Operating Budget Help

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
    Cheesypeesy MAAT Posts: 102
    edited July 2018
    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.
    Matthew Dearlove MAAT
    Currently on CIMA Management Level. Passed P2, F2 and E2. Preparing for November 19 MCS.
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