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oatter177
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Barcenas, Serafin Jr. M.

III-B BSBA BPM


Quiz on Forecasting

1. Sales of industrial vacuum cleaners at R. Lowenthal Supply Co. over the past
13 months are as follows:
SALES ($1,000s) MONTH SALES ($1,000s) MONTH
11 January 14 August
14 February 17 September
16 March 12 October
10 April 14 November
15 May 16 December
17 June 11 January
11 July

a) Using a moving average with three periods, determine the demand for vacuum cleaners for
next six months.
April: 13.67
May: 13.33
June: 13.67
July: 14
August: 14.33
September: 14

b) Using a weighted moving average with three periods, determine the demand for vacuum
cleaners for the next six months. Use 3, 2, and 1 for the weights of the most recent periods,
second most recent, and third most recent periods, respectively. For example., if you were
forecasting the demand for February, November would have a weight of 1, December would
have a weight of 2, and January would have a weight of 3.
April: 14.17
May: 12.67
June: 13.50
July: 14.83
August: 14
September: 14.33
c) Evaluate the accuracy of each of these methods using MAD and MSE. Which of the two-
forecasting technique should R. Lowenthal Supply use in forecasting demand?

2. Consulting income at Kate Walsh Associates for the period covered February – July
has been as follows:
MONTH SALES ($1,000s)
February 70.0
March 68.5
April 64.8
May 71.7
June 71.3
July 72.8

a) Forecast August's income using exponential smoothing with α=0.1\alpha = 0.1α=0.1


The formula for exponential smoothing is:
Ft=Ft−1+α×(At−1−Ft−1)
Given:
 The initial forecast for February is F1=65
 α=0.1
 Actual sales from February to July are: 70.0, 68.5, 64.8, 71.7, 71.3, and 72.8
Forecasting:
1. March: F2=65+0.1×(70−65)=65+0.5=65.5
2. April: F3=65.5+0.1×(68.5−65.5)=65.5+0.3=65.8
3. May: F4=65.8+0.1×(64.8−65.8)=65.8−0.1=65.7
4. June: F5=65.7+0.1×(71.7−65.7)=65.7+0.6=66.3
5. July: F6=66.3+0.1×(71.3−66.3)=66.3+0.5=66.8
6. August: F7=66.8+0.1×(72.8−66.8)=66.8+0.6=67.4
The forecast for August’s income is $67,400.
b) Forecast August's income using α=0.3\alpha = 0.3α=0.3
Using the same method but with α=0.3
1. March: F2=65+0.3×(70−65)=65+1.5=66.5
2. April: F3=66.5+0.3×(68.5−66.5)=66.5+0.6=67.1
3. May: F4=67.1+0.3×(64.8−67.1)=67.1−0.69=66.41
4. June: F5=66.41+0.3×(71.7−66.41)=66.41+1.587=67.997
5. July: F6=67.997+0.3×(71.3−67.997)=67.997+0.99=68.987
6. August: F7=68.987+0.3×(72.8−68.987)=68.987+1.145=70.131
The forecast for August’s income is $70,131.
c) Which smoothing constant provides a better forecast using MAD?
To determine which smoothing constant provides a better forecast, we need to calculate the
Mean Absolute Deviation (MAD). Here's how we calculate MAD for each smoothing constant:
MAD for α=0.1\alpha = 0.1α=0.1:
Forecasts for February to July are 65.5,65.8,65.7,66.3,66.865.5, 65.8, 65.7, 66.3,
66.865.5,65.8,65.7,66.3,66.8.

Month Actual ($1000s) Forecast ($1000s) Absolute Error

March 70.0 65.5 4.5

April 68.5 65.8 2.7

May 64.8 65.7 0.9

June 71.7 66.3 5.4

July 71.3 66.8 4.5

MADα=0.1=4.5+2.7+0.9+5.4+4.55=3.6
5
MAD for α=0.3
Forecasts for February to July are 66.5,67.1,66.41,67.997,68.98766.5, 67.1, 66.41, 67.997,
68.98766.5,67.1,66.41,67.997,68.987.

Month Actual ($1000s) Forecast ($1000s) Absolute Error

March 70.0 66.5 3.5

April 68.5 67.1 1.4

May 64.8 66.41 1.61


Month Actual ($1000s) Forecast ($1000s) Absolute Error

June 71.7 67.997 3.703

July 71.3 68.987 2.313

MADα=0.3=3.5+1.4+1.61+3.703+2.3135=2.505
5
Conclusion:
Since the MAD for α=0.3 (2.505) is lower than the MAD for α=0.1 (3.6), the forecast with α=0.3
provides better accuracy. Therefore, α=0.3 is the better smoothing constant for forecasting.

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