Competition Bikes Case Study

A1. Budgetary items that raise concern in the budget planning

Competition Bikes has over budgeted/predicted for 3510 bikes to sell when only about 3400 sold with 4000 sold the year before. Since many of the sponsors have pulled funding from riders and the riders are the actual business and revenue they will have a tough time selling the merchandise they have predicted. The economic hardship will make this budget too high. They will need to lower the expected sales so they do not have a surplus of funds and they are able to plan the remaining budget accordingly. The utilities are budgeted too high as well. With the decrease in production due to the decrease in sales, they should be projecting to spend less on utilities. That being said
The amount of the variance is -$164,450 which is not favorable due to being required to lower other costs and expenses to maintain any sort of profit. Next variance is with Direct Material in the amount of -$71,828. This is projected as a positive action because it assists with the offsetting of Net Sales being -$164,450 by $71,828. Next variance is Manufacturing Overhead in the amount of -$10,398. This will offset Net Sales as well. Next variance is Variable Selling Expenses in the amount of -$4,934. This will help offset the unfavorable Net Sales variance as well. It is seen as a positive thing. Next variance would be Advertising Expenses in the amount of $2,838. Increasing this amount is unfavorable due to the increase in contribution margin and operating income by -$2,838. Next variance is Transportation Out in the amount of $2,269. This also decreases the contribution margin and operating income as well. Next variance is the Total Variable Costs in the amount of -$115,053. This assists with offsetting Net Sales. Next variance being Research and Development in the amount -$3,577. This offsets the contribution margin. Next variance is the Operating Income in the amount of -$45,820 which is unfavorable which causes net