Body Glove Case

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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 Glove began in November 1990. The management team estimated sales growth for 1991 and the national sales manager, Kurt, then broken down these forecasts to provide the total projected sales per month per product. 2. Each department was requested to developed monthly projection of key expenses such as materials, salaries, legal expenses, etc. for the upcoming fiscal year. 3. Russ (president of Body Glove) consolidated, reviewed, and discussed them with his managers, suggesting changes if any changes were necessary as some managers were too optimistic with their forecasting. 4. The budget was finalized by the end of December 1990, by Russ. 5. Throughout the fiscal year the budget was used to ensure figures were met and monitor the performance of departments. It was also used to detect early warning signals of problem areas by comparing actual performance on monthly basis and re-evaluate departments not achieving their budget targets. It was not linked to performance based incentives.

The key events that led to the budget being established were the fact that production was scheduled based on historical and pre- book data which meant that they did not have enough inventory and were one month behind getting products...
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