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"Budgeting- Writing the Report"  Please respond to the following:

Critique the sample paper provided below. Add appropriate comments, noting good and bad aspects of the paper. Use the rubric to make a numerical evaluation. Report each category of the rubric and the points you give the paper. Provide a total points and letter grade. Be sure to give specific details to support your evaluation of each area. 

 Text:

                Babycakes Company is a specialty bakery that serves baked goods that are vegan friendly, and are gluten free.  Their products are also kosher.  This specialty bakery has gained traction since its opening in 2005 in NYC.  They currently have three store locations: New York City, Los Angeles California, and Orlando Florida.  They also have an online ordering option and ship goods nationwide (www.erinmckennasbakery.com, About Us, Accessed 3/6/16). 

This bakery has seen growth for several reasons.  One is that they cater to an underserved market: People who are vegan, and those with food allergies.  Statistics show that there has been an increase in food allergies in the U.S.  About 4% of the population, more than 12 million Americans has some type of food allergy.  Significant portions of this number are school-aged children (Martone, H. 2010).  

Aside from the specialty products, the company also knows how to manage their money. 

Babycakes uses managerial budgeting to monitor their finances, and their product output.  Their budgets are done annually, and are broken up by quarters.  They use the previous year’s budget to forecast sales for the current year.  And they use informal methods to determine the type and amount of baked products to offer.  The company also takes into consideration holiday events.  

In the video, Babycakes owner Erin McKenna goes into some detail in regards to her methods for budgeting.  She talks about keeping an eye out for customers’ reactions for certain products.  She found that people have an emotional attachment to doughnuts.  This made her order more pans to bake more donuts.  On the contrary, if the cornbread is not selling, she will no longer offer the product to prevent waste

(http://video.wileyaccountingupdates.com, 2010).  This is an example of the behavioral budgeting approach.  The behavioral budgeting approach looks at the correlation between one’s leadership style and their budgeting approach, and how resources are allocated (Grønhaug, K., & Ims, K. O. 1988).

Had Erin not had a budget, she may not have proof that the doughnuts do sell a lot more than the cornbread.  She would sell out of the doughnuts too soon, and have too much cornbread at closing that would go to waste.  She also wouldn’t know to allocate the cornbread money towards producing more doughnuts to sell. 

4th Qtr. Budget

For the Babycakes L.A. location, a 4th quarter budget was made for 2016 (See appendix A).  The daily sales number of 750 units was used for the budget.  Babycakes sells a variety of products.  For this budget, there was a focus on the five main products: cookies, donuts, cupcakes, loaves, and brownie bites.  Divided equally, the budget shows each product as 150 units made daily, totaling 750 products per day.  Over 23,000 products are produced monthly.  The price for the products was taken directly from the Babycakes website.  

In addition to 750 units, an additional 500 units was added to the cupcake category for three holidays: Halloween, Thanksgiving, and Christmas.  The 500 units were chosen based on the Valentine’s Day increase in products.   Adding this in the budget helps the bakery determine how much the cost will be with the added goods to be sold during the holidays.  This would also show the number of units that would need to be on hand for the rest of the months.   

The volume for the quarter increased by 500 for each month, totaling 1,500 for the quarter.  The total quarterly volume went from 69,000 units to 70,500.  If the estimates are correct, the budget should help with the production and sales of the products.  This is of course, assuming that only 500 additional cupcakes are needed for each month.  

Flexible Budget

If Erin wanted to use a flexible budget, this may help her with the holiday season more than a typical budget.  The flexible budget shows the variable cost per unit, based on different unit levels.  Without the holiday increase, the original total amount of items sold per month is 23,250.  The flexible budget in Appendix B shows the variable costs, based original total, and with the 500 and 1,000 units added.  Erin can compare the totals to see if selling 500 or 1000 additional units is more cost effective.  The flexible budget may especially come in handy during the month of December.

Financial Challenge

Let’s say Erin decides to go with the 500 additional units for the month of December.  She then receives a bunch of inquiries about baked goods for Chanukah.  Chanukah is an 8 day long holiday celebrated by the people of the Jewish faith.  Babycakes offers kosher prodproducts, which is why there is an increase in orders.  Babycakes ends up spending a lot more money in this month, due to the Chanukah orders, and goes over the budget.  

In order to deal with this challenge in the future, it would need to figure out the type and total number of baked goods that were purchased during that holiday.  It would then add those totals to the month of December the next year.  She would also need to ensure that she has enough ingredients and utensils to bake the goods for Chanukah for next year.  

Conclusion

Babycakes solid managerial budgeting has helped the company grow.  They were ahead of the curve in finding an opportunity with an underserved population.  With Americans getting increased allergies, and obesity, people are looking for alternatives to standard baked goods.  Babycakes offers healthier baked goods that anyone can enjoy.  At the same time, the company has been financially sound by keeping an analytical eye on their bottom line.  Staying within the budget, and adjusting based on holiday trends will continue to bring this company success.

Appendix A – Sales Budget

Appendix B – Flexible Budget

References

Flexible budget template: http://www.freemicrosofttemplates.com/easy-to-useand-flexible-budget-template/

Grønhaug, K., & Ims, K. O. (1988). Setting the Sales Budget: An Exploratory Study. Journal Of Behavioral Decision Making, 1(3), 178. 

Martone, H. (2010). 2.2 MILLION CHILDREN LEFT BEHIND: FOOD ALLERGIES IN

AMERICAN SCHOOLS--A STUDY OF THE FOOD ALLERGY AND ANAPHYLAXIS MANAGEMENT ACT. Journal Of Law & Policy, 18(2), 789.

Sales forecast template:http://www.excelskills.com/templates2007/sales_forecast.xlsx

video.wileyaccountingupdates.com (2010). Budgetary Planning Case: Babycakes. 

http://video.wileyaccountingupdates.com/2010/11/02/test-video/

www.erinmckennasbakery.com(2016).  About – FAQ’s https://www.erinmckennasbakery.com/about-us/