Body Glove Case Essay

1117 WordsFeb 14, 20115 Pages
Question 1: For what purpose does Body Glove use its budgeting system? Which purposes are emphasized? The purpose of Body Glove’s budgeting system was to project expenses and forecast revenues for the upcoming fiscal year. The budget is used to monitor performance (but not linked to performance based incentives) and detect early warning signals of problem areas. The budgeting system allows the managers of each department monitor their expenses in which budgets have been set for materials, salaries and legal expenses amongst others. Question 2: Trace the steps in the development of the budget at Body Glove. What are the key events that relate to the timing of the steps in the budgeting process? 1. The budgeting process of Body…show more content…
The budgeting process meant that managers based their forecasts on a wider scope of information rather than just pre book sales. Question 3: The case says that Body Glove never prepared a budget prior to fiscal year 1991. How can a company like Body Glove function effectively without a budget, or can it? Body Glove had a great product with the neoprene wetsuits and had gained significant market share through its niche fun life style image which challenged competitors. The business had a small but loyal customer base, and had attained no.2 market share. Whilst the business had significant growth, I don’t believe it ran completely effectively. An extract from the case state mentions they lost $1 million in sales due to a shortage of inventory and its forecasts on future sales were not accurate. Anthony, Hawkins & Merchant (2008, p.740) assert ‘If the total costs in a responsibility budget are expected to vary with volume, as is the case in most standard cost centre’s, the responsibility budget may be in the form of a variable budget. Such a budget shows the planned behavior of costs at various volume levels.’ If the company was able to better understand its costs, and forecasts for growth it could have made the necessary investments in upgrading the manufacturing operations to meet the demand. Body Glove’s reputation was at stake and in 1990 the company decided to break away from employing

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