IncomeStatementsVERSION:March, 2013Please note that actual production costs may vary from standard production costs stated in the story line due to variancesCompetition Bikes, Inc.Comparative Income StatementsFor the Year Ended December 31, Years 6, 7, and 8Year 8Year 7Year 6REVENUE:Net Sales5,083,0005,980,0004,485,000Cost of Goods Sold3,711,6004,342,0003,294,000Gross Profit1,371,4001,638,0001,191,000OPERATING EXPENSESSelling ExpensesAdvertising27,42832,76023,820Website Creation and Maintenance6,0006,0006,000Sales Commissions152,490179,400134,550Distribution Network Support50,83059,80044,850Transportation Out ($30/unit contract)102,000120,00090,000Total Selling Expense338,748397,960299,220General and Admin ExpensesAdministrative Salaries170,000170,000140,000Executive Compensation220,000220,000170,000Employment taxes29,83529,83523,715Utilities150,000135,000130,000Payroll Service - non manufacturing33,00033,00032,000Research and Development82,28498,28071,460Depreciation Expense80,00080,00080,000Other General and Admin Expenses170,000158,000120,500Total General and Admin Expenses935,119924,115767,675Total Operating Expenses1,273,8671,322,0751,066,895OPERATING INCOME97,533315,925124,105Interest Income (Expense):Interest Income5,6005,8004,200Interest Expense(55,000)(60,000)(65,000)Interest, net(49,400)(54,200)(60,800)EARNINGS BEFORE INCOME TAXES48,133261,72563,305Provision for Income Taxes16,84791,60422,157NET EARNINGS31,286170,12141,148123BCDEFGH124125126127MSRP2990128Trade Disc.1495129FH130YRSales UnitsSelling Price131Titianium1328Carbon LiteD131 - CL34001,4951331347Carbon LiteD133 - CL40001,4951351366Carbon LiteD135 - CL30001,495137138139140140COGSYr 8Yr7Yr 6141141Yr 8 Materials2,220,200Variable142142Labor1,020,000Sales Comm000143143Overhead471,400Depreciation150,000150,000150,000144144Total3,711,600Other manu Ex321,400380,000285,000145145Yr 7 Materials2,612,000146146Labor1,200,000147147Overhead530,000148148Total4,342,000471,400530,000435,000149149Yr 6 Materials1,959,000150150Labor900,00095151151Overhead435,000152152Total3,294,000

BalanceSheetsegiCompetition Bikes, Inc.Balance SheetsDecember 31, Years 6, 7, and 8Year 8Year 7Year 6ASSETSCurrent Assets:Cash and Cash Equivalents414,03892,376261,000Short-Term Investments220,000220,000198,500Accounts Receivable, net609,960717,600271,503Raw Materials Inventory91,57388,808104,480Work In Process Inventory130,260130,26098,820Finished Goods Inventory000Other Current Assets110,000104,00095,000Total Current Assets1,575,8311,353,0441,029,303Property and Equipment, at cost:Land100,000100,000100,000Manufacturing Plants and Offices2,000,0002,000,0002,000,000Non-Manufacturing Assets800,000800,000800,000Furniture, Fixtures and Equipment500,000500,000500,0003,400,0003,400,0003,400,000Less Accumulated Depreciation(690,000)(460,000)(230,000)Net Property and Equipment2,710,0002,940,0003,170,000TOTAL ASSETS4,285,8314,293,0444,199,303LIABILITIESCurrent Liabilities:Accounts and Notes Payable261,200195,90067,080Accrued Salaries and Related Expense13,00012,80016,000Other Accrued Expenses26,00025,00022,000Total Current Liabilities300,200233,700105,080Long-Term Liabilities:Mortgage Payable1,600,0001,700,0001,800,000Other Long-Term Liabilities80,00085,00090,000Total Long-Term Liabilities1,680,0001,785,0001,890,000Total Liabilities1,980,2002,018,7001,995,080STOCKHOLDERS' EQUITY:Common Stock ($1.00 Par)1,000,0001,000,0001,000,000Paid In Capital225,000225,000225,000Retained Earnings1,180,6311,149,344979,223Treasury Stock, at $4/share cost (25,000 Sh)(100,000)(100,000)0Total Stockholders' Equity2,305,6312,274,3442,204,223TOTAL LIABILITIES and EQUITY4,285,8314,293,0444,199,303

