Competition Bikes: A Business Analysis

Budget management analysis is used by mangers as a tool and helps determine that all resources available are being used efficiently. The budgets are determined yearly and are based upon the previous year’s budget and variances. This paper will discuss specific strategies to manage budgets within forecast, compare five to seven expense results with budget expectations, describe possible reasons for variances, give strategies to keep results aligned with expectations, recommend three benchmarking techniques, and identify those that might improve budget accuracy, and justify the choices made.

A flexible budget can be used to forecast a range of production possibilities, or it can be used to assess how well the company met the budget plan based

As shown in Exhibit, profitability has been a concern to Kootenay - gross margins are below industry average of 28-50% for its complete bike products (Entrée; -0.83%, Dlux; 7.76%, and Ultra;-6.73%) where materials have represented a high percentage of the costs (58 – 74%). Selling frame alone has shown stronger profitability (23.33%) but overall returns needs to be improved (ROA/ROE are -14%/-22%).

A1. Budget Concerns Competition Bikes budget has several areas of concern that need to be address. 1. Units expected to be sold for year nine is 3510. Competition Bikes is predicting that they will sell 3510 Bikes but they only sold 3400 Bikes in year eight down 15% from year seven 4000 units sold. Competitions Bikes has budget to high because the current economic down turn is showing no signs of relief for the next three years. Many of Competition Bikes customers are sponsored riders and many sponsors have pulled their funding to their rides. Competition Bikes has not presents a plan that would support their projections. Competition Bikes should lower there should lower the expected units sold so not to over order raw materials that will

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.

The Company states in the summary that they attribute the net sales decrease in sales to the economy. The primary buyers of the bikes are professional bikers and with the sponsors of these professionals backing off the sales for this company took a direct hit. Competition Bikes Inc, also decreased advertising between years 7 and 8. This looks as

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

With the release of the new budget for year 9 from Competition Bikes, there are a couple of areas that are a concern that warrant being addressed. The first being the prediction of amount of bikes to be sold; Competition Bikes is expecting 3,510 units to be sold after a year 8 that sold only 3,400 units which was a 15% drop in sales from the year prior (which sold approximately 4,000 units) with zero drop in price point which may make it harder for customers to justify purchasing a bike in the current economy. Understandably, year 8 was in the middle of a recession and the economy could rebound for a productive year 9. However, with only an extra $984 being spent on advertisement, the expectations could fall short unless

Advertising and transportation forecasted costs should have also decreased but instead, increased. Although an increase in advertising was recommended, the additional costs were not accounted for in the flexible budget. Transportation out is covered by a per unit contract so the decrease in sales should have reflected a decrease in transportation out costs. Both of these costs should have decreased with the decrease in sales like direct materials did. These negative variances indicate the company cannot control costs. This could be caused by a number things: fraud, miscommunication, poor forecasting, unexpected economic changes, etc. Competition Bikes needs

The variance report can tell how well Gardiner Store PLC did at carrying out their budget aims. A favorable variance shows that actual costs

The following is a summary report to recommend whether Competition Bikes should change its traditional costing method to activity based costing, and an analysis of the breakeven point with regards to sales units and dollars for both CarbonLite and Titanium bikes. It also discusses the impacts to the breakeven point. The cost-volume-profit evaluation and the traditional vs activity based costing method overhead analysis were used for the review and analysis.

Overall, variable expenses as a whole saw a favorable variance by spending $ 88,989 less than expected. This is despite the fact that the variances within the advertising and transportation out categories were unfavorable. All of these variables accounted for show an unfavorable contribution margin variance of$ 41,076. This is due to the money lost in the unit sales and the few unfavorable variances.

The current operations can also be improved by implementing a just-in-time inventory management system. This is where the company only buys the materials that it needs to produce the units that are actually sold. This cuts down on dollars that are tied-up in inventory held in raw materials inventory. This is a considerable amount for Competition Bikes, Inc. and will be lowered enormously as fewer materials are placed in raw materials. This will be billed in the same month in which they are produced creating fewer dollars to be tied up in inventory. This will then be converted to cash to be used as working capital.

Although CB had a great year in year seven compared to year six, the numbers are very different when comparing year 8 to year 7. Sales were down 15% in year 8 compared to your 7, which is a big concern, it can be considered as a weakness for CB. In the storyline for competition bikes, it tells us that this was a year where the economy was very weak, and this can account for the sales to drop. A 15% drop in sales is not a good thing for any company. This 15% drop in CB sales is reflected throughout the rest of the income statement when comparing year 8 two year 7. Because the sales were down 50%, your cost of goods sold was also down 14.5%. Your gross profit was also down 16.3%, and these are all contributing factors from having an economy that is weak during that time.

The 20’s century saw the use of budget involve due to a change in the environment. Indeed the control of output used to be obtained by the dissemination of tasks and so traditional budgets were very much highlighted, with a significant top-down influence. As an example of the importance of budget in the 1970’s IBM had about 3,000 people involved in their budgetary process. During the same period, the oil crisis brought concerns about rising in costs and led to the introduction of zero-based budgeting (ZBB), which can lower cost by avoiding blanket increases or decreases to a prior period’s budget. The increase in business uncertainties was in discrepancy with the stifling effect of fixed plans, promoting the use of rolling budgets. The 1990’s saw the growing influence of shareholders and steered the focus on a budget that included a wider view of organisation results, answering the investment community for quarterly updates on results and expectations (Bill Ryan, 2005). Budgets then started being used as a communication tool between the financial community and the organisation, allowing the corporation to be integrated in the capital market. Moreover companies started using flexible budgets rather than static budgets as nowadays various levels of activities can be observed in most organisations. The use of flexible budgets then enables firms to be consistent with their new environment and the market.