Question 2
ICAN
•
2021
•
PERFORMANCE MANAGEMENT
•
mixed
Case Stimulus
PQR Plc is preparing its budgets for next year. It has already prepared forecasts of demand levels for its product range. These are as follows:
Forecast 1
Price Quantity
Product A ₦10.00 500
Product B ₦20.00 800
Product C ₦30.00 2,200
Forecast 2
Price Quantity
Product A ₦15.00 350
Product B ₦25.00 700
Product C ₦40.00 1,000
You are to assume that only one of either forecast 1 or forecast 2 would be accepted.
The expected variable unit costs of each product are as follows:
Product A Product B Product C
₦ ₦ ₦
Direct materials (50k per kg) 2.00 3.50 7.00
Direct labour 3.00 5.00 7.40
Variable overhead 1.50 2.50 3.70
6.50 11.00 18.10
General fixed costs are budgeted as ₦20,000 for the year and no specific fixed costs are expected for any product.
All three products use the same direct material which is expected to be limited in supply to a maximum of 22,020 kgs in the budget year.
Additional Information
{
"label": "Supporting information 1",
"content": "| | Product A | Product B | Product C |\n|-------------|-----------|-----------|-----------|\n| Direct materials (50k per kg) | 2.00 | 3.50 | 7.00 |\n| Direct labour | 3.00 | 5.00 | 7.40 |\n| Variable overhead | 1.50 | 2.50 | 3.70 |\n| | 6.50 | 11.00 | 18.10 |"
}
{
"label": "Supporting information 2",
"content": "| | Forecast 1 | Forecast 2 |\n|----------|-------------------|-------------------|\n| | Price | Quantity | Price | Quantity |\n| Product A| 10.00 | 500 | 15.00 | 350 |\n| Product B| 20.00 | 800 | 25.00 | 700 |\n| Product C| 30.00 | 2,200 | 40.00 | 1,000 |"
}
Requirements
(
a
)
Recommend, with supporting calculations, whether forecast 1 or forecast 2 should be adopted for the budget period.
(
b
)
Prepare a report, addressed to the managing director, to explain the budget preparation process, with particular reference to:
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About This Question
This is
Ican
2021
Performance Management
Question 2.
It is one of the
mixed
questions from the
2021
Ican
Performance Management
examination.