ACP1 Cases in Advanced Accounting MBA – Legacy Program
JET2 Task 2
Financial Analysis
MBA Program
Getting Started
12/29/2011
What is JET2 Task 2?
Task 2 consists of four questions focusing on:
Budget Concerns
Flexible Budget
Management by Exception
Expected length of submission could range from 3 to 5 pages. There is no set length.
Using this information
Disclaimer: The information in this Getting Started document is the opinion of the Course Mentor.
It is not intended to restrict or inhibit your own thoughts and experiences in complying with the Ru
ic Questions.
It is merely one way out of many to organize your responses.
Learning Resources
My Labs Plus– Horngren: Accounting 8e
My Finance Lab – Gitman: Principals of Managerial Finance 12th ed.
CourseSmart (embedded text) Hilton: Managerial Accounting 9th ed.
Additional Learning Resources
Skillsoft Books 24x7
Introduction to Accounting: Language of Business (video lectures)
Activities at a Glance
Financial Accounting Standards Board Database
Additional Resources
Help Documents posted in the Financial Analysis Learning Community
Study Sessions:
Study Sessions for JET2 (Tasks 1-4 only) are every Tuesday night from 6pm to 8pm Mountain Time.
The meeting website: http:
wgu.connectpro.acrobat.com/gradacctg
Conference telephone information:
Number: XXXXXXXXXX
Passcode: 551362
Requirements for JET2 Task 2
Three level task: 0 - Unsatisfactory to 2 - Satisfactory. Must score 2 in all elements to pass the task.
All four ru
ic elements must be completed and submitted to TaskStream in order to pass Task 2.
The response requires a paper including any outside references and a copy of the workbook you are using.
Study Guidelines
It might be a good idea to attempt the first four tasks in numerical order.
In order to complete the tasks, you must read and become familiar with the concepts and terms within the Course of Study and the Story Line for Competition Bikes.
Read the materials with the intent on knowing the ‘why’ about the analysis as well as the ‘how’ to use the topic information.
Review all of the tabs for the Competition Bikes spreadsheet to familiarize yourself with the data.
Study for Task 2
You should have gone through the Course of Study materials for Task 1 – Task 4.
Refresh or acquire basic budgeting knowledge before you approach Task 2.
Make sure you address the ‘why’ part of the topics. The key thing to remember is that you are conducting an analysis of Competition Bikes financial and management activities, not merely presenting the data on the spreadsheets.
Budget Concerns
Question A1
A1 - Budget Concerns: Use the Budgets/ProForma tab.
You can follow a format similar to this as you evaluate the various items on the budget schedules
Identify line item
Brief description of what it is
What CB budgeted
Why you think it is too high or too low (a concern)
This is an opportunity to be picky about the numbers you observe
You can use financial statement information on other tabs (i.e. Horizontal and Vertical Analysis) to provide comparisons.
Always include the specific data in your answers
Flexible Budget
Question A2, A2a
A2 - Define Flexible Budget
Relay why variances are favorable or unfavorable in the context of sales and expense. (use Flexible Budget tab)
How does the Flexible Budget show that CB reacted to changes in sales volume?
Make sure you include the data from the tab.
A2a – What kind of co
ective actions could you make to mitigate (improve) on the variances that could stand improvement?
Management by Exception
Question A2
A2b – What is Management by Exception (MBE)?
(the definition is not on the tabs)
How can a CB manager use it in analyzing the Flexible Budget?
Demonstrate what line items a CB manager would select in using MBE as a management tool?
Submission Tips
For your discussions, make your point/decision obvious and back it up with detail found in the spreadsheets. Insufficient data and insufficient analysis will result in a rejection.
Remember to always apply analysis. Don’t just put in the numbers, but explain why they are different and if you can put them in a context with other numbers do so. A lack of analysis will result in that element not passing.
Make sure you organize your work according to the ru
ic questions, so that the grader can easily identify your specific answers.
Don’t overthink your answers, but base them on the information given. If in doubt on details, refer back to the story line or the spreadsheet.
If you aren’t confident about your work, don’t add words to cover yourself. Extraneous words will only make the graders have a harder time to find your answers or conclude that you aren’t quite getting your answers right. More clear answers will yield more clear feedback from the graders.
Course Mentoring Guidelines
Performance Assessments are not homework assignments and you should not work with other students on the specific wording of your submissions.
What the Course Mentor can do:
Help interpret ru
ic questions
Assist with content
Clarify on grader comments
Help frame task revisions
Provide additional resources, as needed
Course Mentors are not graders, so we do not know if your task will meet the graders standards or not. All we can do is make suggestions. Following our advice does not guarantee a passing score.
Contact Information
Course Mentor for JET2
Ken Cassell
XXXXXXXXXXExt 5661
XXXXXXXXXX
IncomeStatements
VERSION: April 12, 2011
Competition Bikes, Inc.