Task_1_Horizontal_AnalysisCompetition Bikes, Inc.Comparative Income StatementsThe Horngren eText has been used for ratio calculations. Other sources might modify the ratio factors. Use Two Wheel Racing as a ratio reference.For the Year Ended December 31, Years 6, 7, and 8Horizontal AnalysisHorizontal AnalysisTwo WheelYear 8Year 7Year 6Years 7 and 8Years 6 and 7Competition Bikes, Inc.RacingREVENUE:Change% Inc (Dec)Change% Inc (Dec)Ratio Analysis:Year 8Year 7Year 8Net Sales5,083,0005,980,0004,485,000(897,000)-15.0%1,495,00033.3%Cost of Goods Sold3,711,6004,342,0003,294,000(630,400)-14.5%1,048,00031.8%Current Ratio5.255.794.20Gross Profit1,371,4001,638,0001,191,000(266,600)-16.3%447,00037.5%Acid-Test Ratio4.144.413.40OPERATING EXPENSESSelling ExpensesAverage Collection Period43.843.832.5Advertising27,42832,76023,820(5,332)-16.3%8,94037.5%Website Creation and Maintenance6,0006,0006,00000.0%00.0%Debt Ratio46.2%47.0%38.0%Sales Commissions152,490179,400134,550(26,910)-15.0%44,85033.3%Distribution Network Support50,83059,80044,850(8,970)-15.0%14,95033.3%Gross Profit Margin27.0%27.4%32.1%Transportation Out ($30/unit contract)102,000120,00090,000(18,000)-15.0%30,00033.3%Total Selling Expense338,748397,960299,220(59,212)-14.9%98,74033.0%Operating Profit Margin1.9%5.3%5.2%General and Admin ExpensesNet Profit Margin0.6%2.8%5.1%Administrative Salaries170,000170,000140,00000.0%30,00021.4%Executive Compensation220,000220,000170,00000.0%50,00029.4%Earnings per Share0.030.170.08Employment taxes29,83529,83523,71500.0%6,12025.8%Utilities150,000135,000130,00015,00011.1%5,0003.8%Return on Total Assets0.7%4.0%4.8%Payroll Services - Non Manufacturing33,00033,00032,00000.0%1,0003.1%Research and Development82,28498,28071,460(15,996)-16.3%26,82037.5%Return on Common Equity1.4%7.5%8.1%Depreciation Expense80,00080,00080,00000.0%00.0%Other General and Admin Expenses170,000158,000120,50012,0007.6%37,50031.1%Price / Earnings Ratio23.3329.4129.00Total General and Admin Expenses935,119924,115767,67511,0041.2%156,44020.4%Times Interest Earned1.775.274.24Total Operating Expenses1,273,8671,322,0751,066,895(48,208)-3.6%255,18023.9%OPERATING INCOME97,533315,925124,105(218,392)-69.1%191,820154.6%Interest Income (Expense):Interest Income5,6005,8004,200(200)-3.4%1,60038.1%Interest Expense(55,000)(60,000)(65,000)5,000-8.3%5,000-7.7%Interest, net(49,400)(54,200)(60,800)4,800-8.9%6,600-10.9%EARNINGS BEFORE INCOME TAXES48,133261,72563,305(213,592)-81.6%198,420313.4%Provision for Income Taxes16,84791,60422,157(74,757)-81.6%69,447313.4%NET EARNINGS31,286170,12141,148(138,835)-81.6%128,973313.4%Competition Bikes, Inc.Comparative Balance SheetsDecember 31, Years 8 and 7Year 8Year 7Year 6Horizontal AnalysisHorizontal AnalysisASSETSYears 7 and 8Years 6 and 7Current Assets:Change% Inc (Dec)Change% Inc (Dec)Cash and Cash Equivalents414,03892,376261,000321,661348.2%(168,624)-64.6%Short-Term Investments220,000220,000198,50000.0%21,50010.8%Accounts Receivable, net609,960717,600271,503(107,640)-15.0%446,097164.3%Raw Materials Inventory91,57388,808104,4802,7653.1%(15,672)-15.0%Work In Process Inventory130,260130,26098,82000.0%31,44031.8%Finished Goods Inventory00000.0%00.0%Other Current Assets110,000104,00095,0006,0005.8%9,0009.5%Total Current Assets1,575,8311,353,0441,029,303222,78616.5%323,74131.5%Property and Equipment, at cost:Land100,000100,000100,00000.0%00.0%Manufacturing Plants and Offices2,000,0002,000,0002,000,00000.0%00.0%Non-Manufacturing Assets800,000800,000800,00000.0%00.0%Furniture, Fixtures and Equipment500,000500,000500,00000.0%00.0%3,400,0003,400,0003,400,00000.0%00.0%Less Accumulated Depreciation(690,000)(460,000)(230,000)(230,000)50.0%(230,000)100.0%Net Property and Equipment2,710,0002,940,0003,170,000(230,000)-7.8%(230,000)-7.3%TOTAL ASSETS4,285,8314,293,0444,199,303(7,214)-0.2%93,7412.2%LIABILITIESCurrent Liabilities:Accounts and Notes Payable261,200195,90067,08065,30033.3%128,820192.0%Accrued Salaries and Related Expense13,00012,80016,0002001.6%(3,200)-20.0%Other Accrued Expenses26,00025,00022,0001,0004.0%3,00013.6%Total Current Liabilities300,200233,700105,08066,50028.5%128,620122.4%Long-Term Liabilities:Mortgage Payable1,600,0001,700,0001,800,000(100,000)-5.9%(100,000)-5.6%Other Long-Term Liabilities80,00085,00090,000(5,000)-5.9%(5,000)-5.6%Total Long-Term Liabilities1,680,0001,785,0001,890,000(105,000)-5.9%(105,000)-5.6%Total Liabilities1,980,2002,018,7001,995,080(38,500)-1.9%23,6201.2%STOCKHOLDERS' EQUITY:Common Stock ($1.00 Par)1,000,0001,000,0001,000,00000.0%00.0%Paid In Capital225,000225,000225,00000.0%00.0%Retained Earnings1,180,6311,149,344979,22331,2862.7%170,12117.4%Treasury Stock, at $4 cost (25,000 Sh)(100,000)(100,000)000.0%(100,000)N/ATotal Stockholders' Equity2,305,6312,274,3442,204,22331,2861.4%70,1213.2%TOTAL LIABILITIES and EQUITY4,285,8314,293,0444,199,303(7,214)-0.2%93,7412.2%

