Question

Suppose that you are using the? four-period weighted moving average forecasting method to forecast sales and you know that sales will be decreasing every period for the foreseeable future. What of the following would be the best set of weights to use? (listed in order from the most recent period to four periods? ago, respectively)?

A.0.00, 0.00,? 0.00, 1.00

B.?0.25, 0.25,? 0.25, 0.25

C.?1.00, 0.00,? 0.00, 0.00

D.0.10, 0.20,? 0.30, 0.40

E. ?0.40, 0.30,? 0.20, 0.10

Answer 1

There is a steady trend in decrease in sales. It is unknown whether rate of decrease in sales is constant, increasing or decreasing. However due to continuous declining trend, forecast for next period will be most influenced by sales of Last period , followed by sales of last to last period and so on .

In other words forecast for period t will be most influenced by sales of period t-1 , then t-2 , followed by t-3 and t-4

Thus maximum weightage should be given to period t-1, followed by t-2 , t-3 and t-4

With above logic, following are not to correct answers :

1. 0, 0, 0, 1 : It gives no weightage to recent periods and makes sales forecast same as that remained 4 periods back. Therefore, it is not the correct choice
2. 0.25 ,0.25,0.25.0.25 : This is an example of Moving average forecast and not 4 period WEIGHTED moving average forecast. Putting equal weights effectively means making average of last 4 periods
3. 1, 0, 0, 0 : This makes forecast value same as last year and therefore there is no decrease
4. 0.1, 0.2,0.3,0.4 : This is a case of weighted moving average. But it wrongly provides least weightage to recent period . as explained earlier, maximum weightage must be put on recent period due to steady declining trend in value over periods

The correct answer therefore is “E.. 0.4, 0.3, 0.2 , 0.1” which correctly provides maximum weight to immediate previous period and lesser weightage to periods previous to that

ANSWER : E ) 0.40, 0.3, 0.2 , 0.1