SnappyDrinks' Budgeting Strategies: A Comprehensive Report

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BUSINESS FINANCE
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Table of Contents
EXECUTIVE SUMMARY............................................................................................................. 3
PART 1...................................................................................................................................... 4
1. IMPORTANCE OF PREPARING THE BUDGET AND THE BUDGETING PROCESS THAT
DEVELOPS THE BUSINESS MODEL........................................................................................4
2. APPLICATION OF TRADITIONAL BUDGETING METHOD AS WELL AS INCREMENTAL
BUDGETING METHOD IN CONTEXT TO SNAPPYDRINKS’......................................................6
3. TO DETERMINE THAT THE TRADITIONAL BUDGETING SYSTEM IS APPROPRIATE OR
NOT IN THE FUTURE PLANNING OF SNAPPYDRINKS’...........................................................7
PART 2...................................................................................................................................... 8
1. TO DEMONSTRATE THE VARIOUS TYPES OF BUDGET WITH THEIR LIMITATIONS..........8
2. APPLICATION OF THE BUDGETING METHODS IN THE SNAPPYDRINKS’ WITH
EXAMPLES............................................................................................................................ 9
3. TO ANALYZE THE APPROPRIATE METHOD FOR THE SNAPPYDRINKS’..........................11
REFERENCES........................................................................................................................... 12
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EXECUTIVE SUMMARY
In this report, the emphasis has been laid upon the budgeting techniques used at
SnappyDrinks’ in order to expand the business operations and also to introduce the new
energy drinks with low calories in the market. There are various methods involve in the
budgeting process and the explanation on the rolling budgeting method, zero-based
budgeting, traditional budgeting and activity-based method of budgeting. SnappyDrinks’
manufactures the energy drinks and there are approx60 drinks manufactured by the
company. The company’s CEO is planning to introduce the low calories energy drinks in the
market which will be around 15 new products. The company has also introduced the plan to
drive business operations to different countries.
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PART 1
1. IMPORTANCE OF PREPARING THE BUDGET AND THE BUDGETING
PROCESS THAT DEVELOPS THE BUSINESS MODEL
A budget is a future plan which estimates the income and expenditures for the future.
Generally, budgets are prepared in the initial period of the business and are based on the
pre-determined objectives of the business so that with the help of the formulated budget,
the objectives can be achieved effectively (9A-Drury, 2016).
The budget is being prepared for several purposes. The budget is being formulated to plan
the business operations, to coordinate the organizational activities and to ensure that the
work is being done in a proper manner, to communicate the business plans among the
managers and the subordinates, to motivate the managers towards the goals of the
organization, budgeting is being used to control and to monitor the activities performed and
at last the budget is being prepared to evaluate the managerial performance.
Importance of Budget in the functions of management:
Planning:
As planning is done for the long term, it requires the budget decisions to be formulated
while formulating the strategies. The budgeting plan ensures that future operations are
planned effectively.
Coordinating:
With the help of the budget, the proper coordination among the business activities can be
done so that the resources of the organizations are used effectively.
Communicating:
With the help of budget preparation, the top management communicates to the lower
management the expectation of the organization.
Motivating:
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Preparing the budget ensures that the managers of the organization are motivated which
will help the organization to achieve the objectives.
Controlling:
The budget prepared in an organization controls and monitors the business activities of the
organization such as the regular expenses and costs, etc.
Evaluation of the Performance:
The budgeting plan helps in evaluating the manager's performance by comparing the
actually achieved targets with that of the budgeted targets.
PROCESS OF BUDGETING:
To develop the business model in an organization, the administration of the budgeting
process is important. There are various stages involve in the budgeting process such as
follows:
 To communicate the policy related to the budget and the required guidelines to the
people who are associated with the formulation of the budgets. The managers of the
organization make the people aware of the planned budget.
 To evaluate the effective performance without any restriction
 To prepare the budget of sales
 Preparation of the budget at the initial stage
 Budgets should be conveyed
 The budgets prepared should be coordinated and revised
 The budgets should be finalised.
 Continuous review of the budgets.
This budget is very important in the organization and similarly in the SnappyDrinks' with the
help of explained budgeting process, the analysis of the business expenditures that will be
incurred for the introduction as well as the expansion can be done. With the help of the
budgeting process, the business of the company SnappyDrinks’ will also be formulated and
in this way, the objectives of the company will be achieved (9A-Drury, 2016).
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2. APPLICATION OF TRADITIONAL BUDGETING METHOD AS WELL AS
INCREMENTAL BUDGETING METHOD IN CONTEXT TO
SNAPPYDRINKS’
The traditional budgeting method involves preparing the budget on the basis of the budget
that was prepared in the last financial year. The changes in the current year of budget are
being done by referring the past year’s budget and on the basis of that the required changes
are done and this forms the budget of the current year. With the help of the traditional
budgeting, SnappyDrinks’ can consider the rates of inflation that fluctuated in the previous
year and the demand of the products of the company that has been changed due to
availability of many new drinks. Thus all such factors can be considered by the management
of SnappyDrinks’ to develop the budget of the current year by considering the
environmental factors comparing it to the previous year (K6-Weetman, 2010).
