Problem 3-10 The number of cases of merlot wine sold by the Connor Owen winery i

Question

Problem 3-10

The number of cases of merlot wine sold by the Connor Owen winery in an eight-year period is as follows:

Using an exponential smoothing model with an alpha value of 0.30, estimate the smoothed value calculated as of the end of year 8. Use the average demand for years 1 through 3 as your initial forecast for year 4, and then smooth the forecast forward to year 8. (Round your intermediate calculations and final answer to the nearest whole number.)

Forecast for 8 ____________

YEAR CASES OF
MERLOT WINE 1 276 2 362 3 404 4 462 5 364 6 506 7 416 8 382

Explanation / Answer

Forecast as per exponential smoothing:

This can be written as:

St+1=St+t,

where t is the forecast error (actual - forecast) for period t.

In other words, the new forecast is the old one plus an adjustment for the error that occurred in the last forecast.

Forecast for Year 5 = Forecast for Year 4 + (Actual of Year 4 - Forecast of Year 4) x Smoothing Constant

Forecast for year 4 = Average of actual value of year 1 to 3

= (276 + 362 + 404) / 3

= 347 (rounded off to whole number)

So, forecast of Year 5 as per exponential smoothing

= 347 + (462 – 347) x 0.30

= 382

Similarly, forecasts for other periods are calculated in the following table

Year Actual Forecast 4 462 382 5 364 406 6 506 393 7 416 427 8 382 424

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