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I have difficulty to understand below question instruction and related working from question:
The rate of tax levied by the Ceeland government on the cost of fuel which Luxury uses to power its fleet of
delivery vehicles is due to increase from 60%, which it has been for many years, to 63% at the beginning of
quarter 3. 70% of the division’s distribution costs are represented by the cost of fuel for delivery vehiclesShown the following working:
How this figure appear: 1·31% = 70% x (3/160), please help to understand.
Q1 (Actual) Q2 Q3 Q4 Total
W3 – Distribution costs 624·0 720 660 420 2424
2% sales volume 14.4 13.2 8.4 36
1·31% Fuel tax increase* 8.8 5.6 14.4624 734.4 682 434 2474.4
1·31% = 70% x (3/160)
If the cost of fuel before tax is 100, then the cost after tax would have been 160, before the increase.
After the increase the cost is 163.
Therefore, the proportional increase is 3/160. Taking quarter 3, which had been 660, there is a 2% volume increase and on top of that a 3/160 price increase:
660 x 2% = 13.2, so total cost would be 673.2 at old prices
Add the 3/160 price increase on 70% of that: 70% x 673.2 x 3/160 = 8.8
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