Comprehensive Report: Budgeting Techniques and SnappyDrinks Analysis

This report provides a comprehensive analysis of budgeting methods, focusing on their application to SnappyDrinks. The report begins by outlining the purpose and importance of budgeting, emphasizing income and expenditure estimation, operational decision-making, performance monitoring, and resource allocation. It then explores the application of traditional budgeting, including incremental budgeting, and assesses its appropriateness for SnappyDrinks. The report further examines alternative budgeting methods like rolling budgets, zero-based budgets, and activity-based budgets, discussing their advantages and disadvantages. The analysis includes how these alternative methods can be applied to SnappyDrinks to improve financial planning, cost management, and decision-making processes, especially in adapting to changing market conditions and introducing new products. The report concludes by evaluating which methods are most suitable for the company's specific needs and future growth strategies. Desklib offers this and other resources to help students succeed.

COURSE WORK

Table of Content
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Purpose of preparing budget and importance of budget process.................................................1
Application of traditional budgeting............................................................................................2
Appropriation of traditional budgetary system............................................................................3
PART 2............................................................................................................................................4
Analysis of alternative Budget Methods......................................................................................4
Application of alternative methods..............................................................................................5
Methods that are appropriate for company..................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Budget is a future financial plan of income and expenses of company and it is prepared
by financial manager for a specific period. This report includes purpose of preparing budget.
Further, this report explains importance of processes of making financial plan. Furthermore, this
report elaborate application of approaches of traditional budgeting which is important in future
cost management. Moreover, this report analyse appropriateness of traditional budgeting system
for SnappyDrinks. Further, this report explains various types of budget methods. Furthermore,
this report includes advantage & disadvantage of each alternative method. Moreover, this report
elaborate application of alternative methods in company. At last, this report explains which
method is most appropriate for SnappyDrinks.
PART 1
Purpose of preparing budget and importance of budget process
Purpose
Budget is a financial plan which is prepared with a motive of meeting objectives of
organisation. SnappyDrinks prepare its budget of income and expenses and purpose behind this
is discussed below-
Estimation of Income & Expenditure- It is the most important purpose behind
preparation of budget as it includes description of future expenses and income which helps
company in achieving profits. Budget is prepared by SnappyDrinks for analysing financial
stability and efficiency of its performance(Reynolds, 2016).
Making Operational Decisions- Budget is also prepared for making financial decisions
in which cost can be minimised and that further leads to higher performance & profitability.
Monitoring Performance of Business- SnappyDrinks prepare its budget for monitoring
and controlling its business performance. So, that it can provide quality products which helps in
profit maximisation.
Allocation of Resources- It is the most important purpose behind budget preparation
because, with this SnappyDrinks can do efficient use of its resources. It is also prepared with a
purpose of allocation of new funds and allocation of resources in accordance with change in
policy.
Deciding Incentives- Budget is also prepared by SnappyDrinks with a purpose of
identifying incentives and it is also prepared for maintaining liquidity in firm.
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Process of Budget
Budget process includes various steps which helps SnappyDrinks in preparing an
effective budget, This process are discussed below-
Identifying Goals- SnappyDrinks 1st identify its goals & objectives and evaluate current
financial performance of company. Because, it is important in making an effective budget. For
Example- In future company wants to introduce new products and services than upcoming
budget of firm is one which helps in expansion and gives profitability. Identification of goals and
objectives also contributes in development of business(Le Quéré, Arneth and Boden, 2015).
Forecasting Future Expectation- After identifying goals for which budget is need to be
prepared a future forecast is to be done by financial manager of SnappyDrinks. Forecasting is
done on the basis of past performance of company. This forecasting helps company in preparing
an effective budget which gives positive results which further helps in development of business
model of firm.
Preparation & Implementation of Budget- After forecasting future expectation budget
is prepared which includes detailed information of companies income & expenditure for future
period with a purpose of achieving set goals. Prepared budget is than put into business operations
of SnappyDrinks. This process is important as it helps in implementation of budget in compaies
operations.
Monitoring & Controlling- After implementation of budget it is to be monitored by
financial mangers of SnappyDrinks as it is in accordance with objectives of company or not. And
if prepared budget is not giving effective results than changes is made in budget accordingly.
Thus, monitoring & controlling process helps company in adjusting its budget according to
changes made in operations which enhances performance of business.
Redefining Goals- In this process company redefine its goals & objectives which helps
company in expanding its business. Thus, all these processes included in preparation of budget
helps SnappyDrinks in improvement of their business model. Redefining goals is important as it
helps company in its overall improvement.
Application of traditional budgeting
Traditional Budgeting approach such as better budgeting approach & beyond budgeting
approach helps SnappyDrinks in maintaining financial stability of company. If company apply
this approach in its operation than it reduces future cost of manufacturing. By applying this
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method financial manager of company allocate its resources in next years budget in accordance
with last years quantitative financial data. Thus, application of this method helps in managing
future cost of production(Saunois and Janssens-Maenhout, 2016).
