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Sirius XM Flexible budgeting

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?

Solution Preview

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

Growth rate was quite strong, an average of 22.5% over the three years ended 2011 (see excel for this). This reflects growing interest in commercial-free radio and the installation of satelite radio in new cars for six months free to get customers addicted to the service. Sales of new cars, however, is not strong right now and as customers replace their old cars, they will not be new subscribers anymore (transfer from old car ...

Solution Summary

I have created a flexible budget for three levels (see excel attached), separating the operations into three divisions and showing common costs separately. The growth and variable costs assumptions are noted on each line.

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