Question

A certain manufacturing company has the following data on quantities shipped and unit costs for each of its four products. Products Base-Period Quantities (Year 1) Mean Shipping Cost per Unit ($) Year 1 Year 5
A 1,500 10.50 15.90
B 5,000 16.25 31.00
C 6,500 12.20 16.40
D 2,500 20.00 35.50
Required:
1. Use the price data to compute a Paasche index for the shipping cost if year 5 quantities are 4,500, 3,000, 8,000, and 3,000 for products A, B, C, and D, respectively. (Round your answer to the nearest integer.)

Answer 1

Answer:

159

Explanation:

The computation of Paasche index for the shipping cost is shown below:-

Paasche price index = (∑(Price at observation period × Observation quantity) ÷ ∑(Price at base period × Observation quantity)) × 100

= In our case we have our observational year as year 5 and base year as year 1.

                                          Shipping Cost

Product      Year 5           Year 1        Year 5         obs quantity  obs quantity  

                   (Obs qty)   (base year) (Obs year)         ×                       ×

                                                                               obs cost        base cost

                                                                           ( 4,500 × 15.9) ( 4,500 × 10.5)

A                 4,500            10.5        15.9                 71,550           47,250

B                  3,000          16.25        31                  93,000         48,750

C                 8,000            12.2         16.40             131,200        97,600

D                 3,000             20          35.5               106,500        60,000

Total                                                                        402,250       253,600

Passche index = 402,250 ÷ 253,600 × 100

= 158.61

or

= 159

Therefore the Passche index is 159