Comparative Income Statements
December 31, Years 6, 7, and 8
Year 8 Year 7 Year 6
REVENUE:
Net Sales 5,083,000 5,980,000 4,485,000
Cost of Goods Sold 3,711,600 4,342,000 3,294,000
Gross Profit 1,371,400 1,638,000 1,191,000
OPERATING EXPENSES
Selling Expenses
Advertising (60% variable) 27,428 32,760 23,820
Website Creation and Maintenance 6,000 6,000 6,000
Sales Commissions 152,490 179,400 134,550
Distribution Network Support 50,830 59,800 44,850
Transportation Out ($30/unit contract) 102,000 120,000 90,000
Total Selling Expense 338,748 397,960 299,220
General and Admin Expenses
Administrative Salaries 170,000 170,000 140,000
Executive Compensation 220,000 220,000 170,000
Employment taxes 29,835 29,835 23,715
Utilities & Services 150,000 135,000 130,000
Payroll Service - non manufacturing 33,000 33,000 32,000
Research and Development 82,284 98,280 71,460
Depreciation Expense 80,000 80,000 80,000
Other General and Admin Expenses 170,000 158,000 120,500
Total General and Admin Expenses 935,119 924,115 767,675
Total Operating Expenses 1,273,867 1,322,075 1,066,895
OPERATING INCOME 97,533 315,925 124,105
Interest Income (Expense):
Interest Income 5,600 5,800 4,200
Interest Expense -55,000 -60,000 -65,000
Interest, net -49,400 -54,200 -60,800
EARNINGS BEFORE INCOME TAXES 48,133 261,725 63,305
Provision for Income Taxes 12,033 65,431 15,826
NET EARNINGS 36,100 196,294 47,479
123 B C D E F G H
124
125
126
127 MSRP 2990
128 Trade Disc. 1495
129 F H
130 YR Sales Units Selling Price
131 Titianium
132 8 Ca
on Lite D131 - CL 3400 1,495
133
134 7 Ca
on Lite D133 - CL 4000 1,495
135
136 6 Ca
on Lite D135 - CL 3000 1,495
137
138
139
140 140 COGS Yr 8 Yr7 Yr 6
141 141 Yr 8 Materials 2,220,200 Variable
142 142 Labor 1,020,000 Sales Comm 0 0 0
143 143 Overhead 471,400 Depreciation 150,000 150,000 150,000
144 144 Total 3,711,600 Other manu Ex 321,400 380,000 285,000
145 145 Yr 7 Materials 2,612,000
146 146 Labor 1,200,000
147 147 Overhead 530,000
148 148 Total 4,342,000 471,400 530,000 435,000
149 149 Yr 6 Materials 1,959,000
150 150 Labor 900,000 95
151 151 Overhead 435,000
152 152 Total 3,294,000
BalanceSheets
e g i
Competition Bikes, Inc.
Balance Sheets
December 31, Years 6, 7, and 8
Year 8 Year 7 Year 6
ASSETS
Cu
ent Assets:
Cash and Cash Equivalents 445,024 118,549 261,000
Short-Term Investments 220,000 220,000 198,500
Accounts Receivable, net 609,960 717,600 271,503
Raw Materials Inventory 91,573 88,808 104,480
Work In Process Inventory 130,260 130,260 98,820
Finished Goods Inventory 0 0 0
Other Cu
ent Assets 110,000 104,000 95,000
Total Cu
ent Assets 1,606,817 1,379,217 1,029,303
Property and Equipment, at cost:
Land 100,000 100,000 100,000
Manufacturing Plants 2,000,000 2,000,000 2,000,000
Non-Manufacturing Assets 800,000 800,000 800,000
Furniture, Fixtures and Equipment 500,000 500,000 500,000
3,400,000 3,400,000 3,400,000
Less Accumulated Depreciation (690,000) (460,000) (230,000)
Net Property and Equipment 2,710,000 2,940,000 3,170,000
TOTAL ASSETS 4,316,817 4,319,217 4,199,303
LIABILITIES
Cu
ent Liabilities:
Accounts and Notes Payable 261,200 195,900 67,080
Accrued Salaries and Related Expense 13,000 12,800 16,000
Other Accrued Expenses 26,000 25,000 22,000
Total Cu
ent Liabilities 300,200 233,700 105,080
Long-Term Liabilities:
Mortgage Payable 1,600,000 1,700,000 1,800,000
Other Long-Term Liabilities 80,000 85,000 90,000
Total Long-Term Liabilities 1,680,000 1,785,000 1,890,000
Total Liabilities 1,980,200 2,018,700 1,995,080
STOCKHOLDERS' EQUITY:
Common Stock ($1.00 Par) 1,000,000 1,000,000 1,000,000
Paid In Capital 225,000 225,000 225,000
Retained Earnings 1,211,617 1,175,517 979,223
Treasury Stock, at $4/share cost (25,000 Sh) (100,000) (100,000) 0
Total Stockholders' Equity 2,336,617 2,300,517 2,204,223
TOTAL LIABILITIES and EQUITY 4,316,817 4,319,217 4,199,303
Task_1_Horizontal_Analysis
Competition Bikes, Inc.
