Question Tag: Sales Forecasting

Search 500 + past questions and counting.
Professional Bodies Filter
Program Filters
Subject Filters
More
Tags Filter
More
Check Box – Levels
Series Filter
More
Topics Filter
More
  • 10 Marks

MA – May 2020 – L2 – Q2b – Cash budgets and master budgets

Prepare a cash budget for Emefa Ltd for October 2019 based on the given sales and cost data.

b) Emefa Ltd (Emefa) is in the process of preparing its budget for the month of October 2019 for its product, YEK. The Company expects to sell the product for GH¢75 but this price is expected to increase in the last quarter of 2019 by 5%. The following are the expected sales in units for the last six months in 2019.

Month Units
August 7,000
September 8,000
October 9,000

In October 2019, a total of 9,150 units of product YEK are expected to be produced to meet demand.

Typically, cash sales represent 20% of sales. Credit sales terms are 2/10, n/30. Emefa bills customers on the first day of the month following the month of sale. Experience has shown that 60% of the billings will be collected within the discount period, 25% by the end of the month after sales, 10% by the end of the second month after the sale, and 5% will ultimately be uncollectible. The firm writes off uncollectible accounts after 12 months.

The firm uses two materials for production, Mat and Pat. The purchase terms for materials are 2/15, n/60. Experience has shown that 80% of the purchases are paid in the month of the purchase and the remainder is paid in the month immediately following. In September 2019, the firm budgeted purchases were GH¢32,000 for Mat and GH¢20,000 for Pat.

The firm’s budgeted direct material and labour budgets are as follows:

Direct Materials Purchases Budget (in Cedis) For October 2019

Material Budgeted Purchases (Pounds) Expected Purchase Price per Unit (GH¢) Total (GH¢)
Mat 45,000 2.00 90,000
Pat 25,000 3.00 75,000
Total Budgeted Purchases 165,000

The production process requires direct labour at two skill levels (SL). The rate for labour at the SL1 level is GH¢45 per hour and for the SL2 level is GH¢25 per hour. The SL1 level can process one batch of YEK per hour while SL2 uses two (2) hours for the same output. Each batch consists of ten (10) units. The manufacturing of YEK also requires one-fifth of an hour of SL2 workers’ time for each unit manufactured.

Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labour-hour. In addition to variable overhead, the firm has a monthly fixed factory overhead of GH¢60,000, of which GH¢18,000 is depreciation expense. The firm pays all manufacturing labour and factory overhead when incurred.

Total budgeted marketing, distribution, customer service, and administrative costs for the 2019 annual budget are GH¢3,000,000. Of this amount, GH¢2,000,000 is considered fixed and includes depreciation expense of GH¢400,000. All marketing and administrative costs are paid in the month incurred.

Management desires to maintain an end-of-month minimum cash balance of GH¢100,000. The firm has an agreement with a local bank to borrow its short-term needs in multiples of GH¢10,000 up to GH¢1,000,000 at an annual interest rate of 26%. Borrowings are assumed to occur at the end of the month. Bank borrowing at October 1 was GH¢0.

Required:

Prepare the cash budget for October 2019 for Emefa Ltd. (10 marks)

Cash Budget for October 2019

Description GH¢ GH¢
Cash balance, beginning (given) 100,000
Cash flow from operations:
October cash sales (9,000 x GH¢75 x 1.05) x 20% 141,750
Collections of receivables from credit sales in September:
Within the discount period (8,000 x GH¢75) x 80% x 60% x 98% 282,240
After the discount period (8,000 x GH¢75) x 80% x 25% 120,000
Collections of receivables from credit sales in August (7,000 x GH¢75) x 80% x 10% 42,000
Total collections 585,990 685,990
Cash disbursement
Materials purchases:
September purchases (32,000 + 20,000) x 20% 10,400
October purchases (GH¢165,000 x 80% x 98%) 129,360 139,760
Direct manufacturing labour ((915 x 45) + (915 x 2 x 25)) 86,925
Variable factory overhead (GH¢100 x 915) + (GH¢75 x 2,745) 297,375
Fixed factory overhead (GH¢60,000 – GH¢18,000) 42,000
Variable marketing, customer services, and Admin expenses (GH¢1,000,000/12) 83,333
Fixed marketing, customer services, and administrative expenses (GH¢2,000,000 – GH¢400,000) / 12 133,333 782,726
Cash balance, October 2019 (96,736)
New borrowing End of the month 200,000

Note: The total labour cost could be (86,925 + 91,500). 91,500 is one-fifth of level 2 labour hours for each unit produced (0.4 × 9150 × 25).

