Taste Treats Budget Report

Introduction

Businesses are often created with a main aim of gaining profit in order to enhance their own financial position in the market. In order to assess their growth, they need to prepare a budget plan to aid then in estimating their future potential in the market and discuss the significance of selecting particular variables or line items. The paper aims at discussing the operating budgets and variance analysis. This will help the company in providing a coherent outcome to their budget plan (Palmer, 2012).

Budgeting process

According to the sales budget, the company’s budgeted sales dollars was $1,080,000. Production budget shows the number of units the company needs to produce so as to meet its forecasted amount of production. The production budget indicates that Tasty Treats need to produce 1,200 units, 6,600 units and 6,000 units for July, August and September respectively which results in a total of 13,800 units. The raw material budget indicates that the company’s total cost of direct material purchases was $106, 097.50. The total labor dollars were $480,000 while the factory overhead budget indicates that the budgeted total overhead was $141,000. In addition, the company had a total selling expense of $140,850 and a general and administrative expense of $44,100.

Budget variances refer to the discrepancy between a company’s predicted revenue and cost in a given account. A budget variance occurs in case the actual results of financial activity differ from the budgeted projections (Palmer, 2012). The direct material variance and the direct labor variance show a favorable efficiency or usage of $134,153 and $15,000 respectively.  In addition, the labor efficiency variance and material efficiency variance are favorable with a value of $48,000 and $134,152.50 respectively. The reasons for the favorable material price variance are skilled buying, a fall in the market prices and purchase of lower quality materials. On the other hand, the reasons for favorable labor price variance are tough negotiation in wages, employment of lower quality workers and a fall in the market labor rates (Warren, Reeve & Duchac, 2011). The reason for favorable labour efficiency are variance new technology, better training and better people and higher quality materials which are easier to use. Generally, variances occur due to employee theft, inaccurate budgeting and changes in economic realities (Palmer, 2012).

First, the company needs to adjust their projections because the budget was overly pessimistic. Secondly, they need to change the volumes, prices or sales process. The company’s costs were lower than planned and the materials used were fewer than planned and hence they paid less than planned (Warren, Reeve & Duchac, 2011). Thirdly, the company needs to obtain materials from another vendor which has higher quality. In addition, the company needs to introduce better employee training for them to work more efficiently (Palmer, 2012). Finally, the company needs to increase their marketing and focus on quality. The changes will heat Tasty Treats in increasing the sales volume and profits.

The ethical considerations of the changes based on the variance analysis include honesty in the bid to increase the company’s marketing. In a bid to increase the profits, the company should pay wages that allow employees to adequately support themselves. Therefore, in the budgeting process, the company should be a clear, accurate and transparent with no basis for fraud and dishonesty. Also, there should be no conflict of interest so as to avoid improve resource allocation and dishonest accounting (Warren, Reeve & Duchac, 2011). Finally, the company should treat people well because it is worth the money and hence they should give decision making power to employees with clear and honest financial priorities.

I would recommend buying a particular component of one of the products.  It is cheap to buy the product because it is produced in regions of low operating costs. For instance, the total product cost would have been $9.95 when outsourced rather than $14.35 per unit resulting in an incremental cost. The main factors for the buy decision include small volume requirements, lack of skilled in-house expertise and the desire for multiple sourcing (Warren, Reeve & Duchac, 2011). The ethical considerations include the trustworthiness of the suppliers and the quality of the products. Also, the company should be honest and ethical in the procurement process. This decision means that the company will have idle production capacity and lower quality control. I have arrived at this decision because of the incremental costs and the high quality products that will increase its profits and enhance the company’s public image. Therefore, it will improve the efficiencies of the company’s operations (Palmer, 2012).

The company needs to have skilled buying, moderate negotiations in wages and exception reporting. The skilled buying will results in higher quality goods and increased expenses. Moderate negotiations in wages will increase the profits of the company; however, it will negatively impact their public image (Warren, Reeve & Duchac, 2011). Exception reporting will direct the attention managers in all the operations of the company hence increasing efficiency of their operations. However, it will results in time wastage as too much care will be directed on areas that perform exceptionally well. The ethical considerations of the suggestions are organizational justice, fairness and just in the negotiation and full disclosure of company information. Organizational justice and full disclosure improves company public image; and fairness and just in the negotiation results in highly motivated employees hence increasing productivity (Palmer, 2012). The biblical concepts I have applied in the considerations are fairness, justice, equality and equity.

Conclusion

It is clear that accurate budgeting helps organizations in gauging their actual performance by enhancing their own financial position in the market. The budget plan helps organizations in assessing their growth by estimating their future potential in the market. Budgeting process may not be accurate as such thereby resulting in variances in the budget items (Palmer, 2012).

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