Question

The following shows the performance of a forecasting method: YEAR   ACTUAL DEMAND (units)   FORECAST (units) 1...

The following shows the performance of a forecasting method:

YEAR   ACTUAL DEMAND (units)   FORECAST (units)

1         3765     3821

2      3674   3615

3      3726           3758

Based on these information, the mean absolute deviation (MAD) for this forecasting method is

Homework Answers

Answer #1

Mean absolute deviation of a data set refers to the average distance between each data value and its mean. It helps in calculating the absolute dispersion of the deviation, which is measured as the mean of the sum of absolute differences between actual demand and forecasted demand. Thus, the formula is,

Mean absolute deviation (MAD) = (Σ | D- F|)/n,

Where D represents the actual demand for each period,

F represents the forecasted demand for each period,

n represents the number of periods or observations.

Year

Actual Demand

Forecast

(D-F)

| D- F|

1

3765

3821

-56

56

2

3674

3615

59

59

3

3726

3758

-32

32

Sum

11165

11194

-29

147

Average

3721.67

3731.33

-9.67

49.00

Therefore,

MAD = (Σ | D- F|)/n = 147/3= 49.

Thus, the actual demand is 49 units on average, from the forecasted value.

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