Business Finance

ASSIGNMENT QUESTION
TownScape Plc is an international manufacturer of street furniture. This includes benches, litter bins, cycle racks, street bollards and bus shelters. The company produces about 80 different products.
TownScape has been operating for 15 years and had revenues last year of £150 million. It was listed on AIM 5 years ago and has a market capitalisation of £120 million with debt of £25 million. Dilip is the CEO and owns 25% of the shares in TownScape.
The company headquarters is located on an estate near Watford which accommodates 35 staff including management, sales, finance, HR and administration. It has a design and manufacturing operation in Northampton where it employs 85 staff in a mainly automated manufacturing facility with onsite storage/warehousing.

The company has recently concluded new and revised contracts worth up to £35 million with 15 local authorities. This followed a highly regarded pilot scheme carried out with a local police force known as “Target Hardening and Place Making for Teenagers in the Urban Environment”. This will lead to rollout in 2019 of 15 new products designed to discourage anti-social behaviour in urban areas. Additional plant and manufacturing capacity will be needed during 2018.
Currently around 65% of TownScape’s sales are in the UK, 30% to other EU countries, and the remainder outside the EU. In anticipation of the UK leaving the EU, Dilip wants to step up efforts to market into the Gulf, North America and the Far East, especially China.

TownScape has always used a traditional budgeting system. The Finance Director, Rebecca, 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 the 2019 budget process. That way any “bugs” can be ironed out before the company goes through more significant changes in the following years.
She is also conscious that Dilip is currently focused on a lot of issues and a change of budget method is not one of them. If she is to get approval she needs to make a clear effective argument.

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. Considering what are the important cost drivers for this business, identify the specific areas where cost budgeting will be important. Demonstrate the application of traditional budgeting approaches (including incremental budgeting) to plan future cost management for this specific business. (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 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)