Budget Summary Report
Competition Bikes. Inc.

Cassandra Davenport
ID:000366484
Program: MBA, Healthcare Management, 2/1/14
Mentor: Rusty Lynch
931-580-9182
Chapel Hill, TN Central Time Zone cdaven5@wgu.edu Budgetary Concerns
Competition Bikes budget planning phase begins with sales projection. The forecast for sales in year 9 is 3510 units which is $5,247,450 in revenue, a 3.2 % increase. In year 8 it was $5,083,000, down from 5,980,000 in year 7. The company should decrease the projected increase to 3% or $5,235,500 because management anticipates the marked will improve, but only moderately, which is a concern for the company. In year 8 the company’s revenue decreased 15% due to the condition of the economy and sponsors pulling back money to protect their own businesses. Consumers are still wary of spending money on non-essential items until more time has passed and the economy has proven to have stabilized. Advertising has been budgeted as 2% of the projected Gross Margin, which is the same as has been done in years 6, 7 and 8. The computes to $28,412 for year 9 and $27,428 in year 8. This is a concern because the company is coming out of a difficult year and needs to increase advertising to increase sales. Increasing the advertising budget to 2.5% ($35,516) is needed to draw more customers by innovative publicity. Another area of concern is Executive Compensation. There was a 29.4% increase from year 6 to 7 ($170,000 to $220,000) because the company had a good year and it remained the same in year 8. However, year 8 was a year of loss and yet the compensation has remained the same for year 9. While not cutting salaries, this compensation can be reduced by withholding financial awards, incentives, perks and any additional paid vacation for the executives. If year 9 proves successful then the Executive Compensation should be re-evaluated for year 10. Research and Development is 6% of projected Gross Margin as it has been for the past 3 years. For year 9 this is $85,237 and was $82,284 in year 8. For similar reasons as the advertising budget’s need for increase, the Research and Development budget should be increased. The concern is that without increased research, the company will not remain competitive and sales may drop. At a time when it is important to increase sales, 6.35% should be budgeted in this category which computes to $90,209. Another area of concern is the cost of transportation out. Although Competition Bikes has a contract with the product delivery carrier, other companies should be looked at and considered for when the contract renewal comes up. The same financial penalty for any damages to delivered orders can be written into a new contact with another vendor. For year 9, $105,300 has been budgeted ($30/unit) and in year 8 it was $102,000. If a vendor could be located to deliver each unit for $25, it would decrease costs by $17,550, improving the bottom line.
Flexible Budget and Variances According to Hilton (2008), a flexible budget is a “detailed plan for controlling overhead costs that is valid in the firm’s relevant range of activity”. Competition Bikes will use the flexible budget as their planning budget for the next year, looking at what should be received in revenue and what should be spent. The difference in the flexible budget and the planning budget in year 9 is the activity variances. These variances should be reviewed so that accurate planning can be accomplished. There was an unfavorable variance of 87 units therefore the net sales was $5,117,385 instead of $5,247,450. Because this is a made to order company, these 87 units were not made, consequently, the total variable costs was favorable at $3,869,612 rather that the planned $3,967,962. The economy was still recovering from a recession.
The Revenue and Spending variances are analyzed to assess other ways to effect the bottom line. The first item is the Net Sales. Net Sales for Competition Bikes for