ICAEW BIP · Chapter 8 · Question 8 of 10
Which of the following is a limitation of using time series analysis to forecast future sales?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It assumes that past patterns of trend and seasonal variation will continue into the future
Explanation
Time series analysis extrapolates historical trends and seasonal patterns. Changes in the economy, competition or technology can break those patterns, making forecasts unreliable, especially further into the future. The technique is designed specifically to identify seasonal variations and can be applied to any data recorded over time.
More Forecasting techniques and flexible budgets MCQs
- Q10A company budgeted to sell 10,000 units at £30 each, with variable costs of £18 per unit and fixed costs of £90,000. Actual sales were…
- Q1A retailer uses its historical sales data, together with weather forecasts and local event data, in a statistical model to estimate next…
- Q2A company forecasts quarterly sales using an additive time series model. The trend is given by T = 2,400 + 35t, where t is the quarter…
- Q3Across a retailer's stores, the correlation coefficient between monthly sales of ice cream and monthly sales of sunglasses is +0.88. Which…
- Q4A company uses a multiplicative time series model. The trend forecast for quarter 3 sales is 4,200 units and the seasonal index for…