Preparation of functional budgets Data Wilmslow Ltd makes two products, the Alpha and the Beta. Both products use the same material and labour but in different amounts. The company divides its year into 4 quarters, each of 12 weeks.

Each week consists of 5 days and each day comprises 7 hours.

You are employed as the management accountant to Wilmslow Ltd and you originally prepared a budget for quarter 3, the 12 weeks to 17 September.

The basic data for that budget is reproduced below.

Since the budget was prepared, three developments have taken place.
1. The company has begun to use linear regression and seasonal variations to forecast sales demand. Because of this, the estimated demand for quarter 3 has been revised to 2000 Alphas and 2400 Betas.

2. As a result of the revised sales forecasting, you have developed more precise estimates of sales and closing stock levels.
3. |New equipment has been installed. The workforce is not familiar with the equipment.
Because of this, for quarter 3, they will only be working at 80% of the efficiency assumed in the original budgetary data.
Other data from your original budget which has not changed is reproduced below:

Task 1 The production director of Wilmslow Ltd wants to schedule production for quarter 3 (the 12 weeks ending 17 September) and asks you to use the revised information to prepare the following:

(a) the revised production budget for Alphas and Betas;

(b) the material purchases budget in kilograms;

(c) a statement showing the cost of the material purchases;

(d) the labour budget in hours;

(e) a statement showing the cost of labour.

Data Margaret Brown is the financial director of Wilmslow Ltd. She is not convinced that the use of linear regression, even when adjusted for seasonal variations, is the best way of forecasting sales volumes for Wilmslow Ltd.
The quality of sales forecasting is an agenda item for the next meeting of the Board of Directors and she asks for your advice.
Task 2 Write a brief memo to Margaret Brown. Your memo should:

(a) identify fvo limitations of the use of linear regression as a forecasting technique;

(b) suggest two other ways of sales forecasting.

Transcribed Image Text:

Original budgetary data: quarter 3 12 weeks to 17 September Alpha 1800 units Product Estimated demand Material per unit Labour per unit 8 kilograms 3 hours Beta 2100 units 12 kilograms 6 hours