A leather goods manufacturer has kept records of the annual costs of inputs used in the manufacture of its leather products (briefcases, satchels, belts, hats, etc.). The accountant has developed an annual Laspeyres composite cost index, with 2007 as the base period as shown in the following table:
|
|
2005
|
2006
|
2007
|
2008
|
2009
|
2010
|
2011
|
|
Composite cost index
|
97
|
92
|
100
|
102
|
107
|
116
|
112
|
(a) The accountant would like to move the base of the index series to 2009. Prepare the revised cost index series with base period of 100 in 2009.
(b) Plot the revised cost index series in a line graph. Comment on the pattern of overall costs of inputs changes over the seven-year period from 2005 to 2011.
(c) By how much have overall costs of inputs changed, on average, from 2009 to 2011?
(d) Use the original cost index series to prepare link relatives for the period 2005 to 2011. Between which two consecutive years has the change in the costs of inputs been the largest?
(e) Use the geometric mean (refer to Chapter 3) to calculate the average annual percentage change in the overall costs of inputs from 2005 to 2011. Interpret its value.