ASSIGNMENT QUESTION
SnappyDrinks Plc is an international manufacturer of energy drinks. The company produces about 60 different products.
SnappyDrinks has been operating for 15 years and had revenues last year of £550 million. It was listed on the London Stock Exchange 10 years ago and has a market capitalisation of £600 million with debt of £100 million. The founder, Donna, is the CEO and owns 15% of the shares in SnappyDrinks.
The company is located in Nottingham which accommodates 30 staff including management, sales, finance, HR and administration. It has a design and manufacturing operation in Norwich where it employs 125 staff in a mainly automated manufacturing facility with onsite storage/warehousing.
The company is about to launch a new range of health-led drinks using a variety of low-fruit exotic fruit flavours. This will lead to the rollout of 15 new products. Additional plant and manufacturing capacity will be needed during the coming 12 months. A marketing campaign is being planned to support the launch and there may be a need to expand the sales team.
Currently around 65% of SnappyDrinks’ sales are in the UK, 30% to other EU countries, and the remainder outside the EU. In anticipation of the UK leaving the EU, Donna wants to step up efforts to market into the Gulf, North America and the Far East, especially China. She is considering establishing new manufacturing facilities in at least one of these locations.
SnappyDrinks 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 when such significant changes may affect the company in the coming years. 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.
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For the purposes of her analysis she has broadly divided the business up into three areas: the existing products; the new products; and the planned expansion of the international business.
Requirements:
Prepare a report of no more than 2,500 words communicating the following issues:
Part 1
i. An understanding of the purposes of preparing a budget; what processes the company needs to follow; and how the budget process itself can help development of the business model (25 marks)
ii. Demonstrate the application of traditional budgeting approaches (including incremental budgeting) 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/incremental approach (10 marks)
iii. Analysing whether a traditional budgetary system is appropriate to all or any parts of the business in its planned future form (15 marks)
Part 2
iv. An understanding of the following alternative budget methods: rolling budgets, zero based budgets and activity based budgets. Explain how each method attempts to improve on the traditional approach and what their respective drawbacks might be
(25 marks)
v. The potential application of these methods to the company giving specific examples of how all or some elements of budgeting could be performed more effectively using an alternative method (10 marks)
vi. Analysing whether one of these methods (or a combination) would be more appropriate to the company (15 marks)
(Total marks: 100)
ASSESSMENT CRITERIA
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This assignment requires you to demonstrate your knowledge and understanding of the nature and purpose of traditional and alternative budgetary systems.
Your answer for Part 1 of the assignment should focus on the role of budgets in the context of planning and control. Your answer must identify and explain traditional budgetary systems such as incremental budgets and, subsequently, discuss the advantages and disadvantages of traditional budgetary systems in the context of this particular business and its market environment.
Your answer for Part 2 should focus on alternative budgetary methods which have evolved in the modern era. You should focus on alternative systems such as ZBB, ABB and rolling budgets, and discuss how they work. Your answer should provide a breakdown of the advantages and disadvantages relating to each system identified.
You should ensure that your answers make specific reference to the business under discussion, especially in topics ii) and v), which test your ability to apply your knowledge. Note that, although you are not expected to show any specialist knowledge of the sector in which the company operates, credit will be given for evidence that you have considered what issues might be specific to this company in particular. High quality answers will consider the implications of the change of strategy within the business.
READING LIST
Your answers should be supported by the reading material provided on the VLE. It should referenced using the Harvard guidelines. You should only use these texts for your work; it is not acceptable to ignore this reading list as it has been specifically chosen to provide the right texts for the discussion. Do not conduct alternative research on the internet.
NOTES
Your answer must not be solely descriptive in nature; it should provide clear evidence of understanding, application and analysis of the issues under consideration. You should assume that your reader has some experience in finance and management but is uninformed on the particular topic; for instance, in i) you do not need to explain what a budget is, but you do need to show what its purpose is for this business.
Your reports should begin with a concise and relevant Executive Summary of no more than 100 words. An additional Introduction is not needed. The Executive Summary and References do not count towards the word limit. The contents of tables and footnotes are also excluded but their use should be kept to a reasonable level and be properly explained in the body of the text.
Your work should be expressed clearly and fluently using a style of writing appropriate to the subject area. Sentences and paragraphs need to be relevant, well-structured
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and incorporate the correct terminology. Ideally, there should be no errors of spelling, punctuation or grammar.
To achieve a pass mark you must ensure that you correctly identify and explain the underlying concepts and theories relevant to the assignment. To achieve higher marks, in addition to the requirements to achieve a pass mark, you will need to display application of knowledge and analytical skills.
Answers should follow the order of the tasks set out above and the word count allocation to each section should broadly reflect the spread of marks. Avoid exceeding the word count.