ExpertMedium2 marksMultiple Choice
ACCA · Question 06 · Data Analysis
Section A
Apex Consultancy, a service firm, is reviewing its IT software costs over a three-year period. The cost index for software was 120 in Year 1 and 156 in Year 3. If the actual software expenditure in Year 1 was $45,000, what is the equivalent Year 1 expenditure expressed in Year 3 prices?
Section A
Apex Consultancy, a service firm, is reviewing its IT software costs over a three-year period. The cost index for software was 120 in Year 1 and 156 in Year 3. If the actual software expenditure in Year 1 was $45,000, what is the equivalent Year 1 expenditure expressed in Year 3 prices?
Answer options:
A.
$34,615
B.
$58,500
C.
$70,200
D.
$45,000
How to approach this question
To adjust a historical cost to current prices using index numbers, multiply the historical cost by the ratio of the current index to the historical index: Cost * (Index_Current / Index_Base).
Full Answer
B.$58,500✓ Correct
To express the Year 1 cost in Year 3 prices, adjust for inflation using the index numbers: $45,000 * (156 / 120) = $58,500.
Common mistakes
Applying the index ratio upside down (120/156).
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