Financial Budget Analysis and Methods for Snappy Drinks Plc

This report provides a comprehensive financial analysis focusing on budgeting methods suitable for Snappy Drinks Plc. It begins by explaining the purpose and process of budget formulation, emphasizing effective planning and coordination across various business functions. The report then explores the application of traditional and incremental budgeting, offering a practical example to illustrate its use in forecasting costs and profits. Furthermore, it critically analyzes the usefulness of the traditional budgetary system for Snappy Drinks Plc, highlighting its limitations in efficiency and adaptability. The report then presents and compares alternative budgeting methods, including rolling, zero-based, and activity-based budgeting, detailing their advantages and disadvantages. It concludes by analyzing the best alternative method for Snappy Drinks Plc, providing recommendations based on the company's specific needs and objectives, ensuring optimized financial planning and resource allocation. The report references relevant literature and provides a clear and concise overview of each method, making it a valuable resource for students and professionals alike.

Business Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
I. Explaining the purpose of formulating the budget and the process of budgeting...................1
ii. Application of the traditional budgets including incremental budgets for planning the future
cost..............................................................................................................................................2
iii. Analysing the usefulness of the appropriate budgetary system for Snappy Drinks Plc.......3
PART 2............................................................................................................................................4
iv Presenting the alternative methods of budget preparations....................................................4
V Application of the various methods discussed above.............................................................6
vi Analysing the best alternative method, appropriate for Snappy Drinks Plc..........................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The business analysis its performance for a particular time period evaluation of its
budgets with the actual performance. The budgets are of vital importance to the businesses as it
sets the target for the business to achieve a certain goal in predetermined funds allocated to each
activity. In the present report the Snappy Drinks Plc is presented with the knowledge over the
preparation of the budgets, use and application of the traditional budget in the business.
Moreover the the different alternative of budgets methods are explained with their advantages
and disadvantages, their application and usefulness of the best methods amongst all.
PART 1
I. Explaining the purpose of formulating the budget and the process of budgeting
Overall purpose for preparing the budget is to make effective planning for different
functions of the operations of business and to coordinate the activities of several divisions of the
Snappy drinks. With the formulation of the budget effective control can be ensured over the
various phases of operations (Grossi, Reichard and Ruggiero, 2016). The major purpose for
framing the budget is to facilitate a model which states the way in which the business activities
must be performed and reflects the strategies, plans, events etc that are to be carried out. The
objective of forecasting the income, expenditure and the profitability are met with the
preparation of the budget.
Process of budgeting-
Setting up of objectives for budgeting- The first and the foremost step of the budgeting is
before evaluating the budget, the budget committee must set the objectives for meeting the future
goals of Snappy drinks. Objectives might include controlling cost, sales target, expansion etc.
Different purposes requires different form of the budgeting so it is necessary to set the objective
first.
Identifying the resource availability- After setting the objectives, availability of the
sufficient resources must be analyzed so that goals can be achieved effectively and efficiently.
Available resources must include cash as well as the other loans and the outside investments
made by the Snappy drinks. Under this the company must also project for its future sales in the
coming years.
1

Anticipating future needs- The next step after determining the resource availability
includes the requirement of funds for meeting the future needs of the company (Srithongrung,
Yusuf and Kriz, 2019). The future needs can be estimated on the basis of the past data, data
available on the competitors, by assessing the current and the developing economic trends that
may occur in the upcoming years.
Matching the future needs with the available resources- In this phase of the process of
budgeting, Snappy drinks need to make some negotiations within their departments for
determining the allocation of the scarce resources in the best possible manner. While performing
this step, the priorities of the business and the strategic needs must be kept in mind.
Obtaining the final approval- After the completion of the budget, next step is getting the
approval from budget committee. Acquiring the approval for the budget becomes smoother for
Snappy drinks if the budget is prepared by keeping in mind the needs of the key stakeholders.
Distribution of the approved funds- After the approval received from the committee, the
final step in the process of budgeting is for distributing the funds allocated to several
departments and the segments of the business of Snappy drinks. For processing this step it is
duty of the controller and the chief financial officer.
Evaluating and monitoring- Once the finalization of they budget and the distribution of
the funds, the success of the execution of the budget has to be tracked or traced (Vargas-
Hernández, Cárdenaz and Vargas, 2019). The areas that are lacking with the resources has to be
identified so that any uncertainty can be met in the future.
ii. Application of the traditional budgets including incremental budgets for planning the future
cost
The application of the traditional budget in the Snappy Drinks Plc is like using the
previous years budgets to forecast the current year budgets regarding the spending into the
different activity involved in manufacturing of the products such as productions, sales,
marketing, overheads and other.
For example:
Traditional budget forecast for Snappy Drinks
Plc for 2 years
2

