Introduction: JET2 Task 2 Summary Report for Budgetary Planning
Competition Bikes, Inc. will be reviewed for its various budgets and for its budgetary planning. Budgets are the main planning tool in all businesses that are used by managers to executive management to make decisions for the company. Cash flow is the bloodline of any organization’s operation including operating activities that determine how much cash stays in the organization called revenues and how much is paid out as an expense or liability.
Competition Bikes Inc. makes bicycles for professional riders who compete in road races such as triathlons and biathlons. The bikes have an extraordinary success rate and the product consistently finishes in the winners
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In our case, the Operating Income for Year 9 is a negative $45,820. It is difficult to run a business with negative income and pay the necessary debts. In a declining market, the Sales projections should reflect this change in the market and the Sales should not be projected as increasing year to year in this type of market.
The next concern is the Year 8 Ending Accounts Receivable in the amount of $609,960 which is the total amount received from Year 8 Sales projections. Once again the Sales projected and the Accounts Receivable shows a wide margin of difference. The Total Budgeted Revenues was $5,247,450 and the Accounts Receivable was $629,694. This equates to only 12% of the Actual Sales being collected. The Accounts Receivables will need a serious evaluation as to why the collections are this low. It is important for this business to increase the Aging Accounts owed to the organization in order to increase the accounts receivable. Penalties may need to be sent to the vendors for late payments and the finance staff will need to be held accountable for poor internal control practices. Accurate Net Sales Projections will need to be adjusted for this change in the overall market decline. 2. Evaluate the flexible budget and its variances. A Flexible Budget is a type of budget that changes due to various fluctuations or changes at any point in time of the normal business cycle and there are always funds available. This allows for
Use of the flexible budget shows the budgeted operating income given the actual sales. When you compare the flexible budget to the actual budget you are able to compare the total sales and cost incurred given the same units sold. The sales price variance, which is the actual sales less the flexible budgeted sales, was $14,700 favorable. This means that actual sales were higher than budgeted sales at that usage. This is attributable to the increase in service price from $25 to $26.40. Price variance for material usage was $2,100 over the flexible budget projection. This could be attributed to overuse or waste of materials. As expected, the direct labor price variance was $3,375 lower than the flexible budget amount. This is attributed to the manager’s effective use of labor. Operating expenses were also higher than the flexible budget
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
When figured, 48% of revenue was spent on salaries and benefits in 2009 compared to 51% in 2008. The other significant change in depreciation of expenses resulted in a 69% increase from 2008 and 2009. Last but not least, although the net income is still in the negative, improvement is obvious and the facility is looking to recover in 2010.
Custom Snowboards can minimize risk by continuing to grow sales and reinvesting into the company. Expansion to Europe is one way. Another is to invest money into research and development, and marketing. No increase in research and development happened in the past three years and could prove beneficial to the company. Website create and maintenance can also be used to mitigate risks. A well working website can bring in more sales and possible reduce the compensation budget as employees leave through natural attrition.
Question: (TCO 4) When would it make sense to use a flexible budget as compared to a forecast budget?
A flexible budget is "flexible" in the sense that a budget can be prepared for any level of activity, but
114.2% in year 13 and another 30.6% in year 14. Consistent increase shows well for the company but since sales went up 23% in year 13 and .93% in year 14, the cash should have increased more in year 14 however, furniture, fixtures, and equipment went up 200,000 which means the company purchased more assets for the company. Custom Snowboards is putting the money back into the company without taking on more debt which indicates a decent cost control. Custom Snowboards most likely took money from their short term investments to pay for the furniture. The short term investments dropped significantly in year 14 by more than 80%. This caused a decrease in total current assets but the overall total assets remained healthily increasing, partly due to increase in finished goods and raw materials inventory. Overall, Custom Snowboards uses respectable cost control in assets.
A1. Concerns in Budget Planning: Budgetary Items. Depreciation: Depreciation is “the method that the accountants use to allocate the cost of equipment and other assets to the total cost of products and services as shown on the income statement” (Berman, Knight, & Case, 2013). Depreciation is said to be based on the same fundamentals as accruals in that a company “wants to match as closely as possible the costs of products and services with what was sold” (Berman et al., 2013). The idea is to spread the cost of the expenditure over the useful life of the item over the course of time (Berman et al., 2013). Depreciation carries too much of an increase in year 9. Year 8 totals for accumulated depreciation is at
We can see a constant positive trend in company’s reduction of interest expenses (constant decrease of $5000.00 from year 6
Afterwards, the firm’s revenue began to increase steadily, peaking in the fourth quarter in 1988 at $25,131,000.00. However, when going from the last quarter in 1988 to the first quarter in 2000 we can see a 23% decrease in revenue ending at $19,348.00 which is more than likely a sign that the peak could have been due to a high point in the year from holiday shopping, for example. The company’s Account Receivables, like it’s gross margins, are at it’s lowest in the first quarter of each year. In 1997 in the first quarter the company’s Account Receivables were at $30,857,000.00 which indicates a significant decrease in sales. It was not surprising to see that the point of the company’s highest Account Receivables was in the fourth quarter of 1999 at $37,324,000.00. Due to the fact that the Accounts Receivables were rising and declining linearly in comparison to sales, we can assume that clients were paying off invoices appropriately and that the difference was mainly influenced by the increase or decrease in company sales. IBM’s gross margins were at it’s lowest in the first fiscal quarter of1988 at $6,450,000.00 before increasing to 34% to $9,809,000.00 by the fourth quarter of the same year. The constant slight shifting of gross margins per quarter indicates stability and a positive outlook for the company.
A flexible budget is a budget designed to identify what resources will be required to reach a predetermine result. Comparing it to the company's master budget to identify any differences in sales or spending. Examining the differences can reveal causal factors for an underperforming budget. (Elmerraji, 2007)
Our results and conclusions are based on information that was presented to my team at the companies ending fiscal year, which was September 30th 2016. During the company’s fiscal year, we concluded that revenues were recorded at $20,475 with variable expenses amounting to $7,695 and total fixed costs being recorded at $6,710, therefore calculated operating income resulting in a positive
It is a budget that includes the operating budget and the capital budget and is designed to show all aspects of financial activities. A comprehensive budget consists of two major components, operating budget for short-term goals which entails recurring items and capital budget for long-term goals consisting of nonrecurring items. Operating budget or rather recurring incomes and expenditures are normally the easiest to determine and project since they occur consistently and have an instant effect on our day to day lives. Operating budgets are planned in the context where short-term lifestyle goals preferences are required. This kind of budgets are chosen and the period should be long enough to display intermittent items as non-recurring or recurring items and yet small to follow and manage choices within that given period. An example of operating budgets is personal budgets done commonly in a month’s time since most living expenses are paid at least monthly. The other is capital budget or capital expenditures and investments. After all deductions for living expenses and debts, the remaining income is available for capital expenditures and investments. The capital budget is part of the long-term plan for establishing an asset base. Investments can also be used to achieve specific future goals such financing education or retirement. One should use time and value relations to evaluate capital expenditures and progress since capital budgets are long-term
How can the total flexible-budget variance be broken down (i.e., what are the constituent parts of this total variance)?
At the end of quarter 2 the Gross Profit of the company was $ 1,031,772 with the operating profit $ 118,983. The company strived to achieve the operating profit in positive numbers however it was taken into consideration that the operating profit might result in negative numbers during the initial stage. However,