Osborne budgeting question, revised salary budget

Clarekaye

I am working through osborne books and I keep getting stuck on these questions how do you work it out ?!
The draft admin budget is £187,200. This assumes a 4% pay rise from the beginning of the year. You have now been informed the pay rise will be 2.5%
Calculate the revised salary budget
Thanks!

Nps

You need to get back to the original figure first, 187200 is 104% of that, so the original figure is 187200/104 x 100 (sorry don't have a calculator to hand). This the gives you the base on which to calculate the actual 2.5% increase, so take your answer from above and multiply by 1.025.

Clarekaye

Ah ok, how come its not 187200-4% I think thats what I dont understand
Can I ask another similar one,
Budget for materials is 319770, this assumed a 2% price increase from the previous year togther with a reduction in production volume of 5%
However production remains static and the price increase is 3%

Going from the original question how come 319770/107 x 100 doesnt work

kkelly

Hi Clarekaye,
The reason is that is your first post you say "it assume a 4% pay rise from the beginning of the year". Therefore its the original figure + 4%. You cannot then take 4% off the new figure as mathematically this would give a different answer.

As nps said ..its 187200/104 x 100 - which is 180000. if you took it your way - 4% off 187200 would be 187200-7499 = 179701 which would be wrong.

for your materials query....again you have to work backwards on this one..319770..
to take out the 2% price increase - 319770 /102*100 = 313500
then increase production volume back to exclude the 5% reduction...313500 / 95*100 = 330000
and lastly put in the 3% price increase...330000 * 1.03 = 339900

Hope this helps!!

PhillipP

With these type of questions it is always best to try to avoid using percentages, especially if you're using a calculator.

If you think about VAT calcualtions @ 20% and you are asked to calculate the net of, say, £1488.00
If you were to do £1488.00 - 20% on a calculator you would end up with the figure of £1190.40 which is wrong.
The correct way to calculate the net figure less VAT would be £1488.00 / 1.2 = £1240.00. This is because net x 1.2 = gross, therefore gross / 1.2 = net.

The draft admin budget of £187200 is 104% of the original figure as stated by NPS. This would be written as N + 4% = £187200 and is the same as N x 1.04 = £187200. You can now transpose the calculation in order to find out what the original budget figure was and this would therefore be written as £187200 / 1.04 = £180000. If you then add the revised pay rise of 2.5% you finish up with £184500.00.

I have looked through by Osborne book and haven't been able to locate the questions that you refer to but the second part works in much the same way.
If £319770 is equal to 100% plus an additional 2% then instead of deducting 2% you need to divide by 1.02 so £319770 / 1.02 = £313500
This figure is a reduction of 5% on the previous year and is therefore 95% therefore the original budget would be £330000 which is £313500 /.95 or £313500 / 95 x 100
A 3% increase on £330000 would be £339900 (£330000 x 1.03) with no change in production.

Hope this helps.

Clarekaye

I am on page 84 in the workbook, section 2, 2.1
Thanks for all your help I will write it all so I can understand it Thanks!