CPIM Practice Exam

How is the Seasonal Index calculated?

1. Period Average Demand - Average Demand for All periods

2. Period Average Demand + Average Demand for All periods

3. Period Average Demand / Average Demand for All periods

4. Average Demand for All periods / Period Average Demand

The correct answer is: Period Average Demand / Average Demand for All periods

The calculation of the Seasonal Index is a fundamental step in understanding seasonal variations in demand. The Seasonal Index helps businesses to compare demand during a specific period to the average demand across all periods. It indicates how much higher or lower the demand is during a particular season compared to the overall average. When you calculate the Seasonal Index, you divide the Period Average Demand by the Average Demand for All periods. This ratio provides a direct comparison: if the resulting index is greater than 1, it indicates that the demand during that particular period is higher than the average demand, whereas an index of less than 1 suggests below-average demand. This calculation is crucial for firms looking to forecast seasonal patterns effectively, enabling them to make informed decisions about inventory management, staffing, and promotional strategies during peak or low-demand seasons. By having this insight, businesses can better align resources with expected market conditions. The other options provided do not accurately represent the methodology for calculating the Seasonal Index, which specifically involves a division of the demands to understand relative performance against the average.