Business Finance Report: Analyzing Budgeting for Snappy Drinks Plc

This report delves into the realm of business finance, specifically addressing budget preparation and its significance for Snappy Drinks Plc. It initiates with an introduction to business finance, emphasizing the allocation of resources and the creation of financial forecasts. The report explores the purpose and process of budget preparation, highlighting how budgets aid in business model development. It then examines the application of traditional budgeting methods within Snappy Drinks Plc, analyzing their appropriateness. The second part of the report presents alternative budget preparation methods, including rolling budgets, zero-based budgeting, and activity-based budgeting, detailing their benefits and drawbacks. The report concludes by suggesting the most suitable budgeting method for Snappy Drinks Plc, providing a comprehensive analysis of various approaches to financial planning and cost management.

Business Finance

Contents
INTRODUCUTION........................................................................................................................5
PART 1............................................................................................................................................5
i. Purpose of budget preparation and the process of budget preparation and budget process
helping the organisation in development of business model.......................................................5
ii Application of traditional budgets for planning the future cost management for the Snappy
Drinks plc.....................................................................................................................................7
iii. Analyzing the appropriateness of traditional budgetary system............................................8
PART 2............................................................................................................................................8
iv. Presenting the understanding of alternative budget preparation methods along with their
benefits and drawbacks................................................................................................................8
v. Potential application of the above mentioned methods and presetting specify example to the
Snappy Drinks Plc of the alternative budgeting methods..........................................................10
vi Presetting the best methods amongst all the above for Snappy Drinks Plc...........................11
CONCULSION..............................................................................................................................12
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INTRODUCUTION
Business finance is the proves which is responsible for allocation of the business
resources, creation of the forecast, review of opportunities for the equity and financing through
debt along with other concept and function of business. Among all this the main requirement is
related with the ascertainment of the business funds and resources to carry out the business
activities. For all of these the essential art is preparation of budgets for an organisation, which
includes forecasting the future spending and earing based on past trends or as per the
requirement of the activities the business. In the present report the requirement of budgets and tis
process is presented to Snappy Drinks Plc. With this the application of traditional budget in the
organisation along with the use and sufficiency of the incremental budget is presented to the
management of Snappy Drinks Plc. In the next part of the report various methods of budgets
preparation are defines along with their application in Snappy Drinks Plc and benefits and
drawbacks. After this the best budgeting method will be suggested to the business organisation
Snappy Drinks Plc.
PART 1
i. Purpose of budget preparation and the process of budget preparation and budget process
helping the organisation in development of business model
Budget
Purpose of preparing budget:
Budget can be defines as the process of preparing financial plans for implementing the
management decision. The budgets in the organisation Snappy Drinks Plc are prepared for the
application and implementation of long term plan for the current year ached through the
development of the detailed financial plan (Chenhall and Moers, 2015). The budgets can be
explained as that process in which the expenses and revenues of the Snappy Drinks Plc are
estimate beforehand. The budgets are prepared for each activity of the organisation in which cost
and expenses related to it are estimated and in this limit the organisation is required to carry out
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the respective activities with allocated funds and resources. The budgets in Snappy Drinks Plc
ensure effective conduction of the business activities within the stipulated funds.
Process of budget preparation:
The budget preparation requires set of skills, experiences and professional ability to
develop effective budgets for Snappy Drinks Plc. This process includes certain essential stages
which starts from the communicating the details to the budgeted policy and related guidelines to
those persons who are responsible for carrying out the process of and preparation of budget.
After this step comes the determination of the factors that restrict the performance such as the
sales volume in the budget. With this the sales budgets are prepared with the assumption that the
sale demand is the one factors putting restriction of the output (Management Accounting, 2018).
With the initiation process begins where different budgets pertaining to the business actives are
started. Over the prepared budgets negotiations are done with the executives and supervisors.
With this the budgets are reviewed and coordinated. The final acceptance of budget is to meet
after all scrutiny and mitigating the changes of possibility of any mistake in the budget. With
implementation of the budgets the ongoing reviews are also taken to take follow of the actual
performance with budgeted one to develop the strategies to cope with the variances.
