Help with budgeting practice question

bjw
bjw Registered Posts: 3 New contributor ?
On the Budgeting practice paper question 2.1c the question states:

This year's budget for raw materials was set at £302,400. This assumed a 4% reduction in production and a 5% increase in raw material prices compared with the previous year.

However production volume is 6% lower than the previous year and there has been no price increase.

Calculate the material cost forecast: ????

The answer is meant to be £282,000

Please can someone explain how to work this out??

Thanks

Comments

  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    Price was £302,400 including the 5% price increase, so without that increase it would be £288,000 (302,400 divided by 105 then multiplied by 100).
    £288,000 divided by 96 (less 4% decrease) and multiplied by 94 (add 6% decrease) = £282,000

    Does that explain it ok?

    T.C. (AAT Tutor)
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