- 20 Marks
IMAC – Nov 2021 – L1 – Q5 – Budgeting | Forecasting
Analysis of a regression equation related to absenteeism, seasonal variation in production output, and variance analysis for overheads.
Question
a) A large manufacturing company is investigating the cost of sickness amongst production workers who the company has employed for more than one year. The following regression equation, based on a random sample of 50 for such production workers, was derived for 2018:
y=15.6−1.2xy = 15.6 – 1.2x
where yy represents the number of days absent in a year because of sickness and xx represents the number of years’ employment with the company.
Required: i) Explain the meaning of each component of the regression equation. (2 marks)
ii) Predict the number of days of absence through sickness to be expected of an employee who has been with the company for eight years. (2 marks)
iii) Explain TWO (2) limitations or problems of using this equation in practice. (4 marks)
b) A statistician is carrying out an analysis of a company’s production output. The output varies according to the year’s season, and, from the data, she has calculated the following seasonal variations in units of production:
| QUARTER | 1 | 2 | 3 | 4 |
|---|---|---|---|---|
| Year 1 | +11.2 | +23.5 | ||
| Year 2 | -9.8 | -28.1 | +12.5 | +23.7 |
| Year 3 | -7.4 | -26.3 | +11.7 |
Required: i) Calculate and explain the average quarterly variation for each quarter. (5 marks)
ii) If the trend output in the 4th Quarter of Year 3 is expected to be 10,536 units, what is the forecast output? (2 marks)
c) KK Ltd operates a standard absorption costing system and has provided the following costs data in relation to its prime product, Qwikpass:
Standard Cost Card:
| GH¢ | |
|---|---|
| Direct Material 4kg @ GH¢3/kg | 12 |
| Direct Labour 3hrs @ GH¢5/hr | 15 |
| Variable Overheads 3hrs @ GH¢3/hr | 9 |
| Fixed Overheads 3hrs @ GH¢2 | 6 |
| Total Cost per Unit | 42 |
Budgeted Units: 6,000
Actual Results:
| GH¢ | |
|---|---|
| Units produced | 6,400 |
| Direct Materials Purchased and used 32,000kg | 144,000 |
| Direct Labour 30,720hrs | 199,680 |
| Variable Overheads | 138,240 |
| Fixed Overheads | 45,000 |
| Total costs | 526,920 |
Required: i) Compute the Variable Overheads Expenditure Variance. (1 mark)
ii) Compute the Fixed Overheads Expenditure Variance. (2 marks)
iii) Compute the Fixed Overheads Volume Variance. (2 marks)
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