Task 1 Vertical AnalysisCompetition Bikes, Inc.Comparative Income Statements -Vertical AnalysisFor the Year Ended December 31, Years 6, 7, and 8Year 8Year 7Year 6REVENUE:Net Sales5,083,000100.0%5,980,000100.0%4,485,000100.0%Cost of Goods Sold3,711,60073.0%4,342,00072.6%3,294,00073.4%Gross Profit1,371,40027.0%1,638,00027.4%1,191,00026.6%OPERATING EXPENSESSelling ExpensesAdvertising27,4280.5%32,7600.5%23,8200.5%Website Creation and Maintenance6,0000.1%6,0000.1%6,0000.1%Sales Commissions152,4903.0%179,4003.0%134,5503.0%Distribution Network Support50,8301.0%59,8001.0%44,8501.0%Transportation Out102,0002.0%120,0002.0%90,0002.0%Total Selling Expense338,7486.7%397,9606.7%299,2206.7%General and Admin ExpensesAdministrative Salaries170,0003.3%170,0002.8%140,0003.1%Executive Compensation220,0004.3%220,0003.7%170,0003.8%Employment taxes29,8350.6%29,8350.5%23,7150.5%Utilities150,0003.0%135,0002.3%130,0002.9%Payroll Services - non manufacturing33,0000.6%33,0000.6%32,0000.7%Research and Development82,2841.6%98,2801.6%71,4601.6%Depreciation Expense80,0001.6%80,0001.3%80,0001.8%Other General and Admin Expenses170,0003.3%158,0002.6%120,5002.7%Total General and Admin Expenses935,11918.4%924,11515.5%767,67517.1%Total Operating Expenses1,273,86725.1%1,322,07522.1%1,066,89523.8%OPERATING INCOME97,5331.9%315,9255.3%124,1052.8%Interest Income (Expense):Interest Income5,6000.1%5,8000.1%4,2000.1%Interest Expense(55,000)-1.1%(60,000)-1.0%(65,000)-1.4%Interest, net(49,400)-1.0%(54,200)-0.9%(60,800)-1.4%EARNINGS BEFORE INCOME TAXES48,1330.9%261,7254.4%63,3051.4%Provision for Income Taxes16,8470.3%91,6041.5%22,1570.5%NET EARNINGS31,2860.6%170,1212.8%41,1480.9%Competition Bikes, Inc.Balance Sheets - Vertical AnalysisDecember 31, Years 6, 7, and 8Year 8Year 7Year 6ASSETSCurrent Assets:Cash and Cash Equivalents414,0389.7%92,3762.2%261,0006.2%Short-Term Investments220,0005.1%220,0005.1%198,5004.7%Accounts Receivable, net609,96014.2%717,60016.7%271,5036.5%Raw Materials Inventory91,5732.1%88,8082.1%104,4802.5%Work In Process Inventory130,2603.0%130,2603.0%98,8202.4%Finished Goods Inventory00.0%00.0%00.0%Other Current Assets110,0002.6%104,0002.4%95,0002.3%Total Current Assets1,575,83136.8%1,353,04431.5%1,029,30324.5%Property and Equipment, at cost:Land100,0002.3%100,0002.3%100,0002.4%Manufacturing Plants and Offices2,000,00046.7%2,000,00046.6%2,000,00047.6%Non-Manufacturing Assets800,00018.7%800,00018.6%800,00019.1%Furniture, Fixtures and Equipment500,00011.7%500,00011.6%500,00011.9%3,400,00079.3%3,400,00079.2%3,400,00081.0%Less Accumulated Depreciation(690,000)-16.1%(460,000)-10.7%(230,000)-5.5%Net Property and Equipment2,710,00063.2%2,940,00068.5%3,170,00075.5%TOTAL ASSETS4,285,831100.0%4,293,044100.0%4,199,303100.0%LIABILITIESCurrent Liabilities:Accounts and Notes Payable261,2006.1%195,9004.6%67,0801.6%Accrued Salaries and Related Expense13,0000.3%12,8000.3%16,0000.4%Other Accrued Expenses26,0000.6%25,0000.6%22,0000.5%Total Current Liabilities300,2007.0%233,7005.4%105,0802.5%Long-Term Liabilities:Mortgage Payable1,600,00037.3%1,700,00039.6%1,800,00042.9%Other Long-Term Liabilities80,0001.9%85,0002.0%90,0002.1%Total Long-Term Liabilities1,680,00039.2%1,785,00041.6%1,890,00045.0%Total Liabilities1,980,20046.2%2,018,70047.0%1,995,08047.5%STOCKHOLDERS' EQUITY:Common Stock ($1.00 Par)1,000,00023.3%1,000,00023.3%1,000,00023.8%Paid In Capital225,0005.2%225,0005.2%225,0005.4%Retained Earnings1,180,63127.5%1,149,34426.8%979,22323.3%Treasury Stock, at $4 cost (25000 Sh)(100,000)-2.3%(100,000)-2.3%00.0%Total Stockholders' Equity2,305,63153.8%2,274,34453.0%2,204,22352.5%TOTAL LIABILITIES and EQUITY4,285,831100.0%4,293,044100.0%4,199,303100.0%

