# Two Accounting Questions

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Question description

1. The following table reports the Consumer Price Index for the Los Angeles area on a monthly basis from January 1998 to December 2000 (base year = 1982–1984). Eliminating the data for 2000, use Excel to forecast the index for all of 2000 using a three- and six-month average. Which provides a better forecast for 2000 using the data provided?

3. Forecast the data for 2000 again in Problem 1 with exponential smoothing with w = 0.3 and w = 0.7. Is this a better forecast than the moving average? Note: For appendix problem 3, please compare RMSEs for moving average and exponential smoothing forecasts to answer “Is this a better forecast than the moving average?”

Note:

1. Appendix problem 1: Delete “Eliminating the data for 2000.” You need to calculate the moving average forecasts and RMSEs for year 2000, not the whole data period.

2.  Appendix problem 3: Compare RMSEs for moving average and exponential forecasts to answer “Is this a better forecast than the moving average?” (see also p. 237). Use 166.63, the mean of all 36 months, as the initial forecast for Jan. 1998 for both exponential smoothing forecasts.

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