Best Budgeting Technique for Snappy Drinks Plc

The report discusses the importance of sound financial resources in business operations and suggests activity-based budgeting as the best budgeting technique for Snappy Drinks Plc. This approach takes into account every business activity and cost expense associated with it, enabling effective formulation of financial plans for future business and time periods.

Business Finance

TABLE OF CONTENTS
INTRODUCTION…………………………………………………………………….1
MAIN BODY…………………………………………………………………………..1
PART – A………………………………………………………………………………2
PART – B………………………………………………………………………………6
CONCLUSION………………………………………………………………………..8
REFERENCES………………………………………………………………………..9

INTRODUCTION
Business Finance is considered as a process of employment of funds, money and capital
resources in the business organisation required for conducting business operations. Decisions
related to the financial aspects of business have to be made properly as it is the core
requirement of every business organisation. Procurement of funds and its effective utilization
in the business can lead to smooth functioning as well as achievement of goals and objectives
in a cost effective manner. The present report is based on Snappy Drinks Plc, which is a
manufacturer of energy drink on international basis. The report will discuss about
preparation, purpose as well as its process of Budget. Further, the report will streamline about
the meaning of traditional and incremental budgeting approach. Also, alternative budget
methods will be defined along with their drawbacks and applications. At last, the report will
shed light on making suggestion that which budgeting method is appropriate for company.
MAIN BODY
PART – A
1. Concept of preparing the budget for company and its purpose.
Budget is considered as formulation of the financial plan particularly designed or
developed by the company. Such financial plan helps the company in making estimation of

revenue and expenditure amount for a specified period of time. When company is having
proper budgets and plans it can assists in making estimates of income to be earned from the
future sales and expenditure to be minimized for specific business task (Chohan, 2019).
Various types of budgeting tools help in forecasting of revenue and expenditure amount
about all the financial transaction with the help of previous data and information of the
company. With the help of budget, a company is able to make use of limited budgeted
resource and amount available effectively and efficiently. Budgeting helps in making
business plans and evaluates performance.
The purposes of preparing budget are as follows:
1. Monitoring and measuring of the business performance – With the use of budget
make projections of sales, revenue and expenditure amount for future time period.
Budget assists company in measuring the business performance level by making
comparison of actual outcome with the budgeted or expected one.
2. Allocation of resources – Every company should make analysis of its business
requirements and needs as per the goals and objectives (Krause and Thörnig, 2016).
Effective and proper allocation of limited funds and other business resources as per
the budget designed helps company in attaining maximum profit with minimum cost
factor.
3. Income and expenditure can be forecasted – Budgetary methods help the company
in making forecast of the amount of income and expenditure to be made in the near
future from carrying on a particular business task or operations.
4. Predict cash flows – It helps in making prediction of cash flows for the definite time
period. Company is able to ascertain the amount of cash inflow and outflow made
with the help of budget.
5. Tool for decision making – Budget is considered as one of the most important tool
for making sound business decision. It helps in formulation of effective and accurate
strategies and plans related to allocation of fund resources, business operations or
method to be followed etc. which helps in successful accomplishment of business
goals and objectives.
Process of preparing budget is as follows:
1. Business goals and objectives should be specific and clearly define – The first
most important process in preparing a budget is defining the goals and objectives