(10 marks evenly spread = 10 marks)

  • 20 Marks

IMAC – MAR 2024 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate daily variations using moving averages and explain interrelationships between material price and usage variances, and labor rate and efficiency variances.

a) BB Importers Ltd has been importing electrical gadgets through the port of Takoradi over the past ten 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 recruited Cost Accountant, you have been provided with some past daily sales performance over a three-week period. Details of the sales performance are shown below:

Sales Monday Tuesday Wednesday Thursday Friday
Week 1 780 830 890 850 850
Week 2 880 930 990 950 950
Week 3 980 1030 1090 1050 1050

Required:
Using daily moving averages, calculate the daily variation for the company. (15 marks)

b) The reasons for variances might be connected, and two or more variances may arise from the same cause. For example, a favorable variance and an adverse variance might have the same cause.

Required:
Explain the interrelationships between:
i) Material price and usage variances (2.5 marks)
ii) Labor rate and efficiency variances (2.5 marks)

 

b) Interrelationship between variances

  • Material price and usage variances: It may be decided to purchase cheaper
    materials for a job in order to obtain a favourable price variance. This may lead to
    higher materials wastage than expected and therefore, adverse usage variances
    occur. If the cheaper materials are more difficult to handle, there might be some
    adverse labour efficiency variance too. If a decision is made to purchase more
    expensive materials, which perhaps have a longer service life, the price variance
    will be adverse but the usage variance might be favourable. (2.5 marks)
  • Labour rate and efficiency variances: If employees in a workforce are paid higher
    rates for experience and skill, using a highly skilled team should incur an adverse
    rate variance at the same time as a favourable efficiency variance. In contrast, a
    favourable rate variance might indicate a high proportion of inexperienced
    workers in the workforce, which could result in an adverse labour efficiency
    variance and possibly an adverse materials usage variance (due to high rates of
    rejects). (2.5 marks)
  • 20 Marks

IMAC – NOV 2023 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Determine the trend and seasonal variation in sales using moving averages and calculate factors for estimating direct material costs.

a) A company operates from Monday to Friday. Sales data for the most recent three weeks as well as the moving total are as follows:

Day Sales Moving Total
Day 1 78
Day 2 83
Day 3 89 420
Day 4 85 430
Day 5 85 440
Day 6 88 450
Day 7 93 460
Day 8 99 470
Day 9 95 480
Day 10 95 490
Day 11 98 500
Day 12 103 510
Day 13 109 520
Day 14 105
Day 15 105

Required:
i) State the length of the cycle. (2 marks)
ii) Using the moving averages, establish the trend of the historical data above. (6 marks)
iii) Calculate the seasonal variation for each day of the week. (7 marks)

b) The value of variances as a control technique for management depends on the reliability and accuracy of the standard costs. If the standard costs are inaccurate, comparisons between actual cost and standard cost will have no meaning.

Required:
Explain TWO (2) factors to be considered by the purchasing department in estimating the direct material costs per unit of raw material. (5 marks)

  • 20 Marks

IMAC – JULY 2023 – L1 – Q5 – Budgeting | Forecasting

Prepare seasonally adjusted sales forecast and production overheads budget, and explain key components of time series analysis.

Question:
a) Balan Ltd is engaged in manufacturing and selling a single product and is in the process of preparing its budget for 2024. The following information is available:

Sales:
Balan Ltd has developed the linear relationship Y = 20,000 + 4,000X, where X represents the time period (X = 1 for the 1st quarter of 2024) and Y represents the sales trend in units.

The following seasonal variations are required to be adjusted to the sales trend in order to arrive at the sales forecast:

Quarter Jan-Mar Apr-Jun Jul-Sep Oct-Dec
Index value 110 90 80 120

A unit of product can be sold at GH¢1,000 during the first three quarters, and this price will be increased by 10% in the fourth quarter of 2024.

Production Overheads:
Based on the past 6 quarters’ results, the following statistical data has been gathered:
n = 6 (where ‘n’ is the number of quarters considered)
∑X = 306 (where ‘X’ is the production quantity in thousands of units)
∑Y = 146,400 (where ‘Y’ is the total production overheads in GH¢ thousands)
∑XY = 7,578,400
∑X² = 15,886

Balan Ltd estimates a linear relationship between output (X) and production overheads (Y), and the total production overheads can be expressed as Y = a + bX.

Balan Ltd does not maintain finished goods inventories. You are one of the Management Accounting executives of Balan Ltd and have been requested to assist in compiling budget figures.

Required:
i) Prepare the seasonally adjusted quarterly sales forecast in unit and in value for the calendar year 2024. (4 marks)
ii) Prepare the quarterly production overheads budget for the calendar year 2024. (5 marks)

b) Explain the following terms:
i) Trend-Cycle (C) (2 marks)
ii) Seasonal Components (S) (2 marks)
iii) Irregular Components (I) (2 marks)

c) The purpose of Management Accounting is to provide information for planning, control, and decision making. Information for control of the performance is an important management task.

