WGU JET2 Financial Analysis
In this task, the budget schedule and proformas as well as the flexible budget were reviewed. Below you will find my analysis and recommended corrective actions as well as how management by exception applies.
Budget Planning Concerns
Competition Bikes has a good starting point for a budget but is overall weak and has several budgetary concerns. A few of those items are mentioned for budget planning below.
Advertising & Research Development. Competition Bikes is expecting an increase in sales in year 9 yet they are not investing in any more in advertising or research and development. In year 7 when sales were the highest, Competition Bikes spent $32,760 in advertising. In year 8 when the advertising budget fell to $27,428, so did the sales. Although management is predicting an increase in the market for year 9 and the advertising expense is 2% of projected gross margin, this may be unrealistic.
Annual Budget. Quarterly budgets are more efficient for planning, coordinating, evaluating, and controlling costs. The budget for Competition Bikes only shows annually. Sales differ by season with the company so their budget should reflect a similar breakdown. Quarterly budget would be closer to the seasons than just an annual one. Further breakdown of the budget will help spend money more wisely not only where it is needed, but when.
Vague Line Items. The budget shows many lines with broad terms and some with no description at except “other”. Other long term liabilities in the amount of $75,000, other accrued expenses $26,000, other utilities and services $54,000, and $170,000 in other general and admin expenses. A more specific budget will help the company identify where money is being spent, assist management in making better budget decisions, and minimize fraud. Smaller, individual budgets such as a selling budget that