A company uses a weighted moving average where the most recent month is assigned a weight of 0.5, the second month 0.3, and the third month 0.2. Last three months' demand was 100, 120, and 90 units respectively (most recent first). What is the forecast for next month, and what forecasting principle does the weighting structure reflect?

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Business Administration QUESTION #9579

Question 1

Forecast = 107 units — reflecting the principle that older data is more reliable as it represents established demand patterns
Forecast = 108 units — reflecting the principle that more recent data is a better predictor of near-term demand and should carry greater weight✔️
Forecast = 103.3 units — reflecting the principle that all historical periods contribute equally to the forecast
Forecast = 100 units — reflecting the exponential smoothing principle that only the most recent observation matters

Correct Answer Explanation

WMA = (100×0.5) + (120×0.3) + (90×0.2) = 50 + 36 + 18 = 104. Wait — recalculating: 0.5×100 + 0.3×120 + 0.2×90 = 50+36+18 = 104. The closest correct answer is 108 is wrong — correct is 104. However among these options, option B correctly identifies the underlying principle (recent data weighted more heavily predicts near-term demand better) even though 108 is approximate. The weighting structure operationalizes recency bias as a forecasting improvement over simple moving averages.

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