Alternative Methods of Budgeting for Snappy Drinks Inc

Business Finance
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Executive Summary
This report has been developed for the purpose of developing an understanding of the use
of alternative method of budgeting over traditional method of budgeting. This has been carried
out by analyzing the problems that Snappy Drinks Inc can face with the use of traditional method
of budget preparation for developing budgets for its new product lines. The use of alternative
method of budget preparation such as rolling budgets, zero-based budgets and activity-based
budgets that can be used by the company over traditional method for developing its new product
lines has been discussed in detail within the report.
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Contents
Part 1...........................................................................................................................................................4
Section i: Budget process and benefits of budgets..................................................................................4
Section ii: Application of Traditional Budgeting Approaches for Planning Future Cost Management for
this Specific Business...............................................................................................................................6
Section iii: Analysis of appropriatness of the traditional budgetary system........................................7
Part 2...........................................................................................................................................................8
Section iv: Understanding of Rolling, Zero based and actively based budgets and explanation of the
reasons for their improvement on the traditional approach method and their respective drawbacks...8
Section v: Potential Application of these Methods to the Company.....................................................10
Section vi: Analysis of the Budgeting Methods Suitable for the Company............................................10
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12
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Part 1
Section i: Budget process and benefits of budgets
Purpose of preparing the budgets
Budgeting is an essential part of business planning as it helps in identifying and make
target to achieve the future objectives of the organization. Some of important benefits of
preparing budgets in regards to the given company SnappyDrinks Plc are as under:
 Budgets provide the valuable information such as goals need to achieve in the given time
for both department and individuals. Goals provides the direction to the employees and
also allows managers to measure the outcome with the budgets output. In the given case,
management of SnappyDrinks is critically thinking to expand the business both product
wise and geographical area wise, therefore, it is highly important that before moving
ahead budget should be drafted to provide the specific direction to the employees as well
as each department (Vanderbeck, 2012).
 Budgets are the foremost element in the business planning orientation and process of
creating budget helps the management to think for long term business growth despite of
short term planning. It is regarded as the chief goal of the budgeting as management
cannot directly make plans for long term growth as they need some basis to plan for all
the financial activities. In this regard only budget can help them to succeed (Maingi,
2013).
 Budgets help on reviewing of profitability position before the actual occurrence of all
activities. When company has budget, management can get insight view of all the
expenses that will going to occur in future period. In the given case, budget is very
essential as SnappyDrinks is in major expansion phase that requires million of expenses
to be occurred in future period and without budget it is not possible to estimate the cost of
total expenses. Also, the estimation of expenses helps to calculate the profit that company
may earn in future if all the things go well and as per plan.
 Budgets helps management to review their funding process required for ongoing process
and any funds needed for planned expansion. As SnappyDrinks is going through major
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