Budgeting Approaches for SnappyDrinks Plc: A Comparative Analysis

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BUSINESS FINANCE
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Executive Summary
The assignment consists of different kinds of budgets that can be used by different organisations
like SnappyDrinks Plc. It is seen that that there are explanation of different kinds of budgets and
their application in the SnappyDrinks Plc is also explained. This has helped the business
organisation to check the different aspects of business like the “performance of employees,
optimisation of price and many more”.
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Table of Contents
Executive Summary.........................................................................................................................2
Part 1................................................................................................................................................4
Part 2................................................................................................................................................8
Conclusion.....................................................................................................................................11
Reference List................................................................................................................................12
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Part 1
1. An understanding of the purposes of preparing a budget; what processes the company
needs to follow; and how the budget process itself can help development of the business
model
“Budget” is such a thing that is performed by the business entities in selecting the different
aspects of business and plan as to how the workings will take place in order to get proper results
from the business. These are significant for the business entities to perform as this serve the
people in a number of ways. The use of budgets also helps the management to measure the
performance of the employees. These are such activities that are necessary for the business
organisations to perform and can only be performed with the help of budgets. There are different
purposes that are served with the help of budgets. These will be explained in details below:
“Forecasting the income and expenditure”
This is an important part of the budget that is fulfilled with its production. “Budget” helps the
business organisation to forecast the incomes that will be gained by them in that fixed period of
time and as well as predict the expenses that will be incurred by the business organisation over
that same period of time (Weetman, 2018). These help the business to make a structure in such a
way that helps them to reduce the expenses and increase the income so that they get
“maximisation of profit”. These are necessary to be followed by the business organisations.
“Tools for decision making”
This is a very important reason or purpose for the “preparation of budgets”. With the
“preparation of budget”, it becomes easy for the business organisations to take vital decisions for
the operations of the business. These are necessary for the business organisations to take
important decisions that are related to the “optimisation of price” that cannot be done without the
“preparation of budgets”.
“Utilisation of resources”
This is a very important for the business organisations as the preparation of budgets help them to
utilise the resources in a manner that is proper in nature. This makes sure that there is no wastage
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of money or resources or workforce in producing any product. This very important purpose is
fulfilled by preparing budgets for the business organisation.
It has been observed that with the use of budgets, it helps the business organisations in a number
of ways. This is necessary for the business organisation SnappyDrinks Plc to understand the use
of budgets and perform them. This will give the business a proper structure to get proper
utilisation of the resources. The use of budgets in the business organisation SnappyDrinks Plc
will be explained below:
1. It has been observed that the production of budget for the business organisation SnappyDrinks
Plc has helped them to structure their business well
2. It has also been observed that the production of budget has heped them to ascertain the price
of the products sold by the organisation
3. The business organisation can also check the “performance of the employees” so that they can
take decisions
4. The business organisation can analyse the “income and expenses” incurred by them so that
they can reduce the expense of the business
A general process is followed by the business organisation SnappyDrinks Plc to prepare the
budgets for the business. These are provided below:
1. For preparing budgets, the information needs to be updated
2. All the bottlenecks should be updated
3. All kind of funding should be identified and entered in the budgets
4. Package of budgeting needs to be produced
5. The “forecast of revenue” should be added
2. Demonstrate the application of traditional budgeting approaches (including incremental
budgeting) to plan future cost management for this specific business. Illustrate your
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answer with examples of how products and processes for this business would be budgeted
for in a traditional/incremental approach
There are numbers of “traditional budgeting approaches” that are being present in the budgeting
that can be followed by the business organisations according to their usage. The “traditional
budgeting approach” needs to be performed by the business organisations as these help the
business organisation to analyse the “business operations”. Different types of “traditional
budgeting approaches” are explained below:
“Fixed Budgets”
These are one of the budgets form the “traditional budgeting approaches”. These are such type of
budgets that are performed by the business entities that have fixed form of operations. Once the
budget is performed, the management of the business cannot change it. In this form of budget,
once it is produced it cannot be changed no matter if there is a change in the condition of the
market. This is a very important form of budget the market is stagnant throughout the year and
the economy is stable. This cannot be used by the business organisations where there is more
than one product that is to be produced by them.
“Static Budgets”
These are one of the budgets form the “traditional budgeting approaches”. This form of budget is
prepared is a “manner that is static in nature”. This needs to be calculated by the business where
there is a small change in the market. This budget can not be changed if there is a big change in
the economy. It is then treated as wastage for the business (DRURY, 2015). This can only be
prepared by the business organisations where there is no change in the economy and the
economy is stable in nature. This is necessary for the business to work properly in conditions
where there is no change in the economy.
“Incremental Budgets”
These are such type of budgets that help the business organisation to add the extra expenses that
are being incurred in the process of production and selling of the products. This helps the
business to work properly as all the expenses are added in the process to get the “cost of
production”. These are necessary for the business to perform this type of budgets for the
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business. This can be used by organisations where the “economy is fluctuating in nature” and
there are number of products that are ti be produced by the business. These are very important
form of budgets that are followed by the business to perform. These are such type of budgets that
help the business to calculate the exact “income and expense” that has been incurred by the
business. These can be followed by the organisations where they need to produce more than one
item as this helps them to prepare the strategies to control the quantity of each item that is needed
by the business to produce in each month of the year.
