Competition Bikes Budgetary Analysis
Budgetary Areas Raising Concern in the Budget Plan.
Competition Bikes, Inc. - Year 8 Budget Concerns
The master budget for year 8 of Competition Bikes, Inc. has all of the required schedules and data. The data is generally sound and there are but a few concerns with regards to its presentation and content.
Concerns -- Lack of Quarterly Activity Reporting
The merger committee's first concern is that all of the reported activity is not broken down by quarter. Since bicycling is usually practiced in the outdoors and is weather dependent, we can assume seasonal the usual seasonal trends with regard to competitions and events that revolve around professional cycling teams.
Without a separation of production (especially by product category, e.g., Carbonlite, etc.) activity by quarter, we cannot forecast and respond to peak and low seasons. For example, many materials are purchased without regard to seasonal activity. In other words, if the peak is summer, the company should be building up inventory in the spring while lowering inventory it in fall, optimizing storage and allowing its conversion to other uses when not in service. Higher inventory levels can than be avoided. Reserve inventory can then be to cover unexpected increases in sales and not to cover up budgeting anomalies.
2. It is our recommendation lease the facility. Total costs for leasing the facility would be $527,000.
Proposed Expansion Analysis
Optimal Capital Structure
1. Compute the optimal capital structure based on obtaining the required funds from bank loan at 6%. The bank will require a compensating balance of $150,000 (earning 1%) to be maintained.
2. Computesthe optimal capital structure based on obtaining the required funds by issuing only bonds.
3. The student computes the optimal capital structure based on obtaining the required funds by issuing 5-year, 9% bonds for 50% and preferred stock for 50%.
4. The student computes the optimal capital structure based on obtaining the required funds by issuing 5-year, 9% bonds for 20% and common stock for…
Competition Bikes, Inc. Should the company change to activity-based costing? Before deciding whether the company should change to activity-based costing (ABC), it is critical to understand what ABC is. ABC is a "special costing model that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs
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Competition Laws in Hong Kong Competition is a mainstay in business just as much as it is for any sports team. Businesses, in general, would probably rather that they have their industry all to themselves, but healthy competition drives the market. Without it there would be no need for innovation, and the one company could set the price of goods wherever they wanted to. Therefore, competition is good for a business
In this case, the average total cost will continue to decline as the scale of production increase, because fixed (or overhead) costs are being spread over higher and higher levels of output" (Natural monopoly, 2010, Tutor2U). According to economic theory, it is efficient to allow for a natural monopoly because competition would require too large of a diversion of available resources for a competitor. When natural monopolies exist, they
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