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high-end boating market, Budgeting processes and techniques

A company builds custom yachts for the high-end boating market. They develop and build these custom designs as a single individualized unit. The orders are generated by the marketing and sales department with help from the owners, who participate in the management of the company. Each new order is assigned to a project team which starts by making an estimate to the customer before a contract is signed. The project teams have a great deal of experience in these projects.

As would be expected, the owners are hands-on and have opinions on the estimates. The marketing folks also provide suggestions on what the customer is willing to pay.

What are some processes and techniques that could make the budgeting process work well? Start with general but also provide some specifics as relate to creating detailed project budgets. Be sure to justify why you think your recommendations will work.

Solution Preview

First, a critical aspect of this firm is that the yachts are custom. That means each is different so the budgets will not be a standard costing variety budget that plans for producing a certain number of units with a standard amount of material, labor and variable overhead per unit. Why not? Each boat is completely unique and so there is no "standard boat." However, with that said, just because a typical budget for production is not possible, does not mean that budgeting is a waste of time. The budget, instead, is an adaptive and collaborative process, informed by past projects and current specifications in each order.

The estimate created for bidding to the customer is the "bones" for the budget. This estimate lists materials and processes that must be performed and the prices expected for the work and parts to be used. While the source of the materials is the customer's specification in the order, the prices can be obtained from quotes and historical records. That means keeping a good database from prior boats, with the ...

Solution Summary

Your tutorial is 638 words and discusses why standard costing budgets will not work and what might work instead. A general budget process is suggested and then the process of using the budget as a measure of performance is discussed. There are no references as this is an original discussion based on experience budgeting in commercial construction.

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