Question Tag: Irregular Components

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:

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)