How to calculate the index of physical volume

Turnover or volume of sales is one of the main indicators of production circulation. This is not only a quantitative indicator, but quality for any enterprise, because it captures the essence of the economic activity profit dynamics. This allows you to make decisions about changing policy of the enterprise to improve end products, reduce the cost of production, and hence, reduce costs.

For the analysis of the turnover index of the physical volume. Actually it shows the ratio of the amount of goods sold in the reporting period, the number of goods sold in the reference period. However, a simple division of one by another will not exactly reflect the dynamics of sales of goods, as this disparate values because of the diversity of the products.

To obtain the numerator and denominator of two quantities that can be compared, it is necessary to use as the so-called price weights of the base period. The weight index is a value that always remains constant in contrast to the indexed variable – the number of units of products.

So, the formula of the index of physical volume can be written in the following form:It = Σ(q_1*p_0)/Σ(q_0*p_0), where q_0 is the quantity of goods sold in the base period;q_1 – the quantity of goods sold for the period;p_0 – the base price of the product.

In other words, the index of physical volume of sales is calculated on the basis of the produced products. For example, the company produces TVs and dvd players, then the index is equal to:It = (q_тв_1*р_тв_0)/( q_тв_0*р_тв_0) + (q_dvd_1*p_dvd_0)/ (q_dvd_0*p_dvd_0).

Thus, the index of physical volume shows how many times did the cost of production due to increase or decrease the volume of its production. This value is measured in percent. Sometimes it is necessary to calculate the absolute value of this index, which is not expressed in the ratio and difference of numerator and denominator.