Financial Analysis

Financial Analysis of Competition Bikes Inc.

Task 2:

1. Budgetary areas that raise concern in the budget planning

Quarterly ActivityThe first concern is that not all activity is divided by quarter. Because the sport of bicycling is generally practiced outdoors and is likely to be weather dependent, then we should assume that there are seasonal trends to competitions and events involving professional bicycle teams. Without the separation of production activity by quarter, we cannot see and respond to peak seasons and low seasons. An optimal example of this is that materials are purchased without regard to seasonal activity, so that if the peak is summer, the company should be building up inventory in the spring, and lowering inventory in the fall. This way the company avoids having higher inventory levels than it needs. Sales ProjectionsThe sales budget is based on projections that take into account trend information as well as market, competitor, and other econometric information to provide an accurate forecast of future sales. The projected sales figure of 3,510 units for year 9 is not supported by past sales performance. For year 8, there was a 15% decrease in units sold in comparison to year 7 levels. According to information provided by the company, this is due to the economic situation, which affects professional rider's sponsorships.

2. Flexible Budgets & Variances

Flexible Budget

Flexible budget is a budget in which semi-variable costs that are recalculated to reflect actual changes in sales volume (production) products. A flexible budget is developed on the basis of the company's budget and determines the match between revenues and expenditures of the company, based on the actual circumstances. In cases of changes in the level of output, the analysis of variable costs by comparing actual costs of production and cost data, calculated on the basis of planning standards and real output (Shin & Soenen, 1998). Analysis of budget implementation is closely linked with the monitoring of its execution. Many of the financial managers have been using the Budget Variance analysis tool effectively to monitor the Budgets. Apart from the existing facility to monitor and track the budgets, it also enhances to enable to track budgeted expenses.

Variance Analysis

The difference between the actual and standard performance is known as a variance and can be either favorable, unfavorable or no change. The variances we will be looking at will affect Direct Material, Direct Labor, Fixed Overhead and Variable Overheads. One of the objectives of budgeting is to provide a base against which actual performance can be measured. This is only worth doing if the action will be taken as a result.

The variance analysis shows that the net sales are unfavorable this is due to the budgeted production output. All of the variable cost is favorable except advertising and transportation expenses, which are greater than the forcested budget and hence are unfavorable. The contribution margin is also unfavorable 49397 less in actual budget as compared to forecasted budget as it is based on the unfavorable net ...