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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

Sales of Kaveri Traders for the last three years were Rs 40 lakh, Rs 46 lakh and Rs 52 lakh respectively (oldest to latest). Using a simple three-year moving average, the forecast of sales for the next year is:

The three-year simple moving average forecast is Rs 46 lakh, found by adding 40, 46 and 52 to get 138 and dividing by three. Using the last year alone, or only two years, or the unaveraged total, gives wrong figures.

  1. ARs 52 lakh
  2. BRs 46 lakhCorrect
  3. CRs 49 lakh
  4. DRs 138 lakh

Explanation

Simple moving average = (40 + 46 + 52) / 3 = 138 / 3 = Rs 46 lakh. Rs 52 lakh is just the last observation (naive forecast), Rs 49 lakh averages only the latest two years, and Rs 138 lakh is the total, not the average.

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