TEMPLATE Financial Analysis Task 2 Summary Report for Competition Bikes, Inc. One of the first things we must address is what constitutes a budget. A budget is an outlined and organized plan that displays how assets (cash, material, & other resources) are obtained, and utilized over a specified amount of time. It is a financial outline that is formulated to help with the projection of additional future income as well as current expenses. It can do things like outline potential outcomes of future acquisition, refine existing projects based on purchased amounts, or show you weekly, monthly, or annual expenses. In fact, the entire point of having a budget is to allow for a company to accurately estimate its costs so that it can control its financial stability within reason, as well as enhance its fiscal accuracy, and offer a better guide for managerial direction! In fact, that is one of the primary roles of a manager; to apply the budget to ensure a smooth usage of financial or physical resources in operations. That said, it is important to raise the specter of concern on several notable issue with our companies budgetary planning. For starters, let’s examine our sales budget forecasts. It’s a projection of our sales for Year 9. It states: Units Expected to be Sold as 3,510. If we are to take this as an assumption of units for next year, it is a dangerous one. Year 8 had a 15% reduction in units that were sold compared to Year 7. Presently, there is an economic recession in North America, and this is being forecast for the next several years. Insofar as I am concerned, this recession is not being taken into account in this sales projection. Certainly it is not reflected from our Net Sales, which have shown a noticeable decrease from Year 7 to Year 8. Another concern is within the Budget Schedule and ProForma. There is not any quarterly breakdown for us to more accurately forecast for a Master Plan. In addition, there isn’t a section for us to take seasonal inventory purchases and material in. It does not address the fact that cycling is almost exclusively an outdoor sporting event, with winter month competitions virtually nonexistent. A possible solution would be to note these seasonal trends by having increased inventory stores ranging through Spring to Autumn with reduction to low levels across the winter months. If we were able to have this information presentable in a 4-Quarter fashion, it would almost certainly allow for Competition Bikes, Inc. to properly and more accurately project reasonable future sales. Also, another concern is that at present, our company does not presently display how to specify our uncollected or uncollectable receivable goods. In a time of increasing economic uncertainty and downturn, it is very possible that we may have an inordinate number of uncollected bills, in turn, affecting our bottom line. If we incorporated this display into our budgets, we should be able to more quickly and accurat ...

1. TEMPLATE
Financial Analysis Task 2
Summary Report for Competition Bikes, Inc.
One of the first things we must address is what constitutes a
budget. A budget is an outlined and organized plan that
displays how assets (cash, material, & other resources) are
obtained, and utilized over a specified amount of time. It is a
financial outline that is formulated to help with the projection
of additional future income as well as current expenses. It can
do things like outline potential outcomes of future acquisition,
refine existing projects based on purchased amounts, or show
you weekly, monthly, or annual expenses.
In fact, the entire point of having a budget is to allow for a
company to accurately estimate its costs so that it can control
its financial stability within reason, as well as enhance its fiscal
accuracy, and offer a better guide for managerial direction! In
fact, that is one of the primary roles of a manager; to apply the
budget to ensure a smooth usage of financial or physical
resources in operations.
That said, it is important to raise the specter of concern on
several notable issue with our companies budgetary planning.
For starters, let’s examine our sales budget forecasts. It’s a
projection of our sales for Year 9. It states: Units Expected to
be Sold as 3,510. If we are to take this as an assumption of
units for next year, it is a dangerous one. Year 8 had a 15%
reduction in units that were sold compared to Year 7. Presently,
there is an economic recession in North America, and this is
being forecast for the next several years. Insofar as I am
concerned, this recession is not being taken into account in this
sales projection. Certainly it is not reflected from our Net
Sales, which have shown a noticeable decrease from Year 7 to
Year 8.
Another concern is within the Budget Schedule and

2. ProForma. There is not any quarterly breakdown for us to more
accurately forecast for a Master Plan. In addition, there isn’t a
section for us to take seasonal inventory purchases and material
in. It does not address the fact that cycling is almost
exclusively an outdoor sporting event, with winter month
competitions virtually nonexistent. A possible solution would
be to note these seasonal trends by having increased inventory
stores ranging through Spring to Autumn with reduction to low
levels across the winter months. If we were able to have this
information presentable in a 4-Quarter fashion, it would almost
certainly allow for Competition Bikes, Inc. to properly and
more accurately project reasonable future sales.
Also, another concern is that at present, our company does
not presently display how to specify our uncollected or
uncollectable receivable goods. In a time of increasing
economic uncertainty and downturn, it is very possible that we
may have an inordinate number of uncollected bills, in turn,
affecting our bottom line. If we incorporated this display into
our budgets, we should be able to more quickly and accurately
identify problematic customers, or areas within our projections
that may raise concerns; and deal with them promptly.
Also of concern is that there is that for our company, that
is not so easily identifiable, is within the Raw Materials Budget.
It’s instantly obvious that there are two of them, and this can
lead to quick confusion, because they’re supposed to be in the
same category. I therefore will issue the recommendation that
since they’re both in the same budget, that they both be merged
into a single budget. There is no need for a separate Frame
Materials section, when it can nicely be incorporated into the
Components section, and perhaps the pair can be renamed
overall.
Yet another concern for the company is our level of noted
inventory. Competition Bikes, Inc. develops and builds its
bicycles upon the completion of a sale. That said; our company
is also considering an Ending Inventory in the Budget of 140
bicycles, unproduced. This comes out to 140 sets of parts,

