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 four quarters, each of twelve weeks. Each week consists of five days and each day comprises 7 hours.

You are employed as the management accoun- tant to Wilmslow Ltd and you originally prepared a budget for quarter 3, the twelve weeks to 17 September. The basic data for that budget is reproduced below.

3. New equipment has been installed. The work- force 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: 50 production employees work a 35 hour week and are each paid 210 per week; overtime is paid for at 9 per hour;

Task 1 The production director of Wilmslow Ltd wants to schedule production for quarter 3 (the twelve 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 Wilm- slow Ltd. She is not convinced that the use of linear regression, even when adjusted for seasonal vari- ations, 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 two limitations of the use of linear regression as a forecasting technique; -

(b) suggest two other ways of sales forecasting. AAT

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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