REC, Inc. and seatle coffee products - Essay Example

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felt short of the company’s expectation and budgeted financials. Moreover, the analysis includes determination of the breakeven level for the business both in dollars and equivalent…
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REC, Inc. and seatle coffee products
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Download file to see previous pages On the basis of the previous results the company prepares projected income statement for the next accounting period in order to estimate the likely outcome of its operations and sales. This also helps the company to determine variances observed in the actual financial results of the company. The company’s expectations from its business for the complete year 2004 are given as budgeted income statement in Exhibit 2 which indicate that the company expects a monthly average profit of $60,000 (Profit Before Taxes: $720,000/12). These projections are based on the expected number of sales of equivalent units for the year 2004 i.e. the company estimated sale of 10,000 equivalent units which implies an average monthly sale of 830 or 840 units.
Based on the comparison between the actual financial results of REC, Inc. and its budgeted income statement it could be ascertained that the company’s profit results for the month January 2004 have felt short by $78,000. This has been against the expectation of the company’s management as the business followed the trend that it has experienced in the last few years related to the market conditions and business cycle. The variation in the actual financial results from the budgeted income statement can be evaluated by examining every element of the actual income statement and comparing it to the budgeted figures for these elements.
One of the limitations of the above presented budgeted financials on a monthly basis is that it does not take into account the changes in the business cycle and market conditions which may occur during the financial period. For example, sales of the business could be affected due to the seasonal downturn in a particular month. Therefore, better analysis would have been possible if the company was preparing budgeted income statement on a monthly basis.
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