Question Tag: Forecasting

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  • 15 Marks

MA – Nov 2024 – L2 – Q2a – Budgetary Control

Preparation of a budgeted profit and loss account for Ankawa LTD for the year ending 31 December 2025.

Ankawa LTD makes and sells a single product ‘Dee’. The following information is available for use in the budgeting process for the year 2025.

i) Sales targets have been proposed for four quarters in 2025 and the first quarter in 2026:

Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 (2026)
Sales (GH¢) 240,000 160,000 144,000 224,000 192,000

Selling price per unit of Dee is expected to be GH¢20.

ii) Inventory levels

  • At 31 December 2024: Finished units of Dee: 3,000 units

  • Raw materials: 7,000kg

  • Closing inventory of finished product Dee at the end of each quarter is budgeted as a percentage of sales units of the following quarter:

    • Quarters 1 and 2: 25%
    • Quarters 3 and 4: 35%

  • Closing inventory of raw materials is budgeted to fall by 600kg at the end of each quarter.

iii) Product Dee unit data:

  • Material: 8kg at GH¢1.60 per kg
  • Direct labour: 1.2 hours at GH¢3.50 per hour

iv) Other budgeted quarterly expenditure for 2025:

Quarter Fixed Overhead (GH¢) Capital Expenditure (GH¢)
Quarter 1 10,000 10,000
Quarter 2 18,000 –
Quarter 3 27,000 –
Quarter 4 30,000 –

v) Depreciation

  • Property is depreciated on a straight-line basis at 5% per annum based on total cost.
  • Value of property as at 31 December 2024: GH¢100,000.

vi) Inventory of product Dee is valued on a marginal cost basis for internal budget purposes.

Required:

Prepare the budgeted profit and loss account for the year ended 31 December 2025.

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  • 20 Marks

FM – May 2024 – L3 – SB – Q3 – Financial Planning and Forecasting

Evaluate financing options for Tope's Cellular Stores, including impact on profit, EPS, gearing, and shareholder perspective.

Tope operates a chain of cellular telephone stores in the country. An abbreviated profit or loss account and statement of financial position of the business for the year that has just ended is as follows:

Abbreviated Profit or Loss Account for the Year Ended 31 May 2023

Item Amount (₦’000)
Sales 6,450
Operating profit for the year 800
Interest payable (160)
Net profit before taxation 640
Tax (20%) (128)
Net profit after taxation 512
Dividends proposed (256)
Retained profit for the year 256

Abbreviated Statement of Financial Position as at 31 May 2023

Item Amount (₦’000)
Non-current assets at written down values 3,500
Current assets 1,800
Less: Current liabilities (1,100)
Net Current Assets 700
Total Assets 4,200
Less: Long-term liabilities (2,000)
Net Assets 2,200
Capital and Reserves
₦0.50 ordinary shares 600
Retained profit 1,600
Total Capital and Reserves 2,200

The company is expecting a surge in sales following advances in cellular telephone technology that should translate into additional operating profits of ₦180,000 per year for the foreseeable future. However, the company will need to invest ₦1,200,000 immediately in expanding the asset base of the business if it is to achieve these additional profits.

The business has approached a large supplier that already has an equity investment in the business to see whether it would be prepared to provide further funds for the business. The supplier has indicated it would be willing to provide the necessary funds by either:

(i) An issue of ₦0.50 ordinary shares at a premium of ₦1.50 per share; or
(ii) An issue of ₦1,200,000 10% debt at par.

The Board of Directors of Tope has already announced that it will maintain the same dividend payout ratio in future years as in the past, and that this policy will be unaffected by the form of finance raised.

Required:

a. For each of the financing options: i. Prepare a forecast profit or loss account for the forthcoming year. (5 Marks)
ii. Calculate the forecast earnings per share for the forthcoming year. (2 Marks)
iii. Calculate the projected level of gearing (D/(D+E)) at the end of the forthcoming year. (2 Marks)

b. Calculate the level of operating profit at which the earnings per share will be the same under each financing option. (3 Marks)

c. Evaluate each of the financing options from the viewpoint of an existing shareholder. (2 Marks)

d. Discuss the factors that will influence a company to finance through debt or equity, and whether to opt for long-term or short-term debt. (6 Marks)

(Total: 20 Marks)

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  • 20 Marks

PM – Nov 2024 – L2 – Q3 – Budgeting and Budgetary Control

Outline key stages in linking long-term objectives to budgetary control, and explain different budgeting types and forecasting methods.

