Sales revenue forecast
DaleB91
Registered Posts: 3
Can somebody please clarify for me how to calculate the answer to the following question:
Year 1 Actual Year 2 Actual Year 3 Actual Year 4 Actual Year 5 Forecast
Sales Revenue: 12200 12474 13527 14091 ??
Sales price index: 110.0 114.0 120.0 124.0 130.0
Sales Revenue @ yr1 prices: ?? ?? ?? ??
1) Use sales price index to calculate sales revenue for years 1 to 4 at year 1 prices
2) Project the sales revenue at year 1 prices forward to year 5
3) Calculate the year 5 sales revenue forecast
Year 1 Actual Year 2 Actual Year 3 Actual Year 4 Actual Year 5 Forecast
Sales Revenue: 12200 12474 13527 14091 ??
Sales price index: 110.0 114.0 120.0 124.0 130.0
Sales Revenue @ yr1 prices: ?? ?? ?? ??
1) Use sales price index to calculate sales revenue for years 1 to 4 at year 1 prices
2) Project the sales revenue at year 1 prices forward to year 5
3) Calculate the year 5 sales revenue forecast
0
Comments

1. Take actual income, divide by sales price index for year, multiply by year 1 sales price index.
The other two parts look like they need more information, is that the full question? There's no obvious trend to calculate yr 5 revenues so assume you must be given more figures.0 
Thanks, I know how to answer this question now.0

Hi , I can't get my head around this. Can you help please? thanks0

EvaP
I think CeeJaySix has given a clear explanation. I'll use it but put the numbers from the task into an example. I hope this will help you.
I think the Sales Revenue for year 2 given by DaleB91should be £12,747 and not £12,474. This explanation is based on that assumption. In year 1 the Sales Revenue is £12,200. As all the sales revenue is required at year 1 prices, this value can be kept at £12,200.
 In year 2 the Sales Revenue is £12,747 but the sales price index in year 2 was 114.0 (because this is higher than the index of 110.0 in year 1 this means there has been inflation in year 2). To take out the effect of inflation in the sales revenue we divide the sales revenue by the year 2 index and then multiply by the year 1 index:
£12,747 divided by 114.0 = 111.82 and then multiply by 110.0 =£12,300  In year 3 Sales Revenue £13,527 index 120.0 = 112.725 x 110 = £12,400
 In year 4 Sales Revenue £14,091 index 124.0 =113.64 x 110 = £12,500
Year.................Sales Revenue ................£12,200
 ................£12,300
 ................£12,400
 ................£12,500
As we know the forecast sales price index for year is 130.0 we can use this to find the year 5 sales revenue [at year 5 prices] forecast.
Year 1index sales revenue divided by year 1 index x year 5 sales price index = year 5 sales revenue
for year 5
£12,600 .................divided by 110.0 ......................x..................... 130.0 ......................= £14,891
The bold calculation is intended to line up with the word based formula above
I hope this is a help for EvaP and any other reader
I don't look at the forum everyday, so if you would like any further assistance or clarification you can contact me by email or look at my website
Yours
Sandy
[email protected]
www.sandyhood.com2  In year 1 the Sales Revenue is £12,200. As all the sales revenue is required at year 1 prices, this value can be kept at £12,200.
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