Explain budget purposes including setting targets, controlling costs, planning revenue, allocating resources, monitoring performance and supporting business objectives.
Source for use with Extract A MV Pride There are around 100 inhabited islands in the Caribbean and the main form of transport between them is by boat. Boat travel between Union Island and Carriacou is only possible by owning or hiring a private boat. The only exception is to travel on the MV Pride, owned and captained by Mario Grand. The MV Pride runs a scheduled service for passengers between the two islands, providing a vital connection for the people who live and work in Union Island and Carriacou. It is a small boat, only 12.8 m in length, and can carry a maximum of 10 passengers. The service only runs two days a week, on a Monday and Friday. Mario charges $30 per passenger. The boat carries cargo, so passengers may be sharing the trip with large sacks of vegetables, boxes and crates. Mario has worked with boats all his life, learning the trade from his family. It is his passion as well as his livelihood. Although Mario offers the MV Pride for private hire to those wishing to travel on a day that is not scheduled, he does not spend money on advertising this fact, or on trying to gain market share from competing boat owners. He prefers to spend his days enjoying time on the water with friends when he is not running the boat service. Mario realised the value of using free services on social media, promoting the MV Pride’s scheduled service on Facebook and enabling tourists to ask questions via WhatsApp and email. As a result, the MV Pride typically runs at 100% capacity for each trip compared with 80% before he started using social media.
Discuss whether budgeting could be beneficial to Mario when running the MV Pride.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
Knowledge, Application, Analysis, Evaluation - indicative content
- Budgets provide a target for costs or revenue that a business must aim to meet over a period of time
- It would allow Mario to control spending on the MV Pride or to focus on generating enough profit to live comfortably from the service offered
- Therefore, Mario could monitor costs and revenue, as well as make
comparisons with previous years
- As a result, Mario would be more likely to be aware of any issues in advance and could make any adjustments to running the MV Pride if it became necessary
- This means he may be able to ensure he has enough income to cover
variances in the cost of fuel and continue to enjoy time socialising with friends rather than working additional days
- However, there is no guarantee the targets will be met, meaning Mario
may have wasted time preparing the budgets for little or no gain
- The MV Pride is only a small business and so budgeting may be
ineffective
- As Mario and his family have spent their lives around boats, they may not have the expertise to prepare budgets, adding to the time needed or the chance of them being unsuccessful
- This is especially likely to be an issue for Mario, given the way he prefers to spend his time, instead of worrying about budgeting
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-2
Isolated elements of knowledge and understanding - recall based.
Weak or no relevant application to business examples.
Generic assertions may be presented.
Level 2
3-5
Accurate knowledge and understanding.
Applied accurately to the business and its context.
Chains of reasoning are presented, showing cause(s) and/or effect(s) but may be assertions or incomplete.
An attempt at an assessment is presented that is unbalanced and unlikely to show the significance of competing arguments.
Level 3
6-8
Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.
Logical chains of reasoning, showing cause(s) and/or effect(s).
Assessment is balanced, well contextualised, using quantitative and/or qualitative information, and shows an awareness of competing arguments/factors.
Question
Assess the benefits to Mario of using an overdraft as a method of finance for the repairs needed on the MV Pride.
Indicative content