8.

FINDING THE SEASONAL VARIATIONS

Seasonal variations are the difference between actual and trend

figures(additive model), or the actual figures expressed as proportion of
the trend (mulplicative model).

The additive model is where each actual figure in the time series is made
up as follows

A=T+S
where: A = Actual figure
T = Trend figure
S =Seasonal variations
Therefore the seasonal variation is calculated as S = A - T
8.1 Additive model
 The difference between the actual results for
any one quarter and the trend figure for that
quarter will be the seasonal variation for that
quarter.
 The variation between the actual result for any
one particular quarter and the trend line
average is not the same from year to year, but
an average of these variations can be taken.
8.2 Multiplicative model

 The method of estimating the seasonal variations in the above

example was to use the differences between the trend and
actual data. This model assumes that the components of the
series are independent of each other. So that an increasing
trend does not affect the seasonal variations and make them
increase as well, for example

The alternative is to use the multiplicative model whereby each

actual figure is expressed as a proportion of the trend.
9. Using time series analysis in cash budgeting
 Times series analysis in budgeting is used in order to
estimate future figures based upon the past trend and
seasonal variations that have been calculated. This
process of using historical information to estimate future
figures is known as extrapolation.
 Previously, we have looked at how to calculate a trend
using moving averages, and how to seasonal variations
using both the additive and multiplicative models. Now
we will consider how this information can be used
together in the cash budgeting process.
9.1 Example: time series analysis in cash
budgeting
9.2 Problems with using time series for
forecasting
 Time series analysis can be a useful method of stiempting to
forecast future sales and cost figures. However you should also be
aware that the technique does have its limitations.
-The less historic data available the less refiable the results will be.
-The further inlo the tuture we forecast the less relable the results
will be.
-There is an assumption that the trend and seasocal vanations from
the past will continue into the future.
-Cyclical and random variations have been ignored.