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

33.00

C

6,500

12.20

18.40

D

2,500

20.00

35.50

Use the price data to compute a Paasche index for the shipping cost if year 5 quantities are 4,000, 3,000, 8,000, and 3,000 for products A, B, C, and D, respectively. (Round your answer to the nearest integer.)

I5 =

Answer 1

Paasche's Index= 168.63= 169

Explanation:

Products

Base-Period Current Period

Quantities Mean Shipping Quantities Mean Shipping

(Year 1) Cost per Unit ($) (Year 5) Cost per Unit ($)

A 1,500 10.50 4000 15.90

B 5,000 16.25 3000 33.00

C 6,500 12.20 8000 18.40

D 2,500 20.00 3000 35.50

Paasche's Index= ∑ pn.qn/∑po.qn* 100

Where pn is the price of the current year and qn is the quantity of the current year and po. is the price of the base year and qo. is the quantity of the base year.

Paasche's Index is the percentage ratio of the aggregate of given period prices weighted by the quantities sold or consumed in the given period to the aggregate of the base period prices weighted by the given period quantities.

Multiplying the current year prices with the current year quantities and the base year price with the current year quantities we get.

Product pn.qn po.qn

A 15.90* 4000 10.50* 4000

= 63600 =42000

B 33.00*3000 16.25 * 3000

= 99000 = 48750

C 18.40* 8000 12.20 *8000

=147200 =97600

D 35.50* 3000 20.00*3000

=106500 60,000

∑ 416300 248350

Paasche's Index= ∑ pn.qn/∑po.qn= 416300/ 248350 *100 = 1.676=1.68= 168.63= 169