Business XYZ has the following projected budget and actual budget for a given month:
| | Budget | Actual |
| -------- | --------- | --------- |
| Payroll | $30,000 | $29,000 |
| Inventory | $13,000 | $13,800 |
| Rent | $8,000 | $7,700 |
| Services | $5,000 | $4,750 |
Calculate the percent change that Inventory is over budget.
$\Delta=[?] \%$
Answer (2)
Calculate the difference between the actual and budgeted inventory costs: $13,800 - $13,000 = $800.
Divide the difference by the budgeted inventory cost: 13 , 000 800 = 0.06153846153846154 .
Multiply by 100 to express as a percentage: 0.06153846153846154 × 100 = 6.153846153846154 .
Round to two decimal places: The inventory cost was approximately 6.15 % over budget.
Explanation
Calculate the Difference First, we need to determine how much the actual inventory cost exceeded the budgeted cost. This is found by subtracting the budgeted amount from the actual amount.
Determine the Amount Over Budget The difference between the actual and budgeted inventory costs is: 13 , 800 − 13 , 000 = 800 So, the inventory cost was $800 over budget.
Calculate the Percent Change Next, we calculate the percent change by dividing the difference by the original budgeted amount and then multiplying by 100 to express it as a percentage.
Compute the Percentage The formula for percent change is: %Δ = Budgeted Value Actual Value − Budgeted Value × 100 In this case: %Δ = 13 , 000 13 , 800 − 13 , 000 × 100 = 13 , 000 800 × 100 %Δ = 0.06153846153846154 × 100 = 6.153846153846154 Rounding to two decimal places, the percent change is approximately 6.15%.
State the Final Answer Therefore, the inventory cost was approximately 6.15% over budget.
Examples
Understanding percentage changes is crucial in business for analyzing budget variances. For example, if a company budgets $50,000 for marketing and the actual spending is $55,000, calculating the percentage increase helps in assessing the overspending. In this case, the percentage increase is calculated as (($55,000 - $50,000) / $50,000) * 100 = 10%. This indicates a 10% overspending in the marketing budget, which prompts further investigation into the reasons for the variance and helps in making informed decisions for future budgeting.
The Inventory cost was $800 over budget, which translates to approximately 6.15% over the budgeted amount. This was calculated by finding the difference between actual and budgeted costs, then using that difference to find the percent increase relative to the budgeted amount. Hence, Inventory exceeded the budget by about 6.15%.
;