Future cost of production of company is to be planned according to the data constructed
from past years budget and it is done by using Incremental budgeting approach.
For Example- If in last years budget company allocate £500 for electricity, £400 for rent, £1000
for raw material and £200 maintenance than SnappyDrinks prepare future financial plan by
analysing profits of last budget. If next years budget is profitable than firm makes same cost
management plan in its future budget. Cost incurred in preparation & manufacturing of soft
drinks is estimated in accordance with actual cost incurred in manufacturing this products in
previous.
By applying traditional budgeting approach company can easily make decisions for
managing and preparing future cost plans. SnappyDrinks can manage its future cost by
developing its future budget in accordance with efficiency of past data.
Incremental approach of budgeting is a method in which budget sis to be prepared on the
basis of budget formed during past years.
Appropriation of traditional budgetary system
Traditional Budgetary System is budgeting approach according to this approach company
make a budget by analysing previous years budget plan. This budgeting is beneficial for firm
because it reduces time and cost and it is the only benefits of this method. SnappyDrinks follow
traditional budgetary system in its business which is appropriate for company for doing
operations on some of its areas. Company operating its business in three areas such as in existing
products, new products and expansion & diversification of its business in global
market(Eberstadt, 2016).
Thus, traditional budgeting is not appropriate for SnappyDrinks in all its areas. Company
can apply this approach in production of its existing products only. If firm wants to expand its
business in new market in future than it does not have any quantitative data of preceding years.
Thus, this approach is not appropriate for these two areas such as introduction of new product
line and expansion.
Further, this approach is not appropriate for SnappyDrinks as changes in many external
factors such as economic & political affects operations of company. Thus, company cannot
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depend on its previous years financial plan. For Example if inflation rates in economy is different
in current year as compare to previous year than it is not appropriate for SnappyDrinks to follow
previous financial plan for preparation of current years budget. Thus, company needs to make
changes in its budgetary method as it is not appropriate for all its areas or its has to use different
methods for all of its debarments(Rogelj and Knutti, 2016).
PART 2
Analysis of alternative Budget Methods
SnappyDrinks is using Traditional Budgetary method for preparation of budget but It is
not efficient for company. Thus, firm can also use other methods such as Rolling Budget, Zero
based Budget and Activity based budget. All these methods of budgeting are explained below-
Rolling Budget- Rolling Budget is a method of preparation of future financial plan of
company according to which firm extends period of its existing budget model. Thus, these
methods is also known as continuous budget. If SnappyDrinks follow this method of budgeting
than it does not need to prepare budget for each years companies budget is always updated.
Implementation of this approach is beneficial for company as it is better than tradition
budgetary approach in may ways, as in tradition method budget is prepared on the basis of last
year's data but in this method a new budget is prepared and it is revised & extended time to time.
Thus, company always have future a budget. Budget made by using this model is revised
according to change in business model and objectives of firm which in turn helps firm in
enhancing its productivity and profitability. However, tradition method is not much effective as
it does not consider various factors which affects operations of SnappyDrinks(Miller, 2018).
However, there are some drawbacks of this model such as budget of extended period is
not revised thus, this is less achievable than traditional budgetary method.
Zero Based Budget (ZBB)- It is an approach used by organisation for preparation of
budget according to which new budget is prepared each year by revising all expenses and unlike
traditional budgeting method this method is not dependent on past year's data.
ZBB method use principles of cost accounting in preparation of budget. Thus, this
method is more efficient than Traditional Budgeting as it helps SnappyDrinks in minimising its
cost by providing effective use of resources. This method is also beneficial for SnappyDrinks to
use as all the decisions related to cost are made by managers of each production department
whereas in traditional budgeting all the decisions are made by top level management which is not
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so effective. Budget in this method is made according to economic situation whereas in
traditional method it is based on past year's data.
On the other hand, more time and cost is required for preparing budget in zero based
method which is not needed traditional method. Further, for preparation of budget under this
method requires expertise knowledge.
Activity Based Budget (ABB)- As per this method budget is prepared in accordance
with past year's production activity. Cost of all the activities performed during manufacturing of
goods & services are evaluated and then budget is prepared.
This method is effective than traditional budgeting method as it eliminate unnecessary
cost, enhances production and reduces production time which in turn helps company in
enhancing their profits, market share and customer base.
On the other hand, drawback of this method is it requires efficient managers to track all
activities and for this firm require a traditional tracking system which is very difficult. However,
in traditional budgeting method there is no requirement of tracking any activity(O'Shea, 2018).
Application of alternative methods
Alternative methods of budgeting can be applied in SnappyDrinks and it gives more
profits. Application of alternative methods by company are discussed below-
Rolling Method- Rolling Method extend period of budgeting and also provides future
budget to company. If SnappyDrinks apply this method for preparation of budget than company
can manage its performance & operation in accordance with future budget which in turn helps
company in enhancing its performance. By implementing this method SnappyDrinks can decide
what type of production process it has to use. It also helps company in its decision making
process as all the decisions of managers now is in accordance with future budget only.
