FINANCIAL ANALYSIS

Competition Bikes Inc.

Table of Contents

Introduction3

Financial Highlights3

Budget Concerns4

Sales Budget4

Production Budget5

Raw Material Budget6

Direct Labor Budget7

Manufacturing Overhead Budget8

Selling, General and Administrative Budget8

Cash Receipt Budget9

Cash Disbursement Budget9

Cash Budget10

Other Concerns in the Budget Planning10

Flexible Budget11

Variance Analysis11

Favorable Variance11

Unfavorable Variance12

Variance Analysis of Competition Bikes, Inc.12

Corrective Actions14

Management by Exception15

Application of MBE on the Variances16

Conclusion16

References18

Competition Bikes Inc.

Introduction

Competition Bikes, Inc. is the manufacturer of sports bikes for professional and other highly accomplished riders who compete in bike races, biathlons, and triathlons. The bikes produced by the company have been used by around sixty percent of the race winners. The main factor responsible for the company's popularity is the effective and positive word of mouth advertising. The company is known for the durability, reliability and high quality vehicles.

This assignment prepares a budget of Competition Bikes, Inc. for year 9, along with its analysis. The paper presents a summary report in which it discusses the budgetary areas that raise concern in the budget planning. Moreover, the analysis of the flexible and evaluation of variances is also elaborated. The paper is concluded with recommendations for unfavorable variances and the application of management by exception on these variances.

Financial Highlights

The sales of Competition Bikes, Inc. in year 8 have declined by 15% against last year. Moreover, the net earnings of the company are reduced by more than 81%. The company sales are USD 164,450 less as projected in the budget of the review period. Different reasons are attributed to the decline in sales and net income. The decline in sales is mainly attributed to the insufficient marketing and promotional campaigns. Moreover, the interest income is also less this year as compared to the preceding year. The prevailing economic scenario has also affected the sports industry and consequently the company. The major clients of the company are sponsored professional riders. The declining economic indicators have compelled their sponsors to cut down their expenses in this area. The company prepared a forecast as per which the company expected to sale 3510 units in year 9. However, at the end of the year, the number of products sold was 3400.

Budget Concerns

This section presents a brief concept of different components of budget along with the budgetary areas that raise concern in the budget planning. In other words, it identifies the areas where the management has been unable to achieve the expected target. These areas need to be addressed on a priority basis (Putney, 1968). For example, the actual sales came to be less than the budgeted sales. The management must analyze the reasons and factors attributed to the decline in sales, in order to rectify and come up with a corrective action. Moreover, budgets are also interrelated to each other. Incorrect forecasts and incomplete projections will also affect the other areas and estimates.

Sales Budget

Sales budget is the first step in the preparation of the master budget as the entire forecast and estimated depends upon the sales budget. It reflects the estimates of the forecasted sales in terms of quantity and monetary ...