Financial analysis
Uploaded by Vixo on Sep 30, 2015
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Summary
A review of the Master Budget in comparison to the Actual Budget will be analyzed to provide informative data of budget planning proforma, flexible budgets, variances, corrective action plans, and concepts of Management by Exception (MBE). In order to accurately analyze each of these areas, they must first be defined. Definition of such can be clarified through the purpose of the performance of each of these steps. Wikipedia (2014), states that the purpose of a budget is, “to aid the planning of actual operations by forcing managers to consider how the conditions might change and what steps should be taken now and by encouraging managers to consider problems before they arise.” Budget planning then can then assist managers to project anticipated conditions and prepare for forecasted changes within the market, be that favorable or unfavorable. Proformas are, “a projection based on a specific event,” as stated by ProjectionHub.com (2014). It is the proforma statements that may cause a greater variance from a standard rate of change if the specific event did not occur such as an anticipated merger
Concerns
There are many concerns with the budget planning for Competition Bike. From year 2006 to 2008, Competition Bike experienced a 13.3% increase in sales. In year 9, sales are projected to increase to 3510 units to give sales revenue of $5,247,450. This is a bold increase after 3400 units sold in 2008 and 4000 sold in 2007. I do not think the sales will be as robust with the economy rebounding. Sales projections should be 3425 with net sales at $5,120,375.
Since the Competition Bike Company projected overly optimistic sales, there are several areas in the budget that will be affected. The areas affected are Sales Commission, Transportation Out, Advertising, Research and Development, Raw Materials, and Labor.
Sales Commission: With commissions budgeted for 3% of sales revenue, this amount is budgeted too high since the budgeted net sales is inflated
Advertising: This expense line will be incorrect due to it being based on 2% of the Gross Margin. The Gross Margin will be off due to inflated projections.
Raw Materials: Due to inflated sales projections, the raw materials cost...