Sales revenue forecast

DaleB91

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

CeeJaySix

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.

DaleB91

Thanks, I know how to answer this question now.

EvaP_

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

SandyHood

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
  

This gives us the following sales revenues at year 1 prices
Year.................Sales Revenue

1. ................£12,200
   
2. ................£12,300
   
3. ................£12,400
   
4. ................£12,500
   

This shows an increase of £100 each year. So we can project that the year 5 Sales Revenue will be £12,500 + £100 = £12,600 at year 1 prices.

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
sandy@sandyhood.com
www.sandyhood.com