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

159

Step-by-step 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