Comparative Income Statements Ratios: The Horngren eText has been used for ratio calculations. Other sources might modify the ratio factors.
December 31, Years 6, 7, and 8
Horizontal Analysis Horizontal Analysis Two Wheel
Year 8 Year 7 Year 6 Years 7 and 8 Years 6 and 7 Competition Bikes, Inc. Racing
REVENUE: Change % Inc (Dec) Change % Inc (Dec) Ratio Analysis: Year 8 Year 7 Year 8
Net Sales 5,083,000 5,980,000 4,485,000 (897,000) -15.0% 1495000 33.3% Ratio:
Cost of Goods Sold 3,711,600 4,342,000 3,294,000 (630,400) -14.5% 1048000 31.8%
Gross Profit 1,371,400 1,638,000 1,191,000 (266,600) -16.3% 447000 37.5% Cu
ent Ratio 5.35 5.90 4.2
OPERATING EXPENSES Acid-Test Ratio 4.25 4.52 3.4
Selling Expenses
Advertising 27,428 32,760 23,820 (5,332) -16.3% 8940 37.5% Inventory Turnover N/A N/A 3.4
Website Creation and Maintenance 6,000 6,000 6,000 0 0.0% 0 0.0% No FGI. Shipped when made
Sales Commissions 152,490 179,400 134,550 (26,910) -15.0% 44850 33.3%
Distribution Network Support 50,830 59,800 44,850 (8,970) -15.0% 14950 33.3% Average Collection Period 43.8 43.8 32.5
Transportation Out 102,000 120,000 90,000 (18,000) -15.0% 30000 33.3%
Total Selling Expense 338,748 397,960 299,220 (59,212) -14.9% 98740 33.0% Debt Ratio 45.9% 46.7% 38%
General and Admin Expenses Gross Profit Margin 27.0% 27.4% 32.10%
Administrative Salaries 170,000 170,000 140,000 0 0.0% 30000 21.4%
Executive Compensation 220,000 220,000 170,000 0 0.0% 50000 29.4% Operating Profit Margin 1.9% 5.3% 5.20%
Employment taxes 29,835 29,835 23,715 0 0.0% 6120 25.8%
Utilities 150,000 135,000 130,000 15,000 11.1% 5000 3.8% Net Profit Margin 0.7% 3.3% 5.14%
Payroll Services - Non Manufacturing 33,000 33,000 32,000 0 0.0% 1000 3.1%
Research and Development 82,284 98,280 71,460 (15,996) -16.3% 26820 37.5% Earnings per Share 0.04 0.20 0.08
Depreciation Expense 80,000 80,000 80,000 0 0.0% 0 0.0%
Other General and Admin Expenses 170,000 158,000 120,500 12,000 7.6% 37500 31.1% Return on Total Assets 0.8% 4.5% 4.80%
Total General and Admin Expenses 935,119 924,115 767,675 11,004 1.2% 156440 20.4%
Return on Common Equity 1.5% 8.5% 8.10%
Total Operating Expenses 1,273,867 1,322,075 1,066,895 (48,208) -3.6% 255180 23.9%
OPERATING INCOME 97,533 315,925 124,105 (218,392) -69.1% 191820 154.6% Price / Earnings Ratio 83.73 49.67 29
Interest Income (Expense): Times Interest Earned 1.77 5.27 4.24
Interest Income 5,600 5,800 4,200 (200) -3.4% 1600 38.1%
Interest Expense -55,000 -60,000 -65,000 5,000 -8.3% 5000 -7.7%
Interest, net -49,400 -54,200 -60,800 4,800 -8.9% 6600 -10.9%
EARNINGS BEFORE INCOME TAXES 48,133 261,725 63,305 (213,592) -81.6% 198420 313.4%
Provision for Income Taxes 12,033 65,431 15,826 (53,398) -81.6% 49605 313.4%
NET EARNINGS 36,100 196,294 47,479 (160,194) -81.6% 148815 313.4%
Competition Bikes, Inc.
Comparative Balance Sheets
December 31, Years 8 and 7
Year 8 Year 7 Year 6 Horizontal Analysis Horizontal Analysis
ASSETS Years 7 and 8 Years 6 and 7
Cu
ent Assets: Change % Inc (Dec) Change % Inc (Dec)
Cash and Cash Equivalents 445,024 118,549 261,000 326,475 275.4% (142,451) -54.6%
Short-Term Investments 220,000 220,000 198,500 0 0.0% 21,500 10.8%
Accounts Receivable, net 609,960 717,600 271,503 (107,640) -15.0% 446,097 164.3%
Raw Materials Inventory 91,573 88,808 104,480 2,765 3.1% (15,672) -15.0%
Work In Process Inventory 130,260 130,260 98,820 0 0.0% 31,440 31.8%
Finished Goods Inventory 0 0 0 0 -- 0 --
Other Cu
ent Assets 110,000 104,000 95,000 6,000 5.8% 9,000 9.5%
Total Cu
ent Assets 1