Question Tag: Moving Average

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate sales trend using moving average and line of best fit; identify sources of information for standard prices.

a) The monthly sales of Danamo Company Limited have been given as follows:

Monthly Sales (GH¢’000) Moving Total (GH¢’000)
April 150
May 140
June 160
July 180
August 200
September 190
October 220
November 230
December 250

Required:
i) Using the three-month moving average, calculate the trend. (3 marks)

ii) Using the line of best fit, estimate the sales of January, February, and March of the following year. (12 marks)

b) State and explain FIVE (5) sources of information that may be considered in setting standard prices for materials in Management Accounting. (5 marks)

a)
i) Three-Month Moving Average

Month Sales (GH¢’000) Moving Total (GH¢’000) Moving Average (GH¢’000)
April 150 – –
May 140 450 150
June 160 480 160
July 180 540 180
August 200 570 190
September 190 610 203.33
October 220 640 213.33
November 230 700 233.33
December 250 – –
(3 marks evenly spread using ticks)

ii) Line of Best Fit

Month (X) Sales (Y) XY X²
1 150 150 1
2 160 320 4
3 180 540 9
4 190 760 16
5 203 1015 25
6 213 1278 36
7 233 1631 49
Total 1329 5730 140

b) Sources of Information for Setting Standard Prices

  1. Quotations and Estimates from Potential Suppliers: Price quotations or estimates provided by suppliers.
  2. Trend Information from Past Data: Historical data on material prices and trends.
  3. Bulk Discounts: Information on discounts for bulk purchases.
  4. Packaging and Carriage Inwards: Charges for packaging and transportation costs.
  5. Quality of Material: The expected quality may influence the price.
  6. Internally Manufactured Components: The predetermined standard cost for components.

(Any 5 points at 1 mark = 5 marks)

 

 

  • 20 Marks

IMAC – NOV 2019 – L1 – Q5 – Standard Costing and Variance Analysis

Calculate seasonal variation using moving averages and explain uses of standard costing.

Question:
FB Logistics has been clearing containers from the port of Tema over the past seven years. Management is aware that the business has been facing seasonal fluctuations but there is no scientific basis for the determination of such variations that can be used to predict future revenue.

As a newly engaged Cost Accountant, you have been provided with some past quarterly performance over a three-year period. Details of the performance are shown below:

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1 120 140 160 180
2 180 160 185 210
3 150 200 230 220

Required:
Using quarterly moving average, calculate the seasonal variation for the company. (15 marks)

b) Standards as used in performance measurement are norms or benchmarks set for comparison purposes in performance evaluation.

Required:
Explain FIVE (5) uses of standard costing. (5 marks)

a) Calculation of Seasonal Variation Using Moving Averages

Year Sales Moving total Mid-point Average (trend) Variation
(1st) 120
(2nd) 140
(3rd) 160 600 150 -10
(4th) 180 630 157.5 22.5
(5th) 180 660 165 15
(6th) 160 670 167.5 -7.5
(7th) 185 680 170 15
(8th) 210 692.5 173.13 36.87
(9th) 150 720 180 -30
(10th) 200 735 183.75 16.25
(11th) 230
(12th) 220
Summary of Variations
Year Q1 Q2 Q3
1 -10 22.5 15
2 -7.5 -30 36.87
3 0 15 16.25
Average -5.83 2.5 22.04

b) Uses of Standard Costing

  1. Profit Planning: Helps in forecasting the costs and establishing targets for future performance.
  2. Profit Measurement: Facilitates the measurement of profitability by comparing actual costs with standard costs.
  3. Performance Assessment: Aids in evaluating the performance of different departments and managers.
  4. Cost Control and Management: Acts as a control tool by identifying variances and enabling corrective actions.
  5. Employee Reward Schemes: Provides a basis for incentive schemes and bonuses linked to performance.

(Any 5 points at 1 mark each = 5 marks)

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