Particular 2017 2018
Sales 500000 600000
variable cost
raw material 90000 110000
direct labour 70000 80000
manufacturing overheads 60000 70000
Fixed cost
Rent of premise 30000 40000
Deprecation 25000 35000
salaries wages 80000 100000
355000 435000
Profits 145000 165000
Interpretation
From the above table it can be interpreted that a traditional budget is prepared for two
years that 2017 and 2018. it can be seen from the above table that the sales forecast have
increased and with this there is a increment in the cost of productions related the manufacturing
products of Snappy Drinks Plc. With this increase the profits have also seen a rise from 2017 to
2018.
iii. Analysing the usefulness of the appropriate budgetary system for Snappy Drinks Plc
The traditional budgeting is the method which considers the previous years spendings for
forecasting the current years budget. This budget totally depends on the preceding year's data
and the only benefit of following his type of budgeting methods is that is is a simple and easy to
prepare with a simple approach (Hansen 2017). To the Snappy Drinks Plc its s not advisable to
follow the traditional method of budget preparation as its do not conditioners major of the facts
which are currently effecting the organisation. Moreover, it can be stated this budgets lacks
efficiency and consumes too much time for preparation. The management of Snappy Drinks Plc
will not be willing in spending to much time on preparation of the budget which consumers too
munch resources of the company with lesser involvement of the employee. Also, in this
budgeting method the budgets are prepared on the spreadsheets which are more prone to the
data entry error, version control issues as well as difficult in devising the accurate formulations.
3

Moreover, in the traditional budget the annual budget cycle do not have a focus on the
reviews on a regular basis or are even not in taken in account at all. As the budgets are prepared
by taking into consideration the past figures, so there is no motivation among the employees od
Snappy Drinks Plc to act in the interest of the company or use their skills and abilities in
forecasting and preparation of the budgets. Also, in the traditional approach of the budget
preparation the mangers sometimes tend to obsessed with hitting the right numbers where they
often miss the strategic purpose of the budgeting as this budgets focus on the cost reduction
rather than value creation and strategic initiatives. This is advised to the Snappy Drinks Plc that
there is no benefit in following traditional budgeting method as this do not show the efficiency in
preparation of the budgets for the organisation and do not take into consideration the present
facts prevailing within the organisation which can directly affect the budget prepration.
PART 2
iv Presenting the alternative methods of budget preparations
Rolling budgets:
The rolling budgets s the one which is updated on a continuous basis and it considers a
incremental approach for every new budget period. The rolling budget for Snappy Drinks Plc
involves extension of the exiting budget in a new financial year. This way the business can
extent one years budgets into the future (Fitzpartick and Hawke 2015). The another name for
this budgets is the horizon budget as it take in to consideration the past figures and assumption to
prepare and ascertain the future budgets as well as performance of Snappy Drinks Plc.
Advantages:
The approach used in the preparation of the rolling budget by Snappy Drinks Plc pay
attention to content focus on the budget model and receiving the budget assumptions for the last
incremental budget for the previous period. Another benefits attached to this type of budget for
Snappy Drinks Plc is that it follows a continues approach and is a perpetual budget.
Disadvantages
There are certain disadvantages attached to rolling budgets which can effect Snappy
Drinks Plc, this includes this budgets might no be able to yield a more achievable budgets than
the traditional static budget. Also the previous and past figures on whose basis rolling budget is
prepared are not revised which can lad t to a wring ascertainment of the budgeted figures.
4

Zero based budgeting:
The anther methods to prepare a budgets for Snappy Drinks Plc is zero based approach.
In this methods of budgeting all the expenses are justified for each new period. The process of
preparation of this budgets starts from a zero base , which means the budgets is set with new
figures and assumption without taking any reference from the past budgets and does not follows
a incremental approach.
Advantages:
The befits of this budget for Snappy Drinks Plc can be outlined as this effectively
allocate of the resource as per need and requirement of the task and activities of the organisation.
This is an cost effective approach which drive the managers of Snappy Drinks Plc for
improvisation of the activities (Pyhrr, 2012). This is also identifies and eliminated the wastage
and out of date operations.
Disadvantages
The drawback attached to this type of budget is that it is a time consuming approach as
all the some of the expenses are hard to determine and its consumes to much time of the mangers
of Snappy Drinks Plc. It requires involvement of man power as R&D is needed and all the
details in the budgets are required to justified.
Activity based budgeting:
This type of budgets focus n recording, researching and analysing of the activities of
the Snappy Drinks Plc and then determines the cost and funds requirement for each activity. For
each of the activity of the Snappy Drinks Plc cost is scrutinized for potential ways to create
efficiency. This is more rigorous than the traditional budgeting as it adjust the previous budgets
as well as identifies the costs and funds required for each activity of the Snappy Drinks Plc.
Advantages:
The cons of preparation of this type of budget for Snappy Drinks Plc includes more
accuracy in the costing of products , services, consumers and distribution channel. Its gives
better understanding of the overheads and is easy to understand as well. This budgets utilizes the
unit cost rather than the total cost and enables costing processes, supply chain and the value
system.
Disadvantages:
5

