Page 7 - OCS Workbook - Day 1 Suggested Solutions (May 2018)

SUGGESTED SOLUTIONS

EXERCISE 2 - BUDGETING

Exercise 2(a) - Forecasting

Question Your response

Discuss whether • Time series analysis is most useful when there is a clear pattern to sales –
time series i.e. trend + some type of seasonal or regular variation.
analysis would be • We are not told whether there is a significant seasonal aspect to sales but
a useful one might expect more bags to be sold in the run up to Christmas as gifts.
technique for • Given this, then time series analysis would be very useful for forecasting
Mansako to use sales patterns.
for forecasting
future revenue.

Exercise 2(b) - Budget Preparation

Question Your response

Identify the likely No suggestion that we are operating at full capacity, so the budget limiting
budget limiting factor will be sales demand.
factor for
Mansako.

Exercise 2(c) – Budgeting Approaches

Question Your response

Discuss whether an As far as we know, there has been little change to the business over the last
incremental or ZBB year and going forwards (although Melanie Zhang – Sales and Marketing
approach would be Director – is keen to see the company expand into new products and
most suitable for markets), so an incremental approach is likely to be acceptably accurate
Mansako.
• Revenue expected to increase by 6% this year
• No change in customers or target markets
• No change in product range, although a critical success factor of the
industry is balancing introducing new products and keeping older
more established ones (page 24)
• Also, an incremental approach was likely to be cheaper.

However, if Mansako introduces new products, as has been hinted at, then
there is more justification for ZBB going forwards.

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