Part 2  (READING LIST)

BoatWorld Plc is an international leisure company which rents boats to holiday makers. The company operates in the UK and France. 

The company has been operating for 25 years and had revenues last year of £250 million. It was listed on the London Stock Exchange 10 years ago and has a market capitalisation of £300 million with debt of £50 million. The founder, James, is the CEO and owns 15% of the shares. 

The company headquarters is located in Woking which accommodates 20 staff including management, sales, finance, HR and administration. It has three operations in the UK and five in France. In these centres it employs 125 staff assisting customers and maintaining the boats. 

The company is planning to open a new outlet in the Netherlands and two in Germany. This will lead to the rollout of 30 new boats with support facilities. 

The company has always used a traditional budgeting system. The Finance Director, Hayley, joined 3 years ago but is concerned that this approach might not be the most appropriate. However, if a change of budget approach is going to be made, she thinks it should happen in time for next year’s budget process. That way any “bugs” can be ironed out before the company goes through more significant changes in the following years.

Requirements:

Prepare a report for the board addressing the following issues: 

i. An understanding of the purposes of preparing a budget; an explanation of a) traditional budgeting approaches and b) the following alternative budget methods: rolling budgets, zero based budgets and activity-based budgets, explain their relative strengths and weaknesses.

ii. Demonstrate the application of these methods showing how they might be used to plan future cost management for this specific business. Illustrate your answer with examples of how products and processes for this business would be budgeted for in a traditional approach and using the alternative methods.

iii. Analysing whether a traditional or alternative budgetary system is appropriate to all or any parts of the business in its planned future form.