help with practice cba again

jojo1979

Hi all,

Have any of you done the second practice cba for budgeting? Im a bit stuck on one of the questions and am not sure how it is worked out. Any help would be appreciated. The question is

This years budget for raw materials was set at £216300. THis assumes a 3% increase int he production volume and a 5% increase in raw material prices comapred with the previous year.

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

Calculate the material cost forcast

---

The answer is £220000

x

Jo Clark

Hello Jo

I think the way to calculate the answer is as follows:-

You are advised that the raw materials budget is £216,300 which assumes a 3% increase in the production volume and a 5% increase raw material prices compared with the previous year.

You need to strip out the assumption of 3% increase in production volume and 5% increase in raw material prices to take you back to the original amount for last year - so we have £216,300 / 1.03 / 1.05 = £200,000

You are then advised that production volume is 10% higher than the previous year and there has been no price increase. Therefore, last years figure of £200,000 x 1.1 = £220,000.

Hope this helps


JC

jojo1979

Hi Jo

Yes it helps very much, thank you. I get it now. Was having a mental block i think. Thank youxx