Summary Report: Budgetary Concerns

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A1. Budgetary Concerns
Capital budgeting is done with projected sales values. These values do not represent the actual sales volume more often than not the protracted values are usually more than the actual values of sales volume. This is one of the areas that raises concern in capital budgeting. The reason behind this is that both the NPV and IRR cannot be accurately calculated. For instance in year9 the projected sales figures were 3510 units but the actual unit sales amounted to 3400 units. Total sales amounted to $5083000 for Carbonlite bikes. In year10 the projected sales units were 3660 units but the actual sales units amounted to 4000 units giving a total sales figure of $5980000 and for year 11 the sales forecasts were 3800 units and the actual sales amounted to $4485000 if the sales projection were used for year 9 the sales amount would have been $5247450, for year 10 the sales volume would have been $5471700 and lastly for year 11 the sales would be $5681000. These figures would completely alter the whole capital budgeting structure hence it is advisable to use actual sales to compute for capital budgeting structure. From the competition Bikes, Inc. Budgeted Contribution Margin Income statement for year 9 if the projected sales figures were used the operating income would have been $79962 but when we use the real sales figures we get the operating income amount to be $34142 giving rise to a difference of $45820 a considerable amount that would blow the budgeting
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