3. Analysing whether a traditional budgetary system is appropriate to all or any parts of
the business in its planned future form
The business of SnappyDrinks plc is of producing and selling soft drinks. It has been observed
that there are sixty items that are produced by the business. It is not necessary for teh business
organisation to produce the same units of each product for every month. They need to adjust the
production of units as per the requirements of the business. Keeping all these aspects in mind, it
can be observed by the business organisation can use the process of “incremental budgets”. This
will help them in adding the expenses as they are incurred and the management can change the
budget as per their requirements so that they can perform well and produce as per the
requirements of the market and deliver the product as per the demand of the business. These will
help the business organisation SnappyDrinks Plc to work properly so that the issues of any kind
of loss can be mitigated and they can “increase the profits” of the business. Thus, it can be
observed that the business organisation SnappyDrinks plc can use this process of budget to
perform their budget.
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Part 2
An understanding of the following alternative budget methods: rolling budgets, zero based
budgets and activity based budgets.
There are other forms of budgets that are known as “alternative forms of budgets”. These are
performed in such business organisations where the management do not use the process of
“traditional budgeting approaches”. These are significant for the business organisation to
perform these kinds of budgets. There are different types of “alternative budgets” that can be
used by the business organisations as per the requirements of the business organisations. These
help the business organisations to perform the budgets as per their need and structure of the
business. There are different types of “alternative budgets” that are explained below:
“Rolling Budgets”
This is such a form of budgeting that enables the business organisations to roll the excess
“income or expense” that has been incurred for the next year. This is significant for the business
organisation to perform so that the business organisation can roll over the extra part for the next
year (Atrill, 2015). This will reduce the burden for the organisations and they will perform well
in the market. These are significant for the business to perform well and this will support those
organisations that are going through modification of their business. These are significant for the
business organisations to perform this form of budget properly by keeping in mind of the
situation of the previous year.
“Activity based budgets”
This is another form of budget that comprises of the “alternative form of budgets” that are
followed by the business organisations. This budget helps the business organisations to add all
the activities that are incurred by the production and selling of the products of the business.
There are number of additional activities that are found during the process of production and
selling of the products. Those can be added by the management in the budget to get proper
results from the preparation of budgets. These are significant for the business organisation to
perform so that they get the full access of their budgets. These are used by such business
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organisations that are uncertain about their expenses of the business so that they can add the
excess amount of money as the work progresses.
“Zero based budgets”
These are such form of budgets that form the “alternative form of budgeting”. These are
significant for the business organisations as this help them to start from the level of zero. This
form of budgeting does not consider the “historical or past data” during the production of budget
for the business. This type of budget only considers the “market research”. They only follow the
market and the economy of the business to form budgets for the business. This helps the business
organisations to get exact and correct result for the business. These are significant for the
business organisations to perform the workings properly so that the issues of the business are
solved.
The potential application of these methods to the company giving specific examples of how
all or some elements of budgeting could be performed more effectively using an alternative
method
From the above discussion about the different types of budgets of “alternative form of budgets”
it can be observed that there are some aspects that matches with the workings of the business
organisation SnappyDrinks Plc. This is necessary for the management to work properly so that
they get the things that are necessary for them to “increase the profits” of the business. There are
two types of budgets from the “alternative form of budgets” that can be used by the business are
provided below with their application.
1. The first budget that can be selected by SnappyDrinks Plc from “the alternative form of
budget is activity based budget”. This is significant for the business, as this will allow the
business organisation to add the activities as they are performed to complete the whole process
of production to selling of the products. This will enable the business organisation to work
properly so that the issues can be solved by the business.
2. The second budget that can be selected by Snappy Drinks Plc from “the alternative form of
budget is zero based budget”. This will help the business organisation to get the exact result, as
they do not use the “historical or past data” for their preparation. It is only the market research
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and research of the economy that is needed by the business organisation to perform so that they
get proper results of the business. These are significant for the business organisation.
Analysing whether one of these methods (or a combination) would be more appropriate to
the company
From the whole research, it can be observed the best method of budgeting that can suit the
business operations of the business is the use of “zero based budgeting”. This is the only form of
budgeting that uses the present data like the “survey of the market and the survey of the
economy”. This method does not consider any kind of “past or historical data”. This is the reason
that makes the use of this kind of budget for the business of SnappyDrinks Plc. The organisation
produces sixty types of items every year and not all the products provide the same results every
year. Therefore, it is necessary for SnappyDrinks Plc to use the “zero based budgets” as their
main budget that needs to follow by all the business organisations. These will help the business
to prosper and grow in the market. These are the necessities of the business that can be fulfilled
by the use of the “zero based budgets”. These will help them in solving all the issues of finance,
they can also measure the performance of the products, and as well as the performance of the
employees and take decisions as per the necessities of the business.
There are some drawbacks of the use of “zero based budgets” can be solved by the business to
get proper results. This kind of budget needs extra man mower and more money to ascertain the
results of the business. This is such a budget that will provide the exact results of teh business
that will help the business organisation SnappyDrinks Plc to work properly and guide them in
providing more profit in the business.
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Conclusion
It is observed from the assignment that the best source of budget that can help the business
organisation SnappyDrinks Plc to grow is the “zero based budget”. This is such a form of budget
that do not require the data of the past to calculate the budget for the business. There are number
of budgets that are found it the market but this is termed as the best as this budget provides the
best results. This is the reason to choose this budget from the list of budgets for the business
organisation SnappyDrinks Plc. This is observed that the assignment consists of different aspects
of budgets that are necessary for the business organisations to follow. The business organisations
need to work according to that budget that suits the business the most.
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Reference List
Atrill, P. and McLanet, E., 2015. Management Accounting for Decision Makers Paperback.
DRURY, C.M., 2015. Management and cost accounting. Springer.
Weetman, P., 2018. Financial reporting in Europe: Prospects for research. European
Management Journal, 36(2), pp.153-160.
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