which the business is willing to achieve or for which it is working. Company should
always have specific goal and objective.
2. Collection of data and information – After the goal of business is defined, the next
step is to gather or collect all the relevant data, information or statistics. Proper
interpretation should be made of data gathered.
3. Creating budget as per requirement and business goals – After the goals and
objectives of business are framed, next step is creation of budget plan. Budget is
designed with in line of business goals and to forecast the amount of income and
expenditure (Adams and Martens, 2015).
4. Execution of budget formulated – Budget created is then implemented for making
projections of sales revenue for a definite time period. It helps company in
determining the variances or loopholes in the budget designed by making comparison
between the actual one and the expected one.
5. Monitoring actual result & analysing the variances, if any – After successful
implementation of budget, actual results are monitor with the expected one so as to
ascertain the variance factor.
6. Redefining goals – Goals are redefined in case where actual result varies on large
basis with the desired outcomes (Hitz and et.al., 2018). This is done with the objective
of minimizing the cost associated with department which is highly expensive and
consuming more resources then required.
2. Application of traditional and incremental budgeting approach in the company.
Traditional Budgeting approach is mechanism of preparing budgetary plans
related to the current year on the basis of previous year budget. The current year
budget is prepared by implementing necessary and required changes in the budget of
previous year by taking into consideration all the adjustments related to the expenses
of business operations. The expenses related to rate of inflation, customer taste and
preferences, market demands and situation etc. are considered for framing New Year
budget under the traditional budgeting approach.
In the Incremental Budgeting approach, the budget is prepared on the basis of
previous time period budget or the actual performance achieved. In this method,
incremental addition is done in form of amounts for formulation of new budget period
(de Campos and Rodrigues, 2016). In management accounting it is considered as an

important part, as by making small changes in the existing budget, company can
derives new budget.
The company here named Snappy Drinks Plc wants to expand its business
operations by launching new products for which appropriate budgeting method is
required. The application of Incremental Budgeting approach is as follows:
1. With the help of incremental budgeting approach, it provides continuity of
fund allocation or funding stability to all the departments of Snappy
Drinks Plc without making detailed analysis of requirement of funds.
2. The Incremental budgeting approach always ensures that no large
deviations are assessed year after year in the budget designed which leads
to significant changes in the budget requirement. This type of budgeting
helps company by providing a stable budget for year.
3. This approach focuses on operational stability of Snappy Drinks Plc. It
also ensures that business operations of various departments are
working in a consistent and stable manner for long time.
3. Making analysis of the use of traditional budget system in the company.
Snappy Drinks Plc, a manufacturing company of energy drinks has been making use
of traditional budgeting approach for many years. The traditional budgeting approach is not
considered as appropriate method of budgeting for Snappy Drinks Plc. As the company is
having significant changes in its business operations, this system of budgeting is not suitable
in case when company is thinking of making business expansion by launching a new range of
health drinks with variety of low fruit exotic fruit flavours (Popesko and et.al., 2015). The
company with this change will rollout 15 new products in the market. But as traditional
budgeting doesn’t consider significant changes which can affect the company in the coming
years. Traditional budgeting is not appropriate because of following reasons:
1. Inefficient business process – Traditional budgeting is time consuming process
& management resources of business as well. This is because traditional
budgeting makes use of spread sheets. The use of spread sheet is considered as the
most common tool among companies but on the flip side spread sheets has some
drawbacks such as chances of errors during data entry, control issues related to
version or software, difficulty faced by company in achieving accurate
formulations (Rogulenko, T. and et.al., 2016).

2. Low response towards changing attitude – Many business organizations already
followed the annual budgeting cycle. This focus sometimes results into making
the budget obsolete immediately after it has been created. Employees are not
interested in giving proper response towards such type of budgeting. Also,
company don’t conduct review session regularly so as to take change into account.
3. Inaccurate prediction and forecasting – As it is makes use of previous year
budget as a basis for formulating current year new budget, it doesn’t takes into
account the current market fluctuation or trends such as the rate of inflation,
market and consumer demand, market situation etc. for making of new budget.
PART – B
1. Defining concept of alternative budget method for company.
Budgeting is considered as a process of making financial plans and strategies in
relation with the future business activities. It also streamlines about setting of business goals
so as to achieve profitability factor for the company. It emphasizes on assessing the growth
and performance level of the company during a particular period. Budgeting helps in making
right comparison between actual results with the budgeted one leading to estimations more
accurately.
1. Rolling Budgets - Also known as continuous budget is a method of constantly
updating of new budget period in comparison to the existing one. It is based on
dynamic approach in which at the end of each month the progress level of Snappy
Drinks Plc towards set defined goals are evaluated. As per the achievement made in
relation of goals, budget for future is modified and adjusted.
Advantages Disadvantages
 Rolling budget is having flexible
nature by use of which Snappy
Drinks Plc can incorporate required
changes on the basis of the past
period data.
 Rolling budgets are considered more
responsive in case of unexpected
changes and adjustments. It helps in
modification in the plan accordingly
 It is a time and resource consuming
process as continuous updating of
the budget requires a considerable
amount of time and effort.
 This is similar to creating a new
budget again and again.
 Constantly changing budget could
be disturbing for the employees of
Snappy Drinks Plc and time spent in

