SnappyDrinks Plc Budgeting Strategies: A Comprehensive Report

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Business Finance
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Executive Summary
SnappyDrinks Plc, a company operating in the international energy drink manufacturing sector,
is currently considering its expansion or diversion through enlargement of its product portfolio in
addition to acquiring new manufacturing and plant capacity, enhancing marketing campaigns
and such other activities. However, the budgeting approach in it is a traditional one, which has a
large number of demerits. In this report, budgets and budgeting approaches have been evaluated
and analysed in detail and have been considered for SnappyDrinks Plc. It has also provided
suggestions that the corporation creates its budgets through combining the activity-based
approach with the zero-based approach along with stating the reasons for their benefits to the
corporation.
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Table of Contents
Part 1................................................................................................................................................4
Part 2..............................................................................................................................................10
Reference list.................................................................................................................................18
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Part 1
i. 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
A corporation’s finances can be managed through utilisation of several kinds of tools and
techniques within which an efficient one is budget. Weetman (2010) defined budgets as the
financial plans of a corporation within which the anticipated or forecasted spending to be
incurred by it are included along with presenting the estimated income that it can have from
these spending. The diagram below shows the five noteworthy aspects of a budget -
Figure 1: Highlighting the most significant aspects of budgets
(Source: Created by the learner)
Atrill (2015) opined that when it comes to the motives or the reasons for which a corporation
prepares budgets, one can find out that the common reasons or purposes for a corporation to
create a budget include
 Anticipation of finances or funds needed within it
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Preparingaplan

 Chances of the corporation to incur loss in the forthcoming periods
 Ascertainment of the income it desires to earn
 Bringing about enhancement in a corporation’s financial steadiness
Apart from the above purposes, among the other purposes of creation of a corporation’s budget,
fall the following -
Figure 2: Highlighting the other purposes of creation of a corporation’s budget
(Source: Created by the learner)
On the contrary, Drury (2016) has out forward the requirements of a corporation to adopt the
different steps in the budgetary process, which include the following -
Step 1: Preparing sales budget
Step 2: Preparing production budget
Step 3: Communicating the guidelines or framework of budgets
Step 4: Submission and presentation of departmental or segmental budgets
Step 5: Approving budgets
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ControlandmanagingtheactivitiesandoperationsofacompanyMotivatingemployeesPlanningandcoordinatingactivitiesandoperationsofacompanyActingasthebasisfortheevaluationoftheperformanceofacompany

Step 6: Agreeing to the budget and its implementation
The following figure explains what actions are taken in all these six steps -
Figure 3: Highlighting the process of creation of a corporation’s budget
(Source: Created by the learner)
Drury (2016) also mentioned that business model of a corporation can be created and developed
whenever budgets are created within it. This is for the reason that budgets provide aid to all
corporations in their strategic decision-making as well as enhancing the way in which its
resources, which can be financial resources as well as physical resources, help in improving the
efficiency of its sales forecast. Each of these processes as well as actions functions
simultaneously and prove advantageous to corporations in the development along with the
creation of the corporation’s business model effectually.