3. along with 5,880 carbon fiber strips.
Ultimately, this would be financially distressing for us because
any leftover or unproduced units can easily depreciate in value.
Our suppliers are constantly refining their materials and
techniques to improve quality. Leftover products can not only
waste space, but they can devalue and cause more loss.
None of this is reflected in our process for inventory, and this
should raise a considerable concern for the company and it
needs to be indoctrinated into our budget and planning going
forward.
Regarding what is known as a Flexible Budget, this is a
system that allows a company to measure on the volume of
activity and not on a fixed amount. The figures that are
presented within a Flexible Budget are based on the tangible
yield of goods. There is also an aspect known as a Variance. A
Variance is the variance between a planned, intended or normal
sum and the actual total earned or sold. A Variance can be
figured for not just the expenses but also the returns. You also
have two specific types of Variance, Favorable and
Unfavorable. Favorable is when you get results that surpass the
budget. Unfavorable is when you do not.
The results will most likely differ from your primary, or
master budget, and this is most likely going to be due to the
company’s sales not being the same as those that are forecasted,
or because the fixed costs were not what was expected, or
because the CU (Cost per Unit) wasn’t correct. Price Variance
(PV) is preferred, because its formula is the actual price minus
the standard price. Quantity Variance (QV) would be preferred,
because its formula is the actual amount that was used minus
the actual standard amount that was given or allowed.
CBI’s Favorable Variance and CBI’s Unfavorable Variances
Regarding Competition Bikes, Inc., The Net Sales marker
indicates 5,247,450 with an actual output 5,096,847. This is an
Unfavorable Variance. This is our generated amount of sales,
which is shoddier than what our planned performance should be.
On our Performance Report, Favorable and Unfavorable are

4. subsequently identifiable by a capital U or F, near the totals
under the Variance Columns.
With an Unfavorable Variance of 130,065 in our Net Sales,
this should be disquieting. It is essentially noting that other
cost-driving actions and/or sales are not like forecast, or that
revenue is lacking due to some unknown factor, or even that the
Fixed Costs were inaccurate or more.
Parts of materials for direct resources, labor, engineering,
and variable marketing or trading expenditures all faired
promising variances and don’t give any problems for CBI as
our profits are greater than those that have been planned.
Remedial actions within these ranges should be examined, as
workers may be carrying out tasks more competently and
consequently supervisors can apply these proficiencies
elsewhere in other more unfavorable variances.
Taking a look at our Advertising, we note that the planned
budget was 28,412, whilst our actual was 31,462. There is a
variance of 3,754. This gives an over-budget on Advertising,
and should be taken to note because of the fact that the
economic realities are still displaying market shrinkage. It
would be wise to look into the reasons as to why our
Advertising budget was over. There are a number of reasons
why this could have happened.
Another Variance we can look at is Transportation Out.
Planning Budget indicates 105,300. Actual Output indicated
108,297 with a difference of 5,607; Unfavorable. A possible
explanation is that the price of gas might have increased, or the
price of oil. In short, our total price Variance we can see is
117,793 with a Favorable Variance.
Another aspect of the Variances is the Contribution
Margin. If we look under the Revenue and Spending Variance:
Contribution Margin, we will see that we are 43,674, with
Favorable Variance. It’s doing fine presently, but still a little
low and probably due to an inclement economy. Also, R&D
lists are a Favorable Variance at 2,397, and our Total Operating
Expenses are satisfactory as well with a Favorable Variance at

5. 4,121.
Pertaining to the Budget; normally, a Budget is prepared
for a company on an annual basis. This way there is plenty of
time to review it, make changes as necessary, and of course to
correct any mistakes long before they could potentially come to
fruition. When it comes to a Budget, it is the responsibility of
the Management to make the outlines and strategies for all
expenses and expense planning for the next fiscal quarter or on
an annual basis; all of which can be quickly scaled back so as to
reduce any additional Unfavorable Variances. In that regard, it
would be agreeable to run a Cost Benefit Analysis.
Our company is going to need to undergo several corrective
actions for the Unfavorable Variable of the Net Sales for our
company. We should begin an immediate examination for the
inconsistency. A precise calculation amount for differences
favorable and / or unfavorable to make sure that the managers
of the noted departments will be held responsible and put to
task for it. Our company, CBI has experienced a notable decline
in sales. The Finances manager works with not only accounting,
but also operations as well as our engineering group. The
divisions work together to clarify the UnfavorableVariance to
management. Good Managers are typically motivated to
understand why company sales go down. Examining and
correcting any causes that may exist are going to involve a more
comprehensive examination. There is the very real possibility
that we will include higher or senior level management to
resolve the problem as well. It cannot be excluded that the
likelihood in the forecasting of sales higher than realistically
expected can be attributed to the failure to note the present
decline in our national economy. CBI therefore; has introduced,
for the first time, a company encouragement plan. Bonuses!
Two bonuses were rewarded for deals that were achieved above
our regular quota. Manager performance evaluations are
affected in either a positive or a negative, and will be bonus
focused in order to keep sales at their planned outcome.
Another Corrective Action that Competition Bikes, Inc. can take

