Budget Planning and Control
Running head: BUDGETARY PLANNING 1
Budgetary Planning
Erin Murillo-Gerrity
ACC 556
Walfyette Powell
Feb 26, 2020
BUDGETARY PLANNING 2
PART 1
Every organization requires a budget to controls their spending and ensure that
employees are accountable for the resources of the organization. There are benefits that are
attributed to the use of realistic budget compared to an organization that does not use any budget.
The use of Babycakes uses realistic budget they will be able to determine the exact number of
cakes that they can sell in a day. A realistic budget will also help the management of Babycakes
to have a monthly sales target based on the daily sales of the organization (McKenna, 2011). For
example, if Babycakes sells 900 cakes on weekdays and 1,200 cakes on weekends, then the
following calculation helps in forecasting month sales.
Weekday sales = 900*22 days = 19,800 cakes
Weekend sales = 1,200 *8 days = 9,600 cakes
Monthly sales forecast = 19,800 + 9,600 = 29,400 cakes
The realistic budget will help the organization to determine the number of raw materials required
by the organization for the manufacture of its cakes to meet the sales target. Forecast on sales
and cost by the management is essential in ensuring that the firm avails the required resources to
make the cakes to meet the monthly sales.
PART 2
Details October November December Total
Number of cakes 900 900 900 900
Days 30 30 30 90
Monthly cakes 27,000 27,000 27,000 81,000
Selling price/cake $4.50 $4.50 $4.50 $4.50
Monthly revenue 121,500 121,500 121,500 364,500
Variable cost per unit $3 $3 $3 $3
BUDGETARY PLANNING 3
Total variable cost $81,000 $81,000 $81,000 $243,000
Fixed Cost $35,000 $35,000 $35,000 $35,000
Profit 86,500
PART 3
Inclusion of a new product for the three months. The price of the new product shall be
$5.5, and a total of 600 cakes shall be produced per month.
Details October November December Total
Number of cakes 900 900 900 900
Days 30 30 30 90
Monthly cakes 27,000 27,000 27,000 81,000
Selling price/cake $4.50 $4.50 $4.50 $4.50
Revenue from old products 121,500 121,500 121,500 364,500
Number of new products 600 600 600 1,800
Selling price per cake $5.5 $5.5 $5.5 $5.5
Revenue from new products $3,300 $3,300 $3,300 $9,900
Total revenue $124,800 $124,800 $124,800 $374,400
Variable cost per unit $3 $3 $3 $3
Total variable cost $82,800 $82,800 $82,800 $248,400
Fixed Cost $35,000 $35,000 $35,000 $35,000
Profit $91,000
Assumptions
1. The variable cost and the fixed cost is the same regardless of the increase in production.
2. All the cakes produced will be sold without breakages or some going bad.
3. The organization shall produce the same quantity of cakes on a daily basis.
BUDGETARY PLANNING 4
4. Other costs, such as transport shall not affect the cost of production throughout the
production period.
PART 4
A flexible budget is a budget forecast that changes with the change in sales and
production. The budget is drawn considering the changes in the sales and the production level of
the organization. A static budget is a budget estimate when the figures remain the same
regardless of the change in the sales and the level of production in an organization. A flexible
budget is realistic since it changes as the production changes. Statistic budget shows unfavorable
variance because some of the costs incurred by the organization in the production process are not
factored in the static budget (De Baerdemaeker & Bruggeman, 2015). The problems of the static
budget shall be solved by a flexible budget, which includes all the changes which occur during
production. Flexible budget records the increase in the sales of the firm, which covers the deficits
experienced in the static budget. The unfavorable variance will be converted into the favorable
variance in the flexible budget when the increase in sales is recorded.
PART 5
The financial challenge which leads to overspending can be attributed to the increase in
the cost of raw materials as the sales increases. In most cases, the managers continue to buy raw
materials from the same suppliers without considering the changes in their selling prices. The
financial challenge facing Babycakes can be overcome through the following strategies. The first
strategy is to have a contract with the suppliers, which will ensure that they get raw materials in
time at the stated price (Yahya-Zadeh, 2012). When the sales increase, the management of
Babycakes should have many suppliers as this will lower the bargaining power of the suppliers.
The last strategy is to higher financial experts to help in cost-cutting by the firm.
BUDGETARY PLANNING 5
References
De Baerdemaeker, J., & Bruggeman, W. (2015). The impact of participation in strategic
Planning on managers' creation of budgetary slack: The mediating role of autonomous
motivation and affective organizational commitment. Management Accounting
Research, 29, 1-12.
McKenna, E. (2011). Budgetary Planning featuring Babycakes *FULL VIDEO*. Retrieved 9
September 2019, from https://www.youtube.com/watch?v=frh3I2rVDzs
Yahya-Zadeh, M. (2012). Comprehensive variance analysis based on ex-post optimal budget.
Academy of Accounting and Financial Studies Journal, 16, 65.