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Step1Preparingsalesbudget-EstimationoftheaveragesalesforthenextperiodandaticipatingsellingpricesandsalesvolumeStep2Preparingproductionbudget-EstimationoftheaverageproductionforthenextperiodandanticipatingvolumeofproductionneededforaddressingconsumerdemandStep3Communicatingtheguidelinesorframeworkofbudgets-ExchangingwordsanddiscussingregardingtheguidelinesfordevelopmentofbudgetsStep4Submissionandpresentationofdepartmentalorsegmentalbudgets-SubmissionofbudgetsofeachdepartmentseparatelyStep5Approvingbudget-ObtainingpermissionandapprovalforthebudgetsStep6Agreeingtothebudgetanditsimplementation-Finalagreementrecievedofthebudgetfollowebyitsimplementationintoorganisationalcontext

ii. Demonstrate the application of traditional budgeting approaches (including incremental
budgeting) to plan future cost management for this specific business. Illustrate your
answer with examples of how products and processes for this business would be budgeted
for in a traditional/incremental approach
Budget plans are prepared within organisations since a long time. Through the evaluation of the
past years, one can see that budget plans were prepared in organisations through different
approaches, which are called the traditional approach to budgeting. Incremental budgets fall
under the category of traditional budgets and are prepared by adding up incremental extensions
to a corporation’s budget that it had during the earlier period. In SnappyDrinks Plc, the
incremental budgets are utilised at a large scale, an example of which has been given in the
following discussions -
SnappyDrinks Plc’s budget plan during the budget period 2018-19
Estimated income Amount Anticipated spending Amount
Sales £ 64,380.00 Materials purchased for its 60
products
£ 6,960.00
Insurance related expenses £ 1,690.00
Marketing campaign £ 3,320.00
Utilities and maintenance £ 1,120.00
Manufacturing and plant
capacity maintenance
£ 6,370.00
Electricity expenses £ 2,940.00
Manufacturing facilities £ 5,220.00
Legal and accounting expenses £ 970.00
Labour expenses:
Factory staff £ 3,620.00
Staff in the Nottingham office £ 5,650.00
Total anticipated income £ 64,380.00 Total forecasted expenses £ 37,860.00
Table 1: SnappyDrinks Plc’s budget plan during the budget period 2018-19
(Source: Created by the learner)
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SnappyDrinks Plc’s budget plan during the budget period 2019-20
Estimated income Amount Anticipated spending Amount
Sales £ 77,256.00 Materials purchased for its 60
products
£ 8,352.00
Insurance related expenses £ 2,028.00
Marketing campaign £ 3,984.00
Utilities and maintenance £ 1,344.00
Manufacturing and plant
capacity maintenance
£ 7,644.00
Electricity expenses £ 3,528.00
Manufacturing facilities £ 6,264.00
Legal and accounting expenses £ 1,164.00
Labour expenses: £ -
Factory staff £ 4,344.00
Staff in the Nottingham office £ 6,780.00
Total anticipated income £ 77,256.00 Total forecasted expenses £ 45,432.00
Table 2: SnappyDrinks Plc’s incremental budget created for the budget period 2019-20
(Source: Created by the learner)
A yearly incremental extension of 20% has been made in the budget of the organisation
SnappyDrinks Plc for creating its budget plan for the forthcoming period 2019-20. Therefore,
this acts as an example for creation and utilisation of the incremental budgets for managing
finances and forecasting spending and income in SnappyDrinks Plc.
iii. Analysing whether a traditional budgetary system is appropriate to all or any parts of
the business in its planned future form
Despite of having a large number of limitations, the incremental budgets are still used in a
number of organisations in the world for a few reasons, which are its potential advantages. These
advantages include the effortlessness and simplicity in their preparation and the requirement of
not having to invest huge amount of time for their preparation. In addition to such advantages,
the advantages that incremental budgets have include their suitability in the context of
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organisations where there are no major changes are place and no such deviations have been
planned (Weetman, 2010). They are not suitable for the ones within which various deviations are
taking place or are being planned. However, as per the background and the planned future of
SnappyDrinks Plc, it can be noticed that various deviations are being planned into it, which is a
fundamental factor for its unsuitability in the corporation.
Weetman (2010), in the context of incremental budgets, also stated various other limitations, one
of them being the building up of an organisation’s budgetary slack as well as the non-
consideration of business environmental factors, thereby adding up increments to organisational
costs pointlessly. Because of all these aspects and reasons, it will not be the right decision to
choose incremental budgets as the budget approach to be used in SnappyDrinks Plc, especially
when its planned future form is taken into consideration.
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Part 2
iv. An understanding of the following alternative budget methods: rolling budgets, zero
based budgets and activity based budgets. Explain how each method attempts to improve
on the traditional approach and what their respective drawbacks might be
Evaluating and discussing the incremental budgets in the above section indicate that there are a
wide number of cons or demerits of traditional approach to budget creation. These demerits can
be eradicated successfully and easily by the medium of the newly updated and alternative
approach to budget creation, a few of which include the following -
 Zero based budgets - An alternative approach to budget creation that includes creation of
budgets of a corporation with the help of justifying expenses of the corporation on a
completely new way without accounting for previous budget is the zero-based budget
(Atrill, 2015). The merits of the approach relative to traditional ones include its role for
eradicating a corporation’s redundant activities while justifying each of its expenses
(Drury, 2016). The demerits of it however include its extreme rigidity in various
instances and no focus towards long run.
