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Case 24-1 Body Glove

Question 1

The purpose of Body Glove budgeting system is to minimize the expenses based on

the estimated sales to maximize profit.

The budgeting system help to draw a better picture on the how much to spend on

the materials especially on neoprene usage by estimating cost on monthly basis. In

this case the company production cost are different in two seasons as the cost of

full fall suit averaged about $100 as for the spring line it was about $60. The $40

different will affect the cost estimation significantly.

Question 2

The budgeting process began in November by estimating the sales growth and then

broken down the total sales by month and by product.

Each department is requested to developed monthly projection of key expenses

such as materials, salaries, legal expenses, etc.

Russ consolidated, reviewed, and discussed them with his managers, suggesting

changes if any.

The budget was finalized by the end of December. Russ approved the budget

himself.

During the year the budget was used to monitor the performance as well as to

detect early warning signals of problem areas by comparing actual performance on

monthly basis.
Question 3

Body Glove didn’t function effectively without the budgeting system. Its reputation

was negatively perceived due to late delivery due to unbalancing the inventory

stockouts and inventory carrying cost. This is due to the uncertainty demand in the

market and the material supply.

Question 4

The budgeting plan needs to go through the board of directors in order to minimized

personal judgment and self-utility.

Question 5

The current budget system doesn’t have link between the short-run budget and

long-term budget. On the other hand the long-run budget plan was not clear as

Russ said “If the bank ever wants numbers, I can give them to them. In fact, I can

give them any set they want. It’s all smoke”. It will not be good for the organization

as it doesn’t have clear direction for long term. The budget system was not as

explicitly linked with any performance based incentive.

We recommend revising the long-run budgeting plan more specifically link directly

to the strategic plan and they should find a way to link short-run and long-run

budget in order to ensure that the short-run performance doesn’t affect negatively

to the long-run budget. They should link the budget related to the performance with

performance based incentive by adding bonus for those managers who meet the

budget or below the budget expenses.