Budget Planning and Control

Budget Planning and Control

ACC 556: Financial Accounting for Managers

Budget Planning and Control

A realistic budget is especially important for a company like Babycakes because they are selling a product that has an expiration date. They need to be able to get their product off of the shelves in a specific amount of time or else the ingredients can go to complete waste and money can be lost. It could be very harmful for Babycake’s business to over-budget because if they make more supply than they need they can lose profit. Erin had a good idea to sell the product for 50% the next day for days that they had overstock to help save some of the profits. This can save some of the business but it isn’t a guaranteed solution.

If Babycakes budgets correctly, then then they are aware of how much they need to spend on supply for their product. Their product is made daily so it is important that they have a very clear and concise budget. Babycakes is a small business. As a small business, they need to be very frugal when it comes to spend. As Erin mentioned in the video, if she didn’t use budgeting she would probably overspend on things that she wants for the bakery, rather than things that she needs to maintain a successful business.

After reviewing the costs for the fourth quarter for Babycake’s L.A store, I have conducted a sales budget of $ 236,250.00 for the fourth quarter. Based off of half of the numbers from Valentine’s Day, Babycakes would average 750 per day. If the cost of the units remained at $3.50 per unit, the total sales would be $2,625.00 Based off of a 30-day month, the total number of sales in a given month would be $78,750. I f each month in the quarter (October, November, December) performed well then the total for the quarter would be $78,750 x 30 = $236,250.00

To increase sales, I would create three new products, one for each of the holiday seasons in the quarter. The first new product would be for Halloween. This would be a Candy Corn Cupcake. The Candy Corn Cupcakes would help to increase sales but would not make as big of an effect as the Valentine’s Day products do. I would budget that these sales would be about three quarters of the Valentine’s Day sales. The total number of sales budgeted for Halloween would be 1125 units sold at $3.50 per unit for a total number of sales of $3,937.5 on Halloween. After adding the Halloween cupcakes to the remainder of the month, I calculated a total number of sales of $8,0062.5 for the month of October.

For November, I would feature a Thanksgiving pumpkin pie cupcake. I would expect this to do as well as Valentine’s Day since Thanksgiving is celebrated by almost everyone in the United States and so many people suffer from food allergies. That would give us a total of 1500 units sold at $3.50 per unit for a total of $5,250 in sales. For 29 days in November the average sales per day would be $2,625 and one day at $5,250 for a total number of $81,375 sales in November.

In December I would create a Christmas cookie special. The Christmas cookie would come in a box and I would charge $4 for one box. I would expect that these would sell as good as the Valentine’s Day cupcakes since Christmas cookies are so popular and they can be enjoyed for a few days after the purchase. If 1500 units were sold at $4 a box, the total number of sales would be $6,000 for that day. After adding the 29 days of sales of $2,625 and the $6,000 from the Christmas cookies I calculated total number sales of $82,125 for the month of December.

With the holiday promotions added to the calendar, the total number of sales for the fourth quarter is $243,562.50 The difference in sales for the quarter after adding the holiday promotions is $15,187.50 It is certainly beneficial to add a seasonal holiday promotion each month to help increase sales overall.

A flexible budget would be more beneficial than a static budget for Babycakes. Since there are numerous opportunities throughout the year for the company to promote different types of products that could help to increase sales, it is good to have a flexible budget to prepare for this type of spend. A flexible budget also allows Babycakes to try new products and cut spend when needed. If some products do not perform as well as others they can be removed from the shelf. Since a flexible budget adjusts and changes for the volume of activity, we can see that the volume can change throughout the year based on the holiday promotions in Q4. There are many opportunities for future promotions.

In order to avoid overspending, Babycakes should keep detailed records of the different sales that they are obtaining for each product. Since the different products include different ingredients, all of the ingredients should be included in their financial statements so that they can see where they are spending and what the return of investment is for each product. From this information they would be able to determine which products are bringing in the most profit and which products are causing them to lose profits.


What is a static budget? – Questions & Answers – AccountingTools. (n.d.). Retrieved November 25, 2016, from http://www.accountingtools.com/questions-and-answers/what-is-a-static-budget.html

Jiambalvo, J. (2011). Accounting for managers. Hoboken, NJ: John Wiley & Sons.

Tracy, T., & Tracy, J. A. (2012). Staying in the Money: Ten Ways to Keep Cash Flow Problems from Putting You Out of Business. Home Business Magazine: The Home-Based Entrepreneur’s Magazine, 19(3), 44-47.