Which of the following best defines ‘exponential moving average’?

Which of the following best defines ‘exponential moving average’?
A . A forecasting technique where the average is calculated by dividing the sum of the val-ues by the number of values
B . A process by which the reorder of an item is triggered by the inventory level dropping to a
predetermined level
C . A process by which a decision is taken at a period end or review point to determine how much to reorder
D . A forecasting technique where each demand is multiplied by a weighting factor

View Answer

Answer: D

Explanation:

An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight

and significance on the most recent data points. The exponential moving average is also referred to

as the exponentially weighted moving average. An exponentially weighted moving average reacts

more significantly to recent price changes than a simple moving average (SMA), which applies an

equal weight to all observations in the period.

Reference: CIPS study guide page 111-112

LO 2, AC 2.3