Task 1 Trend AnalysisCompetition Bikes, Inc.Historical Trend AnalysisFor the Year Ended December 31, Years 6-8Year 8Year 7Year 6Net Sales5,083,0005,980,0004,485,000Trend Percentages113.3%133.3%100.0%Competition Bikes, Inc.Forecasted Trend Analysis with Year 8 as base yearFor the Year Ending December 31, Years 9, 10, & 11Year 11Year 10Year 9Year 8Net Sales5,681,0005,471,7005,247,4505,083,000Trend Percentages111.8%107.6%103.2%100.0%

Task 1 Internal ControlsInternal ControlsPurchasing SystemThe purchasing department will issue a purchase order to the supplier based on the monthly budget projections. Purchasing checks with three sources for similar quality materials and selects the low bidder from the three. The purchase order is sent to the supplier by the Purchasing Department on the first of the projected month. Upon receipt of the goods they will be brought to the production line for use during the month. Any unused parts are sent to the raw materials inventory stores on the last day of the month. Purchasing sends the suppliers invoice to accounting and accounting writes a check to pay the invoice. SARBANES - OXLEY (SOX) RequirementsBased on what you know about the company internal controls did management make the correctstatement to comply with Sarbanes-Oxley requirements?Management is responsible for ensuring the internal control processes prevent material misstatements from being reported in the financial statements. They also must provide a Report on Internal Control that is published in the annual report. The following excerpt from the Competition Bikes, Inc. year end report indicates no material weaknesses existed.The management of Competition Bikes, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Competition Bikes, Inc. internal control system was designed to provide reasonable assurance to the companys management and board of directors regarding the preparation and fair presentation of published financial statements.Competition Bikes, Inc. assessed the effectiveness of the companys internal control over financial reporting as of December 31, Year 8. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment we believe that, as of December 31, Year 8, the companys internal control over financial reporting is effective based on those criteria.

