CPIM Practice Exam

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What is the formula used for calculating a moving average forecast?

Sum of Demand for all periods/ number of periods
Sum of Demand for most recent set of periods/ number of periods
Sum of Last Forecasts/ number of periods
(Last Demand + Last Forecast)/2

The correct answer is: Sum of Demand for most recent set of periods/ number of periods

The moving average forecast is a method used to smooth out fluctuations in data and provide a clearer picture of trends over time. The correct approach to calculating a moving average is to take the sum of demand for the most recent set of periods and divide it by the number of those periods. This method allows forecasters to use only the latest data, which is often more relevant for predicting future demand. By focusing on the most recent data points, this method minimizes the influence of older data that may no longer represent current market conditions. Consequently, it makes the forecast adaptable and more responsive to recent changes in demand patterns, enhancing accuracy in inventory planning and resource allocation. The other options do not align with the typical calculation of a moving average forecast. The sum of demand for all periods would include outdated information that may distort the forecast. The sum of last forecasts would not provide an accurate reflection of actual demand, as forecasts are not always based on actual sales or usage data. Lastly, taking the average of the last demand and the last forecast combines two different metrics, which does not result in a reliable prediction based solely on recent demand.