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- 20 Marks
Question
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)
Answer
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
- Profit Planning: Helps in forecasting the costs and establishing targets for future performance.
- Profit Measurement: Facilitates the measurement of profitability by comparing actual costs with standard costs.
- Performance Assessment: Aids in evaluating the performance of different departments and managers.
- Cost Control and Management: Acts as a control tool by identifying variances and enabling corrective actions.
- Employee Reward Schemes: Provides a basis for incentive schemes and bonuses linked to performance.
(Any 5 points at 1 mark each = 5 marks)
- Tags: Forecasting, Moving Average, Seasonal Variation, Standard Costing
- Level: Level 1
- Uploader: Joseph