BabyCakes’ Budget Planning and Control
By Vaidehi Rao0020
Subject – ACC 556–  Financial Accounting for Managers
Submitted Date – Sept 2, 2018
Professor: Prof. Ed Atuahene, CPA

Babycakes is a famous vegan bakery in New York, and the owner is now opening is another store across the country in Los Angeles. As the business market in New York is different than Los Angeles, Baby Cakes owner needs a budget planning.
Advantages of Budget Planning ; Control
The sales budget contains an itemization of a company’s sales expectations for the budget period, in both units and dollars.

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A budget plan will benefit the owner of the Babycakes as compared to having no budget. Operating without budget makes it hard for management to keep track of their spending and estimation of the future sale and associated costs.
When using a controlled budget, Babycakes would know how much money to allocate for materials such as sugar, butter, cake toppings, etc. and resources such as how many employees will be needed to work in bakery.
If Babycakes makes decision try a new product, the budget planning would be very beneficial to control spending. If they don’t sell well on the new product, they know not to make them in future, and the budget isn’t hurting. If they do sell, they know how much they can allocate for the new product. By adding a new product, Babycakes takes a financial risk. When the risk is worth for profit, it allows the company to grow. When the risk isn’t profitable, it will enable the company to take a financial hit. The budget will allow Babycakes to take a look into the future and make necessary adjustments.

Sales Budget for Babycakes, LA
The sales budget is the initial and fundamental component of the master budget. The Sales budget demonstrates the projected number of sales units in a period and the anticipated price for every unit. Also, the sales budget indicates total revenue, which is obtained by multiplying the expected cost per unit and expected sales unit.
The following is the sales budget for the LA Babycakes store for the 4th quarter of 2016 for October, November, and December. Let’s assume that sale for a regular day of the first quarter of LA Babycakes is half of what they are selling in New York on Valentine’s day, i.e., 750 and unit price for each product will be $3.50.

Month October November December
Number of Days in Month 30 30 30
Forecasted unit sales 750 750 750
x Price per Unit $3.50 $3.50 $3.50
Total Gross Sale $78,750.00 $78,750.00 $78,750.00
Total Quarterly Sales Budget $236,250
In creating this budget, the following assumptions have were made.

LA baby cakes only sell one product.

The cost of production of the product is constant thus its sales price does not change during the quarter.

The business operates for 30 days every month of the quarter.

All units that Babycakes produced have been sold.
The business sales 750 units each day
Holiday Sales Budget for Babycakes, LA
The owner of Babycakes LA also wants to sell different variety of products during the holidays for each month of the 4th quarter of the year as a marketing strategy for her new store.
Here are the three new products they have planned to make for each month as a special sell.
October (Halloween) – Pumpkin Cake for $4.00
November (Thanks Giving) – Apple Pie for $2.50
December (Christmas) – Brownie with Ice Cream for $5.00
Here is the sales budget for Holiday season of Babycakes, taking in to account the new products they will be selling
In creating this budget, the following assumptions have been made.

LA baby cakes only sell one product within 23 days of each month. The new holiday product is sold seven days before the holiday.
The cost of production of the product is different for holiday product vs. regular product.
The business operates for 30 days every month of the quarter.

All units that Babycakes produced have been sold.
The business sales 1000 units each day on a regular day but holiday sale units are increasing each month by 200.

Month Total Days / Month Product Price per unit Forecasted Unit of Sale Monthly gross Sale Total Monthly Sale
October 30 Normal Business days (23 Days) Regular Babycake $3.50 1000 $80,500 $83,300
Seven days before Halloween (7 Days) Pumpkin Cake $4.00 100 $2,800 November 30 Normal Business days (23 Days) Regular Babycake $3.50 1000 $80,500 $85,750
Seven days before Thanks Givings(7 Days) Apple Pie $2.50 300 $5,250 December 30 Normal Business days (23 Days) Regular Babycake $3.50 1000 $80,500 $98,000
Seven days before Christmas (7 Days) Brownie with Ice Cream $5.00 500 $17,500 Total Quarterly Sales Budget $267,050
Advantages of Flexible Budget
A static budget as the name suggest is just that – static. The numbers on static budget do not change for the entire year(period), regardless of what that happens in the business environment. Whereas, a flexible budget is a sequence of budgets prepared for various levels of activities, revenues, and expenses.

Flexible budgets allow control and change from the original forecast of the budget during the budgeting timeframe. Flexible budgets takes into account changes in the cost of materials, changes in the pricing of the products to be sold and changes to operating expenses as needed.

Suppose material costs for a Babycacke product suddenly increase during the year, making this item unprofitable. A flexible budget would help recognize this variance, and management could take corrective actions. This may require a price increase or an effort to find cost savings in manufacturing expenses.

Corrective actions for Babycakes
Some of the challenges of forecasting a budget for the three upcoming holidays are considering the time of year in a different city, the new location, and the sales predictions. Other challenges include whether or not the decisions that were made were good or bad decisions; should 100 cupcakes be made or should 200 cupcakes be made for Halloween in LA? Using an actual budget from a different city is risky.
It’s risky in the fact that the market data from New York can’t be applied to LA. One may be flourishing while the other may be lagging; revenues may be up or down. Pricing of materials and products are different in each market; expenses for renting location or buying property may be higher or lower. People’s taste in the product is different in each market. The expected results will be different.
The correction is to take what happened and put it up against what was forecasted with both the budget and the experience. This will be an attempt to find the variances of the whole experience, looking at what happened and if it was the outcome that was anticipated or predicted. Was the budget the right size for the projected sales? Did the sales bring in the revenue that was expected? If not, then review the outcome, the budget, and the prediction, and adjust accordingly.
Some modification that can be implemented are
to do market research;
understand and verify the demographics in the area, a
Conduct a survey to findout how people in new location celebrate holiday season
It is also importantn for the owner of Babycakes to execute price companiron between the two cities for the material and product. Based on this comparison necessary modification shall be made to the budget.
Product sampling is also an important strategy to see how people’s taste for the product differs between the two cities. These details will help the Owner of Babycakes to make an educated decision on whether 100 cupcakes should be make or 300 for Halloween festival season.
Understanding market demand and updating budget plans accordingly will help Babycackes to be successful in their retail business.
Key Takeaways
Budgeting is to help manage and control business, in particular, focusing on the cash received and spent — all looking a year ahead.
Budget must be in the same level of detail and format as the actuals are reported.

At mid-year examine year-to-date results and next six month’s forecast to determine if the budget should be updated.

Be conservative in budget assumptions as revenues for the new business take longer to achieve than planned while expenses are generally ongoing.

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