6. for its Unfavorable Variance will be for the Advertising
Expense. This will elicit a measured examination by our Sales
Manager. Since the control of the Budget is in the hands of the
managers, along with our strategies to increase sales, this is a
possible nook that may well had led to the increase in the costs
for advertising. Therefore, our Sales Manager will conduct the
examination along with our Accounting Department to
determine why it was that we spend more in our Advertising
even though our sales and sales budgets were decreasing.
Perhaps it was the cost of materials, or possibly the cost of
actual advertising placements increased. Did we obtain a 30
second slot in the Super bowl, for example? The examination
and the Corrective Action taken will need to be done in a more
precise and detailed Budget Analysis.
As for our Unfavorable Variance of Transportation, the
measured means to address this will be to open an examination
of practices, policies, and pricing with our Operations Division
Management. It would be fair to suggest that this is probably
due to increases in fuels, and other things such as oil, propane,
diesel, etc… Of all our budgetary Variances, this one is really
the least surprising due to the invariable nature of fuel price
fluctuation. Still, Corrective Actions should be taken to address
it. In addition, Senior Level Management should be included in
the discussion as there is the possibility that if there is too much
variance, a resolution or recommendation may be to switch
carriers for cost savings.
We should note something else too; margin’s that are looked at
as ‘unfavorable’ contribution can be just as significant as it is a
profit analysis. This Unfavorable Variance is mirrored based on
how good the company implements itself in the marketplace and
will be examined by the division or branch manager’s along
with those of our accounting, operations, engineering, and
finance groups as well. It is important to have each of these
groups involved because each of them will approach the issues
with a different perspective, and thus, increase the chances to
locate any discrepancies and issue the burden of responsibility.

7. The Variances will be closely monitored to forestall any higher
revenue and any abridged costs. The likelihood of success is
balanced against the reduction of the variance, which in turn,
can possibly entail some new control measures. We can also
include our staff to assist us in dropping any hesitance to any
implemented procedures or practices that may be required by us
for solution to the Variance. The examination will be needed to
be made as quickly as possible in order to define any new
control procedures we may need to implement.
Senior Management, including the CEO and Owners of the CBI,
will going to hold the management to task for the Unfavorable
Variances. Corrective action for the unfavorable variance is
going to require a series of 3rd party auditing to search for any
inconsistency within the budgets. One of the better ways that
we may be able to manage our variances is to hold regular
conferences to debate the inconsistencies with division leaders.
All of the variances of our company will contain management
by exclusion procedures to follow up on important adjustments
as soon as can be reasonably done.
The Management by Exception process is the following up on
noteworthy cost variances. Managers are typically rather busy
and don’t always have the time to check out every variances
located. This is especially notable when the variance is less
than 10%. Our company managers can benefit by employing the
Management by Exception by examining any unusual variances
and discovering what the cause of that variance is. If there are
small or variances of less than, say 5%, perhaps these can be
examined if they trend on a regular or repeated basis (say, two
fiscal quarters), because this could possibly be a signal that
there is a problem. This procedure is used in corrective actions
that I will recommend. There are four principles of MBE that
are essential to our variances:
· The MBE will lower the amount of financial and operational
results that our managerial staff is going to need to review.
This will allow for them to have more effectual use of their
work schedules.

8. · The MBE report writer linked to the accounting system can be
set to automatically print reports at stated intervals that contain
the predetermined exception levels, which is a minimally-
invasive reporting approach.
· The MBE method will also allow for our working staff to
monitor their own methods to accomplishing the results
instructed within our corporate budget. Our Management staff
need only intervene if an exception arises.
· Using the MBE, a corporate auditor either internal or external,
can make reviews about any large exceptions discovered, as a
part of a yearly audit, so the managing staff should be able to
start investigating any issues well in advance of our annual
audit.
Items of revenue or expenditure that show minor changes should
need no action for the time being, but instead should be watched
closely. Management by Exception can be practical for our
corrective actions however. CBI can set the standard by
implementing inquiries and examinations, having the division
management work with one another to identify any basis for the
variances. In addition, to fulfill our company’s MBE, a third
party auditing company or group should be hired to root out
specific causes of our imbalanced and negative variances.
Using a third party auditing company will actually be a more
cost effective way to run this corrective action plan. This is
because any large-scale investigation by our own management
and support staff is going to affect business sales, productivity,
production, and even morale to an extent. All of which will
directly impact our bottom line. An outside party does not
affect these things.
Management by Exception can add to the effectiveness of
business methods. The Management at our company will need to
pay close attention on any of the variances that are utilizing
Management by Exception to amend ineffective standards that
might need adjusting. This can also aid as a motivator, by
having the management at all levels work with one another in
battling the variances in the budget to produce a workable and

9. realistic solution for our budget.
2 | Page