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    Absorption Costing: Flexible Budget for Signet Jewelers

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    Prepare a flexible budget for next year for Signet Jewelers using three different growth rates (assume absorption costing).
    Explain how you determined the three growth rates to use (the low, the average, the high).
    Explain how you adjusted all other line items in the income statement to reflect the revised sales assumptions.

    To support your work, please also indicate:
    1. The sales growth rate over 2011-2013 (last three years).
    2. Compare growth rate to the overall economy and competitors/industry.
    3. How is Signet doing compared to peers?
    4. Current interest rates and tax burdens.

    Discuss how the flexible budget would impact your view of next year (the implications of the information you computed).
    How does a flexible budget differ from a static budget?
    Discuss how you can use a flexible budget for planning and control.
    Comment on using a flexible budget for performance evaluations.

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    Solution Preview

    SIGNET (see attached Excel for financial data and support)

    What is the growth rate in sales for the past three years?

    The growth rate in sales is 16% or about 5% a year. (see Excel)

    Are revenues and expenses growing at the same rate? What was the experience in the past few years?

    Overall expenses have grown close to the same rate as sales, with inventory growing a bit slower and taxes growing faster (see Excel). SG&A grew about the same as sales.

    What is the current growth rate in the economy?

    The economy is growing very slowly, about 2%.

    How are the competitors doing?

    Zales is growing about the same rate as Signet. Yahoo! Shows that the industry growth is zero (flat sales) so Signet is doing better than the jewelry industry overall.

    Current ...

    Solution Summary

    Your guidance includes competitor information from Yahoo! Finance, income statement of Signet for 2011-2013 and a flexible budget using reasonable assumptions that are explained. You commentary is 404 words and explains briefly the requested discussion on flexible budgets, performance evaluation, planning and control.