Required:
Outline THREE (3) activities involved in providing information for control purposes. (5 marks)

b.) Seasonal adjustment separates a time series into trend-cycle, seasonal, and
irregular components.

i) Trend-Cycle (C):
This component represents the long-term movement or pattern in a time series, which is typically derived from surrounding years or periods of observations. It shows the underlying direction in which the data is moving, whether upward, downward, or stagnant, over an extended period. (2 marks)

ii) Seasonal Components (S):
Seasonal components are regular, predictable fluctuations that occur within specific periods such as months or quarters. These effects are stable in timing, direction, and magnitude and can be caused by factors like weather patterns, holidays, or other recurring events. (2 marks)

iii) Irregular Components (I):
Irregular components are unpredictable fluctuations in a time series that cannot be attributed to trend or seasonal effects. They are usually short-term, random variations caused by unforeseen events such as natural disasters, strikes, or economic shocks. (2 marks)

c) Activities Involved in Providing Information for Control Purposes:

  1. Monitoring Actual Performance: This involves tracking and measuring actual outcomes against planned or budgeted objectives to assess performance.
  2. Evaluating Actual Performance: This step involves analyzing the data to determine how well the organization has met its goals and identifying areas of improvement.
  3. Taking Control Action: If there are deviations from the plan, corrective actions are taken to bring performance back in line with objectives. This may involve adjusting processes, reallocating resources, or revising targets.

(3 points @ 1.667 marks each = 5 marks)

 

  • 20 Marks

IMAC – MAY 2021 – L1 – Q5 – Cost Segregation and Estimation | Forecasting | Standard Costing and Variance Analysis

Apportionment of service center costs to production departments and calculation of direct materials price variance.

a) A company is preparing its annual budget and it is estimating the number of units of Product W that would be sold in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:

y = a + bx where: y = quantity of sales units in the quarter a = 15,000 b = 3,000 x = the quarter number where 1 = quarter 1 of year 1

Actual sales of Product W in year 1 were affected by seasonal variations and were as follows:

Quarter Actual Sales Units
1 20,250
2 19,425
3 25,200
4 24,300

Required: Calculate the expected unit sales of Product W for each quarter of year 2, after adjusting for seasonal variations using the multiplicative model. (6 marks)

b) The records of direct labour hours and total factory overhead cost of Cooper Limited over the first six months of its operations are given below:

Month Direct Labour Hours Total Factory Overheads (GH¢000)
September 50,000 14,800
October 80,000 17,000
November 120,000 23,800
December 40,000 11,900
January 100,000 22,100
February 60,000 16,150

Management is interested in distinguishing between the fixed and variable portions of the overheads.

Required: Using the least square regression method, estimate the variable cost per direct labour hour and the total fixed cost per month. (9 marks)

c) State and explain the methods used in setting: i) Direct Material Cost Standard. (2.5 marks) ii) Direct Labour Cost Standard. (2.5 marks)

a)

Quarter Trend Sales Units Actual Sales Units Variation
1 18,000 20,250 +12.5%
2 21,000 19,425 -7.5%
3 24,000 25,200 +5.0%
4 27,000 24,300 -10.0%

Forecast sales:

  • Year 2 Quarter 1 = 15,000 + (3,000 x 5) = 30,000 + 12.5% = 33,750 units
  • Year 2 Quarter 2 = 15,000 + (3,000 x 6) = 33,000 – 7.5% = 30,525 units
  • Year 2 Quarter 3 = 15,000 + (3,000 x 7) = 36,000 + 5.0% = 37,800 units
  • Year 2 Quarter 4 = 15,000 + (3,000 x 8) = 39,000 – 10.0% = 35,100 units

b)

Direct Labour Hours (x) Total Overheads (y) xy x²
50,000 14,800 740,000 2,500,000
80,000 17,000 1,360,000 6,400,000
120,000 23,800 2,856,000 14,400,000
40,000 11,900 476,000 1,600,000
100,000 22,100 2,210,000 10,000,000
60,000 16,150 969,000 3,600,000
Total 450,000 8,611,000 38,500,000

c) i) Direct Material Cost Standard:

  • Quality Standard: Specifications for the material’s quality.
  • Quantity Standard: Amount of material required per unit.
  • Price Standard: Cost of the material per unit.

ii) Direct Labour Cost Standard:

  • Standard Wage Rate: Rate of pay per hour for workers.
  • Standard Labour Time: Amount of time required to complete a unit.
  • Efficiency Standard: Expected efficiency level of workers.

 

 

 

 

 

 

Take control of your business data with insight and in-depth understanding by taking this course. 

Services

Contact Info

  • +233203701923
    +233543919232
  • info@noohrabusiness.com

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope