Competition Bikes Task 2
Competition Bikes, Inc.
Task 2
A budget is a plan expressed quantitatively in detail. This detailed plan spells out how the company will acquire resources as well as how the resources will be allocated for a specific time. The budget is used for projecting future income and expenses. The purpose of a budget is the assist the company in providing a methodology in determining what direction to go, to improve efficiency, delegate responsibility and provide a means of controlling the finances of the company. In some cases, managers use budgets to determine how to set targets and standards for employees.
This report will provide an assessment of Competition Bikes Inc.’s budget. By examining the Budget Schedules and Proformas, the areas of concern …show more content…
The revenue and spending variances are favorable because revenue was higher than expected for the amount of bikes produced and the cost was lower than expected.
• The overall price variance was favorable because the favorability of the price of direct materials outweighed the fact that the price variance of the direct labor costs, manufacturing overhead costs, advertising expenses and transportation out costs were unfavorable. To correct the unfavorable categories of the overall price variance, CBI would need to hire more efficient workers, purchase higher-quality materials, find more efficient ways of advertising and find other means of transporting a finished product.
• The overall efficiency variance was unfavorable. This is largely due to the large amount of direct materials used inefficiently. Although the direct labor and advertising costs were favorable; it was not enough to counter the difference between the amount that was budgeted and the actual amount used for direct materials. In order to correct the overall efficiency variance, CBI can purchase high-quality materials which would result in fewer defective products and more efficient use of …show more content…
Management must determine why, direct labor has a large variance. Management should evaluate the training the skilled workers. Additionally, management should determine if enough skilled workers have been hired to alleviate possible excess overtime. Other times there are unforeseen problems.
Third, the unfavorable, price variance of $150,000 for direct labor should be evaluated by management. Management must decide what has happened to cause CBI to incur more direct labor cost in regards to price variance. Management can look at the newly hired employees. If the supervisors are hiring highly skilled works; higher pay is required. Therefore, the price variance for direct labor would become unfavorable.
Fourth, the unfavorable revenue and spending variances and unfavorable price variances for manufacturing overhead. The unfavorable variance of $26,426 for revenue and spending and the $24,000 unfavorable price variance was due to the company spending more than the expected amount for the actual amount of output. These are area management should be made aware of so they can pinpoint areas that need
Task 2
A budget is a plan expressed quantitatively in detail. This detailed plan spells out how the company will acquire resources as well as how the resources will be allocated for a specific time. The budget is used for projecting future income and expenses. The purpose of a budget is the assist the company in providing a methodology in determining what direction to go, to improve efficiency, delegate responsibility and provide a means of controlling the finances of the company. In some cases, managers use budgets to determine how to set targets and standards for employees.
This report will provide an assessment of Competition Bikes Inc.’s budget. By examining the Budget Schedules and Proformas, the areas of concern …show more content…
The revenue and spending variances are favorable because revenue was higher than expected for the amount of bikes produced and the cost was lower than expected.
• The overall price variance was favorable because the favorability of the price of direct materials outweighed the fact that the price variance of the direct labor costs, manufacturing overhead costs, advertising expenses and transportation out costs were unfavorable. To correct the unfavorable categories of the overall price variance, CBI would need to hire more efficient workers, purchase higher-quality materials, find more efficient ways of advertising and find other means of transporting a finished product.
• The overall efficiency variance was unfavorable. This is largely due to the large amount of direct materials used inefficiently. Although the direct labor and advertising costs were favorable; it was not enough to counter the difference between the amount that was budgeted and the actual amount used for direct materials. In order to correct the overall efficiency variance, CBI can purchase high-quality materials which would result in fewer defective products and more efficient use of …show more content…
Management must determine why, direct labor has a large variance. Management should evaluate the training the skilled workers. Additionally, management should determine if enough skilled workers have been hired to alleviate possible excess overtime. Other times there are unforeseen problems.
Third, the unfavorable, price variance of $150,000 for direct labor should be evaluated by management. Management must decide what has happened to cause CBI to incur more direct labor cost in regards to price variance. Management can look at the newly hired employees. If the supervisors are hiring highly skilled works; higher pay is required. Therefore, the price variance for direct labor would become unfavorable.
Fourth, the unfavorable revenue and spending variances and unfavorable price variances for manufacturing overhead. The unfavorable variance of $26,426 for revenue and spending and the $24,000 unfavorable price variance was due to the company spending more than the expected amount for the actual amount of output. These are area management should be made aware of so they can pinpoint areas that need