Skip to content
ACCA exam results — Are you ready?Chat about it >>

Ask the Tutor ACCA MA

Price Index

GGabbi11y ago
Dear Mr Moffat I came across to below question for which I don't understand and agree with the answer provided in the book Could you kindly revise my working and point out the mistake if there is any? Product M uses four different type of materials. The materials used and their prices in 2006 and 2007 are as follows: 2006 Material A kg 200 $0.98 Material B Kg 500 $ 0.95 Material C Kg 300 $1.20 Material D Kg 400 $1.10 2007 Material A kg 300 $1.40 Material B Kg 400 $1.10 Material C Kg 500 $0.92 Material D Kg 100 $1.14 Calculate the Laspeyre quantity index for 2007 (with 2006 as the base year) to two decimal places. My working As Laspeyre takes the base qty , where Paasque current qty. 2006 Material A kg 200 $0.98 Material B Kg 500 $ 0.95 Material C Kg 300 $1.20 Material D Kg 400 $1.10 Total 1471 2007 Material A kg 200 $1.40 Material B Kg 500 $1.10 Material C Kg 300 $0.92 Material D Kg 400 $1.14 Total 1562 1562/1471*100 106.19 Book answer 2006 Material A kg 200 $0.98 Material B Kg 500 $ 0.95 Material C Kg 300 $1.20 Material D Kg 400 $1.10 2007 Material A kg 300 $0.98 Material B Kg 400 $0.95 Material C Kg 500 $1.20 Material D Kg 100 $1.10 1384/1471*100 94.09 Since when do we need to use the price for the base year and not base qty to calculate the price index. I think this is a mistake. Please correct me if I am wrong. Thanks a lot for your help Gabbi
GGabbi11y ago#1
Dear Mr Moffat, Please correct me if I am wrong. As Laspeyre takes the base qty whereas Paasque current qty where calculating the price Index but As Laspeyre takes the base price whereas Paasque current price where calculating the qty Index As the question has asked for the qty index, then the answer provided by the book is correct. If above statement is correct, can both type of questions be asked in the exam? Thank you Gabbi
John MoffatJohn MoffatTutor11y ago#2
Yes - both types can be asked. However, asking for a price index is much the more likely in the exam.
GGabbi11y ago#3
Thank you very much Gabbi
John MoffatJohn MoffatTutor11y ago#4
You are welcome, Gabbi :-)
Sign in to reply to this topic.