in the upcoming period.
 It also helps in the improving the
forecast accuracy for the next period
by considering the previous
profitability aspect.
revising the budget could lead to
miss of some other critical tasks
(Brusca and Labrador, 2016).
2. Zero based budget – It is a form of budgeting, in which budget is prepared from the
scratch level. By using the Zero based budgeting, Snappy Drinks Plc can start at a
zero base and analyze the needs and costs of each task in the organisation and at last
can prepare future budget.
Advantages Disadvantages
 This method prevents unnecessary
spending as each spending is
accounted and justified whereas in
traditional approach, managers could
spend all amount so they don’t lose
any.
 It could help Snappy Drinks Plc to
switch to more cost-effective ways
of doing things and reducing
redundant activities.
 This method would cost more time
and effort for Snappy Drinks Plc, as
the budget is always built from
scratch.
 One of the disadvantages for Snappy
is with long-term investment in case
of zero based. As this area doesn’t
contribute to the revenue in the short
term, it could lead to shifting
resources to other areas.
3. Activity based budgeting - The Activity based budgeting is based on analysing the
activity which is incurring more cost for conducting of business operations. It helps
company in determining of those business areas which are unnecessarily increasing
the cost factor for the company (Atrill, 2015). With the help of activity based budget,
Snappy can eliminate all the unproductive business operations and areas and thereby
lead to increase in profitability and minimization of wastage of business resources.
Current budget planning in this method doesn’t require referring to previous year’s
budget.

Advantages Disadvantages
 It helps company to eradicate all the
unnecessary activities and save its
costs.
 Removing unnecessary activities
help would help Snappy Drinks Plc
to serve its customer with best price
and quality. This would further
improve the relationship between
company and customer (Burns and
Dewhurst, 2016).
 This method requires much
understanding of the activities done,
otherwise it could lead to
insufficient resources allocated.
 This method is complex and time
consuming in nature. It would
require Snappy Drinks Plc to
allocate its top level expertise to do
numerous analyses.
 Activity based budgeting focuses on
short term goals of the organisation.
In the long run, this could bring
unseen challenges to the
organisation.
2. Application of alternative methods of budgeting.
The alternative method available for Snappy Drinks Plc for making budget are Rolling
budget, Zero based budget and Activity based budgets. Snappy by making use of one of this
budgeting method company can improve its performance level, increase its profitability and
expand its business operations with available budgeted amount and resources (Drury, 2016).
The application of these alternative budgeting methods is as follows:
1. Rolling Budget – The rolling budget helps company in incorporating the required
changes in the next period as compared to the previous period by increasing the
continuity of workflow. Rolling budgets are more up-to-date and help in responding
to the unexpected changes by making adjustments in coming periods (Saarinen,
2017). It provides continuous update related to the changes required or adjustments to
be made for preparing new budget plan.
2. Zero based Budget – It is a method in which budget is prepared from the scratch or
by starting the budget at zero base. In this method, company has to specify about each