Task2_Budgets_and_ProFormasBudget Schedules and ProFormasThe standard production costs stated in the story line is used to prepare various budgetsUnits expected to be sold3510Competion Bikes, Inc.Sales BudgetFor the Year Ended December 31, Year 9Sales in units3,510Selling price1,495Revenue From Sales5,247,450Competion Bikes, Inc.Schedule of Cash ReceiptsAccounts receivable, beginning balance609,960Total budgeted revenue5,247,450Accounts receivable629,694Cash receipts from collections5,227,716Competion Bikes, Inc.Production BudgetFor the Year Ended December 31, Year 96970Expected units to be sold3,51071Plus desired ending inventoryMade to order72Less beginning inventoryMade to order73Total Units to Be Produced3,510747576Competion Bikes, Inc.77Raw Materials Budget--Components78For the Year Ended December 31, Year 97980Carbon Lite8182Expected bikes to be produced3,51083Plus target ending inventory14084Less beginning inventory(140)85Total component sets to be purchased3,51086Unit price27587Total Costs965,2508889Competion Bikes, Inc.90Raw Materials Budget--Frame Materials91For the Year Ended December 31, Year 99295Expected bikes to be produced3,51096Carbon Fiber Sheets/Unit4297Total materials for frame production147,42098Target ending Inventory5,89799Less beginning inventory-5,897100Total Carbon Fiber sheets to purchase147,420101Unit price9.00102Total Cost for Frame Materials1,326,780103104105Competion Bikes, Inc.106Schedule of Expected Cash Disbursements107108Accounts payable, beginning balance261,200109Total frame materials purchases1,326,780110Total cost of component sets965,250111Accounts payable, ending balance(229,203)112Cash disbursements for materials2,324,027113114Competion Bikes, Inc.115Direct Labor Budget116For the Year Ending December 31, Year 9117118Expected production3,510119Direct Labor hours per unit15120Total direct labor hours needed52,650121Cost per direct labor hour20122Total direct labor cost per model1,053,000123124125Competion Bikes, Inc.126Manufacturing Overhead Budget127For the Year Ending December 31, Year 9128129Unit Level Costs:130Quality Control122,850131Total Unit Level Costs122,850132133Batch Level Costs:134Factory Setups34,481135Material Handling41,294136Total Batch Level Costs75,775137138Product Level Costs:139Engineering Services77,426140Total Product Level Costs77,426141142Facility and General Operations Level Costs:143Utilities and Services55,747144Depreciation150,000145Total Facility and General Operations Level Costs205,747146147Total Overhead481,798148Less Depreciation150,000149Total Cash Disbursed for Overhead.331,798150151152Competion Bikes, Inc.153Selling, General, and Administrative Budget154For the Year Ending December 31, Year 9155156Unit Level Expenses:157Sales Commissions (variable)157,424158Total Unit Level Expenses157,424159160Customer Level Expenses:161Distribution Network Support (fixed)50,830162Transportation Out (variable)105,300163Total Customer Level Expenses156,130164165Facility and General Operations Level Expenses:Advertising (variable)28,412Website Creation and Maintenance6,000Administrative Salaries170,000Executive Compensation220,000Employment taxes29,835Utilities150,000Payroll Services33,000Research and Development85,237Depreciation Expense80,000Other General and Admin Expenses170,000Other Utilities and Services54,000Total Facility and General Operations Level Expenses1,026,483Total Overhead1,340,038181Less Depreciation80,000182Total Cash Disbursed for Overhead.1,260,038183184185Competion Bikes, Inc.186Cash Budget187For the Year Ending December 31, Year 9188189Receipts:190Cash Receipts5,227,716191Interest Income5,6001925,233,316193Disbursements194Raw Materials2,324,027195Direct Labor1,053,000196Manufacturing Overhead331,798197Selling and Admin Expenses1,260,038Mortgage Payable100,000Other Long-Term Liabilities5,000208Interest Expense Paid50,000209Total of Cash Disbursements5,123,862210211212Net Cash Increase (Decrease)109,455213Cash Balance at Beginning of Year414,038Cash Balance at Year end523,492Competition Bikes, Inc.Budgeted Schedule of Cost of Goods Manufactured and SoldFor the Year Ending December 31, Year 9Direct Materials223Raw Materials Inventory, January 191,573Add: Purchases of Raw Materials2,292,030Raw Materials Available for Use2,383,603Deduct: Raw Materials, December 3191,573Direct Materials Used2,292,030Direct Labor1,053,000Manufacturing Overhead:Quality Control122,850Factory Setups34,481Material Handling41,294Engineering Services77,426Utilities and Services55,747Depreciation150,000Total Overhead481,798Cost of Goods Manufactured3,826,828Add: Finished Goods Inventory, January 10Cost of Goods Available for Sale3,826,828Deduct: Finished Goods Inventory, December 310Cost of Goods Sold3,826,828Competion Bikes, Inc.Budgeted Income StatementFor the Year Ending December 31, Year 9Year 9REVENUE:Net Sales5,247,450Cost of Goods Sold3,826,828Gross Margin1,420,622OPERATING EXPENSESSelling, General, Administrative Expenses1,340,038OPERATING INCOME80,585Interest Income (Expense):Interest Income5,600Interest Expense50,000Interest, net(44,400)Earnings Before Income Taxes36,185Competition Bikes, Inc.Budgeted Balance SheetDecember 31, Year 9ASSETSCurrent Assets:Cash and Cash Equivalents523,492Short-Term Investments220,000Accounts Receivable, net629,694Raw Materials Inventory91,573Work In Process Inventory130,260Finished Goods Inventory0Other Current Assets110,000Total Current Assets1,705,019Property and Equipment, at cost:Land100,000Manufacturing Plants and Offices2,000,000Non-Manufacturing Assets800,000Furniture, Fixtures and Equipment500,0003,400,000Less Accumulated Depreciation(920,000)Net Property and Equipment2,480,000TOTAL ASSETS4,185,019LIABILITIESCurrent Liabilities:Accounts and Notes Payable229,203291Accrued Salaries and Related Expense13,000292Other Accrued Expenses26,000293Total Current Liabilities268,203294Long-Term Liabilities:295Mortgage Payable1,500,000296Other Long-Term Liabilities75,000297Total Long-Term Liabilities1,575,000298Total Liabilities1,843,203299300STOCKHOLDERS' EQUITY:301Common Stock ($1.00 Par)1,000,000302Paid In Capital225,000303Retained Earnings1,216,816304Treasury Stock, at cost (25,000 shares @ $4/share(100,000)305Total Stockholders' Equity2,341,816306TOTAL LIABILITIES and EQUITY4,185,019307308309310Competition Bikes, Inc.Budgeted Cash Flow StatementFor the Year Ending December 31, Year 9Cash Flows from Operating Activity:Cash receipts from customers5,227,716Interest Revenue5,600Cash Paid for raw materials(2,324,027)Cash Paid for Direct Labor(1,053,000)Cash Paid for Manufacturing Overhead(331,798)Cash Paid for Selling, General, Admin Expenses(1,260,038)Interest Expense(50,000)(5,018,863)Net Cash Flow from Operating Activities214,454Cash Flows from Investing Activity:Net Cash Flow from Investing Activities0Cash Flows from Financing Activity:Loan Repayments(5,000)Mortgage Principal(100,000)(105,000)Net Cash Flow from Financing ActivitiesNet Increase in Cash109,454Beginning of Year Cash Balance414,038End of Year Cash Balance523,492

