Task 2 Financial Analysis

1528 WordsSep 14, 20137 Pages
TASK TWO Task Two 1 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…show more content…
For example, Competition Bikes paid 171,000 actual in admin salaries instead of the budgeted 170,000 standard. Executive compensation, utilities and 4 services, and other utilities and services marginally decreased. Other general and admin expenses actually totaled 172,000 instead of the budgeted 170,000 standard. If operational expenses had been curbed in these areas, then operating income would have at least marginally increased. A2a. Corrective Actions for Areas of Concern. Mitigation: In the future, Competition Bikes should monitor the economic climate before increasing advertising expenditures. The economic downturn clearly drove away sales, and it made any additional advertising efforts almost useless. Competition Bikes should also shape staffing, staff bonuses, and operational expenses such as utilities around the economic climate. The flexible budget offers this luxury. As stated above from the source material, a flexible budget can help a company anticipate where changes are necessary in order to act out proper procedures to cut potential unfavorable outcomes (“Flexible Budget”). In any case, management by exception is a concept that would be beneficial for adaptation within Competition Bikes’ practices. A2b. Management by Exception. Bragg (2013) defines management by exception as “the practice of examining the financial and operational results of a business, and only bringing issues to the

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