business expense before making addition of it to the main new budget so as to reduce
cost expenditure by making emphasis on determining the areas from where it can be
minimised. It helps in efficient as well as proper allocation of business and financial
resources as per the requirements (Weetman, 2010). By this approach the managers of
the company find ways of improving business activities in a cost effective manner, by
identifying & reducing wastage and out dated business processes.
3. Activity based Budget – The Activity based Budget helps Snappy Drinks Plc in
providing insights in form of better product quality, efficient business operations as
well as process, costing and decision making related to the business activity by
making better allocation of resource as per the business goals and priorities. This form
of budgeting allows company in making balance between the operational
requirements (Ohemeng, 2016). It also emphasises on avoiding the unnecessarily
infeasible plans by calculating the financial effects of carrying on such business
operations.
3. Analysing the appropriate method of budgeting for the company.
Activity based budgeting is considered as the most appropriate method of budgeting
for Snappy Drinks Plc. It helps in making improvements in the quality of relationship
between the company and its customers. It always ensures that company is engaged in
business of rendering better quality services and products at the best and affordable prices to
its customers. This budgeting method helps company in eliminating all the unnecessary
business activities and cost associated with it (Atrill, 2015). It also focuses on meeting
customer expectations and satisfaction by providing them transparency in the business
operations.
CONCLUSION
From the above report it can be concluded that business is required to have sound
financial resources employed in its business operations. With the help of sound business
strategies and plans, Snappy can make a good business financial plans for its future business
and time period. The report has discussed that how budgeting can assist in formulation of
financial plan on the basis of specific and set defined goals and objectives. Report has also
shed light on the availability of best alternative method of budgeting for Snappy drinks Plc as
per its business plans of expansion and growth. Thus, Activity based budgeting is suggested

best budgeting technique for Snappy as it takes into consideration every business activity and
cost expense associated with it.
REFERENCES
Books and Journals
Adams, B. and Martens, J., 2015. Fit for whose purpose. Global Policy Watch. 8(4).
Atrill, 2015. Management accounting for Decision Makers. 8th edition. London Pearson.
Brusca, I. and Labrador, M., 2016. Budgeting in the public sector. Global Encyclopedia of
Public Administration, Public Policy, and Governance. pp.1-13.
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
Chohan, U. W., 2019. Documentary Research: Positing Innovations in a National Budget
Process. SAGE Publications Ltd.
de Campos, C. M. P. and Rodrigues, L. L., 2016. Budgeting Techniques: Incremental Based,
Performance Based, Activity Based, Zero Based, and Priority Based. Global
Encyclopedia of Public Administration, Public Policy, and Governance. pp.1-10.
Drury, 2016. Management accounting for Business. 6th edition. London Cengage.
Hitz, C. and et.al., 2018. IT-Budgeting Processes in Swiss Banks and How They Are
Influenced by Rapidly Changing Regulatory Requirements. Journal of EU research in
business. 2018(785563).
Krause, D. and Thörnig, P., 2016. JURECA: general-purpose supercomputer at Jülich
supercomputing centre. Journal of large-scale research facilities JLSRF. 2. p.62.

Ohemeng, F. L. K., 2016. Reforming the Ghanaian Budget System from Activity-based
Budgeting to Performance-based Budgeting: Eureka, or another Reform Illusion?.
In Public Budgeting in African Nations (pp. 130-154). Routledge.
Popesko, B. and et.al., 2015. ARE THE TRADITIONAL BUDGETS STILL PREVALENT:
THE SURVEY OF THE CZECH FIRMS BUDGETING PRACTICES. Transformations
in Business & Economics. 14.
Rogulenko, T. and et.al., 2016. Budgeting-Based Organization of Internal
Control. International Journal of Environmental and Science Education. 11(11).
pp.4104-4117.
Saarinen, J., 2017. From budgeting to rolling forecasting: achieving goals for rolling
forecasting implementation: case study evidence from production and retail industry.
Scholes, M. S., 2015. Taxes and business strategy. Prentice Hall.
Weetman, 2010. Management Accounting.2nd edition. London FT prentice Hall.
Online
Rolling Budgets. 2019. [Online]. Available through: <
https://efinancemanagement.com/budgeting/rolling-budget>.
What is Budgeting?. 2019. [Online]. Available through: <
https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting>.