Calculate Cost Increase Percentage

As prices increase on many of the things you use in your day-to-day life, it may become necessary for you to calculate that increase for forecasting or accounting purposes. One useful calculation is to find the percent increase in the cost of an item or items that you purchase on a regular basis for either personal or business use, particularly if you are putting together budgets for your company or household for private use, or even working with others to help with their budgeting, such as teaching your children how to budget. To calculate the percent increase of an item or items, you need only to know the past and present costs and perform a few simple calculations.

Steps

Locating Cost Information

  1. Recall the previous price of an item. The simplest way to locate previous cost data is with your own memory. Perhaps there is some item at the grocery store or shopping mall that you've been buying for years at the same price. This could be a staple of your weekly grocery shopping trips or a clothing item you buy regularly. For example, imagine that the price of a gallon of milk has been $2.50 for a number of years. This represents the previous price for the purpose of your cost increase calculation.
  2. Check the item's current price. If the price of an item you've purchased in the past has increased, you can now calculate a cost increase percentage for the item. However, you will need the item's current cost first. Check the store for the current price of the item in question. For example, imagine that a gallon of milk, that has always gone for $2.50, is now priced at $3.50. You can now calculate the cost increase percentage to know just how much you are being charged at the new price in relation to the old price.
    • Before comparing, make sure both values (your previous and current values) refer to the same product. If one is better in some way, your costs are not directly comparable.[1]
  3. Research historical cost information. In some cases, locating previous cost information is not as simple as remembering the former cost of an item. For example, when comparing costs from long ago to now or finding cost increases on an item you've never purchased you'll need to locate cost information elsewhere. The same is true for cost measures (rather than items), such as the consumer price index (CPI), a measure of average consumer prices in the U.S., or the purchasing power of the U.S. Dollar.[2]
    • In these cases, you will need to do some online research to locate previous cost figures. Try typing in the item and year you are interested in, along with "cost" or "value," to locate cost information for that time.
    • For example, cost information for various consumer goods from 1900 until the present can be found at http://mclib.info/reference/local-history-genealogy/historic-prices/.
  4. Locate modern cost figures. For all historical cost information you locate, you will also need a modern figure to compare it with. Try to locate the closest modern version of whatever item or measure you are comparing. Make sure to avoid comparing items that are different due to different levels of quality or additional features, for example. Use the most current information from the current year in your calculations.[3]

Calculating Cost Increase Percentage

  1. Understand the percent increase formula. The percent increase formula calculates the percent increase in a cost as a percentage of the previous cost. Written out in full, the formula is <math>\text{Percent Increase}=\frac{(\text{New Cost} - \text{Previous Cost})}{\text{Previous Cost}}\times 100</math>. The <math>\times100</math> at the end converts the difference from a decimal to a percentage.[4]
  2. Subtract the previous cost from the new cost. Start your calculation by putting your variables into the formula. Then, simplify the part of your equation in parentheses by subtracting the previous cost from the new cost.[4]
    • For example, if you bought a gallon of milk a month ago for $2.50 and, today, it is $3.50, subtract $2.50 from $3.50 to get the dollar amount of the change, or $1.00 in this case.
  3. Divide the difference by the previous cost. Your next step is to divide the result of the last step by the previous price. This essentially converts the different between the new and old costs to a proportion of the previous cost.[5]
    • In the example, this would be $1.00 (the result of the previous step) divided by $2.50 (the previous cost).
    • The result is 0.40, which is expressed as a number rather than a dollar amount.
  4. Convert the answer to a percentage. Multiply the answer by 100 to get the percentage increase. The result will be the percentage that the previous cost has been increased by to arrive at the new cost.[5]
    • In the example, this is <math>0.40\times100</math>, which is 40 percent.
    • So, the cost of a gallon of milk has increased by 40 percent between the previous and new costs.

Using Cost Increase Percentage

  1. Calculate an increase in your expenses. You can use the results of your cost increase calculations to calculate increases in cost for all of your expenses. You can then track these increases over time and see if some items are increasing faster or slower than other costs. Then, compare the increases to increases (or lack thereof) in your income to see whether your pay raises are keeping pace with your cost of living.[6]
  2. Track business expense increases. Businesses can use cost increase percentages to determine the increases' effects on projected or actual profit margins. This information can then be used to weigh the savings from a change in suppliers or justify a selling price increase. For example, if a business sees that the price of one of its inputs to production is rising regularly, it may choose to seek an alternative input or supplier of that input. Alternately, the business might choose to raise prices accordingly.[7]
  3. Determine appreciation on collectibles. Collectibles, like vintage cars, watches, and art, might appreciate in value over time. This appreciation can be measured using the cost increase percentage calculation process. Compare previous prices of the collectible with current market prices to assess the increase. For example, if a watch sold for $100 in 1965, but is now resold on the used market for $2,000, this represents a 1900 percent price increase.[7]
  4. Use the same process for other types of percent increase. The same formula and process used to find percent cost increase can be used to perform a number of other calculations. You can use the same formula with different terms to calculate the percent error (between an expected value and actual value), to find the percent difference between two amounts of time, or any number of other comparisons between two numbers.[5]

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Sources and Citations

  1. ↑ http://www.mathsisfun.com/data/percentage-difference-vs-error.html
  2. ↑ https://www.measuringworth.com/calculators/ppowerus/
  3. ↑ http://mclib.info/reference/local-history-genealogy/historic-prices/
  4. ↑ 4.0 4.1 http://www.onemathematicalcat.org/algebra_book/online_problems/calc_percent_inc_dec.htm
  5. ↑ 5.0 5.1 5.2 http://www.marshu.com/articles/calculate-percentage-increase-decrease-percent-calculator.php
  6. ↑ http://www.peakprosperity.com/podcast/97466/ed-butowsky-calculating-true-cost-living-increase
  7. ↑ 7.0 7.1 http://www.staff.vu.edu.au/mcaonline/units/percent/pereve.html
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