JET2 Task 2 Report
Competition Bikes, Inc. Budget Summary Report
A1. Concerns
Upon reviewing the Competition Bikes Inc. (CBI) Budget Schedules and ProFormas for Year 9, there are a few concerns that should be analyzed. The first is the forecasted sales in units. The forecast for year 9 is 3,510 units, which is a 3.2% increase over the 3,400 units sold in year 8. The storyline mentions the economic downturn, which has led to a decrease in bike sales. It can take some time to recover sales lost during an economic downturn, and given that sales were down 15% between year 7 and year 8, to go from a 15% decrease in sales to a 3.2% increase in sales in the span of only two years may be an unrealistic goal. I would want to see a specific plan in place for how the company plans to accomplish this substantial increase in sales in such a challenging market (such as an increase in advertising budget, or R&D developing a new product feature that will help differentiate CBI’s bikes from the competition).
Another concern is the wide swings in the amount allocated to Research and Development (R&D) year to year. For the previous three years, the R&D budget has varied significantly:
Year 6: $71,460
Year 7: $98,280 (increase of 37.5% from year 6)
Year 8: $82,284 (decrease of 16.3% from year 7)
In year 9 CBI has allocated $85,861 to R&D. This budget line item should be analyzed and actions taken so there is not so much variance in the budget year to year. The advantage of this is it will be easier to manage and track. Variances will also be easier to identify and analyze.
The final concerns involve two line items within the Selling, General, and Administrative Budget. The first is the budget for Utilities in year 9 of $150,000. Since CBI has increased production of bikes in the budget from 3,400 in year 8 to 3,510 in year 9, an increase in utilities associated with this increase in production would reasonably be expected. Also, looking at the Income Statement, utilities have been
A1. Concerns
Upon reviewing the Competition Bikes Inc. (CBI) Budget Schedules and ProFormas for Year 9, there are a few concerns that should be analyzed. The first is the forecasted sales in units. The forecast for year 9 is 3,510 units, which is a 3.2% increase over the 3,400 units sold in year 8. The storyline mentions the economic downturn, which has led to a decrease in bike sales. It can take some time to recover sales lost during an economic downturn, and given that sales were down 15% between year 7 and year 8, to go from a 15% decrease in sales to a 3.2% increase in sales in the span of only two years may be an unrealistic goal. I would want to see a specific plan in place for how the company plans to accomplish this substantial increase in sales in such a challenging market (such as an increase in advertising budget, or R&D developing a new product feature that will help differentiate CBI’s bikes from the competition).
Another concern is the wide swings in the amount allocated to Research and Development (R&D) year to year. For the previous three years, the R&D budget has varied significantly:
Year 6: $71,460
Year 7: $98,280 (increase of 37.5% from year 6)
Year 8: $82,284 (decrease of 16.3% from year 7)
In year 9 CBI has allocated $85,861 to R&D. This budget line item should be analyzed and actions taken so there is not so much variance in the budget year to year. The advantage of this is it will be easier to manage and track. Variances will also be easier to identify and analyze.
The final concerns involve two line items within the Selling, General, and Administrative Budget. The first is the budget for Utilities in year 9 of $150,000. Since CBI has increased production of bikes in the budget from 3,400 in year 8 to 3,510 in year 9, an increase in utilities associated with this increase in production would reasonably be expected. Also, looking at the Income Statement, utilities have been
References: Hilton, R. (2011). Managerial accounting: Creating value in a dynamic business environment (9th Ed.). McGraw-Hill. Hardcover ISBN: 9780073526928.