Assistance to the business organisation:
The budgets are prepared to assist the management of Snappy Drinks Plc in decision
making process for various business activities. The businesses’ annual budgets are set in the
context of long term plan which exist irrespective of the facts that they are made explicit. The
budgeting process fits into the overall strategic planning and controlling framework of Snappy
Drinks Plc. This can be explained as the long term plans are the statement of the preliminary
targets and activities of Snappy Drinks Plc which the organisation is required to achieve through
its strategic plans and the ultimate goal and objective of Snappy Drinks Plc. The budgets in
Snappy Drinks Plc are used for different purpose which includes planning of the annual
operations of the organisation which requires effective coordination’s with accounts department
and resection activity departments as well. Also, it includes coordinating the activities of various
parts of the business to ensure that all the parts are in harmony with each other. The budgeting
process also requires effective communication regarding the plans to the managers, heads and
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operates of each activity for which a budget is prepared (Kaplan and Atkinson, 2015). Moreover
it includes motivating of mangers for effectively achieving the targets of business with the given
funds and resources. With motivation comes evaluations and then comes the controlling
activities to reach the outcomes effectively without any gap and lag.
ii Application of traditional budgets for planning the future cost management for the Snappy
Drinks plc.
Application of traditional budget in the business:
The application of the traditional budget in Snappy Drinks Plc can be defined as taking
the references from the pat year’s budget and then preparing the budget for the current year. This
means the management of Snappy Drinks Plc will take the estimated spending and expenses
from last year and then make adjustment in those figure on incremental basis by adding the effect
of inflation in those figures and the resultant data comes out to the budget for the current year.
This way the company can prepare its incremental budgets for the current year. While preparing
the traditional budget the assumption made in earlier years remain unchanged only change is in
the figure that to additions in them to give the effect of price hike due to inflation.
Budget for Snappy Drinks Plc:
Particular 2017-2018 2018-2019
Sales 100000 15000
Direct material 15000 20000
Direct labour 12000 15000
Production over heads 8000 15000
Contribution 65000 100000
Administrative cost 7000 10000
Selling and distribution cost 8000 15000
Profits 50000 75000
From the above table it can be interested that the incremental budgets for the new product
manufacturing shows incremental changes in the expenses as well in the profits of the
organisation Snappy Drinks Plc.
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iii. Analyzing the appropriateness of traditional budgetary system
In the budgeting the traditional or incremental approach has changed over time. In the
traditional method of budget the past year’s trends and figures are considered to prepare the
current year’s budget. In recent years inclination of business towards budgeting process have
changed. The organisation have abandoned traditionally or incremental budgeting as in this
approach the existing operations and the current budgets allowances for present activates are
taken for preparing the next annual budgets and then adjusted anticipated changes are made
(management Accounting for Business, 2018). In this type of budget the expression for an item
within the budget are based on the budget of earlier year’s allowances plus an increase to cover
the higher prices caused due to inflation. With the incremental budgeting the indirect cost and
the support activities are prepare on an incremental basis. This means the for the current year’s
expenses related to manufacturing and other activities of the business Snappy Drinks Plc
references form past year’s budget is taken and this approach directly reject the concept of
changes in the levels and factors effecting those activities and changes in the level of cost. The
existing operations and current budgets allowances for the present times are started from the last
figures of earlier budget figures. With adoption of this approach is for those expenses and
activities on which expenditure will be incurred during the forthcoming budget period. This
clearly means that the past inefficiencies and waste of resources are inherent in the current
budgeting person as well. In doing so these things gets perpetuated as the approach is
incremental thus the wrong speculation and estimation of expenses will indirectly also increase
lading to ineffective allocation of the resource. This can affect the performance of the
organisation Snappy Drinks Plc in long run. The major disadvantage attached to this method is
that it is associated with base level of activity which remains unchanged.
PART 2
iv. Presenting the understanding of alternative budget preparation methods along with their
benefits and drawbacks
Rolling budget:
The rolling budgets can be explained as that approach in which the financial year is
broken into quarters or months for preparation of the budgets. This means budget is not prepared
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for a whole years rather for each quarter or month. This require preparation of new budget with
incremental approach for each new period within a year such as for each quarter or each month.
Advantages:
The advantages of this method can be outlined as in this method more than one budget
are prepared within a financial year. This takes into considering the fact changes which effect the
activities and level of performance of those activities. With frequent budget preparation the
effectiveness in the budget is ensured.
Disadvantages:
The disadvantages of this budgeting approach can be stated as it is lengthy and time
consuming process. As for each new period within a year a new budget is required to be made.
The process engage the resources of the Snappy Drinks Plc as for budget preparation for each
new periods the personnel and mangers get engaged in preparation of budget. along with this
item is also consumed in evaluation and review of the budgets.
Zero based budget:
The ZZB is the method of budgeting in which he projected expenditure for the existing
programs starts from base zero (Pavlatos and Kostakis, 2015). For each the budgets gets
completed for the programs which are launched for first time. The expenses are justifies for each
new accounting year.
Advantages:
The advantages if this budgeting system is that there is no assumption are taken in this
methods which are beyond explanation .for each new accounting year a new budget is prepared
with base as Zero ensures the effectiveness of the budgets.
