5. A toy company buys large quantities of plastic pellets for use in the manufac
ID: 444265 • Letter: 5
Question
5. A toy company buys large quantities of plastic pellets for use in the manufacture of its products. Production manager Josh Kang wants to develop a forecasting system for plastic pellet prices. The price per pound of plastic pellets has varied shown:
Month
Plastic Pellets
Price/ Pound
Month
Plastic Pellets
Price/ Pound
1
$ 0.39
9
0.35
2
0.41
10
0.38
3
0.45
11
0.39
4
0.44
12
0.43
5
0.40
13
0.37
6
0.41
14
0.38
7
0.38
15
0.36
8
0.36
16
0.39
A) Use exponential smoothing to forecast monthly plastic pellet prices. Compute what the forecasts would have been for all the months of historical data for =0.1, =0.3, and =0.5 if assumed forecast for all ’s in the first month is $0.39.
B) Which alpha value results in the last mean absolute deviation for Months 7-16?
C) Use the best alpha value from part b to compute the forecasted plastic pellets price for month 17.
Answer a, b, and c
Month
Plastic Pellets
Price/ Pound
Month
Plastic Pellets
Price/ Pound
1
$ 0.39
9
0.35
2
0.41
10
0.38
3
0.45
11
0.39
4
0.44
12
0.43
5
0.40
13
0.37
6
0.41
14
0.38
7
0.38
15
0.36
8
0.36
16
0.39
Explanation / Answer
a.
B.
Thus alpha of 0.5 will be giving the least MAD of 0.0133
c. forecast for month 17 using alpha of 0.5 will be 0.5*0.39+0.5*0.3810 = 0.3855
Month Plastic Pellets Price per pound Alpha 1-alpha Forecast Alpha 1-alpha Forecast Alpha 1-alpha Forecast 1 $0.39 0.10 0.90 0.3900 0.30 0.70 0.3900 0.50 0.50 0.3900 2 0.41 0.3920 0.3960 0.4000 3 0.45 0.3978 0.4122 0.4250 4 0.44 0.4020 0.4205 0.4325 5 0.4 0.4018 0.4144 0.4163 6 0.41 0.4026 0.4131 0.4131 7 0.38 0.4004 0.4031 0.3966 8 0.36 0.3963 0.3902 0.3783 9 0.35 0.3917 0.3781 0.3641 10 0.38 0.3905 0.3787 0.3721 11 0.39 0.3905 0.3821 0.3810 12 0.43 0.3944 0.3965 0.4055 13 0.37 0.3920 0.3885 0.3878 14 0.38 0.3908 0.3860 0.3839 15 0.36 0.3877 0.3782 0.3719 16 0.39 0.3879 0.3817 0.3810Related Questions
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