Suppose that you are using the four-period simple moving average method to forecast sales, and sales have been increasing by 20% every period. How will your forecasts perform?
A) Forecasts will be lower than actual.
B) Forecasts will be higher than actual.
C) Forecasts will equal actual.
D) Forecasts will be decreasing.
E) Forecasts will be increasing by 5.0% every period.

Question

Quizplus · Accepted Answer

The simple moving average method averages past data points, so it lags behind trends. Since sales are increasing by 20% every period, the forecast will be lower than the actual sales because it doesn't account for the upward trend.

Suppose That You Are Using the Four-Period Simple Moving Average