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ACCA Applied Knowledge · Management Accounting · Summarising and analysing data

In an additive time series model, the trend for a quarter is 400 units and the seasonal variation for that quarter is -35 units. What is the forecast for that quarter, ignoring any residual?

The forecast is 365 units. In the additive model the seasonal variation is added to the trend, so 400 plus negative 35 gives 365. The negative figure shows the quarter is typically below trend, so it reduces the forecast.

  1. A435
  2. B365Correct
  3. C400
  4. D14,000

Explanation

Under the additive model, forecast = trend + seasonal variation = 400 + (-35) = 365. Adding 35 (435) ignores the negative sign. Multiplying 400 by 35 gives 14,000, which confuses additive with multiplicative treatment.

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