Flexible Budget for Baby Cupcakes, Free Essay in Finance

Baby cakes is the Bakery that bakes varieties of hygienic cakes such as Gluten-free cakes, cupcakes, etc. Baby cakes is very popular in New York, Los Angeles, and Orlando. Baby cakes is facing problem for making an efficient budgeting system. Following are some of the budget planning related to the Baby cakes budget systems.

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Budget Planning and Control of Baby cakes

Requirement of Budgeting for Baby cupcakes

Budgeting is useful for making the spending plans of the money. (Brown, Fisher, G, Peffer, & Sprinkle, 2016)Budgeting ensures that there will always be enough money available with the Babycakes for the important things in the business. Maintaining budget will also help the Babycakes to keep the debt away from the business. And if there will be no budget then the future planning for the spending of money cannot be done, and there may be more spending than the earnings which will ultimately create debt for the business. (Cassidy, 2016) Making realistic budget towards the forecasting of the expenditure of money for the year has a very useful for the long time financial planning which will enable the management to make realistic assumptions which are made towards the annual income and expenses and also long-term financial planning for the growth of business. This expansion of business activity is not possible if there is no budget. (Chua, Lowe, & Puxty, 2015)Sales Budget of Baby cupcake for 4th QuarterHere, the total sales have been taken double of average day sale quantity (1500 unit)for the occasion of Holween which is on 31st October 2016for forecasting the sales budget. Thanks Giving day is celebrated on 24thNovember 2016 &the Christmas Day is celebrated on 25th December 2016.

Causes of Unfavourable Variance for Baby cupcakes

There are three holidays in the 4th quarter. One is Holween day on 31st October 2016; the second one is Thanks, Giving day on 24thNovember 2016 &the Christmas Day is on 25th December 2016. Therefore, three new products for three Occasions are launched by Baby Cakes. The Baby cakes are dedicated the Soul candy for Holween Day. For the Thanksgiving days, Apple pie, pumpkin pie and pecan pie are there. The Baby cake decided to make special Christmas cookies for Christmas day. They have chosen to produce the new product for the every occasion, and the rate which they have determined to fix is $4.50 each.

Requirement of Flexible Budget for Baby cakes

Flexible Budget is more is a budget which can be adjusted according to the change in the volume of the action and contrast; the static budget is the budget which is not constant and does not have any effect on the changes in the size of the work (Brown, Fisher, G, Peffer, & Sprinkle, 2016). Static Budget Variance is the difference between the estimated expenditure versus actual expenditure (Cassidy, 2016). In the static budget, the Baby cakes create the budget for the entire period such as for a year and dont make any changes in the budget as the variations in the factors of the production. This type of static budget is the main reason due to which baby cakes experienced the unfavourable variance even though there is the increase in the sale over the time (Mukhopadhya, 2015).

Babycakes needs to prepare the flexible budget to overcome this problem which can be adjusted according to the changes in the activity. For an example, in the 4th quarter, the Babycakes need to change according to new forecasted sales which differ from the usual month sales. The general sale per day is 22,500 units for each month, but the forecasted sale is 22,750 units, 22,800units, & 22,750 units for October November and December respectively.

Financial Accounting for Babycakes

Baby cakes is facing problem of overspending then the budgeted following may be the one reason of that problem.

Baby cakes have assumed its daily consumption will be around 750 pieces and has made accordingly that production quantity. Note Baby cakes do not maintain more than two days inventory in its bakery. Moreover, Bay cakes have made the particular standard for the raw material used for its production and for that raw material certain supplier are fixed. but due to some unavoidable condition Baby cakes unable to get its raw material from its regular supplier for one week so Baby cakes needs to buy its required raw material a from the other supplier before its inventory finished (Brown, Fisher, G, Peffer, & Sprinkle, 2016). The cost of the raw material purchased from the new supplier is the more than the old supplier. But there is no other way except purchase the raw material from the new supplier which ultimately increases the cost of the production of the cakes, cookies, etc. of the Baby cakes. Baby cakes has not adjusted the selling price according to the increased raw material cost and unfavourable variance arrives and spending become more than the budgeted amount (Cassidy, 2016).

It is recommended to the Baby cakes towards the get rid of the overspending as compared with the estimated amount; Baby cakes shall use flexible budget which can be adjusted according to the various level of sales demand and cost of the raw materials and also Baby cakes needs to maintain optimum inventory so that it will never face any such problem in future.

Conclusion

Budgeting is the quantitative plan for the particular period. Budgeting is useful for every individual as well as for every company to do effective future planning. The budgeting comprises of static budget and flexible budget. A static budget is constant throughout the budgeting period but the flexible budget is flexible can be adjusted according to the production level. The flexible budget is more preferred than static budget comparing both of these two budgets. Therefore, the Baby cakes should follow the flexible budget.

Appendices

Table 1: Estimated Sales Budget of Cupcakes in fourth quarter of 2016

References

Brown, J., Fisher, G, J., Peffer, S. A., & Sprinkle, G. (2016). THe Effect of Budget Framing and budget Setting process in Managerial Reporting. Management Accounting System, 108-152.

Cassidy, A. (2016). A practical guide to information systems strategic planning. CRC press.

Chua, W. F., Lowe, T., & Puxty, T. (2015). Critical Perspectives in Management Control. London: Palgrave Macmillan.

Mukhopadhya, S. K. (2015). Production Control and Planning. New Delhi: PHI Learning Pvt. Ltd.