ExpertHard2 marksShort Answer
ACCA · Question 06 · Data Analysis and Statistical Techniques
A heavy manufacturing firm tracks the cost of two key raw materials.
Base Year (Year 0): Material A price $10, quantity 100. Material B price $20, quantity 50.
Current Year (Year 1): Material A price $12, quantity 110. Material B price $25, quantity 60.
Calculate the Laspeyres price index for Year 1 (Base Year = 100). Enter your answer to one decimal place.
A heavy manufacturing firm tracks the cost of two key raw materials.
Base Year (Year 0): Material A price $10, quantity 100. Material B price $20, quantity 50.
Current Year (Year 1): Material A price $12, quantity 110. Material B price $25, quantity 60.
Calculate the Laspeyres price index for Year 1 (Base Year = 100). Enter your answer to one decimal place.
How to approach this question
Use the Laspeyres formula: (Sum of P1*Q0) / (Sum of P0*Q0) * 100. Use base year quantities for both numerator and denominator.
Full Answer
Laspeyres Index = [Σ(P1 × Q0) / Σ(P0 × Q0)] × 100
Denominator Σ(P0 × Q0) = (10 × 100) + (20 × 50) = 1,000 + 1,000 = 2,000.
Numerator Σ(P1 × Q0) = (12 × 100) + (25 × 50) = 1,200 + 1,250 = 2,450.
Index = (2,450 / 2,000) × 100 = 122.5.
Common mistakes
Calculating the Paasche index by using Year 1 quantities (Q1) instead of Q0.
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