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Body Glove

In: Business and Management

Submitted By adonisalarin
Words 1330
Pages 6
...........................
Case 24-1

Body Glove

Prepared by

Your Name

For

Mr. Dillon M. Williams, MBA
Teacher of Business Education in partial fulfillment of the requirements for
Emerging Technology in Business
Parkway Academy Charter High School
Department of Business
Miramar, FL

School Year 2009-2010

Date

Table of Contents

Issues…………………………………………………………………. 3

Facts…………………………………………………………………... 3

Analysis………………………………………………………………..5

Recommendations/Conclusion…………………………………………..7

Issues

1. For what purposes does Body Glove use its budgeting system? Which purposes are emphasized?

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?

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?

4. What changes to Body Glove’s budgeting and review process would you recommend, if any?

5. If Body Glove continues to grow and, perhaps diversifies, what changes will have to be made to the budgeting and review process?

Facts

Body Glove was established by two former lifeguards, in which were twin brothers by the names of Bob and Bill Meistrell in Hermosa Beach, California in 1953. In its first 30 years of existence, the Body Glove division of Dive’n-Surf Inc. developed a small but loyal customer base in California with a dependable product that exuded fair prices and superior customer service. In addition, the company successfully gave its name a fun lifestyle image in part through its sponsor ship of several surfing and snowboarding associations and through extended coverage of televised water sports competitions. In 1990, the parent company Dive’n Surf made $15 million in revenues with nearly $8 million from its wetsuits product alone!

From 1986-1991 Body Glove experienced rapid growth where sales nearly doubled. The company was organized strategically with a standard chain of command (COC) and hierarchy. The market demand was seasonal at the offset, so Body Glove started producing winter products also for snowboarders and skiers to create equilibrium in regards to the workload in the manufacturing plant. Moreover, Body Glove produced products for two seasons, fall and spring in Hermosa Beach, California (the only wetsuit manufacturing division domestically). Each season had its own formal order cycle which encompassed three phases: pre-book, build, and deliver. Revenues were derived at about 60 percent from the fall line, and 40 percent from the spring line, which sold in 1500 retail stores in 33 countries.

The following represents Body Glove’s production cycle:

|Order Phase |Fall Line |Spring Line |
|Pre-book |October-November |May-June |
|Build |November-December |June-July |
|Deliver |January-June |September-December |

The company began to carry more material in anticipation of custom orders and/ or changes in the market as of 1990. By doing this they were able to turn its inventory two times a season thereby increasing its sales during the spring line of 1991 by 45 percent for the prior year.

The budgeting process for 1991 began in November 1990. Each department was requested to develop monthly projections of key expenses that resulted in accurate figures. The budgets were then finalized by the end of December just in time for the beginning of the new fiscal year beginning January 1. During that year the budget was used to monitor performance as well as to detect significant warning signs in problem areas.

Analysis

1. A budget system should have a purpose or defined goal that is achieved within a certain time period. Knowing the source and amount of income and the amounts allocated to expense events are as important as when those cash flow events occur. As it relates to Body Glove, they used a bottom up budgeting process. The bottom up budgeting process begins with details gathered from employees at the bottom of the organizational chart. This way, upper management is not realistically feasible by the company employees. Body Glove uses its budget to measure sales growth by month and by product. Additionally, they use it to track and measure key expenses such as materials, salaries, and legal expenditures. The budgets were only used for internal purposes not for outside reporting. The budget was used to monitor performance as well as to detect early warning signals for early problem areas. An analysis was done on areas where the budget was not met to understand if there were issues that were outside of the control of that department.

2. Body glove prepared for its operations in three cycles for each of its production seasons (fall and spring). They first developed a sales forecast in March and October of each year. The 1991 budgeting process began in November of 1990. Management had forecasted sales for both spring and fall of 1991. They also asked management and departmental projections for expenditures.

The key events are the three cycle phases for production. They are as follows: pre-book, build, and deliver. For production once the sales forecast were complete a materials requirement plan was prepared based on bill of materials to estimate the amount of material needed for the season and to encompass all colors needed. The build process consisted of gluing, stitching and inspecting the suits and pieces. And the delivery phase was the shipping of the completed goods.

3. Body Glove did not prepare a budget before 1991. From my perspective, a company cannot effectively function without a mandated company-wide budget. A company’s budget should be strategically created at the beginning of a fiscal year. In addition, a finished budget usually requires considerable effort and can be seen as a financial plan for the new financial year. Traditionally, a financial department compiles the company's budget, modern software allows hundreds or even thousands of people in the various departments (operations, human resources, IT etc) to contribute their expected revenues and expenses to the final budget.

4. I feel that Body Glove is planning well ahead of time by forecasting sales a year in advance. I recommend that Body Glove should redirect and implement certain transactions to the budgeting process. Moreover, forecasts should be conducted every month along with a committee meeting to discuss any differences amongst their forecasts. This process allows the company’s budget to be well understood and also gives management the opportunity to evaluate all revenues and expenses along with a comparison of prior budgets.

5. If Body Glove continues to grow and diversify, I would extract from the Body Glove operations as a separate legal and financial entity. If the company continues to grow I would recommend reviewing the budgeting process to make sure that it encompasses all aspects of operations. A budget in a large structured corporation is even more important because performance can be measured by using a budget. Also, adherence to budgets in large organizations ensures that money that is not approved by management cannot be spent.

Recommendation/Conclusion

1. Body Glove uses its budgeting system to finance a plan that allocates future company income towards expenses, savings and debt repayment. Therefore, Body Glove’s past spending and company debt are considered when creating its budget system.

2. The key events are the three cycle phases for production. They are as follows: pre-book, build, and deliver.

3. If the actual numbers delivered through the financial year turn out to be close to the budget, this will demonstrate that the company understands their business and has been successfully driving it in the direction they had planned. On the other hand, if the actual are wildly different from the budget, this sends out an out a signal that measurements are off and those adjustments need to be made to the upcoming budget.

4. This is a great tool and analytical review that should be incorporated into the budgeting process of this organization.

5. I would recommend an approval process for expenditures to ensure that the budgeted amounts are not exceeded, and that if they are, there is a justification and approval from management.

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