Problem:
Set up the flexible budget at three levels for the income statement. Companies prepare budgets based on absorption and/or variable costing. Due to lack of information, we're limiting our budgeting to the absorption approach. You still need to estimate cost behavior based on trends for Sirius XM
www.siriusxm.com
Information to consider in determining the three levels.
What is the growth rate in sales for the past three years?
What is the current growth rate in the economy?
How are the competitiors doing?
Current interest rates and tax burdens.
You are encouraged to use Excel or other compatible spreadsheet when computations are involved.
Income statements at three levels, flexible budgeting mean to estimate the likely scenario, the low end, and the high end. How fast did revenues grow in the past? Can the same be expected for the future? Why or why not? Did costs grow at the same rate as revenues in past years? Once you have the middle income statement, make assumptions as to worst and best case scenarios. Five, ten percent up or down?