Sample assessment query for budgeting, level 4

AAT Student, AATQB Posts: 21 Regular contributor ⭐ ? ⭐
I'm sure I must have covered this but obviously missing the point - It is online assessment 2 for budgeting, Task 4.

I need to calculate the sales price index to calculate sales revenue for years 1 to 5 prices & need to project the sales revenue year 1 prices forward to year 5 & calculate the year 5 sales revenue forecast.
Yr 1 Yr 2 yr 3 yr 4 yr5
Sales Revenue 12,200 12,747 13527 14091 14891
Sales price index 110.0 114.0 120.0 124.0 130.0
Sales revenue at yr 1 price ? ?

If anyone could show me what to do please. Many thanks

• Registered, Moderator Posts: 2,034
Dear Jayney
Here is a word doc of a spreadsheet I produced using your figures

The general approach to removing inflation from a set of figures is to divide each sales revenue value by the price index for that year (e.g. year 2 £12,747/114)
If you have then been asked to put all of the values into the value at year 1 prices you multiply your answer by the year 1 index

So the year 2 sales revenue at year 1 prices is found by :
Year 2 Sales Revenue x Year 1 Sales price index =
Year 2 Sales price index

£12,747 x 110 = £12,299.74
im114

I didn't follow the year 5 forecast as you already have that value.
But I can see that the actual question does not give you the £14,891 value

The way to derive it is to use the values you have for the year 1 prices:
1. Find the rate of growth on a yearly basis - here the annual increase (at year 1 prices is £100)
2. Add £100 onto the year 4 sales revenue at year 1 prices - this gives you the year 5 sales revenue at year 1 prices
3. Divide the sales revenue (yr 5 at yr 1 prices) by the index for year 1 , then multiply the answer by the index for year 5
Yours

Sandy
[email protected]
Sandy
[email protected]
www.sandyhood.com
• AAT Student, AATQB Posts: 21 Regular contributor ⭐ ? ⭐
Thank you Sandy for your help - that has helped a lot
• Registered Posts: 1
Thanks Jayney and Sandy

Sandy you are awesome your explanation is so clear to understand and precise. You have saved me from going into bewilderment.
Kind regards to both

Shilpa