You are the management accountant of a large manufacturing company in Kaduna. A management retreat has been planned for next week to set the agenda for the preparation for next year’s budget.

Required:

a. Outline the key stages in the planning process that link long-term objectives and budgetary control. (8 Marks)

b. Explain the meaning of the terms ‘fixed budget’, ‘rolling budget’, and ‘zero-based budget’, and discuss the circumstances under which each budget might be used. (8 Marks)

c. Discuss whether time series analysis may be preferred to linear regression as a way of forecasting sales volume. (4 Marks)

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  • 20 Marks

MI – Nov 2020 – L1 – SB – Q1 – Budgeting

Prepare the cash budget for the first three months of the year based on provided sales, expenses, and additional company details.

WXYZ is preparing for the first half of the next year. The following information was available:

a. Sales – 15% of monthly sales are in cash, while the balance is sold on credit. Collections from receivables are 50% in the first month after sales, 30% in the second month, and the balance in the third month after sales.
b. Purchases are usually 55% of sales and paid in the month of purchase.
c. Insurance company is expected to pay the sum of N525,000 in February based on the company’s accidented vehicles.
d. Salary deductions are paid on a preceding-month basis.
e. Company income tax of N475,550 will be paid in March.
f. Cash and cash equivalent balance as at December is N502,760.
g. Bank charges are 1% of total payments for the month.
h. Additional Information:

Month October (N) November (N) December (N) January (N) February (N) March (N)
Sales 750,000 600,000 850,000 520,000 670,000 800,000
Net Salaries 230,000 200,000 250,000 210,000 240,000 270,000
Other Expenses 200,700 187,500 197,500 177,200 187,500 192,700
Salaries Deductions 29,400 28,400 39,400 28,700 32,750 27,650

Required:
Prepare the cash budget for the first three months of the year. (Total 20 Marks)

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  • 20 Marks

PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

Akoko plc. has recently developed a new product called “EKO” which has been in production for the past year. The plant producing “EKO” shuts down for routine inspection and maintenance every three months, and during the first year’s operation, the costs of shut-down have been as follows:

Quarter Shut-Down Cost (₦)
I 36,000
2 28,800
3 27,000
4 25,200

The management accountant attempts to forecast maintenance costs for the coming year. On examining the data, it appears that these costs have steadily decreased, which may be due to maintenance engineers becoming more efficient or the plant settling down after initial operational issues. The learning curve might explain this trend.

Required:
a. Explain the concept of a learning curve. (4 Marks)
b. Estimate the rate of learning inherent in the data and explain its meaning. (4 Marks)
c. Using the learning rate determined, forecast the total cost of shut-down for routine maintenance during the coming year. (5 Marks)
d. Assume learning ceases at the end of the second year; forecast the total cost of shut-down for routine maintenance during the third year. (4 Marks)
e. State TWO specific reasons why this forecast may be inaccurate. (3 Marks)

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  • 1 Marks

QTB – May 2017 – L1 – SA – Q14 – Statistics

This question involves identifying the estimable components of a time series.

The TWO components of a Time Series which are usually estimable are:
A. Trend and Cyclic variation
B. Seasonal variation and Trend
C. Random movements and Trend
D. Seasonal variation and Random movements
E. Cyclic variation and Seasonal variation

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  • 1 Marks

QTB – Nov 2014 – L1 – SA – Q6 – Forecasting

Identifies the method that is not considered a quantitative forecasting technique.

