Budgeting help (2)
Hoamai
Registered Posts: 10 Regular contributor ⭐ 😼 ⭐
I am struggling with the question 2.1.c osborne book:
the budget was set at £319770, this assumed a 2% price increase from the previous year together with a reduction in production volume of 5%.
However production volume remains static and the price increase is 3%. Calculate the raw material cos forecast. The answer is £339900
I would appreciate if you guys can show me how to work out the answer. Thank you.
the budget was set at £319770, this assumed a 2% price increase from the previous year together with a reduction in production volume of 5%.
However production volume remains static and the price increase is 3%. Calculate the raw material cos forecast. The answer is £339900
I would appreciate if you guys can show me how to work out the answer. Thank you.
0
Comments

First you need to find last years actual cost.
The question tells you that £319,770 is 102% of last years cost in relation to price, so 100% is £313,500 (319770/102*100). You also know that this new figure is 95% of last years cost in relation to production volume so 100% is £330,000 (313500/95*100). You could do these steps in either order.
You now know that last years actual costs were £330,000 so an increase of 3% of this gives you your answer of £339,900.0 
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