Hi!
I am doing the question from Dec 2014- Uftin Co.
I did every component correct except for the inflation of sales and variable costs because i inflated from Year 2.
Why do we start inflating in Year 1?
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December 2014 - Uftin Co
10y ago#1It is because the question says that they have not been inflated (which is the same as saying that they are at current prices).
Therefore the person who prepared the draft will have used whatever prices exist at the moment. However we won't be receiving income or paying expenses until next year (year 1) and therefore the actual income and expenses will be higher in the first year.
Hi John,
What you are explaining make sense but my mistake in this question is that I considered inflation for the fix costs since year 1 and in the answer they are with inflation since year 2. Can you give me some light with this? Thanks!
7y ago#3The fixed costs have been inflated in the first year. Note 1 in the question says that the fixed costs are 150,000 per year.
They are inflating at 3% per year. So at time 1 they are 155,000 (to the nearest thousand).
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