In deflating a cost, the total cost for the current period is multiplied by the ratio of the inflation index in the base year to the inflation index in the current year A. True B. False
Question
In deflating a cost, the total cost for the current period is multiplied by the ratio of the inflation index in the base year to the inflation index in the current year A. True B. False
Solution
To answer the question, we need to determine whether the statement is true or false.
The statement claims that in deflating a cost, the total cost for the current period is multiplied by the ratio of the inflation index in the base year to the inflation index in the current year.
To verify the accuracy of this statement, we can break it down into two parts:
- Multiplying the total cost for the current period by the ratio of the inflation index in the base year to the inflation index in the current year.
- Deflating a cost.
Let's examine each part separately:
-
Multiplying the total cost for the current period by the ratio of the inflation index in the base year to the inflation index in the current year:
- This step is indeed a common method used to adjust or "deflate" costs to account for inflation. By multiplying the total cost by the ratio of the inflation indices, we can adjust the cost to reflect the purchasing power of the base year.
- Therefore, this part of the statement is true.
-
Deflating a cost:
- Deflating a cost refers to adjusting the cost to remove the effects of inflation, allowing for a more accurate comparison of costs over time.
- The method described in the statement, multiplying the total cost by the ratio of inflation indices, aligns with the concept of deflating a cost.
- Therefore, this part of the statement is also true.
Based on the analysis of both parts, we can conclude that the statement is true.
Similar Questions
The following data relates to the operation of a company over a period of two years; year 1: 12,000 units in output level, Ghc21,000 in cost with an inflation index of 1.05; year 2: 16,000 units in output level, Ghc26,7500 in cost with an inflation index of 1.03. The cost function at an inflation index of 1.08 will be A. C = 1.56x + Ghc2,300 B. C = 1.45x + Ghc2,320 C. C = 1.62x + Ghc2,160 D. C = 1.50x + Ghc2,125
If the inflation rate increases, the value of money _____.A.variesB.stays the sameC.increasesD.decreasesSUBMITarrow_backPREVIOUS
Under Current Purchasing Power Accounting which of the following is true in times of inflation? Under Current Purchasing Power Accounting which of the following is true in times of inflation? The historical cost values will be higher than those adjusted for inflation. Holders of monetary liabilities will lose, given the amount they have to repay at the end of the period will be worth more than it was at the beginning Assets will have less purchasing power at the end of the period relative to what they had at the beginning of the period Assets will have more purchasing power at the end of the period relative to what they had at the beginning of the period
Inflation accounting adjusts for changes in the general price level by:a.Restating historical cost to current costb.Restating current cost to historical costc.Restating revenues to the base yeard.Restating expenses to the base year
_____ inflation is inflation that occurs when the demand for goods and services is greater than the supply.Question 6Answera.Supply-sideb.Demand-pullc.Demand-pushd.Cost-pushe.Demand-side
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.