SCENARIO: The records office has prepared a static budget for 10,000 students. H
ID: 2471764 • Letter: S
Question
SCENARIO: The records office has prepared a static budget for 10,000 students. However, once the school year has started, there are 11,000 students, which is 1,000 students (10%) more than the budgeted and forecasted amount of 10,000 students. The director of the office demands that she receives an immediate 10% increase in her budget, since the workload of her office has increased by 10%.
Budgeted Amount
A) If enrollments increase from 10,000 students to 11,000 students, should the office's budget be increased by 10% (from $65,000 to $71,500)? If not, then by what amount should the budget be increased?
B) If enrollments decrease from 10,000 students to 9,000 students, should the office's budget be decreased by 10% (from $65,000 to $58,500)? If not, then by what amount should the budget be decreased?
9,000 students 10,000 students 11,000 students Variable $25,000 Fixed $40,000 TOTAL $65,000Explanation / Answer
(A) The office budget should be increased by $2,500 as the Variable cost is $25,000 and that is only effected with increase in workload. Hence, the fixed cost remains at $40,000 and variable cost should increase to $27,500
(B) Similarly, the budget should be decreased by $2,500 (which is 10% of the variable cost) and the fixed cost remains constant
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