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

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.