Question

Festive Floral is gearing up for online carnation sales this Mother’s Day. They specialize in selling organic extra-large red and pink carnations. The price is $0.7 per stem, which includes free one-day shipping to the customer. Festive Floral pre-orders carnations directly from a certified organic farm at the cost of $0.15 per stem. The order is made prior to the growing season and flowers are grown accordingly, so the pre-order quantity cannot be changed. However, if Festive Floral runs out of pre-ordered carnations, they can always pick up more immediately from a local wholesaler that carries carnations of the same quality, at the price of $0.5 per stem. Historical demand for the past 10 years are given below.

Year: Red, Pink; 2008: 4008, 3288; 2009: 3948, 3648; 2010: 4092, 3636; 2011: 3984, 3684; 2012: 3996, 3792; 2013: 3888, 3720; 2014: 4128, 3564; 2015: 4104, 3744; 2016: 4380, 3828; 2017: 4392, 3744

For all questions below, please round your answers to two decimal points. Show your work by explaining the steps of your calculation. The carnations are sold in dozens, and each dozen comes with a designer gift tag that says “Happy Mother’s Day 2018 from Festive Floral!” The gift tags are identical for carnations of both colors.

1. Using exponential smoothing with parameter ?? = 0.9, what is your forecast for gift tags? What is the MAD of your forecast?

2. Using the same z-value as for carnations, what is the optimal number of gift tags to prepare? Is this more or less than the total dozens of carnations, and why?

3, Experiment with the exponential smoothing parameter ?? for the forecast of gift tags in part (d). What is the value of ?? that minimizes the MAD?

Answer 1