Management Accounting · Analytical techniques in budgeting and forecasting

Index Numbers for ACCA Management Accounting

Updated 11 October 2026 · Fact-checked

An index number shows how a price or quantity has changed against a base period set at 100. To solve questions, divide the current value by the base value and multiply by 100. For weighted indices, multiply each item by its weight, add them up, then divide by the total weight. Use indices to adjust budget figures for inflation.

Understand Index Numbers

An index number measures change over time. You pick a base period and give it a value of 100. Every other period is shown relative to that base. If the index is 125, the value is 25% higher than in the base period. If it is 90, the value is 10% lower.

A simple (unweighted) index tracks one item, such as the price of one material. You compare today's price with the base price. It is easy, but it treats every item as equally important if you average several.

A weighted index tracks a group of items, such as all the materials a factory buys. Each item gets a weight showing its importance, for example the quantity used or the amount spent. Items that matter more move the index more. This gives a fairer picture of overall change.

Index numbers are used in budgeting and forecasting to update past costs for inflation. If a cost was $50,000 when the index was 120 and the index is now 138, the cost in today's prices is $50,000 × 138 ÷ 120. You can also use an index to forecast: apply an expected rise in the index to the current cost.

A price index tracks prices. A quantity index tracks volumes. Both use the same method. Only the data changes.

Key formulas to remember

Simple price index: Price index = (Current price ÷ Base price) × 100; Base period always equals 100. Use the same formula for a quantity index with quantities.
Weighted price index: Weighted index = Σ(index × weight) ÷ Σ weights; Weights could be quantities, expenditure shares or given percentages. Do not divide by the number of items.
Weighted aggregate index: Index = Σ(current price × base quantity) ÷ Σ(base price × base quantity) × 100; Base-weighted (Laspeyres style). Using current quantities as weights gives a current-weighted index instead. Follow the weights the question gives.
Adjusting a value to a new price level: Adjusted value = Original value × (New index ÷ Old index); Use for inflating or deflating a cost to different dates.
Percentage change in an index: % change = (New index − Old index) ÷ Old index × 100; Do not subtract the index points and call it a percentage unless the base is 100.
Changing the base: New index = (Old index ÷ Index of the new base period) × 100; Use when you need a different period to equal 100.

How to solve Index Numbers questions

Use this method for any index number question in the objective test.

1Read what is asked: a price index, a quantity index, a weighted index, or an adjusted cost.
2Identify the base period and its value (normally 100).
3Check whether the question gives weights, and whether they are quantities, amounts or percentages.
4For a simple index, divide current by base and multiply by 100.
5For a weighted index, multiply each item's index by its weight, sum the results, then divide by the sum of the weights.
6For an inflation adjustment, multiply the cost by new index ÷ old index. Put the date you want to move to on top.
7Check the answer makes sense: a price rise should give a higher value, and the index should be above 100 if prices rose.
8Round only at the end, and give the answer in the format requested (decimals, whole number or $).

Quickest way: Ratio of indices shortcut

When to use it: Use it when you must restate a cost from one period to another and both index values are given.

Write the date you are moving to as the numerator and the date the cost is currently at as the denominator.
Divide the two index values to get one multiplier, for example 138 ÷ 120 = 1.15.
Multiply the cost by the multiplier.
For weighted indices, multiply each index by its weight, add up, and divide by total weights once.
Sense-check: rising prices must increase the figure. If your answer falls, you inverted the ratio.

Common mistakes in Index Numbers

Inverting the ratio when adjusting a cost for inflation.
You are unsure which index goes on top and rush.
Fix: Put the index of the period you want to move to on top. Then check that rising prices give a larger cost.
Dividing a weighted total by the number of items instead of the total weights.
It is mistaken for a simple average.
Fix: Always divide Σ(index × weight) by Σ weights.
Treating a change in index points as a percentage change.
It works only when the starting index is 100, so students apply it everywhere.
Fix: Use (new − old) ÷ old × 100 whenever the old index is not 100.
Using the wrong weights, such as current quantities when the question gives base quantities.
Several data sets appear in the question and they get mixed up.
Fix: Underline the weights the question tells you to use and use only those.
Forgetting that the base period equals 100.
Students apply the index to the wrong year or use raw prices as the index.
Fix: Check the base year first. Convert prices to index values before weighting if the formula needs indices.

Worked examples

Example 1

A company's materials price index was 120 in Year 1 and 138 in Year 4. Material costs in Year 1 were $80,000. Assuming volumes are unchanged, what are the costs at Year 4 prices?

Show the solution

Move from Year 1 to Year 4, so Year 4 index goes on top.
Multiplier = 138 ÷ 120 = 1.15.
Year 4 cost = $80,000 × 1.15 = $92,000.

Answer: $92,000

Example 2

A business uses two materials. The price index for material X is 110 and for material Y is 140. The weights are 3 for X and 2 for Y. What is the weighted price index?

Show the solution

Multiply each index by its weight: 110 × 3 = 330 and 140 × 2 = 280.
Sum the results: 330 + 280 = 610.
Sum the weights: 3 + 2 = 5.
Weighted index = 610 ÷ 5 = 122.

Answer: 122

Exam tips

Look for the base period first. It usually equals 100 and drives every calculation.
In number entry questions, check the rounding instruction and the unit (index points, %, or $) before typing.
In multiple choice questions, a wrong option is often the inverted ratio. Check your direction before choosing.
Weights may be given as quantities, percentages or ratios. All work the same way, so do not convert unless needed.
Multiple response questions may ask which statements about index numbers are true. Remember that a weighted index reflects importance and a base value of 100 is a convention.

Practice questions from Analytical techniques in budgeting and forecasting

Index Numbers in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Index Numbers: frequently asked questions

What is the difference between a simple and a weighted index?

A simple index tracks one item or treats all items equally. A weighted index gives each item a weight for its importance, so bigger items move the index more. Weighted indices give a more realistic view of overall change.

How do I use an index to adjust a budget for inflation?

Multiply the old cost by the new index divided by the old index. For example, a cost of $10,000 at index 200 becomes $10,500 at index 210. Always put the date you are moving to on top.

Does the base period always equal 100?

Normally yes, that is the convention. Questions can give an index series where other periods are shown relative to it. If you need a different base, divide each index by the new base index and multiply by 100.

How are index numbers tested in ACCA MA?

They appear in Section A objective test questions on analytical techniques. Expect number entry or multiple choice questions on calculating a weighted index or restating a cost at current prices.