BUDGETS

Competition Bikes Inc.

Competition Bikes Inc.

Budget Concerns

Sales Budget

Sales budget reflect the forecast made by the marketing department on the number of units that will be sold in the period under review (Vashisht, 2006). The sales department of Competition bikes Inc. has estimated to sell 3510 units in the year 9. The total revenue generated would be $5,247,450. The production budget depends upon the data provided by the sales team.

The number of sales expected to be sold are a major concern for the company because the sales department has not been very efficient in attracting the customer and increasing the sales. The highest recorded was in the year 7, of 4000 units. It has been declining ever since. The sales department must employ creative sales strategy in order to survive the competition.

Production Budget

Production budget shows the estimates that are closely related to budget sales and desired inventory levels. It is the budget of projected sales and adjusted for inventory change (Siegel, 2008). It determines the total number of units that are to be produced in the accounting period. Competition Bikes Inc. has estimated that the company will have to produce 3510 units for the year ended December 31, year 9.

The major concern in this component of the budget is that the company is not producing enough due to low sales. The plant is running at low capacity, thereby, not making efficient utilization of the fixed assets.

Raw Material Budget

The Raw material budget determines the cost of the Raw materials that would be needed to produce the number of units estimated in the production budget. It the previous budget, the number of units produced was calculated be 3510 units. With $275 per unit cost of the direct material, the total Cost would be $ 965,250.

Direct Labor Budget

The Direct labor budget determines the work force required and the cost of it, in order to produce the desired number of units. This budget is a crucial factor of the overall budget, as it is a major component of the total cost. Management must know the requirement of labor, in terms of hours and per unit of production. Competition bikes Inc. would need 52,650 hours to produce the desired number of units. The total cost of labor in year is estimated to be $ 1,053,000.

Manufacturing Overhead Budget

The total cost of goods sold is made up of three components; Direct material, direct cost and manufacturing overhead. The overhead component includes the cost of quality control, material handling, engineering services, depreciation, and factory setups. The total MOH cost budgeted by the team of Competition Bikes Inc. is $331,798.

Selling, General and Administrative Budget

This budget entails the other expenses that are not incorporated in the cost of production. The per unit commission and transportation expenses are variable, whereas the network distribution expenses are fixed. One of the main concerns of fixed cost is that the number of units produced and sold must at least cover the fixed expenses and cost of production. These expenses include the marketing, advertising, payroll, utility, ...