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Price Index

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Price Index

  • This topic has 4 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • November 5, 2014 at 6:59 pm #207870
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    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

    November 5, 2014 at 11:09 pm #207902
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    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

    November 6, 2014 at 5:43 pm #208068
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54709
    • ☆☆☆☆☆

    Yes – both types can be asked.

    However, asking for a price index is much the more likely in the exam.

    November 6, 2014 at 7:45 pm #208133
    gabbi08
    Member
    • Topics: 135
    • Replies: 181
    • ☆☆☆

    Thank you very much

    Gabbi

    November 6, 2014 at 8:09 pm #208143
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54709
    • ☆☆☆☆☆

    You are welcome, Gabbi 🙂

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