Question

Actual demand for a product for the past three months was

Three months ago	404 units
Two months ago	355 units
Last month	326 units

a. Using a simple three-month moving average, make a forecast for this month. (Round your answer to the nearest whole number.)

b. If 380 units were actually 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 458 units and the smoothing constant was 0.20? (Round your answer to the nearest whole number.)

Answer 1

Solution:

(a) Three-month moving average: (This month)

This month forecast = Sum of Actual demand (Last month + Two months ago + Three months ago) / 3

This month forecast = (326 + 355 + 404) / 3

This month forecast = 361.67 or 362 (Rounding off to the nearest whole number)

This month forecast = 362 units

(b) Three-month moving average: (Next month)

Next month forecast = Sum of Actual demand (This month + Last month + Two months ago) / 3

Next month forecast = (380 + 326 + 355) / 3

Next month forecast = 353.67 or 354 (Rounding off to the nearest whole number)

Next month forecast = 354 units

(c) Simple exponential smoothing:

In exponential smoothing,

F(t+1) = c A(t) + (1-c)F(t)

where,

F(t+1) = Forecast for the next period

A(t) = Actual demand for the current period

F(t) = Forecast for the current period

c = Smoothing constant

c = 0.20

(1-c) = 0.80

Using exponential smoothing, forecast for this month is calculated as below:

This month forecast = 467.34 or 467 (Rounding off to the nearest whole number)

This month forecast = 467 units