ExpertMedium2 marksMultiple Choice
ACCA · Question 07 · Data analysis and statistical techniques
A construction firm uses a Laspeyres price index to monitor the cost of building materials.
Base year (2020) prices and quantities were:
Cement: $10/bag, 500 bags
Steel: $50/ton, 100 tons
Current year (2023) prices are:
Cement: $12/bag
Steel: $60/ton
What is the Laspeyres price index for 2023 (base year 2020 = 100)?
A construction firm uses a Laspeyres price index to monitor the cost of building materials.
Base year (2020) prices and quantities were:
Cement: $10/bag, 500 bags
Steel: $50/ton, 100 tons
Current year (2023) prices are:
Cement: $12/bag
Steel: $60/ton
What is the Laspeyres price index for 2023 (base year 2020 = 100)?
Answer options:
A.
115
B.
120
C.
125
D.
130
How to approach this question
Laspeyres uses base year quantities as weights. Calculate the total cost of the base year basket at base year prices, then calculate the total cost of the SAME basket at current year prices. Divide the current cost by the base cost and multiply by 100.
Full Answer
B.120✓ Correct
Base year cost (P0 * Q0): Cement (10 * 500 = 5,000) + Steel (50 * 100 = 5,000) = 10,000.
Current year cost using base quantities (P1 * Q0): Cement (12 * 500 = 6,000) + Steel (60 * 100 = 6,000) = 12,000.
Index = (12,000 / 10,000) * 100 = 120.
Common mistakes
Trying to use Paasche index logic, though current quantities aren't provided here.
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