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.