Suppose that you are using the four-period simple moving average method to forecast sales, and sales have been decreasing by 10% 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 increasing.
E) Forecasts will be decreasing by 2.5% every period.

Question

Quizplus · Accepted Answer

Forecasts will be higher than actual because a simple moving average method lags behind in a consistently decreasing trend, causing the forecasted values to be higher than the actual decreasing values.

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