The concept of incremental budgeting is not so different from the traditional budgeting as it
also involves the current year budgeting plan in preparing the budget for the next year by
considering the required and additional changes.
The energy drinks produced by SnappyDrinks’ are huge in demand and therefore the
company has planned to introduce the low calories energy drinks in the market for the
people who are health freak. The drinks will be made from fresh fruits and will result in 15
fresh energy drinks. To implement this plan, SnappyDrinks’ will hire the workers to produce
the drinks so that the needs of the customers can be served. This will affect the cost of the
company i.e. the salary is required to be paid to the additional workers hired and the
additional salary is to be paid to the already working staff as the contribution of the existing
workers will also be increased (K6-Weetman, 2010). As there were already 30 workers
working in the production department of the company and the salary provided for these 30
workers cost around £ 3,50,000. After the introduction of the plan, the salary of these
employees will increase by 10% and the new employed 10 employees will be given £18,000
which will cost overall £1,80,000. Thus in the budget of the current year, the salary will be
shown as £5,65,000 (1,80,00 of the new workers + (£3,50,000 + 10% increment)).
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3. TO DETERMINE THAT THE TRADITIONAL BUDGETING SYSTEM IS
APPROPRIATE OR NOT IN THE FUTURE PLANNING OF
SNAPPYDRINKS’
SnappyDrinks’ can adopt the approach of traditional budgeting as it will also consider the
previous expenses and revenues and the accurate budget can be formulated for the current
year. The budget which is to be prepared for the current year at SnappyDrinks’ will also
include and the consider the last year the financial statements such as the balance sheet,
profit and loss statement and by implementing the incremental budgeting along with the
traditional budgeting the current year budget can be developed. Due to the incremental
budgeting, the changes that occurred in the mid of the current and previous year will also
be considered (3W-Atrill, 2015). Generally, the top management of the company handles
the traditional budgeting method. Implementing the traditional budgeting at SnappyDrinks’
will enhance the value in the market and the energy drinks with low calories will attract the
large number of customers the products of the company. This will also contribute in the
effective functions of the management of SnappyDrinks' which will enhance the
performance of the job effectively and along with this, it will also add value to the products
and will also generate the customer value.
Thus traditional budgeting implementation at SnappyDrinks’ will generate the effective
financial statements of the company and this will also consider the sales budget, cash
budget, cost budget and so on. Thus the environmental factors and the legal factors are also
considered while preparing the budget for the current year so that the operations in the
whole year can be carried out effectively (3W-Atrill, 2015).
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PART 2
1. TO DEMONSTRATE THE VARIOUS TYPES OF BUDGET WITH THEIR
LIMITATIONS
Along with the traditional and incremental approach of budgeting, budgets are also being
classified into several other types that can be used by SnappyDrinks’ and these approaches
are useful for monitoring the business operations of the organizations.
Following are the detail explanation of the types of budget:
Rolling Method of Budgeting:
In the rolling method, the whole new budget is being prepared as soon as the existing
budget gets expired. As the name, it defines that rolling means the continuous. The factors
of the incremental budgeting are also considered in the preparation of the rolling budget.
Therefore the present budgets remain to continue for the next approaching years. The
preparation of such type of budget is done on the basis of periodicity. The budgets which
were used to be prepared in the traditional method, that budgets were designed to make
the valuation of the whole year. But in the Rolling method of budgeting, the budgets are
designed for not the whole year but for quarterly or half-yearly and then it is revised on the
basis of periodicity. In the traditional method of budgeting, it was very difficult or can say
impossible to make a change in the budget on the basis of market oscillation while in the
rolling method of budgeting, it is possible to make a change in the budget on the basis of
the market. Therefore by this, we can conclude that the rolling method is more suitable and
changeable as compare to the traditional method of the budgeting (3W-Atrill, 2015).
As there are some disadvantages of the Rolling method of budgeting as follows:
As the word itself derives that it is continuous budgeting and thus it requires very strenuous
work to be done. The rolling method of budgeting can be considered as a support system for
the business but it is not the driving force of the business. The rolling budgets are used only
at the time of incremental changes. And if there is a non-stop variation in the budget then it
creates the inconvenience between the staff as well as the supervisors.
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Zero-based method of Budgeting:
The provision for fresh budgets and the elimination of old budgets are involved in Zero
Based method of Budgeting. It also initiates the entire processing for the preparation of
the budgets. Here, earlier revenues and expenditures are not considered. Therefore, to
prepare the fresh budget it has been required to evaluate the revenues as well as
expenditures (9A-Drury, 2016).
