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Methods of Simple Average

This is the simplest method of obtaining a seasonal index. The following steps are necessary for calculating the index :
(i) Average the unadjusted date by years and months or quarters if quarterly data are given.
(ii) Find totals of January, February etc.
(iii) Divide each total by the number of years for which data are given. For example, if we are given monthly data for five years then we shall first obtain total for each month for five years and divide each total by 5 to obtain an average.

(iv) Obtain an average of monthly averages by dividing the total of monthly averages by 12.
(v) Taking the average of monthly average as 100, compute the percentage of various monthly averages as follows:
Seasonal Index for January
=
If instead of the average of each month, the total of each month are obtained, we will get the same result.
The following example shall illustrate the method.


Illustration : Consumption of monthly electric power in million of kilowat (k.w.) hours for street lighting in India during 1999-2003 is given below:

The above calculations are explained below:
(i) Column No. 7 gives the total for each month for five years.
(ii) In column No. 8 each total of column No. 7 has been divided by 5 to obtain an average for each month.
(iii) The average of monthly averages is obtained by dividing the total of monthly averages by 12.
(iv) In column No. 9 each monthly average has been expressed as percentage of the average of monthly averages. Thus, the percentage for January
=
Percentage for February =
If instead of monthly data, we are given weekly or quarterly data, we shall compute weekly or quarterly averages by following the same procedure.

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FAQs on Method of Simple Average, Business Mathematics and Statistics - Business Mathematics and Statistics - B Com

1. What is the method of simple average in business mathematics and statistics?
Ans. The method of simple average, also known as arithmetic mean, is a statistical measure used to calculate the average of a set of numbers. It is obtained by summing up all the numbers in the set and dividing the sum by the total count of numbers.
2. How is the simple average useful in business mathematics and statistics?
Ans. The simple average is useful in business mathematics and statistics as it provides a representative value that summarizes a set of data. It helps in understanding the central tendency of the data and making comparisons between different groups or time periods.
3. Can the method of simple average be used for any type of data?
Ans. Yes, the method of simple average can be used for any type of data that consists of numerical values. It is applicable for both discrete and continuous data, making it a versatile tool in business mathematics and statistics.
4. Are there any limitations to using the simple average method?
Ans. Yes, there are limitations to using the simple average method. It can be influenced by extreme values or outliers, which may distort the overall picture of the data. Additionally, it does not provide information about the dispersion or variability of the data.
5. How can the simple average be applied in a business context?
Ans. The simple average can be applied in various business scenarios, such as calculating the average sales per month, average customer satisfaction ratings, or average production costs. It helps in analyzing trends, identifying performance benchmarks, and making informed business decisions based on the calculated averages.
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