Buns Bakery: Creating and Using a Master Budget Case Harvard Case Solution & Analysis

Buns Bakery: Creating and Using a Master Budget Case Case Solution

It has been suggested by Jeff to Nicole to drop the sales i.e. 10% rather than 20%. He explained that this might lead to high cash flow business operations and earnings per share. It is important for the company to revise the numbers in order to show 10% sales decrease which has been advised prior by Nicole to Jeff.

In contrast to the Nicole’s suggestions, Jeff has been arguing and claiming that the bonus might be killed, he has been showing concern with quarter bonus. On the other extreme, Jeff has realized the fact that if the company would not take finance from venture capitalist firm, then he would less likely be able to receive bonus in the following term.

It is important for Jeff to compromise on immediate gratification, so that the company would keep growing in upcoming years. If the numbers would be revised, it would reflect the venture capitalist firm that for the additional required finance, the support is there. It is the foremost solution to the problem, it does not reflect an abrupt or drastic change. Nicole has done preliminary industry studies in order to support the revision.

Since, budgeting process performs the variety of roles within the company, the persuasiveness and the role of budgeting cannot be ignored. It allows to create a spending plan, it will also make sure that the company would have enough finance for the things that are significant for the company. A spending plan or budgeting process would also keep the business out of debt, it would allow the company to keep focusing on common objectives. Not only this, it would allow the company from unnecessarily spending on the product/services that may not contribute to attaining common goals of company.

In order to execute a company’s financial action plan, the factors influencing budgeting process should have to be discussed. The size of the reliable revenue stream should be known, the revenues can be determined after deducting cost and expenses from the reliable revenues. The individual last impact on the process budgeting in a way that the individual have discussed their requested department’s budget and explained their needs and request for funding. The meeting involves a managers, head of the departments and project manager.

In regard to the budgeting challenges, the most critical challenges are listed below:

  1. The business owners have to struggle with collecting budget numbers, verification of manual and input collected data. It is complex to spend multiple hours on consolidating the single spreadsheet into a master budget, they have to analyze the data and make strategic financial decisions.
  2. Companies that go through the budgeting process challenges find it hard to improve the processes while in the midst of the season of budgeting.
  3. Another challenge is the inaccuracy; because the set of assumptions are made that are not too far distant from the company’s operating conditions under which it has been formulated. If the environment of business has changes to some extent, this in turn, would radically change the revenue and cost structure of company whose actual outcomes would most likely depart from the expectations being delineated in the budget. When there is a downturn in country’s economy this would be a problem, as the budget has authorized the certain spending level that would not be supportable under an abruptly reduced level of revenue. Until and unless the management would act quickly to override the process of budget, the managers of the company would keep spending under their original budgetary authorization, this would rupture the probability of earning profit. Other influential conditions include changes in currency exchange rate, interest rates and prices of commodity (Churchill, 2015).

Conclusion

To sum up, it should be notified that the analysis of the original numbers presented in the Buns Bakery’ financial, it has been evaluated that the company has not been efficiently growing and hasn’t been profitable over the period of time, this in turn, has made the company unable to allocate profit portion to each outstanding share of the common stock being generated by company. The company should improve its financial state by reducing the S&E expenses since it is one of the non-production cost listed on income statement of company, the cost reduction programs should be commenced by the company and also it should lower the mortgage payable through re-amortizing and recasting the payments of mortgage without refinancing.

In addition to this, the company should have its focus on improving the collection efforts efficiently. With 2/10, net/30 discount, the 2 percent discount would be given to customer in case of making payments within 10 days instead of 30 days. By doing so, the company would be able to acquire the cash management services tend to be offered by bank, it would be very helpful to manage the cash flow cycle..........

 

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