Following are two weekly forecasts made by two different methods for the number
ID: 390932 • Letter: F
Question
Following are two weekly forecasts made by two different methods for the number of gallons of gasoline, in thousands, demanded at a local gasoline station. Also shown are actual demand levels, in thousands of gallons: Forecast Actual Forecast Method 2 0.80 1.19 0.92 Actual Demand 0.68 1.05 1.00 1.04 Week Method 1 Demand Week 0.90 1.05 0.92 1.20 0.68 1.05 1.00 1.04 The MAD for Method 1thousand gallons (round your response to three decimal places). The MAD for Method 2thousand gallons (round your response to three decimal places).Explanation / Answer
To calculate the MAD we have to first calculate the deviation and absolute deviation for all the periods
Where deviation = actual value - forecasted value
Absolute deviation = absolute value of deviation
MAD = Sum of the absolute deviation for all the periods / number of periods
So using the above formula the deviations, absolute deviations and MAD for both the methods are calculated below
Method 1:
So using the above formula the deviations and absolute deviations for each week in method 1 are
Mean absolute deviation = Sum of the absolute deviations for all the periods/number of periods
= (0.22+0+0.08+0.16) / 4
= 0.46/4
= 0.115 thousand gallons
Method 2:
So using the above formula the deviations and absolute deviations for each week in method 2 are
Mean absolute deviation = Sum of the absolute deviations for all the periods/number of periods
= (0.12+0.14+0.08+0.07) / 4
= 0.41/4
= 0.103 thousand gallons