what are the merit and demerit chain base method
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Answer:
The year which is selected as a base should be a normal year, or in other words, the price level in this year should neither be abnormally low nor abnormally high. If an abnormal year is chosen as the base, the price relatives of the current year calculated on its basis would give misleading conclusions.
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Answer:
Advantages of Chain Index Numbers Method
This method allows the addition or introduction of the new items in the series and also the deletion of obsolete items.
In an organization, management usually compares the current period with the period immediately preceding it rather than any other period in the past. In this method, the base year changes every year and thus it becomes more useful to the management.
Disadvantages of Chain Index Numbers Method
Under this method, if the data for any one of the year is not available then we cannot compute the chain index number for the subsequent period. This is so because we need to calculate the link relatives, which are not possible to be calculated in this case.
In case an error occurs in the calculation of any of the link relatives, then that error gets compounded and all the subsequent link relatives will also become incorrect. Thus, the entire series will give a misrepresented picture.