CIMA P1 Syllabus B. Budgeting - Moving Averages - Notes ^{3 / 8}

It is common for a moving average to be measured over an even number of time periods

By analysing the four-quarter moving average of sales, seasonal variations will be smoothed out and it will be possible to identify the Trend = the long-term movement over time.

For example, the four-quarter moving average of 4 quarters of sales is shown below:

This average relates to the mid-point of the period ie between summer and autumn.

However, the moving average needs to relate to a particular quarter, otherwise seasonal variations cannot be calculated.

The illustration below shows how to deal with this:

Illustration: Moving averages

Calculate a four-quarter moving average trend of the following results.

To align these moving averages to a specific quarter, we need to average the moving averages to create a 'Centred moving average':

The centred moving average now relates to a specific quarter

eg 132.5 relates to Autumn 20X0

This is the TREND, ie the long-term movement over time.