The con of this budgets for Snappy Drinks Plc can be started as its implementation
requires substantial resources and also it is costly to maintain this budget. The data of this
budgets is more prone to be misinterpreted and requires a utter care while using it in the decision
making process.
V Application of the various methods discussed above
Rolling budget:
Snappy Drinks Plc can apply this type of budget in its organisation practise as
forecasting the overall spending on the manufacturing in different products of the organisation.
For the next period previous data is use to continue to the budgets. For example: the rolling
budget for Snappy Drinks Plc is prepared for a time of 12 months staring from January to
December, after this the budgeting for all the manufacturing activities of the business a continues
budget form next January will be prepared till next December.
Zero based budget:
Snappy Drinks Plc can apply this budget as preparing a budgets regarding each
production activity of the organisation from a base Zero, for all the activities a new budgets will
be prepares without taking a reference form the previous budget. Fox example for the year 2017-
2018 a budget is prepared by Snappy Drinks Plc to forecast the spending and expected revenues
for over all manufacturing activities of the business. But for the the year 2018-2019 a new
budgets will be prepared for and no reference form the budget of 2017-2018 will be taken.
Activity based budget:
Snappy Drinks Plc can apply the preparation of the activity based budgeting as for all the
activities pertaining each of the products a separate is prepared such as productions, sales,
marketing , promotions, procurements ect. For example, with launching the a new range of
health led drinks there are 15 new products which will be be manufactures. In this context for
activities of sales, productions, marketing and others a separate budgets will be prepared for each
of the 15 products.
vi Analysing the best alternative method, appropriate for Snappy Drinks Plc
For the Snappy Drinks Plc the best of all the three alternative methods above regarding
the method of preparation of the budgets is the Zero based budgeting. This option is suggested
to the management of Snappy Drinks Plc because in this budgets there is efficient allocation of
the resources which are required for completion and carrying out e operations of the business
6

(Rubin, 2019). This approach drives the mangers in the finding the cost effective ways to
improvise the activities of the organisation. Moreover it can be stated that with this type of
budgets are useful for the departments of the Snappy Drinks Plc as as increase the staff
motivation as it gives them more initiatives and responsibilities which assist their decision
making process.
With the zero based budgeting approach the management of the Snappy Drinks Plc can
also identify the opportunities of outsourcing and to force the cost centres to link them with the
mission of the organisation and directly assist in attainment of the organisational objectives.
This types f budgets will assist the Snappy Drinks Plc in saving the money and improving the
services as this budgets retains the increase in the developing budgets and it reduces the
entitlement mentality regarding the cost increments. The making of the budgets includes
discussion which is meaningful during the review sessions. This directly enhances the
effectiveness of the mangers and the personnels involved in the budgets preparations and its
review. As the preparation of this budgets requires to start from the zero which is to be done by
taking the costs and expenses from new base and this includes critical discussions and directly
improvises the communication and coordination among the employees and within Snappy
Drinks Plc for making certain decisions. This can be stated for the organisation Snappy Drinks
Plc Zeros based budgeting is the best from of budget as this takes into consideration actual facts
and figures pertaining at the time of its making and increases overall communication process of
the business.
CONCLUSION
From the above report it can be be stated that the budgets hold a crucial position in the
business operation and management. Budget preparation is important task for the organisation to
forecast its future performance and then to achieve the performance in predetermined allocated
funds and resource. It assist the the Snappy Drinks Plc in preparation of the business model.
Furthermore it can be articulated that the various type of budgets prepared by the Snappy Drinks
Plc includes rolling, zero based and activity based budget. All have different forms of application
in the business. Moreover it has been analysed that zero based budgeting is the best method of
budgeting for Snappy Drinks Plc.
7

REFERENCES
Books and journals
Fitzpartick, M. and Hawke, K., 2015. The Return of zero-base budgeting. McKinsey &
Company. Pobrano z: http://www. mckinsey. com/business-functions/strategy-and-
corporate-finance/our-insights/the-return-of-zero--base-budgeting (7.03. 2017).
Grossi, G., Reichard, C. and Ruggiero, P., 2016. Appropriateness and use of performance
information in the budgeting process: Some experiences from German and Italian
municipalities. Public Performance & Management Review. 39(3). pp.581-606.
Hansen, S. C., 2017. A theoretical analysis of the impact of adopting rolling budgets, activity-
based budgeting and beyond budgeting. European Accounting Review, 20(2), pp.289-319.
Pyhrr, P. A., 2012. Zero‐Based Budgeting. Handbook of Budgeting, pp.677-696.
Rubin, I. S., 2019. The politics of public budgeting: Getting and spending, borrowing and
balancing. CQ Press.
Srithongrung, A., Yusuf, J. E. W. and Kriz, K. A., 2019. A systematic public capital
management and budgeting process. In Capital management and budgeting in the public
sector (pp. 1-22). IGI Global.
Vargas-Hernández, J. G., Cárdenaz, R. C. and Vargas, O. B., 2019. THE BUDGET IN THE
FINANCIAL MANAGEMENT OF THE SMES ASSISTED BY THE
ADMINISTRATIVE PROCESS AS A COMPETITIVE TOOL. REVISTA
INTERCONTINENTAL DE GESTÃO DESPORTIVA-RIGD. 8(3). pp.15-35.
8