Wgu Jet2 Financial Analysis Task 2

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Competition Bikes Inc. Summary Report JET2 Financial Analysis, Task 2 May 28, 2014 Introduction 3 A1. Concerns 3 A2. Flexible Budget 5 A2a. Corrective Action 8 A2b. Management by Exception 10 References 13 Introduction: Formed in 2001, Competition Bikes manufactures high grade bicycles for professional and other accomplished riders who compete in bike races, biathlons, and triathlons. The purpose of this report is to provide an analysis of the company’s budgets and budget planning process, along with provide recommendations for corrective actions. A1. Concerns: An analysis of the budget planning for Competition Bikes has revealed several concerns, which are outlined in the following paragraphs. The first concern is the projected units that will be sold and the amount of revenue in year 9. The company’s sales budget indicates that 3,510 units will be sold in year 9, generating $5.25M in revenue, which is an increase of 3.2% over year 8. While the forecasted units of 3,510 in year 9 seem in line with the 3,400 units sold in year 8, it is in sharp contrast with the trend over the past 2 years. In reviewing the horizontal analysis data, revenue increased by 33.3% between years 6 and 7 then dropped by 15% between years 7 and 8 due to the decline in economic conditions. The weaker economy resulted in sponsorship cutbacks for professional riders. The company expects the market will improve moderately in the upcoming year and has indicated it will not take any pricing actions to increase sales. However, the 3.2% increase forecasted for units sold and revenue in year 9 over year 8 is a concern since the company is not planning on any specific actions to spur sales or product awareness in the weakened economy. The next concern is the amount of components and frame materials budgeted in the raw materials budget. Each bicycle requires 42

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