Demand forecasts and preparation of flexible budgets Data Happy Holidays Ltd sells holidays to Xanadu through newspaper advertisements. Tourist are flown each week of the holiday season to Xanadu, where they take a 10 day touring holiday.

In 2000, Happy Holidays began to use the leastsquares regression formula to help forecast the demand for its holidays.

You are employed by Happy Holidays as an accounting technician in the financial controller’s department. A colleague of yours has recently used the least-squares regression formula on a spreadsheet to estimate the demand for holidays per year.

The resulting formula was:

where y is the annual demand and x is the year. The data started with the number of holidays sold in 1993 and was identified in the formula as year 1. In each subsequent year the value of x increases by |
so, for example, 1998 was year 6. To obtain the weekly demand the result is divided by 25, the number of weeks Happy Holidays operates in Xanadu.
Task 1

(a) Use the least-squares regression formula developed by your colleague to estimate the weekly demand for holidays in Xanadu for 2001.

(b) In preparation for a budget meeting with the financial controller, draft a brief note. Your note should identify three weaknesses of the least-squares regression formula in forecasting the weekly demand for holidays in Xanadu.
Data The budget and actual costs for holidays to Xanadu for the 10 days ended 27 November 2000 is reproduced below.

The financial controller gives you the following additional information:

Task 2 Write a memo to the financial controller. Your memo should:

(a) take account of the cost and volume information to prepare a revised cost statement using flexible budgeting and identifying any variances;

(b) state and justify which of the two cost statements is more useful for management control of costs;

(c) identify three factors to be taken into account in deciding whether or not to investigate individual variances.

Transcribed Image Text:

y = 640+40x