Question

100 Points

The seasonal index for the sales of Christmas trees by this farm in quarter 1 of 2017 is 1.19.
To correct the sales for seasonality, the actual sales should be
A. Reduced by 84.0%
B. Reduced by 14%
C. Increased by 16%
D. Reduced by 16%
E. Increased by 14%

Answer 1

D

Explanation:

Index of "1.19" means that the price is hiked up by 19%.

1.19 * 100 = 119% [119 - 100 = 19% hike]

This basically means $100 worth of goods will be worth 100 * 1.19 = $119 because of the index.

How much PERCENTAGE would we need to REDUCE in order to bring the price down to 100?? That's what we need to find.

To find percentage change required, we use the formula:

`(New-Old)/(Old)*100`

Let new price be 100 [because we want this after the reduction] and old price be 119. So we plug it in and find:

`(New-Old)/(Old)*100\\(100-119)/(119)*100=-15.9`

Rounded, this would be around 16% [reduction].

Answer choice D is right.