Sheet1

Task_2_Budget_VariancesCompetition Bikes, Inc.FLEXIBLE BUDGET PERFORMANCE REPORTDecember 31, Year 9Spending* VariancePlanning BudgetActivity VarianceFlexible BudgetRevenue and Spending* VariancesActual OutputPrice VarianceEfficiency VarianceUnits3,510$ (87)3,423- 03,423REVENUE:Net Sales5,247,450$ (130,065)U5,117,385(20,538)U5,096,847Variable Costs:Direct Materials2,292,028$ (56,809)F2,235,219(200,000)F2,035,219(300,000)F100,000UDirect Labor1,053,000$ (26,100)F1,026,900100,000U1,126,900150,000U(50,000)FManufacturing Overhead - Variable331,798$ (8,224)F323,57426,426U350,00024,000U2,426UVariable Selling Expenses157,424$ (3,902)F153,5220153,522- 0- 0Advertising Expenses28,412$ (704)F27,7083,754U31,4625,000U(1,246)FTransportation Out105,300$ (2,610)F102,6905,607U108,2973,207U2,400UTotal Variable Costs:3,967,962$ (98,349)F3,869,612(64,212)F3,805,400(117,793)F53,580UContribution Margin1,279,489$ (31,716)U1,247,77343,674F1,291,447Fixed Manufacturing Expenses:Depreciation150,000$ -150,000- 0150,000Total Fixed Manufacturing Expenses150,000$ -150,000- 0150,000Fixed Selling Expenses:Website Creation and Maintenance6,000$ -6,000- 06,000Distribution Network Contracted Support50,830$ -50,830(370)F50,460Total Selling Expense56,830$ -56,830(370)F56,460Fixed General and Admin Expenses:Administrative Salaries170,000$ -170,0001,000U171,000Executive Compensation220,000$ -220,000(2,000)F218,000Employment taxes29,835$ -29,835(77)F29,758Utilities150,000$ -150,000(1,777)F148,223Payroll Services33,000$ -33,000- 033,000Research and Development85,238$ -85,238(2,397)F82,841Depreciation Expense80,000$ -80,000- 080,000Other General and Admin Expenses170,000$ -170,0002,000U172,000Other Utilities and Services54,000$ -54,000(500)F53,500Total General and Admin Expenses992,073$ -992,073(3,751)F988,322Total Operating Expenses1,198,903$ -1,198,903(4,121)F1,194,782OPERATING INCOME80,586$ (31,716)U48,87047,795F96,665

Task_3_Canadian_Sales_ForecastsTHIS STATEMENT IS PRESENTED IN ANNUAL REPORT SEQUENCE. SOME OF THE ANALYSISSHEETS THAT FOLLOW ARE IN YEAR TO YEAR ORDER. BE SURE TO SELECT CORRECT DATA.Competition Bikes, Inc. (Forecasted Canadian Operations)Comparative Pro Forma Income Statements - Low Sales ExpectationsDecember 31, Years 13 - 9Units574568562556550Year 13Year 12Year 11Year 10Year 9REVENUE:Net Sales858,130849,160840,190831,220822,250Cost of Goods Sold601,282594,996588,711582,426576,141Gross Profit256,848254,164251,479248,794246,109OPERATING EXPENSESSelling and Admin ExpensesAdvertising10,00020,00030,00040,00050,000Sales Commissions25,74425,47525,20624,93724,668Distribution Network Support8,5218,4928,4028,3128,222Transportation Out ($30/unit contract)17,22017,04016,86016,68016,500Factory Manager/Staff66,85363,66960,63857,75055,000Total Selling and Admin128,338134,676141,105147,679154,390Depreciation Expense20,00020,00020,00020,00020,000Earnings before Interest and Taxes108,51199,48890,37481,11571,720Cash Flows128,511119,488110,374101,11591,720Competition Bikes, Inc. (Forecasted Canadian Operations)Comparative Income Statements - Moderate Sales ExpectationsDecember 31, Years 13 - 9Units650620590570560Year 13Year 12Year 11Year 10Year 9REVENUE:Net Sales971,750926,900882,050852,150837,200Cost of Goods Sold680,894649,468618,042597,092586,616Gross Profit290,856277,432264,008255,058250,584OPERATING EXPENSESSelling and Admin ExpensesAdvertising10,00020,00030,00040,00050,000Sales Commissions29,15327,80726,46225,56525,116Distribution Network Support9,7189,2698,8218,5228,222Transportation Out ($30/unit contract)19,50018,60017,70017,10016,800Factory Manager/Staff66,85363,66960,63857,75055,000Total Selling and Admin135,224139,344143,621148,936155,138Depreciation Expense20,00020,00020,00020,00020,000Earnings before Interest and Tax135,632118,088100,38786,12275,446Cash Flows155,632138,088120,387106,12295,446123BCDEFGH124125126127MSRP2990128Trade Disc.1495129FH130YRSales UnitsSelling Price131Titianium1328Carbon LiteD131 - CL34001,4951331347Carbon LiteD133 - CL40001,4951351366Carbon LiteD135 - CL30001,495137138139140140COGSYr 8Yr7Yr 6141141Yr 8 Materials2,220,200Variable142142Labor1,020,000Sales Comm000143143Overhead471,400Depreciation150,000150,000150,000144144Total3,711,600Other manu Ex321,400321,400321,400145145Yr 7 Materials2,612,000146146Labor1,200,000147147Overhead471,400148148Total4,283,400471,400471,400471,400149149Yr 6 Materials1,959,000150150Labor900,000151151Overhead471,400152152Total3,330,400