 Rolling budget - The alternative approach to budget creation with which preceding
budgets are continued and brought forward for next period budget through incremental
extensions added based on business environment is a rolling budget or continuing budget
(Atrill, 2015). The merits of the approach relative to traditional ones primarily include its
consideration of business environment while its demerits include the exhaustion of more
of time and manual labour and demoralising workers (Drury, 2016).
 Activity based budget - Another alternative approach to budget creation is activity-based
budget, in which costs of a corporation are budgeted followed by their assignment and
allotment based on the activities or operational aspects because of which they have been
developed (Atrill, 2015). The merits of the approach relative to traditional ones is that
they provide aid in cost reduction of corporations while its demerits include enlarging
managerial pressure and the exhaustion of more of time and manual labour (Drury,
2016).
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v. 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
The newly updated and alternative approach to budget creation, which has been presented and
analysed above, can be used easily in SnappyDrinks Plc as well. The discussions presented
below comprise of the creation of SnappyDrinks Plc’s budget plans using the above approaches -
SnappyDrinks Plc’s budget plan during the budget period 2019-20 with zero based budgets
Estimated income Amount Anticipated spending Amount
Sale made from the 60
products already present
£ 23,690.00 Materials purchased for the
60 products already present
£ 7,660.00
Sales made from newly
introduced health-led drinks:
Materials purchased for
newly introduced health-led
drinks:
Peach favoured drink £ 3,870.00 Peach favoured drink £ 1,420.00
Mulberry favoured drink £ 4,920.00 Mulberry favoured drink £ 1,660.00
Lemon favoured drink £ 4,780.00 Lemon favoured drink £ 1,870.00
Orange favoured drink £ 4,220.00 Orange favoured drink £ 2,220.00
Kiwi favoured drink £ 5,220.00 Kiwi favoured drink £ 2,160.00
Banana favoured drink £ 4,960.00 Banana favoured drink £ 2,640.00
Pear favoured drink £ 4,660.00 Pear favoured drink £ 2,420.00
Green Tea favoured drink £ 3,520.00 Green Tea favoured drink £ 2,360.00
Papaya favoured drink £ 3,670.00 Papaya favoured drink £ 2,460.00
Pineapple favoured drink £ 3,670.00 Pineapple favoured drink £ 2,470.00
Apple favoured drink £ 5,220.00 Apple favoured drink £ 2,220.00
Pomegranate favoured drink £ 3,870.00 Pomegranate favoured drink £ 1,660.00
Berries favoured drink £ 4,920.00 Berries favoured drink £ 1,420.00
Aronia favoured drink £ 5,220.00 Aronia favoured drink £ 2,640.00
Blackcurrant favoured drink £ 4,960.00 Blackcurrant favoured drink £ 3,140.00
Other expenses:
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Insurance related expenses £ 2,120.00
Marketing campaign £ 3,640.00
Utilities and maintenance £ 1,240.00
New manufacturing and
plant capacity
£ 7,050.00
Electricity expenses £ 3,460.00
New manufacturing
facilities
£ 5,000.00
Legal and accounting
expenses
£ 1,050.00
Labour expenses:
Factory staff £ 4,600.00
Staff in the Nottingham
office and new sales team
£ 8,600.00
Total anticipated income £ 91,370.00 Total forecasted expenses £ 77,180.00
Table 3: SnappyDrinks Plc’s zero based budget created for the budget period 2019-20
(Source: Created by the learner)
SnappyDrinks Plc’s budget plan during the budget period 2019-20 with activity based budgets
Activities Deliver
y of
ordere
d stock
Stock
issue
from
warehou
se
Orders
of
stock
Keepin
g stock
counts
Keepin
g
record
Managin
g &
supervisi
ng
Total
Materials purchased
for the 60 products
already present
£
1,150.0
0
£
1,110.00
£
1,320.0
0
£
1,330.0
0
£
1,640.0
0
£
1,110.00
£
7,660.0
0
Materials purchased
for newly introduced
health-led drinks:
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