Question 1

A construction firm uses a Laspeyres price index to monitor the cost of building materials. 
Base year (2020) prices and quantities were:
Cement: $10/bag, 500 bags
Steel: $50/ton, 100 tons

Current year (2023) prices are:
Cement: $12/bag
Steel: $60/ton

What is the Laspeyres price index for 2023 (base year 2020 = 100)?

Accepted Answer

Laspeyres uses base year quantities as weights. Calculate the total cost of the base year basket at base year prices, then calculate the total cost of the SAME basket at current year prices. Divide the current cost by the base cost and multiply by 100.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Trying to use Paasche index logic, though current quantities aren't provided here.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 2

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