Answers

(a)  Define the term budget.  [2 marks]

A budget is a financial plan of expected revenue and expenditure for an organization, or a department within an organization, for a given time period.

Award [1 mark] for an answer that shows some understanding of the term budget, although the response lacks depth or clarity.

Award [2 marks] for a definition that shows a clear understanding of the term budget, similar to the example above.

(b)  Describe two advantages of preparing a marketing budget.  [4 marks]

Possible advantages of preparing a marketing budget could include:

• Being a forward-looking financial plan, a budget requires the marketing manager to plan for the future such as deciding how much ought to be spent on marketing activities in the forthcoming year.

• It enables the marketing department of a business to anticipate financial problems before they occur. This should therefore help the business to be better prepared to overcome such problems should they materialise.

• A budget enables marketing managers to control the firm’s money, instead of the money controlling the department / firm.

• A budget helps the entire marketing department to focus on common goals, i.e. there are positive impacts of motivation.

• The department / firm can benefit from better financial control. The marketing department cannot spend beyond its means, so budgeting helps to control its marketing expenditure. Also, it helps marketing managers to be held accountable for their actions. Having tighter financial control can prevent a business going into debt, particularly in large organizations that delegate budgets to their middle and senior managers.

• Accept any other relevant advantage of preparing budgets in the context of the marketing department.

Award [1 – 2 marks] if the answer shows some understanding of the advantages of preparing budgets. Award up to [2 marks] if only one advantage is described.

Award [3 – 4] marks if the answer shows a good level of understanding of the advantages of preparing budgets in the marketing department. The description is clear, with appropriate use of business management terminology throughout the response.

Answers

(a)  State two other ways to measure the market size of coach travel industry.  [2 marks]

Market size can also be measured by:

• Number of customers (customer base)

• Sales revenue of the coach company as a proportion of the total sales within the airline industry (market share)

• Size of each coach travel company’s fleet (number of coaches owned)

• Relative profit figures of each coach company

• Accept any other valid measure.

Award [1 mark] for each suitable measure of market size, up to [2 marks].

(b)  Define the term adverse variances.  [2 marks]

An adverse variance refers to the discrepancy in the budget (or particular aspect / component of a budget), which occurs when profit is lower than expected. This is due to the organization's costs being higher than expected and/or sales revenues being lower than predicted.

Award [1 mark] for a response that shows some understanding of adverse variance.

Award [2 marks] for a definition that shows a good understanding of adverse variances, similar to the example above.

(c)  Explain the importance of budgeting to businesses such as GDCC.  [4 marks]

Budgeting refers to the process of financial planning and control in a business organization. As a financial plan, budgeting is important for a business such as GDCC as it allows the organization to check its actual performance against the budgeted (planned) targets, such as sales revenue, costs, profit, staffing, or marketing expenditure.

A budget also helps with strategic planning. It should therefore reflect the aims of the organization. For example, if a business plans to upgrade or replace it coaches, then the intended amount of expenditure should be incorporated into the budget. The same applies to the company's growth objectives.

Award [1 – 2 marks] if the answer shows some understanding of the importance of budgets.

Award [3 – 4] marks if the answer shows a good understanding of the importance of budgeting. The explanation is clear, with appropriate use of business management terminology throughout the response.

(d)  Explain two limitations of using budgeting for GDCC.  [4 marks]

Limitations of using budgeting at GDCC include:

• Unforeseen changes in the external business environment can cause large variances in budgets, e.g. the coronavirus pandemic of 2019 - 2020 causing major repercussions for the travel and tourism industry or fluctuating exchange rates affecting the final price paid to the European supplier of the vehicles.

• Similarly, rigid and poorly allocated budgets can create serious problems for GDCC, i.e. budgeting can be far too inflexible in today’s fast-paced and constantly changing business environment, especially as the company continues to grow and gain market share.

• Over-generous budgets can cause complacency and inefficient expenditure at GDCC, e.g. can it really afford to give away so many free tickets, despite its double-digit growth (which is not the same as profit)? By contrast, under-provision of finance can cause major operational problems, e.g. constraints on marketing the 20th anniversary celebrations of the company.

• The budgeting process (of planning, setting, controlling, monitoring and reviewing budgets) can be extremely time-consuming, especially in large organizations such as GDCC with its operations in 35 different cities.

• By placing too much emphasis on budgetary control, GDCC might neglect non-financial issues, such as non-financial motivation of the company's staff.

• Any other valid and explained limitation, in the context of GDCC.

Any two suitable limitations (of budgeting) explained in the context of GDCC would warrant full marks.

Mark as a 2 + 2.