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    Body Glove: Case Study

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    Deanna
    Body Glove is a wetsuit manufacturer founded in 1953 by twin brothers. They developed the first neoprene wetsuit that "fit like a glove". In 1990, Body Glove implemented its first formal budgeting process to help minimize expenses based on sales forecasts and maximize profits. The budgeting process began in November 1990 with sales forecasts that were then used to develop expense projections by department. The budget was finalized by December 1990 and reviewed quarterly, with adjustments made as needed. Prior to 1991, Body Glove had been successful without a formal budget, but some changes could help the process, such as separating forecasting from manager reviews and better linking budgets to long-term strategic plans and performance incentives.

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    Body Glove: Case Study

    Uploaded by

    Deanna
    42 views11 pages
    Body Glove is a wetsuit manufacturer founded in 1953 by twin brothers. They developed the first neoprene wetsuit that "fit like a glove". In 1990, Body Glove implemented its first formal budgeting process to help minimize expenses based on sales forecasts and maximize profits. The budgeting process began in November 1990 with sales forecasts that were then used to develop expense projections by department. The budget was finalized by December 1990 and reviewed quarterly, with adjustments made as needed. Prior to 1991, Body Glove had been successful without a formal budget, but some changes could help the process, such as separating forecasting from manager reviews and better linking budgets to long-term strategic plans and performance incentives.

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    Body Glove is a wetsuit manufacturer founded in 1953 by twin brothers. They developed the first neoprene wetsuit that "fit like a glove". In 1990, Body Glove implemented its first formal budgeting process to help minimize expenses based on sales forecasts and maximize profits. The budgeting process began in November 1990 with sales forecasts that were then used to develop expense projections by department. The budget was finalized by December 1990 and reviewed quarterly, with adjustments made as needed. Prior to 1991, Body Glove had been successful without a formal budget, but some changes could help the process, such as separating forecasting from manager reviews and better linking budgets to long-term strategic plans and performance incentives.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    42 views11 pages

    Body Glove: Case Study

    Uploaded by

    Deanna
    Body Glove is a wetsuit manufacturer founded in 1953 by twin brothers. They developed the first neoprene wetsuit that "fit like a glove". In 1990, Body Glove implemented its first formal budgeting process to help minimize expenses based on sales forecasts and maximize profits. The budgeting process began in November 1990 with sales forecasts that were then used to develop expense projections by department. The budget was finalized by December 1990 and reviewed quarterly, with adjustments made as needed. Prior to 1991, Body Glove had been successful without a formal budget, but some changes could help the process, such as separating forecasting from manager reviews and better linking budgets to long-term strategic plans and performance incentives.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 11

    Body Glove

    CASE STUDY
    Contents
    01 BACKGROUND INFORMATION

    02 QUESTIONS

    03 ANSWERS
    Background Information
     In 1953, two former lifeguards, twin brothers Bob and Bill Meistrell, opened Dive ’n Surf, a retail water
    sports store in Hermosa Beach, California.

     They developed a wetsuit made of neoprene that “fit like a glove” in order to protect surfers and divers
    from the cold ocean temperature.

     In 1990, Body Glove broke from its “family-only” management policy.

     In 1991 Body Glove employed approximately 300 people.

     The company’s goal was to dethrone O’Neill and become the No. 1 wetsuit manufacturer by the year
    2000.

     Body Glove, number two in the industry, was known as a fashion-conscious, high quality producer.
    Questions
    Q1. For what purposes does Body Glove use its budgeting system? Which purposes are emphasized?

    Q2. 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?

    Q3. 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?

    Q4. What changes to Body Glove’s budgeting and review processes would you recommend, if any?

    Q5. If Body Glove continues to grow and, perhaps, diversifies, what changes will have to be made to the
    budgeting and review processes?
    Q1. For what purposes does Body Glove use its
    budgeting system? Which purposes are emphasized?
    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.
    Q2. 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, and 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. The budget was finalized by the end of December 1990, by Russ.
    (4). Russ approved the budget himself as he was not required to submit it to the Board of Directors for approval.
    (5). After he reviewed actual results for the January through March period. Russ lowered the budget figures for
    the second quarter of the year and raised the numbers for the second half of the year (July—December) to keep
    the year's totals the same
    Q3. 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 center’s, the responsibility budget may be in the form of a
    variable budget 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
    ‘family only’ which may have been a sign that they needed some ‘fresh eyes’ to drive growth.
    Q4. What changes to Body Glove’s budgeting and review
    processes would you recommend, if any?
    Body Glove needs to undertake some major strategic planning to ascertain company key objectives and ensure that
    the budget reflects these plans.

     Managers should not be the final people to establish the key figures relating to the budget, this should be done
    separately based on information provided by previous years to eliminate bias in forecasts

     The president needs to ensure that the goals of the organisation are communicated clearly throughout the
    company and how each department directly relates to these goals.

     Calling a meeting with personnel from each department may be important in communicating this information. Each
    individual should relate to the budget.

     For example, the sales forecasts are dependent upon the work of the sales team and therefore should be a
    motivator for them to perform. Achieving outcomes should relate to performance incentives, this includes
    managers also.
    Q5. If Body Glove continues to grow and, perhaps, diversifies, what
    changes will have to be made to the budgeting and review processes?
    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.
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