Application of this method gives company an updated and revised budget with which
SnappyDrinks is able to produce efficient products in given cost. Application of Rolling cost by
SnappyDrinks is important as it helps company in providing products & services in accordance
with future financial plan.
Zero Based Budgeting- As SnappyDrinks is making changes in its offering and entering
in to new markets for which company needs to revise its wholes cost structure. For Example-
SnappyDrinks is using traditional budgeting and it is facing losses so company use zero
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budgeting as where it is loosing. With implementation of this method financial manager of
company review all cost which is necessary for company and make a budget according to that.
By using this method cost and revenue of company can be improved as by new budget is
prepared by analysing all type of cost and fund is allocated to cost which is necessary and
unnecessary expenditures gets eliminated. Application of this method also helps in preparing
budget in accordance with economies situation. Thus, these methods also consider all the factors
which affects operations of SnappyDrinks(Clark, Menifield and Stewart, 2018).
Activity Based Budgeting- Application of Activity Based Budgeting by SnappyDrinks
helps company in effective cost planning thus, through this company is able reallocate its
expenses in its budget. If company is applying this method in its business than it can increase
volume of its products & services which helps company in enhancing its customer base. All the
decisions and allocation made in budget by using this method is in accordance with objectives
and goals of company. Thus, application of this method is achievable.
Application of this method also helps SnappyDrinks in identifying and analysing cost
incurred in performing & producing each product offered by company. This further helps firm in
calculating profits out of each of its products & services. With this method organisation can find
that which product is giving more profit thus, SnappyDrinks will increase production of
profitable product and eliminate product which is giving less profit or not profitable at all.
Activity Based budgeting method is important for SnappyDrinks as it is offering variety of
products and its target audience is also very large. As SnappyDrinks is offering 15 types of
drinks thus, application of this method is most appropriate & beneficial for company. Because,
this process helps company in analysing cost of manufacturing of each drink which further helps
in managing & identifying future cost(Rogulenko and Zelenov, 2016).
Methods that are appropriate for company
SnappyDrinks is operating its business from last 15 years and now company is planning
to introduce new products and wants to expand its business in international market for which
traditional method of budgeting is not appropriate. Company need to use Zero Based Budgeting
and Activity Based Budget method for preparation of budget.
Firm has to follow Activity Based Budgeting method because with this SnappyDrinks
can evaluate production cost of each of its area and company set a budget for production.
Application of this method helps firm in enhancing its quality and efficiency which in turn
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enhances profits & customer base. This method is also appropriate for company as it track each
of its activity and through this performance of company can be enhanced.
Further, Zero Based Budgeting is also appropriate for company as with this
SnappyDrinks can improve its profits and also helps in making effective decisions as it involves
staff members & managers in preparation of budget. Thus, implementation of both methods are
beneficial for SnappyDrinks(Mahal and Hossain, 2015).
CONCLUSION
This report outlined purpose behind preparation of budget. Further, this report
summarises importance of processes of preparation of budget. Furthermore, this report concludes
application of approaches related to traditional budgeting and its importance in future cost
management. Moreover, this report outlined importance & appropriateness of traditional
budgeting system for SnappyDrinks. Further, this report concludes different types of methods
used in preparation of budget. Furthermore, this report outlined pros & cons of each alternative
method. Moreover, this report summarise application of alternative methods in company. At last,
this report concludes which method is most efficient for SnappyDrinks.
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REFERENCES
Books and Journals
Le Quéré, C., Arneth, A. and Boden, T.A., 2015. Global carbon budget 2014. Earth System
Science Data. 7(1). pp.47-85.
Reynolds, M.E., 2016, July. From Base Closings to the Budget. In Party and Procedure in the
United States Congress(p. 235). Rowman & Littlefield.
Saunois, M. and Janssens-Maenhout, G., 2016. The global methane budget 2000–2012. Earth
System Science Data. 8(2). pp.697-751.
Eberstadt, N., 2016. Korea approaches reunification. Routledge.
Rogelj, J. and Knutti, R., 2016. Differences between carbon budget estimates unravelled. Nature
Climate Change. 6(3). p.245.
Miller, G., 2018. Performance based budgeting. Routledge.
O'Shea, J.P., 2018. Viability of Zero-Based Budgeting Methods in the City of Albuquerque.
Clark, C., Menifield, C.E. and Stewart, L.M., 2018. Policy Diffusion and Performance-based
Budgeting. International Journal of Public Administration. 41(7). pp.528-534.
Rogulenko, T. and Zelenov, V., 2016. Budgeting-Based Organization of Internal
Control. International Journal of Environmental and Science Education. 11(11). pp.4104-
4117.
Mahal, I. and Hossain, A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting. 6(4). pp.66-74.
Online
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