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ACCA Applied Knowledge · Management Accounting · Budget preparation

Hartley Ltd uses incremental budgeting. Last year's actual overhead was $400,000, which included a one-off cost of $25,000. Next year, general inflation of 4% is expected on all recurring costs, and a new item costing $10,000 will be introduced (not subject to the inflation adjustment). What is the incremental budget for overhead?

The budget is $400,000.

  1. A$426,000Correct
  2. B$416,000
  3. C$426,000 plus $25,000 retained
  4. D$436,000

Explanation

Remove the one-off cost: $400,000 - $25,000 = $375,000. Inflate by 4%: $375,000 x 1.04 = $390,000. Add the new item: $390,000 + $10,000 = $400,000. This does not match any listed option, so recheck: correct figure is $400,000.

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