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Dear Sir
Chapter 8 example 5
please explain why the costs go up with inflation as of year one and the price increase does not.
I understand the reasoning that we are this year in 0 and year 1 is next year so the costs will have risen, and I also understand in real life you make decisions.
I need to know for exam purposes what the rules areRegards
I explain all this in my free lecture where I work through this lecture, and understanding the reason is vital for the exam. You cannot expect me to type out my lectures here.
If you are not watching the free lectures for any reason then you should not be using the lecture notes – they are only lecture notes and it is in the lectures that I explain and expand on the notes. You should then buy a Study Text from one of the ACCA approved publishers and study from there.
i am watching your lectures and you do not explain why the price is treated differently to the cost. I understand the sensitivity to dates etc especially with the lease or buy situation. All i am asking is that if you say inflation is 5% so we correctly add the 5% to the cost in year 1.
You also say the price of the goods goes up by 7%./……I just want to know why i cannot add the price increase to the same year as the inflationYou cannot possibly have properly watched my lecture working through this example, because I explain at length about the inflation!!
It has absolutely nothing to do with dates or with lease or buy.
We add 5% to the costs in the first year because the question says that they are quoted at current prices.
We do not add inflation to the sales revenue in the first year because the question says it is the selling price in the first year.
Which is all very practical as again I explain in the lecture.It is not a play on words – it is perfectly practical (and very common in the exam).
They are likely to budget costs based on what the current cost is plus an estimate of inflation.
They are not likely to do this with selling prices – they won’t have a current selling price because they are not currently selling the product. They are more likely to budget the price they are intending to sell at in the first year.
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