is one of the important budgets that a company can create to ensure the smooth flow of the operations. The budget has information that concerns the expected sales that a business will have during a financial period. The sales budget is one of the components of a master budget that contains information on sales expectation, financial plan as well as marketing plan of the business in one document. Therefore, it is important to consider creating a sales budget in any given financial quarter. Therefore, Babycakes bakery will create a sales budget to show the business expectations of the company regarding how much product units that the company will produce and how much they will sell to the consumers. Additionally, Babycakes bakery will consider at what cost they are expected to produce to be able to work out the profitability margin (Tarokh & Koochakpour, 2015). Therefore, sales budget will be computed in a sales forecast form. The Babycakes bakery produces all types of cakes; from specialty cakes to special occasions cakes and hence, the company should be able to create a forecast on how much they will sell as according to the categories set.

In this case, we will create a sales budget for the 4th financial quarter, detailing the sales and price. Notably, the figure for the special orders differs due to the clients tastes and preferences. Additionally, the cake will be baked as according to the large, small, and medium sizes. The different categories have varying prices though the price increases with each special order by the client. The Babycakes Bakery will have to consider that there are three occasions; Thanksgiving, Halloween, and Christmas. Therefore, in each three months, the bakery will produce different products. The table below shows the sales budget for the fiscal quarter:

PRODUCTS Oct-17 Nov-17 Dec-17 TOTAL

Cream Cone Cupcake 25000 0 0 25000

Sweet Potato Cupcake 0 27000 0 27000

Candy Cupcake 0 0 30000 30000

Selling Price 3 3.2 3.5

Total Sales $ 75,000.00 $ 86,400.00 $ 105,000.00 $ 266,400.00

Production Costs $ 40,000.00 $ 44,000.00 $ 47,000.00 $ 131,000.00

Gross Profits $ 35,000.00 $ 42,400.00 $ 58,000.00 $ 135,400.00

Rent (Fixed) $ 4,000.00 $ 4,000.00 $ 4,000.00 $ 12,000.00

Net Income $ 31,000.00 $ 38,400.00 $ 54,000.00 $ 123,400.00

Sales Assumptions

Days per month 30

Units per day 830-850

Sales Price $3-$3.5

Holiday Assumptions Oct Nov Dec

Units 500 600 700

Production Cost per unit $ 1.20 $ 1.30 $ 1.40

The table below shows an overview of the budget for the three products that the company produces.

October November December

Budget Actual Variance Budget Actual Variance Budget Actual Variance

units 25000 26000 1000 27000 27500 500 30000 30200 200

sales $ 75,000.00 $ 78,000.00 $ 3,000.00 $ 86,400.00 $ 88,000.00 $ 1,600.00 $ 105,000.00 $ 105,700.00 $ 700.00

production costs $ 40,000.00 $ 42,000.00 $ 2,000.00 $ 44,000.00 $ 46,000.00 $ 2,000.00 $ 47,000.00 $ 48,200.00 $ 1,200.00

Gross profit $ 35,000.00 $ 36,000.00 $ 1,000.00 $ 42,400.00 $ 42,000.00 $ (400.00) $ 58,000.00 $ 57,500.00 $ (500.00)

Rent(Fixed) $ 4,000.00 $ 4,000.00 $ - $ 4,000.00 $ 4,000.00 $ - $ 4,000.00 $ 4,000.00 $ -

Net Income $ 31,000.00 $ 32,000.00 $ 1,000.00 $ 38,400.00 $ 38,000.00 $ (400.00) $ 54,000.00 $ 53,500.00 $ (500.00)

For the three months, the table showed the budgetary allocations as well as the actual amount. The difference between the budget and the actual is the variance. In the table, it is noted that the variance is positive which means that the company is performing well regarding the production of the cakes and expectation of sales.

Flexible Versus Static Budgets

In forming a good budget and planning, organizations ought to move from static or infrequent process of budgeting to flexible and continuous budget to come up with a more reliable budget. For a significant number of new firms, the hardest task is to determine to come up with a sound budget. The process is found to be difficult because there are no previous budgets which have been prepared (Koochakpour & Tarokh, 2016). Babycakes is in the same case of a new business, and therefore the owner of the company has settled down on using a static budget. The reason is that the static budget will enable the business owner to come up with a budget for the next year by outlining different items. However, the main disadvantage of a static budget is that an informative guess in the basis of previous sales is needed, but in this case, the company is quite new.

Babycakes is situated in a new location, and hence the only figures that are available to them are those from the enterprises across the country. Such figures are not reliable since they neither consider the cultural nor the economic environment of Los Angeles. Therefore, it becomes nearly impossible to achieve the objectives of the budget if different figures are used form a different environment. Babycakes continuous to have negative variances is as a result of the increase in sales out of using a static budget which has the variable cost of production when sales exceed the amount of budget.

The best course of such a new business as Babycakes is to make use of a flexible budget since there is less variance at the beginning. During the second year of the business, Babycake can apply the actual figures for the first year of the budget to come up with a static budget that would present a chance to assess the variances. Therefore, Babycakes bakery should not use static budget since it is hard to estimate the number of product units that will be sold during the fiscal quarter.

Financial Challenge

Considering that Babycakes has shifted to another location where they thought they would have more revenue than where they were initially. However, this does not seem to be the case as there is over expenditure as a result of increased variable and fixed costs in the business. As a result of attempting to make their clients happy, the company has tried to make products that were previously produced in New York, but the response is quite different in Los Angeles. Babycakes bakery should be aware that different locations have different consumer preferences and tastes. Therefore, for the company to prevent excess expenditure, the company needs to assess those products that do not move fast and concentrate on those that move fast. By examining the products that the consumers love at the new locality, then they will be able to focus on producing the product which in effect will lead to the reduction of the production costs. Another technique that the company might use is that the company should produce in smaller quantities those products that generate less profit and in larger quantities those products that make more profit.

Excess expenditure can be as a result of services or goods that are a part of the income statement but other times may be included in the operating expense and hence overlooked. Overspending comes as a result of no plans on how much to use on each item and purchasing the wrong products as well as the lack of the knowledge of what one requires. Also, overspending can be prevented by baking the exact amount of products in order not to replace every time (Johnston & Marshall, 2016). The owner of the business can control overspending by inputting the correct cost of goods and services in the right statements to ensure that all the items are put into consideration. For instance, the business could ascertain the measurement of ingredients like flour, oil, sugar, and oil to track and minimize wastage.



Johnston, M. W., & Marshall, G. W. (2016). Sales force management: Leadership, innovation, technology. Routledge.

Koochakpour, K., & Tarokh, M. J. (2016). Sales Budget Forecasting and Revision by Adaptive Network Fuzzy Base Inference System and Optimization Methods. Journal of Computer & Robotics, 9(1), 25-38.

Tarokh, M. J., & Koochakpour, K. (2015, December). Designing budget forecasting and revision system using optimization methods. In Computing, Communication and Security (ICCCS), 2015 International Conference on (pp. 1-7). IEEE.

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