Sheet2

Task 3 Capital StructureCapital Structure AnalysisEBIT figures from Canadian Budgeted EarningsModerateUse cell K6 to enter the EBIT from the Canadian Sales Forecast. Each year should be analyzed individually.Year 975,446Year 1086,122CHOOSING AN OPTIMAL CAPITAL STRUCTURE FOR THE MODERATE CANADIAN BUDGETED EARNINGSYear 11100,387Year 12118,088Year 13135,63250% Preferred20%40%60%Alternative Capital Sources(5%, $50 par) and12% Bonds and12% Bonds and12% Bonds and12% Bonds50% Common StockCommon StockCommon StockCommon StockBonds600,000120,000240,000360,000Preferred300,000Common300,000480,000360,000240,000Total600,000600,000600,000600,000600,000Earnings before Interest and Tax (EBIT)00000Interest on Bonds72,000014,40028,80043,200Income before tax (EBT)(72,000)0(14,400)(28,800)(43,200)Income Tax (35% marginal rate)(25,200)0(5,040)(10,080)(15,120)Net Income(46,800)0(9,360)(18,720)(28,080)Preferred Stock Dividends15,000Total Income Available for Common Stock(46,800)(15,000)(9,360)(18,720)(28,080)Common Stock Shares Outstanding975,0001,275,0001,455,0001,335,0001,215,000Earnings per Common Stock share-0.048-0.012-0.006-0.014-0.023

Task_3_Capital_BudgetingCompetition Bikes, Inc. Capital Budgeting for New Canadian Plant decisionProjected Income Statement for New Product - Low DemandYear 9Year 10Year 11Year 12Year 13Expected Annual Sales Increase from New Location822,250831,220840,190849,160858,130Expected Costs of New Product:Cost of Goods Sold (Direct materials & Labor, $94.529/unit O/H576,141582,426588,711594,996601,282Depreciation on new asset20,00020,00020,00020,00020,000Selling and administrative expenses154,390147,679141,105134,676128,338Income before taxes71,72081,11590,37499,488108,511Income tax at 35% marginal rate25,10228,39031,63134,82137,979Net income46,61852,72558,74364,66770,532Net cash flow (add back depreciation)66,61872,72578,74384,66790,532Projected Income Statement for New Product - Moderate DemandYear 9Year 10Year 11Year 12Year 13Expected Annual Sales Increase from New Location837,200852,150882,050926,900971,750Expected Costs of New Product:Cost of Goods Sold (Direct materials & Labor, $94.529/unit O/H586,616597,092618,042649,468680,894Depreciation on new asset20,00020,00020,00020,00020,000Selling and administrative expenses155,138148,936143,621139,344135,224Income before taxes75,44686,122100,387118,088135,632Income tax at 35% marginal rate26,40630,14335,13641,33147,471Net income49,04055,98065,25276,75788,161Net cash flow (add back depreciation)69,04075,98085,25296,757108,161Net Present Value - Low Demand:10%PresentCash FlowsPV FactorsValueYear 966,6180.90960,555Year 1072,7250.82660,071Year 1178,7430.75159,136Year 1284,6670.68357,828Year 1390,5320.62156,220Working Capital Return200,0000.621124,200Salvage Return250,0000.621155,250Total Present Value573,260Investment600,000Net Present Value(26,740)Net Present Value - Moderate Demand:10%PresentCash FlowsPV FactorsValueYear 969,0400.90962,757Year 1075,9800.82662,759Year 1185,2520.75164,024Year 1296,7570.68366,085Year 13108,1610.62167,168Working Capital Return200,0000.621124,200Salvage Return250,0000.621155,250Total Present Value602,243Investment600,000Net Present Value2,243Internal Rate of Return:Low DemandModerate DemandCash FlowsCash FlowsInvestment(600,000)(600,000)Year 166,61869,040Year 272,72575,980Year 378,74385,252Year 484,66796,757Year 5540,532558,161Internal Rate of Return8.7%10.1%

Task 3 Lease vs. BuyCompetition Bikes, Inc. Lease vs. Buy DecisionThe $200,000 in working capital and $50,000 down payment would have to be internally funded.Assumes a 6% PV factor for the Lease vs. Buy DecisionInterest and Principal CalculationsPaymentsLoanBeg., YearEnd YearEnd of YearPaymentsPrincipalInterestPrincipalPrincipal983089350,00021,00062,089287,9111083089287,91117,27565,814222,0971183089222,09713,32669,763152,3331283089152,3339,14073,94978,384138308978,3844,70378,386-1After tax Cash Flow if PurchasedLoanOperationalTotalTaxAfter TaxEnd of YearPaymentsCostsDepreciation*InterestDeductionsShieldsCash Flows983,08918,00020,00021,00059,00020,65080,4391083,08918,00020,00017,27555,27519,34681,7431183,08918,00020,00013,32651,32617,96483,1251283,08918,00020,0009,14047,14016,49984,5901383,08918,00020,0004,70342,70314,94686,143*Assumes useful life of 5 years and salvage value of $300,000Lease vs. Purchase Comparison of Cash FlowsLeasingPurchasingAfter TaxPresent ValuePresent ValueAfter TaxPresent ValuePresent ValueEnd of YearCash FlowsFactorsof OutflowsCash FlowsFactorsof OutflowsYear 8Down Payment50,000958,5000.94355,16680,4390.94375,8541058,5000.89052,06581,7430.89072,7511158,5000.84049,14083,1250.84069,8251258,5000.79246,33284,5900.79266,9951358,5000.74743,70086,1430.74764,349Cash buyout50,0000.74737,350283,752399,774

