Abaco Company manufactures and sells a product called Dressie. The company recently engaged you to assist in budgeting activities of the organization. The following data is available in relation to projections for June 2022: Product Dressie Projected sales [units] 1 200 Budgeted selling price per unit P87.00 Opening stock of finished goods [in units] 400 Budgeted closing stock [in units] 500

Each Dressie requires 8.5 meters of direct material to produce. Opening stock level of direct materials was 100 metres. In preparation for year-end, inventory levels will be increased by 20%. Required: [i] Prepare the Production budget and the Material Budgets. [4] [ii] In relation to the Materials Budget prepared in [i] above, comment on inventory levels maintained by the Abaco Company. Would you change these inventory levels, or would you maintain them? Explain. [3] [b] Chris Mass Limited makes and sells wrist watches fitted with a heart rate monitor. The company has been operating since 2015, and now have three [3] branches around the city of Francistown. After making a reasonable profit of P1 286 000 in 2021, the company is considering establishing a watch manufacturing shop in Durban. They expect the cost of purchasing premises for the shop to be P4 000 000, with fixed operational costs estimated at P490 000 per month. Chris Mass has ascertained the following data related to production activities in one of its Francistown branches:

Output of watches Total production costs [P] Month 1 0 140 000 Month 2 270 223 000 Month 3 200 220 000 Month 4 350 259 000 Month 5 270 229 000

Month 6 300 230 000

The wrist watches have an average selling price of P1 110 per unit. The company estimates that 270 watches will be produced and sold in Durban during the first month of operation. Required: [i] Use the High-Low method to estimate production costs and sales in the first month of operations in Durban. [6] [ii] Use the information given in the scenario above and your answer in [i] above to discuss two [2] limitations of the High-Low method. [4] [iii] In your opinion is the company using appropriate data in making projects on Durban operations? Explain.