QUESTION 2

Seri Sdn Bhd operates a chain of holiday resorts throughout Malaysia. The management wants to improvise its current budgetary control system by incorporating activity-based management and simple time series analysis. However, the Chief Executive Officer has some reservations to the effectiveness of this change. The budget for the planning and development department of the company is currently prepared as part of a traditional budgetary planning and control system. The analysis of cost by overheads for the period ended 30 September 2021 where this system is in use is as follows:

	Budgeted %	Actual %
Overheads Type
Salaries and wages	62	63
Supplies	10	11
Consultation and management fees	14	12
Research and development costs	12	10
Building rates	2	4

The total budget and actual costs of fixed production overheads for the department for the period ended 30 September 2021 are RM800,000 and RM950,000 respectively. For an activity- based costing approach, the company has identified a number of activities for the planning and development department, which has two divisions: Division 1 and Division 2. Total budget and actual costs that should be attributed to the activities have been identified based on the following:

	Budgeted %	Actual %
Activities
Management and administration	22	20
Training	16	20
Holiday packages	12	15
Food promotion deals	32	30
Banquet services	18	15

The company has identified the most appropriate cost driver for each of the activities above. The management accountant was provided with the following list of cost drivers:

Cost drivers	Division 1	Division 2
Training sessions	50	15
Number of customers	210	140
Administration hours	40,000	12,000
Number of promotion meals	30	20
Number of holiday packages	30	30

Required:

1. Prepare two (2) budgetary control statements for the planning and development department for the period ended 30 September 2021, showing variances between the budget and actual costs, using the following:
   1. Traditional overhead-based analysis
   2. Activity-based analysis

(18 marks)

2. By using the most appropriate cost drivers, based on budgeted costs, calculate the attributable overheads for Division 1 and Division 2. (Figures are to be stated to the nearest round number).

(12 marks)

3. Explain briefly how time series can assist the management accountant for budgeting and forecasting purposes.

(2 marks)

4. Examine critically three possible problems that can be associated with improvising a budgetary control system and give suggestions to overcome these problems.

(3 marks)