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Chapter 9

Question 6

Relative price index

A manager wishes to index the prices of four of its products between last year
as the base year and this year’s prices. The price and quantity information is as
follows:
Last year This year
Product Price ($) Quantity Price ($) Quantity
(units) (units)
A $10.00 60 $10.60 63
B $8.00 175 $8.80 189
C $17.00 250 $19.55 255
D $25.00 1,000 $25.75 1,100
Calculate the current weighted price index using values as the weighting.

Last year This year
Product Price ($) Quantity Price ($) Quantity P 1/P 0 Current yr
(units) (units) values ($)
A $10.00 60 $10.60 63 1.06 667.80
B $8.00 175 $8.80 189 1.10 1,663.20
C $17.00 250 $19.55 255 1.15 4,985.25
D $25.00 1,000 $25.75 1,100 1.03 28,325.00

∑ [w×(P /P )]
0
1
Relative price Index = × 100
∑ w
Index = [$667.80 × 1.06 + $1,663.20 × 1.1 + $4,985.25 × 1.15 + $28,325.00 ×
1.03]/($667.80 + $1,663.20 + $4,985.25 + $28,325.00) × 100

Index = $37,455.18/$35,641.25 × 100 = 105.1

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