4.12 Consider the following actual and forecast demand levels for Big Mac hambur

Question

4.12 Consider the following actual and forecast demand levels for Big Mac hamburgers at a local McDonald's restaurant: FORECAST DEMAND DAY Monday Tuesday Wednesday Thursday Friday ACTUAL DEMAND 72 68 48 84 80 The forecat for Monday was derived by observing Monday's demand level and setting Monday's forecast level equal to this demand level. Subsequent forecasts were derived by using expo- nential smoothing with a smoothing constant of 0.25. Using this exponential smoothing method, what is the forecast for Big Mac demand for Friday? Px

Explanation / Answer

Following must be noted regarding formula for Exponential smoothing :

Ft = alpha x At-1 + ( 1 – alpha)x Ft-1

Where,

Ft , Ft-1 = Forecasts for period t and t-1 respectively

At-1 = Actual demand for period t- 1

alpha = Exponential smoothing constant = 0.25

Therefore ,

Ft = 0.25 x At-1 + 0.75 x Ft-1

For purpose of determining forecast for Friday ( Ft ) , following are the relevant values :

Ft-1 = Forecast for Thursday = 80

At-1 = Actual Demand for Thursday = 48

Therefore , Ft = 0.25 x 48 + 0.75 x 80 = 12 + 60 = 72

FORECAST FOR BIG MAC DEMAND FOR FRIDAY = 72

FORECAST FOR BIG MAC DEMAND FOR FRIDAY = 72

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