There are some drawbacks in the method of Zero Based budgeting which are shown as
under:
In the zero-based budget, it is necessary to prepare a new budget with eliminating the
earlier budget, therefore, this involves huge expense in the planning process. There is
the requirement of a maximum number of employees and the experienced and skilled
staff that will contribute to the budget planning.
Activity Based Method of Budgeting:
The rate of the business procedures is defined as well as the reduction of the rates from
the originally defined level of rates is done under the Activity Based method of
budgeting. The budget is designed only after the study of the rates that are acquired at
every section as well as department to carry on the business procedures.
Limitation of the Activity Based method of budgeting is as under:
There is a possibility for the unproductive results of the budget if the managers have
not the proper awareness about the business procedures of the company ( 9A-Drury,
2016).
Thus in the above-shown methods of budgeting, there is a huge level of employees and
the supervisors. It also requires the high-level usage of time as well as cost.
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2. APPLICATION OF THE BUDGETING METHODS IN THE SNAPPYDRINKS’
WITH EXAMPLES
On the basis of the three methods i.e. rolling method of budgeting, zero-based method of
budgeting and activity-based method of budgeting; the finance manager of the
SnappyDrinks has to design the budget for the company. By taking the help of the given
methods, the best method of budgeting would be used for making the budget to increase
the market of the drinks and to bring the new energy drinks in the market (9A-Drury, 2016).
Rolling method of budgeting:
The budget is prepared by the business manager of the SnappyDrinks as per the method of
the rolling budgeting by which the quarterly budget is planned in which the policies of the
business is getting affected by the ecological variations.This budget would continue with the
yearly budget which was formed before. For example, one budget was prepared for the
whole year which was known as a traditional budget and this was implemented from the
first date of financial year till the last date of that financial year and between this if some
variations are to be required then at such given point of time the budget termed as rolling
budget was to be planned on the basis of periodicity (K6-Weetman, 2010).
Zero Based method of budgeting:
Generally, the energy drinks are produced by the company termed as SnappyDrinks and
which is also planning for the launching of some new energy drinks in the market so that
they can generate more profits in the market. As the company buys the required raw
material at a high cost but as soon as the Zero-based budgeting system was designed, it was
known that the company should produce the required raw material itself which would be
cheaper as compare of the purchasing the raw material at a higher cost. The Zero-based
budgeting method ignores the earlier expenditures, and so it becomes a necessity to design
the budget of each and every department referring to the funds available in every
department of the company (9A-Drury, 2016).
Activity-based method of budgeting:
The activity-based method in the budgeting approach analysis the cost of the SnappyDrinks'
departments that conducts the business activities. Through this, the budget can be planned
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for launching the new energy drinks in the market and to expand the business operations of
SnappyDrinks' in different areas. Therefore, in the activity-based budgeting, the
manufacturing cost of energy drinks will be determined, the cost of the packing materials,
etc. will also be analysed. The manager of SnappyDrinks’ will also able to determine the
expenses that will be incurred in the manufacturing department and other departments of
the company (9A-Drury, 2016).
3. TO ANALYZE THE APPROPRIATE METHOD FOR THE SNAPPYDRINKS’
The most appropriate method to be implemented at SnappyDrinks’ for enhancing the
market of the energy drinks with low calories and attracting a large number of customers by
effective utilization of resources can be the incremental approach of budgeting also known
as the traditional method, along with this, the activity based method and rolling method can
be the best techniques that can be applied in the company to produce the products which
will result in the cost-effective. With the help of the incremental approach of budgeting, the
company SnappyDrinks' will be able to track and refer the records of the previous data and
can plan the budget accordingly (K6-Weetman, 2010). Also the activity based method, the
cost of every department of the company can be analysed and the budget can be planned
so that the expenses can be incurred according to the planned budget. Due to the
availability of the low calories drinks, the people who are health-oriented will be satisfied
with the products and thus this will enhance the profitability of the company. With the help
of the rolling method of budgeting, the changes that are on-going in the market can also be
considered in preparing the next budget. Therefore, with the help of the suggested
methods, SnappyDrinks' can increase efficiency and profitability (9A-Drury, 2016).
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REFERENCES
 3W-Atrill, 2015. Management Accounting for Decision Makers. 8th ed. London
Pearson. Chapter 6 Budgeting_19f63b677608a9388071096daf0a360a.pdf
 9A-Drury, 2016. Management Accounting for Business. 6th ed. London Cengage.
Chapter 9 The Budgeting Process_7882744b3641fedaebd78156c536215d.pdf
 K6-Weetman, 2010. Management Accounting. 2nd ed. London FT Prentice Hall.
Chapter 13 Preparing a budget_23bcdc7901c31b5d21567ab6519e8fdd.pdf
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