Sauce Co manufactures and sells cartons of cooking sauces. The finance director would like to forecast sales, including the impact of seasonal variation.
Data has been gathered and the following centered moving averages have been calculated, using a base period of 4 quarters. The seasonal variations are 0·904 for quarter 3 and 1·079 for quarter 4. The random component is negligible and can therefore be ignored.
YEAR ‘000 Units
Quarter 1 Quarter 2 Quarter 3 Quarter 4
20x2 1,086.75 1,112.5 1,162.5 1,206.25
20x3 1,243.75 1,287.5
What are the forecast sales for 20x3, Quarters 3 & 4 (to the nearest whole number)?
ANSWER:
Step 1:
Calculate the average trend of the centred moving averages:
(1,287.5 – 1,086.75)/5 = 40,150 units per quarter
Step 2:
Add the average to quarters 3 and 4 to extend the trend:
Quarter 3: 1,287,500 + 40,150 = 1,327,650
Quarter 4: 1,287,500 + (40,150 * 2) = 1,367,800
Step 3:
Apply the season variation:
Quarter 3: 1,327,650 * 0.904 = 1,200,196
Quarter 4: 1,367,800 * 1.079 = 1,475,856
If you got the wrong answers, you calculated the average trend by dividing by 6, not 5.
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From the video I watched, I understood that once we calculate the centered moving average, we subtract that from the actual from the trend to get the variation...
So I'm already stuck on step 1. If its quarterly, why are we diving by 5 and why would be accidently divide by 6. And these are not actuals, they are already the centered moving average :S
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Moving averages
2y ago#1You have calculated
Quarter 1 Quarter 2 Quarter 3 Quarter 4
20×2 1,086.75 1,112.5 1,162.5 1,206.25
20×3 1,243.75 1,287.5
Then there are 5 movements from 1086.75 to 1287.5
Or it's how many changes have occurred in this period
So you divide by 5
1- When dealing with quarters, dont we find the average of the 4 numbers of the year?
2- The figures given are not actuals but averages already calculated, so why are we calculating an average again?
2y ago#3It is the average trend of the centred moving averages you are calculating
Which is (1,287·5 – 1,068·75)/5 = 43,750 units.
When dealing with quarters, don't we find the average of the 4 numbers of the year?
What are you asking me? You are working out an average trend or growth.
Therefore forecast centred moving average for Q3 in 2012 = 1,287,500 + 43,750 = 1,331,250.
Adjusted for seasonal variation: 1,331,250 x 0·9042 = 1,203,716·25 units.
Forecast centred moving average for Q4 of 2012 = 1,287,500 + (2 x 43,750) = 1,375,000.
Adjusted for seasonal variation = 1,375,000 x 1·0785 = 1,482,937·5 unit
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