Fixed weight aggregates method - fisher''s ideal method, Financial Management

Assignment Help:

Fixed Weight Aggregates Method

In fixed weight aggregates method, the weights used are neither from base period nor from current period but from a representative period. These weights are generally referred to as representative weights or as fixed weights. These fixed weights are unaffected by the selection of the base period. This is the advantage under this method. The user of the method will be able to select a base year that is convenient to him enabling him to change the price base yet retaining the fixed weights.

The students may refer to the weights assigned to various industry groups constituting the Index of Industrial Production presented in the annexure.

Fisher's Ideal method

Prof. Irving Fisher has proposed a formula for constructing index numbers, which is called the 'Fisher's Ideal Index'. The Ideal index is given by the following formula:

Fisher's Price Index = 160_fisherideal method.png  x 100

As evident from the above formula,

Fisher's Ideal Index is the geometric mean of the Laspeyres and Paasche indices.

The following advantages can be cited in favor of Fisher's Ideal Index:

  1. Theoretically, geometric mean is considered the best average for the construction of index numbers and Fisher's index uses geometric mean.

  2. As already noted, Laspeyres index and Paasche index indicate opposing characteristics and Fisher's index reduces their respective biases. In fact, Fisher's ideal index is free from any bias. This has been amply demonstrated by the time reversal and factor reversal tests.

  3. Both the current year and base year prices and quantities are taken into account by this index.

    Fisher's Ideal Index

    808_fisherideal method1.png

    The index is not widely used owing to the practical limitations of collecting data. Fisher's Ideal Quantity Index can be found out by the formula,

    258_fisherideal method2.png

    x 100

Related Discussions:- Fixed weight aggregates method - fisher''s ideal method

The key stages of a typical procurement cycle, QUESTION 1 Discuss the r...

QUESTION 1 Discuss the role and contribution of the procurement function in an organisation. QUESTION 2 Discuss the main objectives of purchasing negotiations. Compare

Explain the methods used to treat the obsolete stock, Explain the methods u...

Explain the methods used to treat the obsolete stock Review Inventory for obsolete items Make materials review board Include an obsolescence review in the closing p

Calculate the cca allowance anfd the pv of tax shield , Home Inc. is consid...

Home Inc. is considering buying a new piece of equipment, which will cost $715,000 and has an economic life of 5 years, in order to produce a new line of product.  The company beli

What is adjusted basis, Q. What is Adjusted Basis? Adjusted Basis - Aft...

Q. What is Adjusted Basis? Adjusted Basis - After a taxpayer's basis in property is determined, it should be adjusted upwardto include any additions of capital to the property

Leverage, importance of Leverage

importance of Leverage

Determine the basic requirements for a successful jit, What are the basic r...

What are the basic requirements for a successful JIT inventory control system? For a JIT system to be booming the supplier must be willing and capable to deliver materials instan

Leveraged buyouts, Leveraged Buyouts (LBOs) A leveraged buyout is a fin...

Leveraged Buyouts (LBOs) A leveraged buyout is a financing technique where debt is used to purchase the stock of a corporation and it frequently involves taking a public compan

Operating cycle, discuss the applicability ofan operating cycle in a poultr...

discuss the applicability ofan operating cycle in a poultry business(broilers)

Determine the pest analysis and its derivatives, PEST analysis and its deri...

PEST analysis and its derivatives Such  a  process  is  required for  an  organisation  to  be  continually  aware  of  external  factors within  its  general  or  industry  en

Management accounting and financial management, Q. Distinguish between Mana...

Q. Distinguish between Management Accounting and Financial Management with clear mention of basis of differences. How does the traditional financial manager differ from the mode

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd