Can anyone who’s very good at maths understand this?

[ijustlikehouston]

This question might not make sense. The book doesn’t seem to give you a formula to understand it.

[quote Orf1abc]@User0ne, costs are estimated at the beginning of the contract, that being the $600K. The allowance is to take into account that most but not all goods will be bought at that price, and so a margin is built in to allow for increases.[/quote]
Really? It reads to me like they 600,000 are costs actually incurred, which would be at the end of the period.

Ditto @User0ne

Oh I've just seen the answer!

Omg someone please just make it make sense! My head hurts:

I did 80% of 600 which is 480,000.
300/250 = 1.2

I have no idea where the -1 comes into any of this.

I used to do indexation of costs and raise the accompanying invoices when I worked for an organisation with large long-running contracts.

Other PP's and their workings are right, it is B: $96,000

The -1 is because you want the increase, rather than the entire amount.

300/250 is 1.2. But you don't want 1.2, you want the % difference between 300 and the original 250. You could work out the difference first : 300-250 = 50 then divide by 250 to get 0.2. Just doing it with a -1 (or -100%) is a bit quicker.

300 is 120% of 250. So 300 is 20% more than 250. So the 600,000 is also showing an increase of 20%. 80% of which increase can be claimed.

The index has gone up from 250 to 300.

Divide the original cost by 250 and multiply by 300.

Calculate the difference between the two which gives you the increase, and then calculate 80% of that.

@titchy

The -1 is because you want the increase, rather than the entire amount.

300/250 is 1.2. But you don't want 1.2, you want the % difference between 300 and the original 250. You could work out the difference first : 300-250 = 50 then divide by 250 to get 0.2. Just doing it with a -1 (or -100%) is a bit quicker.

Omg I’m literally going to cry. I don’t get this at all. I had no idea this course involved maths. If I had I would never have touched it.

No no no none of it makes sense. I hate my dumb self so much.

These explanations don’t seem to fit in with the forums provided.

I give up.

*formula not forms

It's badly written because it doesn't say when the costs happened and so you don't know how much of the inflation to allow for. But, anyway, it's clear from the solution that they want you to allow for the full amount.

The -1 thing:

There is a 20% increase in prices and you get to allow for 80% of that. To calculate the 20%, you can write the calculation in a few ways, such as:

A) (300-250)/250 = 50/250 = 0.2 (20%)

or

B) 300/250 -1 = 1.2 - 1 = 0.2 (20%)

They're the same calculation if you look at the algebra. A is more intuitive but B easier on a calculator, especially if you're doing lots of the same calculation.

The -1. They are working out the change.
change = (increase/original amount)
In this sum that is (300-250)/250) =(300/250)-(250/250) =(300/250)-1

96k

I already feel dumb without the GCSE comment.

Don't. The issue isn't the maths, it's the language and the fact that the formula isn't really constructed in a logical way in relation to the language. Working backwards through the sum in the answer:

1. How much did the price increase by, as a proportion?

300/250 = 1.2
1.2 - 1 (the increase minus the original, where the original is expressed as 1) = 0.2 increase (expressed as a decimal, or 20%).

1. How much is 0.2 of the original amount?

0.2 x 600,000 = 120,000

1. How much is the 80% of that they get?

120,000 x 0.8 (80% expressed as a decimal) = 96,000

@MindyStClaire

It's badly written because it doesn't say when the costs happened and so you don't know how much of the inflation to allow for. But, anyway, it's clear from the solution that they want you to allow for the full amount.

The -1 thing:

There is a 20% increase in prices and you get to allow for 80% of that. To calculate the 20%, you can write the calculation in a few ways, such as:

A) (300-250)/250 = 50/250 = 0.2 (20%)

or

B) 300/250 -1 = 1.2 - 1 = 0.2 (20%)

They're the same calculation if you look at the algebra. A is more intuitive but B easier on a calculator, especially if you're doing lots of the same calculation.

But 20% of 600000 = 4800000

Where do I go from working out 480000 to reach the sum of 96000?

No OP! You can do this! Keep the head up, you're just getting in that place where you panic over something and it becomes too hard.

Six months ago you would have paid £250 for something, now it's £300. That's a 20% increase.

Think about how you'd work that out. As long as you know it's a 20% increase, it doesn't particularly matter how you write it.

Some people prefer my method A above. The increase is £50 and that's 20% of the original price.

The solution uses method B. £300 is 120% of the original £250 (300/250 = 1.2). That means the increase is 20% (120% - 100% = 20%, or in decimals, 1.2 - 1 = 0.2).

Relax, you need to scrub up on basic percentages, you can do it.

Price index goes from 250 to 300
33/250 = 1.2 which represents a 20% increase.
20% is known as 0.2 on a calculator. 1.2 is 120% ie the whole thing you had to start with and the increase lumped on.

SO

600 X (300/250 -1) is the same as 20% of 600 OR 600 x 0.2 = 120
Costs have increase by 20% so they have gone from 600 to 720
Or costs have risen by 120K

Only 80% of that can be claimed back
So
0.8 X 120 = 96

The method in the answer given is as arse about end as the question.

@ijustlikehouston

No no no none of it makes sense. I hate my dumb self so much.

These explanations don’t seem to fit in with the forums provided.

I give up.

You aren't dumb and you aren't giving up! Forget the textbook formula, it's correct but an slightly odd and more difficult way to do the maths (but easier on a calculator).

They aren't calculating the 600k contract cost, it's about calculating how much of the price increase they can claim.

So prices have risen 20% (price index has risen by 50. The percentage increase is therefore 50/250x100=20%).

The original contract is 600k. So the increase is 20% of 600k = 120k. They can only claim 80% of this, so 80%x120k = 96k.

It's a poorly worded question. Stick with it, you will get used to the language used and know what to look for. All you can do is practice. Take a breather and come back to it tomorrow!

But 20% of 600000 = 4800000

Where do I go from working out 480000 to reach the sum of 96000?

You're on the right track, just have the wrong numbers.

They're allowed claim 80% of the increase. The increase is 20%, so that's 20% of 600K = 120 (600/100 x 20).

Then they can claim 80% of that (120 x 0.8 = 96, or 120/100 x 80 = 96).

Ok ... I think it’s getting in my head now.

The supplier has spent £600,000 and they will get 80% of that back.

300/250 is 20%

20% of 600,000 is 480000 and the difference is 120,000

And so 80% of 120,000 is 96,000 which is what the supplier will be paid.

Ok thank you. It’s a theme with this book of badly worded questions.

Be very wary of looking at the answer book and trying to work backwards.
There is always a risk that some arrogant smart arse has taken advantage of associative properties and done some blinking short cut.

Always ask yourself "What the heck am I actually trying to work out"

Thank you everyone for not giving up on my dumb self haha.

At least I can bring a calculator into the exam.

So it says they allow 80% of the price increases so you need to work out how much it has changed then calculate 80% of that figure.

Indexation tells you how to calculate changes over time, so if it started at 250 then increased to 300 that’s an increase of 50 index points which is 20% of the original value. So we increase the 600,000 by 20%.

20% of 600,000 is 120,000 but you only want 80% of the increase so that is 120,000 x 0.8 which gives you $96,000

It's 80% of the increase they get back, rather than 80% of the spend. So a kind of insurance policy against subsequent price rises.

The index shows how much the increase is - my logical brain can never work these out, but basically something that costs 250 last year now costs 300.

So the way I'd work it out is 600,000 / 250 * 300 = 720,000

Take away the 600,000 to give you the increase = 120,000 total increase.

They get 80% back so 120,000 * 0.8 = 96,000.