Disadvantages:
The disadvantages of this budget can be stated as this this is time consuming and cumbersome
method of preparing budgets. It requires skilled and experienced employee by in Snappy Drinks
Plc to prepare new budget for each income year, this makes is expensive as well.
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Activity based budgets:
The activity based budgeting is the approach in which the expenses for the forth coming
budgets are supported for each activity which are based on the previous year’s budget plans. The
aim of this budget is to manage the cost most effectively by authorizing the supply of only those
resources which are required and needed to perform the activity to meet the required budgets
production and sales.
Advantages:
The advantages of this method can be outlines as effective allocation of the resources
which protect wastage and misallocation of the resources of in Snappy Drinks Plc. Moreover for
each new activity a new budget is prepared so this the expenditure incurred on each activity can
easily be determined.
Disadvantages
The disadvantages of this method of budget preparation can be stated as this is time
consuming process as for each activity a separate budget is required to be prepared. Moreover
the effective of budget cannot be established as the budgets are prepared by taking reference
from previous years budgets.
v. Potential application of the above mentioned methods and presetting specify example to the
Snappy Drinks Plc of the alternative budgeting methods
Rolling budget:
The rolling budgets are the one in which the annual budget is broken into months or first
3 months and more quarters for rest of the months. With the end of a quarter a next quarter
automatically gets starts and it process continues (Shields, 2015). For instance in Snappy
Drinks Plc it can be applied as breaking the previous year’s budget into 4 quarters starting from
July quarter. With completion of quarter in September the quarter period of budget of October
gets started.
Zero based budget:
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This is the budget which starts with a fresh figures and data for each accounting period.
For instance, in the Snappy Drinks Plc a budget is prepared for financial year 2017-2018. For the
budget preparation of 2018-2019 there will be no reference form the earlier year’s budget will be
taken
Activity based budgets:
The activity based budget are applied in Snappy Drinks Plc as preparing separate
budgeting for all activities of the business. For example for all new 15 products Snappy Drinks
Plc can make separate budgets for all activities related with each 15 product.
vi Presetting the best methods amongst all the above for Snappy Drinks Plc
The best method amongst all three of the budgeting methods presented above is the Zero
based budgeting. This is stared on the fact that in the budget there is not consideration is taken
form the past expression of the activities in the budgets. The budgets are prepared from the zero
base which means for all the activates fresh budgets are made with base figures taken as zero.
There are no addition required in the base data from pearlier year rather for each new accounting
year a new budget is prepared by taking in to consideration the necessity and requirement of each
activities of Snappy Drinks Plc. This means for all the activities related to 15 different product a
new budget will be prepared. Moreover, activity base budgets can also prove a boon along side
zero base budgets for Snappy Drinks Plc. As mentioned above the activity based budgets are
prepared for each activity related to a function of the organisation (Management Accounting for
Decision Makers, 2018). This can be applied in Snappy Drinks Plc as for each activity related to
15 new products a separate budget will be prepared. This means with the combination of these
two budgets in Snappy Drinks Plc for each different activity of 15 new products such as sales,
direct expenses, direct material and other separate budget will be prepared with a zero base
which means no reference from earlier budget will be taken. With this, it can be stated that the
combination of two budgets that is activity and zero based budgets are more useful to Snappy
Drinks Plc. This is because this will effectively lay down the spending and cost pertaining to
each separate activity regarding all 15 different products.
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CONCULSION
From the above report it can be concluded that in the process of managing the business
finances budgeting plays a vital role. For the organisation Snappy Drinks Plc budget preparation
has been identifies of key importance as it affects various aspects of business operations
developing of strategic plans, long term goals and objectives, proration of financial statement of
business and others. Moreover, the process of budget preparation demands a lot of efforts and
strategic thinking. The traditional budgets have become obsolete as it done not take various
aspect of business and based on assumptions. Furthermore the budgeting methods have been
presented as rolling, alternative and zero based budgets. There advantages, disadvantages and
application in the business have also been described. The best suggest budget method out of all
of these is zero based budgeting for Snappy Drinks Plc.
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REFERENCES
Books and journals
Chenhall, R. H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, organizations and
society, 47, pp.1-13.
Kaplan, R. S. and Atkinson, A. A., 2015. Advanced management accounting. PHI Learning.
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during
economic crisis: Evidence from Greece. Advances in accounting.31(1). pp.150-164.
Shields, M. D., 2015. Established management accounting knowledge. Journal of Management
Accounting Research. 27(1). pp.123-132.
Online
Management Accounting for Decision Makers. 2018. [PDF]. Available through :<
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