Sample assessment query for budgeting, level 4

Jayney

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

SandyHood

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
sandy@sandyhood.com

Jayney

Thank you Sandy for your help - that has helped a lot

shilpa

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