A Flexible Budget for Nike

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A Flexible Budget for Nike

Introduction

Nike is the best athletic and sportswear and accessories company in the world for many decades. Additionally, Nike is also the best among all in the US in these product segments and categories. There is also some myth regarding Nike that it is the name of some ancient Greek goddess. However, it remains the number 1 brand in the world. Currently, it is offering multiple products in the categories of Nike Sportswear, Nike Football, Nike Basketball, Nike Running, Nike Women, and Nike Soccer. Its current tagline says '#MakeItCount.' In addition, Nike also sells fuel bands (Nike, 2011).

The market for sneakers has plummeted considerably. Now people do not want sneakers anymore. Consequently, Nike revenues for the previous year also dipped. However, Nike improved its position last year by introducing new footwear. Still, Nike remains the best seller with its US market share of about 47%. Nike is followed by Reebok which has a meager market share of only 16%. Other competitors include Adidas, Converse, and New Balance (Dusen, 1998).

A Flexible Budget for Nike

Implications

The flexible budget for Nike for its income statement is given in Appendix-I. This flexible budget has been calculated on three levels. It shows that Nike could experience sales growth at its average last 2 years growth rate of 4.44%. Also, Nike might experience sales growth rate of 8% as per the US economy growth rate as it is a mature company (Trading Economics, 2010). Finally, it could grow at the average of the former two growth rates which is equal to 6.22% and which we call as the competitive growth. This average has been assumed as Nike is acting fiercely to ward off competition and there is no way that the competition could meet or alter the market share of Nike. Consequently, we have taken the average rate of the economy as well as the historical revenue growth rate of Nike.

The results indicate that Nike posted about 1% improvement in its cost of sales each year. Consequently, we have decreased the budgeted cost of sales with this improvement amount while increased it by the level of sales. However, it is clear that under absorption costing, all selling and administrative expenses are treated as period costs (Lal and Srivastava, 2009). Therefore, we do not alter the level of these costs within our flexible budget that changes with production ...