The following are quantitative techniques of forecasting in business analysis EXCEPT:
A. Regression analysis
B. Delphi method
C. Moving average
D. Exponential smoothing
E. Time series analysis

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  • 10 Marks

QTB – May 2016 – L1 – SB – Q6b – Operations Research

This question involves calculating seasonal adjustments based on moving average analysis for sales data.

i. The following moving average analysis is obtained for the quarterly sales of a bakery based on the additive model:

Quarter Trend Actual Sales in the Quarter Variation (Actual – Trend)
Year 1: Q3 29.375 29 -0.375
Year 1: Q4 33.125 33 -0.125
Year 2: Q1 37.125 37 -0.125
Year 2: Q2 41.250 41 -0.250
Year 2: Q3 45.000 46 1.000
Year 2: Q4 47.875 48 0.125
Year 3: Q1 53.000 51 -2.000
Year 3: Q2 57.125 58 0.875

Required:
Calculate the seasonal adjustment for each quarter.
(6 marks)

ii. An electrical bulb-making company runs a production line that contains 760 bulbs of the same wattage. These bulbs fail on a regular basis according to the following probability distribution:

Life (months) Probability of Failure (P)
1 0.27
2 0.56
3 0.17

Required:
If the cost of replacing a bulb is N60, determine the following:

  • The life span (2 marks)
  • The average number of replacements in the period (1 mark)
  • The average monthly cost of replacing the bulbs. (1 mark)

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  • 20 Marks

QTB – May 2016 – L1 – SB – Q3 – Statistics

This question involves using the least squares method to fit a trend line for annual expenditures and make future forecasts.

The annual expenditures (N’000) of a family from 2000 to 2009 were as follows:

Year Expenditure (N’000)
2000 600
2001 610
2002 580
2003 590
2004 480
2005 560
2006 550
2007 620
2008 490
2009 530

Required:
a. Setting year 2000 as , fit the least squares line for the annual expenditures.
(15 marks)

b. Forecast what the expenditure will be in the years:
i. 2012 (2½ marks)
ii. 2016 (2½ marks)

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  • 2 Marks

QTB – May 2016 – L1 – SA – Q17 – Statistics

Calculating the trend stock for a future month based on historical stock figures.

A company takes stock for 5 months in each year. The stock figures of materials for the most recent three years are as tabulated below:

Determine the trend stock for month 6.

A. 84

B. 85

C. 86

D. 87

E. 88

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  • 1 Marks

QTB – May 2016 – L1 – SA – Q1 – Mathematics

Calculates the number of units a company expects to sell in year 5 given initial and growth rate.

A company expects to produce and sell 150,000 units of its product during the first year with this figure growing by 3% per annum. Then the number of units to be sold in year 5 is
A. 153,798
B. 163,798
C. 173,798
D. 183,798
E. 193,798

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  • 1 Marks

QTB – Nov 2015 – L1 – SA – Q13 – Statistics

This question asks for the calculation of the 3-day moving average for a given data set.

he table below shows the quantity of newspapers sold daily in a week by a vendor:

Days of the Week Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Quantity Sold 550 450 500 370 420 620 490

The 3-day moving average corresponding to Friday is:

A. 400
B. 430
C. 470
D. 550
E. 570

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  • 1 Marks

MI – May 2018 – L1 – SA – Q10 – Budgeting

Distinguishing between a budget and a forecast.

What is the difference between a budget and a forecast?
A. They mean the same and they are used interchangeably
B. A budget is for internal use while a forecast is for external use
C. A budget is qualitative while a forecast is quantitative
D. A budget is a plan whereas a forecast is the actual
E. A budget is a plan of where a business wants to go while a forecast is the indication of where it is actually going

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  • 20 Marks

MI – Nov 2023 – L1 – SB – Q3 – Forecasting Techniques

Calculation of moving averages, trends, and seasonal variations based on four years of historical sales data.

The figures given below are four years’ historical sales data of a company.

Required:
Calculate the moving averages, trends, and seasonal variations.

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  • 20 Marks

QT – Nov 2017 – L1 – Q3 – Forecasting

Analyze the relationship between website hits and promotions using correlation and regression analysis.

A small business is interested in the relationship between the number of hits on its website (measured by the number of visitors that have used the main menu) and the level of website promotion (in GH¢ 00s). The table below gives the figures for the last six months:

Month Web Site Hits Web Site Promotion (GH¢ 00s)
1 25 1.0
2 24 1.2
3 56 1.6
4 54 1.4
5 55 1.2
6 58 1.8

Required:
a) Graph the number of website hits against website promotion. (2 marks)
b) Comment on any possible relationship in (a) above. (2 marks)
c) Calculate the correlation coefficient and give an interpretation to its value. (5 marks)
d) Determine the regression line. (5 marks)
e) Using the regression line found in part (d) above, predict the number of website hits if the level of monthly promotion were increased to GH¢200. (2 marks)
f) Comment on the reliability of your prediction in (e) above. (1 mark)
g) Comment on the simple forecasting model you have developed above. (3 marks)

