Budgeting - Question 2.1 (c) Practice Paper 3

broom123

Hi,

Can anybody advise how they reached the correct answer for this one?

I just can't work it out!

welshwizard

Hi

This requires a couple of steps:

Remove the price increase: £216,300/105 x 100 (to get to the pre price increase figure £206,000)
Next remove work out the effect of the chnage in % increse in production:
206,000/103 x 110 (to see the impact on the cost of materials of the 10% rise in production) = £220,000

This is how I got the answer

Hope that helps

GoonerBoy

Hi, I have my budgeting exam in the morning and I just cannot work out how to get to this answer. Practice paper 1 question 2.1 c. All comments welcome. Thanks

Question below:

Next year’s energy costs are forecast at £228,800. This assumes a 4% increase in energy consumption and a 5% increase in gas and electricity tariffs.

However, energy saving measures are being proposed, instead of increasing, consumption should reduce by 10%.

I have the first bit. £228,800/1.04 = £220,000
But I don't know what to do with the rest!

SamiH

The energy consumption is the only thing that changes so

Assumed Price including 4% Consumption increase = £228,000
Therefore £228,800 is 104% Consumption

so £228,000/104 * 100 = £220,000
£220,000 is now 100% (original consumption at new price)

To get reduce it by 10% (so its 90% consumption) :
£220,000/100 * 90 = £198,000

Does this help?

GoonerBoy

Thank you so much for your reply. So this means I just ignore the 5% increase in gas and electricity?

Nps

Yes, because it will already be included in the forecast.

Rachie278

I'm sorry to butt in in this post, but I can't work out why we are going to ignore the 5% increase in gas and elec? Is it because gas and electricity isnt considered 'energy costs?!'

Nps

It's because it tells you that the forecast costs include the tariff increase already. There is nothing further in the question to suggest that the increase did not occur, so that part of the forecast is correct. Only the consumption part of the forecast needs amending as the question specifically states it was wrong.

Rachie278

Thank you! I got it! 'Consumption' not the tariff bit!! Bit cheeky that one, I wouldn't have picked up on that I dont think.