Sheet3

Task 3 Merger_ AcquisitionAssessing Expansion by Merger or AcquisitionCONSIDER A MERGERFinancial Data for Competition Bikes and Canadian BikingCompetition BikesCanadian BikingYr 8 Earnings Available for Common Stock31,28624,200# of shares of common stock outstanding975,000200,000Earnings per share0.0320.121Market price per share$0.70$1.10Price/Earnings ratio229Earnings per ShareBefore MergerAfter MergerCompetition Bikes0.0320.053Canadian Biking0.121CONSIDER AN ACQUISITIONCanadian Biking Earnings ProjectionsYear 9Year 10Year 11Year 12Year 13After tax earnings per year*30,00033,00036,30039,93043,923Cash Flows50,00053,00056,30059,93063,923Canadian Biking has been increasing sales over the last couple of years.This growth is expected to continue at about 10% per year.* Includes $20,000 in depreciationNet Present Value of Canadian BikingPresent ValuePresentYearsCash Inflowsfactor (10%)Value950,0000.90945,4501053,0000.82643,7781156,3000.75142,2811259,9300.68340,932Offer/share:1.431363,9230.62139,696Total283,153212,138Offer Price:286,000

The numbers below are from the current financial statements of Canadian Biking (converted to U.S. dollar amounts). This is the pre-merger Canadian income.These projections are the expected performance for Canadian Biking based on historical trends and the expected demand.Competition Bikes has offered $1.43 per outstanding share.

Sheet4

Task 4 Cost-Volume-ProfitCost-Volume-ProfitSan Diego Plant Sales Mix (Titanium,9 units; Carbonlite, 5 units)Note: Sales Mix is not the number of units to be produced at the San Diego PlantTitaniumCarbonliteTotalSales price per unit9001,495Variable Cost per Unit6791,384Contribution Margin per Unit221111Sales mix in units9514Sales mix times CM per unit1,9895552,544Weighted average contribution margin per unit181.71Fixed Cost400,000Determine the Competition Bikes' breakeven point based on the San Diego plants costs and the fixed costs given in the case.Breakeven units for the product sales mix:2201The breakeven point in units for each model.Titanium1415Carbonlite786The breakeven point in sales dollars for each model.UnitsRevenue/unitTotalTitanium14159001,273,500Carbonlite78614951,175,0702,448,570San Diego Sales Mix (Titanium, 9 units; Carbonlite, 5 units)$50,000 increase in fixed costs and 10% direct materials increaseTitaniumCarbonliteTotalSales price per unit9001,495Variable Cost per Unit7091,451Contribution Margin per Unit19144Sales mix in units9514Sales mix times CM per unit1,7192201,939Weighted average contribution margin/unit138.50Fixed Cost (after increase)450,000Determine the breakeven point for Competition Bikes with increases:Breakeven units for the product sales mix:3249The breakeven point in units for each model with increases.Titanium2089Carbonlite1160The breakeven point in sales dollars for each model with increases.Titanium20899001,880,100Carbonlite116014951,734,2003,614,300

Task 4 Activity Based CostingOverhead Analysis - Traditional vs. ABCSix overhead items with identified costsFor purposes of this analysisTitanium Units900Carbonlite Units500ItemActivity Cost PoolCost DriverCost Driver QuantityPool RateProduct LineCost Driver Quantity for Product LineActivity Cost for Product LineProduct Line Production VolumeActivity Cost per Unit of ProductFactory33,400Setups54561.284Titanium452,757.809003.06SetupsCarbonlite50030,642.2050061.28Quality119,000QC Inspections509233.792Titanium92,104.139002.34ControlCarbonlite500116,895.87500233.79Engineering75,000Engineering126250.00Titanium212,500.0090013.89ServiceCarbonlite1062,500.00500125.00Product40,000Forklift Service3,80010.526Titanium1,80018,947.3790021.05MovementsCarbonlite2,00021,052.6350042.11Utilites54,000Factory use by prod1,40038.571Titanium90034,714.2990038.57Carbonlite50019,285.7150038.57Depreciation150,000Factory use by prod2,30065.217Titanium1,800117,391.30900130.43Carbonlite50032,608.7050065.22471,400Summary:TitaniumCarbonliteTraditionalABCTraditionalABCDirect Material (DM)272,700272,700335,000335,000Direct Labor (DL)129,600129,600112,000112,000Total direct cost for materials and labor402,300402,300447,000447,000Manufacturing Overhead (ABC)Traditional239,020232,380471,400Factory Setups2,75830,642Quality Control2,104116,896Engineering Services12,50062,500Product Movements18,94721,053Utiliities and Services34,71419,286Depreciation117,39132,609Total ABC Overhead CostABC188,415282,985471,400Total Product cost641,320590,715679,380729,985Unit Cost Comparisons:TitaniumUnit Cost - Traditional713Unit Cost SummaryUnit Cost - Activity Based656Titanium XL900CarbonLite500Carbon LiteDM-Titanium303Unit Cost - Traditional1,359-Carbonlite670Unit Cost - Activity Based1,460DL -Titanium144-Carbonlite224