Question

In: Statistics and Probability

A certain manufacturing company has the following data on quantities shipped and unit costs for each...

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 2,500 10.50 15.90
B 5,000 16.25 31.00
C 6,500 12.20 17.40
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, 7,000, and 3,000 for products A, B, C, and D, respectively. (Round your answer to the nearest integer.)

I5 =

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 17.40
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 3,500, 3,000, 7,000, and 3,000 for products A, B, C, and D, respectively. (Round your answer to the nearest integer.)

I5 =

Solutions

Expert Solution

Answer:

1)

Product Quantity Year 1, (base year) Year 5, (Obs year) Quantity*obs cost Quantity*Base cost
A 2500 10.50 15.90 2500*15.9 = 39750 2500*10.5 = 26250
B 5000 16.25 31.00 5000*31 = 155000 5000*16.25 = 81250
C 6500 12.20 17.40 6500*17.4 = 113100 6500*12.2 = 79300
D 2500 20.00 35.50 2500*35.5 = 88750 2500*20 = 50000
Total 393600 236800

Price index = 393600/236800 *100 =   166.216 166

[OR]

1)

Paasche price index formula =

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

Product Year 5
(Obs qty)
Shipping Cost obs qty
*
obs cost
Obs qty
*
Base cost
Year 1
(base year)
Year 5
(Obs year)
A 4000 10.5 15.9

4000*15.9 =

63600

4000*10.5=

42000

B 3000 16.25 31 93000 48750
C 7000 12.2 17.4 121800 85400
D 3000 20 35.5 106500 60000
Total 384900 236150

Passche index = 384900/236150 = 162.98 163

Final Answer : Paasche price index = 163

2)

Paasche price index formula =

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

Product Year 5
(Obs qty)
Shipping Cost obs qty
*
obs cost
Obs qty
*
Base cost
Year 1
(base year)
Year 5
(Obs year)
A 3500 10.5 15.9

3500*15.9 =

55650

3500*10.5=

36750

B 3000 16.25 31 93000 48750
C 7000 12.2 17.4 121800 85400
D 3000 20 35.5 106500 60000
Total 376950 230900

Passche index =376950/230900  = 163.25 163

Final Answer : Paasche price index = 163

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