Financial Analysis Task 2
There are a couple of concerns with Competition Bikes Inc., ProForma for year 9. The first concern is the amount of money that is allocated to research and development. For the previous three years, they have been all over the board with their budgets. The sixth year was $71,460, the seventh year was $98,280, and the eight year was $82,284. This is concerning that the budget has fluctuated so much. In the ninth year they have allocated $85,861. This budget line item should be analyzed so there is not so much variance in the budget between year to year.
Another concern is the amount of carbon fiber sheets that are going to be purchased. It takes 42 sheets to produce 1 bike. Times this by the
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There will still be many amounts within the budget that will remain constant, such as utilities, salaries, and even mortgage payments. There will be some variance in other parts of the budget such as cost of raw material. For example, labor costs will change for bikes being built. If Competition Bikes does more bikes, the labor costs will change and the company will have to compensate for overtime, new employees, training, and raw material cost will also go up. The variances between costs of the described items are dependent on the amount of sales. This is why it is better to get a range of sales amounts, whereas the variants will be shown, and the company can create a more accurate budget. This will help prevent “surprises” that could happen if sales are down or are exceeding expectations from using a fixed budget. The projected net sales for Competition Bikes Inc., are approximately three percent higher than they were for the previous year. An unfavorable variance is the operating income. This is unfavorable ultimately because less bikes are being sold. Another unfavorable variance is the contribution margin. This is -$41,076. This means that the company is making less on each sale, and has lost $41,076 within that year. A favorable variance that should be addressed is the cost of material line item. This is Favorable $56,809. This money was allocated for