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Overview of problem set

I have been working through this problem and one of the online tutors already looked at this and has helped me work through the answer. Attached is their methodology, the actual question and a thorough solution to the problem on excel.

It is a relevant costing question regarding an investment at the hospital. I would like someone just to relook at the problem and explain why in year 2 the personnel costs rise up from 59,000 in year 1 to 63,720 in year 2 and back to 59,000 in year three through to 5 (when the question stipulates that personnel costs have only risen by 8% "in the last few years" - ie, irrelevant to the question as we are forward looking) and provide any advice as to their findings in the question.

I am also concerned that I should be ignoring inflation for this question as we are only accounting for it in some of the costs and not the revenues.

I suppose that we would have to look at the qualitative issues surrounding the question to decide whether the hospital should proceed with this venture.


Solution Preview

I checked the attached EXCEL file, but there's no rise-up in the personnel costs in year 2. Still, I'm pretty sure that if personnel costs have risen only in the last few years, we can keep it constant for all the five years at: 25000+17000+17000=59000.
<br>Inflation itself isn't an issue in this question, because ...