Actual demand for a product for the past three months was a. Using a simple thre

Question

Actual demand for a product for the past three months was a. Using a simple three-month moving average, make a forecast for this month (Round your answer to the nearest whole number.) b. If 300 units were actuary demanded this month, what would your forecast be for next month, again using a 3-month moving average? (Round your answer to the nearest whole number.) c. Using simple exponential smoothing, what would your forecast be for this month if the exponentially smoothed forecast for three months ago was 466 units and the smoothing constant was 0 40? (Round your answer to the nearest whole number.)

Explanation / Answer

a) Under the three month moving average method, the actual data of three months is added up and then an average is calculated by dividing it by 3.

So, Forecast for this month = (416 + 360 + 300) / 3 = 359 (rounded to nearest whole number)

b) Forecast for next month = (360 + 300 + 300) / 3 = 320

c)

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 next period = Forecast for previous period + (Actual of previous period - Forecast of previous period) x a

Forecast for two month ago = Forecast for three months ago + (Actual of three months ago - Forecast of three months ago) x a

= 466 + (416 - 466) x 0.40 = 446

Similarly other values are calculated:

Period Actual Forecast Three month 416 466 Two month 360 446 Last month 300 412 Current month 367

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