Budget question

beavis182

This years budget for raw materials was set at £216,300. This assumes a 3% increase in production volume and a 5% increase in raw material prices compared to previous year.

However production volume is 10% higher than the previous year and there has been no price increase

Calculate the material cost forecast??

Not sure how to work this one out.

I thought it would be 216300/105 x 100 = 206000.

The answer should be £220,000 but not sure how to work it out...

Nia

216300 / 1.03 then divide by 1.05 takes you back to previous year figure = 200,000

so applying 10% increase in volume (no price increase) = 200,000 x 1.1 = 220,000


note:
1.03 = 103/100
1.05 = 105/100
1.1 = 110/100

beavis182

perfect, thanks for that. Seems i was making it harder than it actually was. At least if it comes up on the exam on Monday I should be fine :-)