Evaluate budgeting difficulties caused by uncertain demand, changing costs, inaccurate forecasts, inflexible targets, unexpected events and conflicting objectives.
Sources for use with Section B
Extract C
UK Government will consider additional 25p charge on disposable coffee cups
The UK Government is considering adding an additional charge of 25p on all disposable
coffee cups. This is aimed at helping the environment. Consumer trends have already
shown people are prepared to pay more in order to prevent billions of tonnes of waste
packaging ending up in the world’s oceans, such as with the success of the existing 5p
charge on plastic bags.
The proposal was announced by the UK Prime Minister as part of the government’s
25-year environmental plan. The focus is on the need to reduce the amount of plastic
thrown away each year.
The UK currently throws away approximately 2.5 billion disposable coffee cups every year
with only a small number being recycled. If government plans go ahead, it is estimated
the 25p charge could raise £438m and reduce use of the throw away cups by 30%.
Starbucks is to trial the additional charge, in London, but with a lower initial charge of
5p per cup. A spokesman for the coffee house chain from the US said its procedures
were focused on reducing environmental concerns at the same time as maintaining the
great taste, quality and service customers expect from Starbucks. Money raised will go to
environmental charities researching better ways to recycle and protect the environment.
Starbucks currently sells reusable cups for £1 and offers a small discount for people using
their own cup. It is the second biggest coffee house chain in the UK (after Costa Coffee)
and the average price of its coffee is around £2.50.
Extract D
Selected financial information from Starbucks’ consolidated income statement
12 months ending 31 October 2017
| $ | |
|---|---|
| Revenue | 22\,386\,800\,000 |
| Direct costs | 9\,038\,200\,000 |
| Interest | 92\,700\,000 |
| Taxes | 1\,432\,600\,000 |
Discuss whether budgeting will always allow Starbucks coffee houses to meet their objectives.
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
•
Budgeting provides a target for costs or revenue that a business or
department must aim to reach over a given period of time
•
It would allow each Starbucks coffee house to control its spending so
it can aim to keep costs down when buying coffee from suppliers
•
It would help managers of each Starbucks coffee house to measure
performance and compare revenue to see how well they were
performing, for example month by month, or with Starbucks in other
towns
•
This may help managers to meet business objectives such as profit
maximisation or sales maximisation (increasing revenue from
$22 386 800 000)
•
However, there is no guarantee these objectives will be met and
Starbucks may have wasted time (which they are likely to be short of
during busy periods) and money in preparing the budgets
•
It may depend whether the budgets are prepared in conjunction
with one another. If sales revenue from selling the coffee exceeds
expectation it may be that costs have to be higher to cater for this
extra demand
•
There may be other influences which can lead to profit
maximisation, such as increased demand due to a successful
marketing campaign or environmentalists choosing Starbucks due to
its stance on coffee cups
Level
Mark
Descriptor
0
No rewardable material.
1
1–2
Isolated elements of knowledge and understanding – recall based.
Weak or no relevant application to business examples.
Generic assertions may be presented.
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.
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.