Competition Bikes Budget Analysis

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Running Head: BUDGET SUMMARY REPORT

Competition Bikes Inc. Budget Analysis Summary Report
In Partial Fulfillment of the Requirements for JET2
Western Governors University

Competition Bikes Inc. Budget Analysis Summary Report
Budgetary Concerns
There are several budget areas in Competitions Bikes year nine budget forecast that are areas for concern. The factory overhead budget for the year was budgeted at $481,798 less $150,000 depreciation. Total depreciation over the last three years has remained at $130,000 per year for the past three years as identified on the company's balance sheets. Therefore setting depreciation at $150,000 for the 9th year is too high without identifying any new major purchases that would add to this depreciation. Even though depreciation is not actual cash flow it does define the reduction of company assets and should be reported accurately.

The cost of distribution network support needs to be adjusted. A distribution network is everything involved in getting the product from the manufacturer to the retailer. The estimated expense for year nine is $50,830 which is equal to the year eight dollar amount however, year nine forecasted 110 more units sold. The cost per unit of distribution network support is equal to $14.95 when comparing the previous three years data. This meant the forecasted budget for an estimated 3510 units should be set to $52,474.50.

Executive and Administrative salaries have not changed for three years and are budgeted at $220,000 and $170,000 respectively. Not providing any raise for the employees at Competition Bikes could make employees feel unappreciated and devalued. Decrease morale causes performance to suffer, at such a critical time Competition Bikes cannot afford to have inefficient employees that are not at the top of their performance. Salaries for personnel in the Executive and Administrative areas should allot for a raise for year nine. Utilities are budgeted for $150,000 for year nine. Between years six, seven, and eight, there are no consistencies between the increase on the cost of utilities however, there has been some increase each year. Reasons for this increase could be due to inflation or more energy consumption at the facilities due to a rise in manufacturing or other efforts. Between years eight and nine there is no forecasted increase in utilities cost as both years are set at $150,000. Year nine needs to forecast some kind of increase in utilities to compensate for inflation.

The Advertising budget is set to $28,412 for year nine which is just short of a $1,000 increase over year eight. With the economy the way it is and such a small improvement in sales forecasted for next year, Competition Bikes should put more money aside for advertising purposes. With professional riders' sponsors not investing in purchasing bikes for their riders, Competition Bikes needs to find a way to appeal to the individual rider rather than their corporate sponsors. They could accomplish this by changing or adding to their advertising approach which will surely call for budget increase in that area.

Flexible Budget and Variances
Competition Bikes had many variances in their Flexible Budget. Anticipated net sales dropped 3.1% from 3510 units to 3400 units causing a loss of $164,450. This is an negative unfavorable variance because it causes the company to lose income and forces a need for adjustment across the budget to compensate for the loss of profit. Inaccurate sales forecasts weather more or less than anticipated offsets the entire budget for the year, sometimes forcing major adjustments across the board.

Variable Costs: Direct materials, direct labor, manufacturing overhead - variable, and variable selling expenses all dropped 3.1% along with the total net sales. This is a favorable variance because it coincides with the drop in sales. All these expenses are directly related to product manufacturing and should adjust in line...
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