Operating Budget Help

Pjdav

Hi all can someone please explain the following to me.....

It says: Scenario A There is allowance for an energy price rise by 4% and its Given the figure £17,680.

Scenario B: Revise the energy price rise to 6%. The Answer is £18,020 - How did they get this?

The working they gave me: 17,680 x 1.06/1.04=18.020 but i don't understand it, if someone can explain this to me i would be grateful?

Cheesypeesy

In Scenario A, the figure given is £17,680. This was calculated using a energy price rise allowance of 4%.

In Scenario B, we are required to increase this allowance to 6%. To do this, we need to work out what the original energy price is prior to any allowances. To get to £17,680, the original price would have to have been increased by 4%, or multiplied by 1.04. Therefore, it follows that dividing £17,680 by 1.04 gives us the original price, which is £17,000.

Now we have the original price, all that is left to do is increase £17,000 by 6%, or multiply by 1.06. This gives us £18,020.

I hope that makes sense, let me know if you require clarification on anything.