a) What is Linda's budget for red wine and gin this year and next year respectively? (b) What is Linda's opportunity cost of red wine this year and next year respectively? (c) Will Linda buy 30 bottles of red wine and 12 bottles of gin next year? Why? (d) Is Linda better off next year than this year? Why?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Linda drinks 30 bottles of red wine and 12 bottles of gin a year. Gin is $100 per bottle and red wine $200. The government announces that a consumption tax will be imposed on gin so that its market price will be double. Fortunately, the government lowers the income tax so that Linda possesses an extra budget which allows her just affordable to buy her usual 30 bottles of red wine and 12 bottles of gin next year. (
a) What is Linda's budget for red wine and gin this year and next year respectively?
(b) What is Linda's opportunity cost of red wine this year and next year respectively?
(c) Will Linda buy 30 bottles of red wine and 12 bottles of gin next year? Why?
(d) Is Linda better off next year than this year? Why?
Please answer all subparts with explanation.
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