- 20 Marks
PM – May 2021 – L2 – Q2 – Budgeting and Budgetary Control
Recommend the appropriate forecast for PQR Plc, analyze the limiting factor, and explain the budgeting process.
Question
PQR Plc is preparing its budgets for the upcoming year and has forecasted two demand scenarios for its product range:
You are to assume only one forecast (either Forecast 1 or Forecast 2) will be selected. The expected variable unit costs for each product are:
The general fixed costs are budgeted at ₦20,000 for the year, with no specific fixed costs expected per product. Additionally, all three products use the same direct material, with a limited supply of 22,020 kgs available for the budget year.
Required:
a. Recommend, with supporting calculations, whether forecast 1 or forecast 2 should be adopted for the budget period. (11 Marks)
b. Prepare a report, addressed to the managing director, to explain the budget preparation process, with particular reference to: i. The principal budget factor (3 Marks)
ii. The budget manual (3 Marks)
iii. The role of the budget committee (3 Marks)
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