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  • 15 Marks

QT – May 2019 – L1 – Q5b – Forecasting

Compute 5-period moving averages, weighted moving averages, and comment on their suitability for forecasting

The number of enquiries being made to a mail order business during a Monday to Friday working week is given as:

Week Monday Tuesday Wednesday Thursday Friday
1 34 36 24 25 41
2 33 34 24 23 43
3 35 37 25 25 47

Required: i) Plot the data on a graph.
ii) Compute a 5-period moving average for the data.
iii) Compute a ‘weighted’ moving average for the data if the smoothing constant is α=0.5.
iv) Superimpose the graphs of (ii) and (iii) on your graph in (i) above.
v) Comment on the suitability of the two smoothing methods above. (16 marks)

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  • 4 Marks

QT – May 2019 – L1 – Q5a – Forecasting

Explain the concepts of moving averages and exponential smoothing in time series forecasting.

The objective of smoothing methods is to smooth out the random variations due to irregular components of the time series and provide an overall impression of the pattern of movement in the data over time.

Required:
Explain the following smoothing methods:

i) Moving averages (2 marks)
ii) Exponential smoothing (2 marks)

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  • 20 Marks

QT – May 2019 – L1 – Q1a – Forecasting

Calculate centered trend values using moving average, determine seasonal variations, adjust variations, and forecast future clients using a multiplicative model.

The number of clients who consulted Tsoo Consult within a period of three years were recorded as follows:

Year Quarter 1 Quarter 2 Quarter 3 Quarter 4
1 75 70 75 80
2 95 85 80 65
3 100 105 115 90

Required:
a) Assuming a 4 quarterly cycle, calculate the centred trend values for the data by moving average method. (4 marks)

b) Using (a) above and the multiplicative model, calculate the average seasonal variations. (5 marks)

c) Using (b) above, calculate the adjusted average seasonal variations for the data. (5 marks)

d) Using the trend and the adjusted average seasonal variation, forecast the number of clients for Year 4 based on the multiplicative model. (6 marks)

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  • 20 Marks

QT – May 2016 – L1 – Q2 – Forecasting

This question asks for the creation of a linear regression trend equation, seasonal components, and forecasts for chocolate sales.

Countess Company trades in bars of Golden Tree Chocolate from Tema Cocoa Processing Company Limited. The number of bars of chocolate sold per quarter over a four-year period by Countess Company is:

YEAR QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4
1 20 10 4 11
2 33 17 9 18
3 45 23 11 25
4 60 30 13 29

Required:

i) Plot the data on a graph (3 marks)

ii) Calculate a linear regression trend equation for the data (5 marks)

iii) Calculate the four seasonal components using a multiplicative model (5 marks)

iv) Forecast the number of bars of chocolate for the next two years (5 marks)

v) Comment on the reliability of the forecasts in iv) above (2 marks)

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  • 20 Marks

QT – Nov 2016 – L1 – Q7 – Forecasting

Analyze absenteeism trends using time series and forecasting techniques for Dropper Ltd.

The personnel department of Dropper Ltd, a large cocoa processing company in DropperLand, is concerned about absenteeism among its shop floor workforce. The mean number of absentees per day for each quarter of the years 1999 to 2001 and Quarter 1 in 2002 is given in the table below:

Q1 Q2 Q3 Q4
1999 25.10 14.40 9.50 23.70
2000 27.90 16.90 12.40 26.10
2001 31.40 19.70 15.90 29.90
2002 34.50 – – –

Required:
a) Plot the data on a graph, leaving space for the remaining 2002 figures. (3 marks)

b) Using the method of 2-quarterly centered moving averages,
i) Determine the trend in the series and superimpose this on your graph in (a). (4 marks)
ii) Determine the equation of the trend line above by considering only the first and last centered moving average value on your graph in (i). (3 marks)

c) Using an appropriate decomposition model, determine the seasonal variations in the data. Give reasons for your choice of model. (5 marks)

d) Use your analysis above to roughly forecast the mean number of absentees for the remaining quarters of 2002. Comment on your forecast. (5 marks)

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