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CMA Final · Strategic Cost Management · Business Forecasting Models - Time Series and Regression Analysis

A Pune retailer fits a linear trend to quarterly sales (in Rs lakh) using coded time t, where t = 0 at the middle of the series. The fitted line is Y = 80 + 4t, with t = 1 for the next quarter after the mid-point and each unit of t equal to one quarter. What is the trend value for the quarter that is 5 quarters after the mid-point?

The trend value is Rs 100 lakh. Putting t = 5 in the fitted line Y = 80 + 4t gives 80 plus 20. Using a different coded time value, such as 1 or 4, would give the wrong trend figure.

  1. ARs 100 lakhCorrect
  2. BRs 84 lakh
  3. CRs 96 lakh
  4. DRs 120 lakh

Explanation

Substitute t = 5 into Y = 80 + 4t. Y = 80 + 4 x 5 = 80 + 20 = 100. Rs 84 lakh results from using t = 1 instead of 5, and Rs 96 lakh results from using t = 4.

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