Budgeting HELP

bjwbjw Just JoinedRegistered Posts: 3
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

  • SpamkebabSpamkebab Well-Known Registered Posts: 233
    Ok first we have to add back the reduction in production so 302400/96x100 = 31500, as 4% has been taken off to account for the reduction in production this leaves us with only 96% of the figure we need to adjust.

    Next we have to deduct the 5% that was accounted for, for an increase in raw materials price so 31500/105x100 = 30000 This leaves us with the figure before adjustments that we need, and we can now make the correct adjustment.

    30000/100x94 = 282000 the figure of 94 is 100% less the 6% that needs to be adjusted.

    I hope this helps. These questions are really fun when you get the hang of them.

    Neil.
  • bjwbjw Just Joined Registered Posts: 3
    Thanks soo much.. been thinking about this question for ages and going round it circles. It seems really simple now you've told me.

    Thanks you :001_smile:
  • SpamkebabSpamkebab Well-Known Registered Posts: 233
    I'm glad it helped, i was a little worried that i didn't get it across too well. The first thing to remember (and do) is adjust the initial figure back to what it was before any alterations, this means deducting and adding back in this case. Then you are left with a starting figure and can make the correct adjustments.

    Good luck,

    Neil.
  • omega manomega man Trusted Regular Registered Posts: 283
    I would go further than the previous poster in answering this question.
    First of all you need to do the first part of the question in adding or deducting back,however you only need to bother about the second part of this if there is a reference to it in the last part of the question.
    In other words if in the last part they make no mention of the second possible calculation you then ignore it.
    I hope this helps.
Sign In or Register to comment.