There are a few areas of concern with the Budget that Competition Bike, Inc - Jet task introduction. has displayed within their budget for year 9. The most prominent area of concern in is in the Revenue section of the budget. In the budget for year 9, Competition has included units sold to be 3510. This is a lofty prediction given that year 8 had seen such a big decline in that number. In year 8, Competition sold 3400 units, but the previous year had sold around 4000 units, a 15 % decline. The company is hoping for an upswing, but this may be too positive of an estimation. To go with that, Competition is only allowing for $984 more dollars in advertising for year 9. If they had budgeted maybe $2000-$3000 more to this category to get to where their advertising spending was in year 7 when they sold 4000 units, their budget of increased sales in year 9 would not be as suspect.
In the Budgeted Income Statement, Competition Bikes has budgeted $1340038 for Selling, General, and Administrative Expenses. This is a little high as in year 7, when the highest number of units was sold, that category totaled $1322075. Sometimes this number is budgeted high to help show how well the company managed the budget, as they have built in extra that they know that they can beat. This is not in the best interest of the company, however, because the goal is not aggressively set, and there is no real push to beat the budgeted amount. The other concern with this area is that a lot of the key components in this category should remain relatively similar to previous years. For example, Executive Compensation, Employment taxes, Payroll Service, Depreciation Expense, and Administrative Salaries were the exact same for Years 7 & 8.
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Given that these should remain the same in year 9; it is unclear why the company is budgeting more than $50,000 in this area than the previous year. I would suggest that the budgeted amount be somewhere between the year 7 & 8 amounts, given the positive prediction that sales will increase, which would put it between $1273867 and $1322075. This over statement in this category has also led to the company to under budget their Operating Income which they have budgeted at $80585. With the prediction of selling more units than year 8, the company should be budgeting a higher Operating Income than the previous year’s amount of $97,533. They definitely should not be indicating that they will be selling more but making less. This would be a bad financial sign for the company, as it is showing a lack of leadership and management skills.