McDonald's Corporation Break-Even Analysis and Planning
Prepare a realistic flexible budget for next year for the McDonald's Corporation using economic and company trends. Use three different growth rates (low, average and high) for sales and adjust the expenses based on whether you assume that they vary with the sales activity or not.
You may wish to consider these questions in reaching your assumptions:
How did sales trend over the past three years? Expenses?
How did this trend compare to the general economy? Competitors?
Consider current interest rates and taxes.
After you have created the flexible budget, discussion what you have learned about the firm.
Also, respond to these:
Contrast the flexible budget from a static budget.
How can you use the flexible budget prepared for planning and control.
Would you use a flexible budget for performance evaluations? Explain.
What is the growth rate in sales for the past three years?
The growth rate in sales is 15% 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 food growing a bit faster and franchise costs growing a bit slower (see Excel).
What is the current growth rate in the economy?
The economy is growing very slowly, about 2%.
How are the competitors doing?
Both Burger King and YUM Brands are trending down in sales. The fast food industry has sales as flat (no change). So, McDonalds is doing well.
Current interest rates and tax burdens.
Interest rates are low and stable and tax rates are not expected to change dramatically. I used ...
Your tutorial includes a brief paragraph for each question and a spreadsheet with a three year trend for revenues and expenses and then a flexible budget at three levels of assumed sales growth. Expenses are sorted into fixed and variable and reasons are given for the sorting outcome.
Supply & Purchasing Management
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