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 compared to conventional costing models" (The Economist, 2009). The real benefit to ABC costing for Competition Bikes, Inc., is that it would permit the company to see what part of the overhead expenses were being used for the Titanium Xl and the CarbonLite modes. Each Titanium XL uses $136 in direct labor and $240 in manufacturing overhead. Each CarbonLite uses $294 in direct labor and $420 in manufacturing overhead. However, the models have significantly different selling prices. Therefore, just knowing that the second model uses a greater proportion of the overhead expenses is not sufficient to know whether or not its production is an efficient use of company resources. Using ABC to assign the costs helps determine the real manufacturing costs of each item.
ABC is particularly applicable in a situation like that at Competition Bike, where the two products have dramatically different engineering and labor needs. Currently, machine hours and labor hours are how Competition Bikes looks at overhead costs. However, that might not reflect the true overhead costs. Engineering, testing, and setup activities can all impact a business' true overhead costs (Accounting Coach, 2011). Assuming that all products have a proportional share of the overhead costs can result...
Competition Bikes, Inc. is a company that manufactures and sells high-end 2-wheel bicycles for sporting enthusiasts, racers, and professional bikers. This is a highly competitive industry and is likely price elastic because it is more of a luxury good -- not a necessity with a limited but global market. Key data for our analysis is based on the Income Statements and Balance Sheets for Years 6, 7, and 8. Our
Competition Bikes Inc.'s financial status requires evaluating its internal operations reflecting the horizontal, vertical, ratio, and trend analysis, as well as its working capital. These reviews provide profit margins allowing for projecting any necessary budget restraints in overhead costs and sales potential. Yearly production performance comparisons, based on overhead vs. profit, enable a budget projection for ordering production materials on a month-to-month basis. (Shim, J. And Siegel, J. 2009). Horizontal
Internal Control The purchase orders are not always considered by Competition Bikes Inc. In the company's purchase system, control authorization and record retention are not frequently addressed. Generally speaking, purchase orders are appropriate for merchandise purposes. On the contrary, the Competition Bikes Inc. pays for unordered goods or excessive quantity without referring to company financial policy. Competition Bikes Inc. does not consider all pertinent information concerning formal commitments during the transaction. Obviously,
37). This approach is highly congruent with the guidance of marketing experts such as Wheaton (2004) who advises, "There are synergies between different lifestyle sports industries and their media. Corporations make equipment for several lifestyle sports, sometimes under different brand names. Clothing companies like Quiksilver sell to a range of lifestyle sport markets including skating, surfing, windsurfing, snowboarding and have been quick to exploit the potential of emergent and rapidly
External Analysis Motorcycle Industry External Analysis of the Motorcycle Industry Harley Davidson Harley Davidson, the heavy-bike manufacturer holds the purpose of fulfilling dreams of personal freedom (Purpose: Harley Davidson, 2013). The company functions in segments of Motorcycles & Related Products and the Financial Services. It is however globally known for heavy bikes that have engine displacement of 651+cc (Harley-Davidson Inc. 2013). The company enjoys a unique position in the market yet it is
ZAP and the Electric Vehicle Industry Executive Report This report will be discussing several relevant aspects related to ZAP and to the electric vehicles industry. After a brief introduction, I will proceed to discuss in detail an analysis on the current situation at ZAP and in the industry. I will be including here a SWOT analysis, a competition analysis based on Porter's five forces model and an extensive analysis of the external environment,
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